Secrets of Bonding #65: All About Bid Bonds

1. What is the bid bond amount? They are issued for an amount stipulated in the bid invitation.  The specifications often require a security equal to 10 or 20% of the bid amount. In some cases, the dollar value is preset.  For example on New Jersey public work, the dollar value is normally a maximum of $20,000 regardless of the proposal amount.

2. Does my financial statement need to show the same amount in cash to qualify for the bond? Not necessarily.  The approval is based on the total financial picture.

3. What happens to the bid bond after the bid opening? As time passes (90 days depending on the surety) it becomes void automatically.

4. Do I have to return it to the surety? No.

5. What happens if I’m 2nd or 3rd bidder? Your bid security is held until the contract is awarded so that the obligee has the option to give you the project if they wish. This is a good reason not to use cash security in lieu of a bond.

6. 4th, 5th or higher? You are released from any obligation.

7. How much of my bonding capacity is consumed when the bid bond is issued? The Contract amount is deducted from the available capacity.

8. When does my capacity get restored? It is restored when the surety is notified that you are not the “apparent low bidder.”

9. What if I decide not to bid the project at the last minute? Notify the surety and the transaction will be deleted.

10. Can there be a claim? Absolutely!  That’s the reason it is required.

11. Do all public projects require them? Generally yes, with the exception of small contracts, emergency work and a few other categories. Some federal projects only require a bonding capacity letter from the surety.

12. If I don’t have a bonding company, can I still bid the project? Yes, with alternative bid security that may be described in the bid specifications.  However, if upon award you cannot satisfy the performance bond requirement, the bid security could be forfeited.

13. What is a capped bid bond? This does not support a proposal amount in excess of a set dollar figure.

14. What is a Consent of Surety to accompany the bid? The surety issues this letter promising to provide the performance and payment bond upon request.

15. Why are Surety Capacity letters sometimes used? Some obligees use them to pre-qualify the bidders even when they do not intend to require (or pay for) a performance bond.

16. Are they easier to get than a bond? No.

17. Can one surety issue the bid bond and a different one do the performance and payment bond? Yes, as long as they both meet the stated requirements.  Many sureties are reluctant to follow another’s bid bond.

18. Do all bid bonds cost the same? Yes.  Generally they are issued at no charge.

19. What is the bid spread? This is the percentage by which the 1st bidder is  below the 2nd.

20. Are some bond forms mandatory to use? Yes, and failure to do so can result in rejection of the bid and loss of the project.

21. If the bid date is postponed, can I still use the original bid bond? Yes, if the obligee permits.

22. Are copies of bonds acceptable to use? This is at the discretion of the obligee.  For example, they may allow an extra day for delivery of the original if it is delayed in shipment.

23. Is the bid bond valid if it is not sealed? It only is if the obligee chooses to accept it.

24. Can the bond be turned in after the bid opening has occurred? No, unless the bid process is an informal one.

25. Are bid and performance bonds always required together? No. You could have either one without the other.

26. Can a check or ILOC be used with a bond? Generally, yes. They could be used on top of a capped bid bond.  However, re-approval of the surety prior to the bid is advisable.

27. Can a generic bond form be used on federal work?  No, when a stipulated form is indicated, failure to use it could cause rejection of the bid proposal.

28. Is a bid bond valid if the notary commission expires in the time between bond execution and bid submittal? It is valid if the obligee does not find it objectionable.

More on this subject: www.SecretsofBonding.com #8, 16, 30, 49

This article is provided for entertainment and education.  It is not legal advice. We are not attorneys.

Secrets of Bonding is brought to you by Bonding Pros

Contractors, Agents: When you need a bond give us a call. 

Bonding Pros: 856-304-7348  www.BondingPros.com

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