How to Minimize Your Risks with a Surety Bond
What is the Purpose of a Bid Bond?
As a contractor, there will be a time where you will need to apply for a bid bond. A bid bond is a debt secured by a bidder for a construction job to guarantee the project owner that the bidder will take on the job if selected. This provides financial assurance that the bid has been submitted in good faith and that the bidder has the financial means to accept the job for the price quoted in the bid. Bid bonds help the selection process of a job contract run smoothly. Without them, project owners would have little in the way of assurance that the bidder they select for a job would be able to properly complete the job without running into cash flow problems.
Because of bid bonds for general contractors, project owners are more comfortable to award a project knowing that if the project fails, they can collect compensation from the bid bond. This type of insurance is specifically designed to ensure that once you've accepted a bid in good faith, you won't be left hanging if the contractor suddenly shifts from the agreed upon contract.
The Ins and Outs of Bid Bonds
The Surety Association of Canada strongly advises construction purchasers to require bonds from all contractors providing construction services and to insist that these bonds be issued by insurance/surety firms which are duly licensed in the province where the work is taking place. Securing a bid bond is a detailed process and you will want to work with a bond broker that has extensive experience in bid bonds and will be there to assist in the event an insurance claim needs to be filed.
Bid bonds are different from any other type of contractor’s insurance. These bonds are nearly always required, before attempting to place a bid on an open project and provide the project owner with added reassurance. The bond tells the owner that the contractor will agree to the bid amount and will also obtain the performance and payment bonds, if they’re required. Although it does very little in terms of helping the contractor, they would not be able to place their bid, without this bond. The first step in obtaining a bid bond is to contact a broker, they will assess your application based on criteria that may include proof of the following:
Current work in progress;
Experience in matching contract obligations;
Good credit history;
Use of necessary equipment to carry out the contract.
After submitting your application, the broker will do a thorough evaluation of your credit score and financials to determine a bond premium you need to pay to get the bid bond.
To understand more about bid bonds and how we can help you minimize your risks with a bid bond, contact us today.
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