If you have recently expanded your construction business and want to begin taking on larger contracts, then you will likely need to bid on projects. If you are new to this process, then you may not understand the intricacies of the bidding process. One such intricacy involves securing a bid bond. If you have never heard of this sort of bond before, then keep reading to learn about some important facts about them and why they may be necessary in the construction business.
What Is A Bid Bond?
Before you learn anything else, you should understand what a bid bond actually is. A bid bond is a financial bond that serves as an insurance policy to the project coordinator that the project will not fall into financial ruin if you fail to complete the construction project according to your bid contract. In other words, the bid bond protects the project holder extreme financial losses if you simply choose to walk away from the process. In the same right, the bond is an incentive for you to bid fairly without undercutting a competitor simply to get a job. If you later find out that the job is not financially feasible, then you will need to forfeit the bond and you will need to pay for this.
Basically the bid bond says that you are a serious contender in the construction bidding process. It also allows the project coordinator or customer to use your business without as much risk. This may be extremely important if you have not taken on a large project before. You can then gain experience and boost your reputation in the process.
In particular, the bid bond is a surety bond. Surety bonds are a bit confusing. In the simplest of terms, the bonds are like an insurance policy that you purchase. However, the bond is also used like collateral or a loan. If you fail to meet the needs of the contract, then the surety bond kicks in and pays the agreed upon amount if the contract is broken. You will then need to make payments to the surety company until the bond is paid off in full. You may also need to pay legal fees if the contract is broken and the customer sues to gain access to the bond.
Also, you should understand that if you are a contractor, you will need a specific type of surety bond. However, this is something that you may need to get in addition or as an alternative to a bid bond. This is called a contractor bond.
How Do You Acquire A Surety Bond?
If you are bidding on a specific contract, then you will need to fill out an application with a surety company. You will need to specifically apply for a bid bond and you should do so before you actually start the bidding process. If the bid is more less than a quarter of a million dollars, then the process is fairly straightforward. You will need to answer questions about the specific bid amount, the date that you intend on placing the bidding, and information about your business. Specifically, the bid bonding business will want to know how long you have been in business. You will typically need to provide credit score information as well and inform the bid company if you have ever applied for or received a bid bond.
If you are bidding on a large job that is over a quarter of a million dollars, then you may need to provide more specific details about your own financial information as well as the financials of your business. For example, you may need to provide past profit information as well as future profit forecasts. Costs and accounting data may be required as well as business loan information.