Contracting jobs can be tricky. It’s not like you get handed your assignment and then start dreaming about how much money you can make or what materials to use; there are a lot of steps involved before the actual work begins, which means that even if someone hands you an already completely fleshed out brief, it still takes time for you to go through every “i” with them until they sign on the dotted line. This is why many companies ask for a bid bond – this guarantees that they will see their project come to fruition if they choose your services as their contractor.
What is a bid bond?
To bid on specific projects, for example, construction of new buildings and highways, etc., contractors need to submit their bids with various financial documents. One of these important documents is a bid bond.
A bid bond is an insurance policy that guarantees the contractor will complete the project if they are awarded. A bidder must put up money with this guarantee, which may be anywhere from two to five percent of their total bid for the job, depending on how much you can afford or what your company requires as part of financial compensation and if the contractor wins the project, they will get this money back plus interest. If for some reason, you don’t win the bid and can prove that your bid was more competitive than any of those who did win it, you may be able to get a refund on your bond.
How to get a bid bond
Getting a bid bond isn’t as tricky as it sounds. A contractor’s surety bond, also known as a bidder’s or proposal bond, is the first step to getting bonded and becoming an approved contractor for your employer/client.
A “bid” is defined in this case by something called “the invitation to contract,” which generally include specifications about what work must be done, how much needs to be paid for that work, where the project is located, due dates of when items are expected (such as if there’s supposed office space), any deposits required with the job offer before starting on-site construction or installation projects, etc.
The requirement for having a bid bond will depend upon state law(s) and the specifications of your company/client.
Regardless, it is pretty easy to get bonded by a surety bond agency; however, you will need to complete some paperwork and provide a copy of your company license.
Types of bid bonds
There are different types of bid bonds. These include the following:
- Payment bond
- Performance bond
- Payment and performance bond
These are the most common types of bid bonds.
Tips for choosing between different types of bids bonds
When selecting the proper bid bond for your construction project, you will most likely have to do some research before making a final decision. There are various types of bid bonds, and they all come with their unique benefits.
You should also consider whether it makes sense for you to use the same bond on every job or if it would be more beneficial in terms of cost savings to purchase multiple different bonds that cover specific jobs only.
In addition to these factors, you should also make sure that the bond provider is reputable and will handle all your needs on time.
What would happen without bid bonds?
If you didn’t secure one or couldn’t come up with enough money to afford one, chances are pretty good your small business wouldn’t get very far. Not only could customers decide not to pay you after receiving services (which means lost revenue), but suppliers and subcontractors might also stop working with you because they’re worried about getting paid as well! This is why having a bid bond in place can help save your small business from potential financial problems.
Also, having a bid bond in place can help give you peace of mind when bidding on projects. If you’re confident that your small business will be able to follow through with the contract, then there’s no reason why you shouldn’t try for more work!
Another thing to keep in mind is that bid bonds are prevalent among contractors. If you don’t have one, it can make your small business appear less reputable, which means other companies might be more likely to get the job instead of yours!
The topic of bid bonds can be very complicated, but this guide was able to help you understand the basics of bid bonds and why they are essential. As mentioned above, bid bonds are a great way to secure the financial obligations of both sides. They hold you and your contractors accountable for promises made during bidding, whether it is to complete on time or not going over budget. When used correctly, they can be a handy tool that saves everyone involved from unwanted consequences down the road.
