Bid Bonds

2007-07-24 08:31:47

( Legal )



Responsibilities of a Contractor

Big industrial or government projects normally require aspiring contractors to submit their bids. The bid shows the estimated price that the contractor would like to propose, as well as details about materials and construction schedules. The contractor who makes the lowest bid usually wins the project.

But the process does not end here. The winning contractor or principal needs to assure the client or obligee that the project will be completed according to the contract. As contractor, you need to submit a bid bond for projects that cost over a specific amount limit.

What are Bid Bonds?

Like notary bonds, bid bonds also act as guarantees to the obligee that the contractor will not go back on his word about the project. Bid bonds act as protection for the obligee against any loss of money, resources or time due to a non-compliance of the contract. In case the contractor fails to deliver, he must compensate the obligee for the difference between his bid amount and that of the next lowest bid.

Bid bonds also assure the obligee that the contractor has the financial and technical means to accomplish the job, as it will not be possible to acquire a bid bond without having undergone thorough examination by an independent party.

How to Get a Bid Bond

As contractor, you can get a bid bond from a surety company. But just like insurance companies and other financial institutions, the surety company needs to conduct a review of your company's managerial background and performance. The surety company also investigates your company's general reputation in the construction industry, as well as the track records of your staff. It also looks at your accounting statistics to make sure that you have enough resources and financial capability to complete the project.

Surety companies also consider the nature of your project in relation to your expertise, the location of the project, and whether the project is within the legal limits of the territory.

Having little or no project experience may be an impediment against qualifying for a bid bond. However, you can start out with smaller projects that don't require bid bonds and really accomplish them successfully. This will help you gain an excellent reputation and enhances your track record, eventually qualifying you for larger-scale projects.


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