Bid Bond

It used to be where construction companies would issue very low bids in their attempts to secure a contract and after receiving the job, slowly hike up the price realizing that they needed more funds to bring the project to completion.

 

Bid bond is a security feature that guarantees a contractor will carry out its obligations at the bid price, as stated in the contract, upon award of the bid. Developers use this type of bond to pre-qualify the contractors. It also guarantees that the bonding company will provide a performance bond to the contractor, post-award of the bid. To the developer, this is a financial strength indication that the contractor will have the capacity to carry out the work and also protects the developer from possible financial loss resulting from the awarded contractor backing out- the financial difference between this bid to the next lowest bid.

 

If a bonding company provides the contractor a bid bond, the same bonding company will also provide the performance bond that follows post-bid award. The contractor can file a claim in the event that the bonding company fails to produce the performance bond for the job awarded. Bottom line is, if the bonding company rejects a performance bond, chances are that they will reject the bid bond from the start as well.


A contractor has the option to withdraw a bid without losing its security if it happens before the actual bid takes place on the developer’s end. The bid security will be returned to the contractor-bidder. After the bid opens, the successful bidder may not withdraw its bid without penalty.

 

Our bonds team at Market Financial Group has extensive knowledge to help you market and place your bond in the most effective way. For more information on bonds, please contact us at 1(815) 459-3300.