Bid Bonds

A bond issued as part of the construction bidding process is a construction bid bond. An owner obtains a bid bond to guarantee the winning bidder will complete the contract under the terms specified. Project owners are wise to purchase bid bonds to ensure a contractor complies with the contract and completes the project according to the specifications laid out.

When a contractor (principal) is bidding on a contract, a construction bid bond is purchased. The principal is pre-qualified through the bid bond and the owner or general contract is secure. The bid bond gives the owner assurance the principal will enter into a contract if and when it is awarded.

If the winning contractor fails to execute the contract, he may forfeit all or part of an initial cash deposit required to secure a bid bond. The bid bond is a guarantee the bidder will execute the contract to the specifications and obtain the required surety bonds if he is awarded the bid. A performance bond and a payment bond usually follow a bid bond.

The obligee is paid the difference between the principal’s bid and the next closest bid on a construction bid bond. The action is triggered if the principal is awarded a contract but fails to enter into the contract. The bid bond penalty is traditionally 10 percent of the bid. Bid bonds are preferred by contractors because they are usually less expensive and help preserve cash flow during the bidding process. Construction bid bonds are also good options for owners and contractors because the bidding contractor has the support of a surety company and is equipped to successfully complete the project.

McGovern Insurance is an experienced insurance and bonding agency that understands contractor bid bonds. Call us at (650) 593-8216 or complete the form on this page to get your personalized contractor bid bond quote.