Secret # 85: No Bid Bond, No Problem!

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Contractors may be relieved when a bid bond is not required during their pursuit of a new contract. It could be a private contract, a subcontract on public work or even a prime, federal project.

A thorough review of the specifications may reveal that a performance bond “final bond” is mandatory or optional.  In some cases, it is simply requested out of the blue!

If the contractor does not already have their bond account set up, they may lose the project if they are unable to bond it. This can lead to lost revenues plus wasted expense dollars spent on the acquisition effort. There is no reason for contractors to face this problem.  Let’s look at how to prevent it.  

Bonding is a lot like banking. Set it up before you need it. It’s hard to get bank credit when your cash is low, receivables are old and profitability is waning. The time to get it is before you need it.

The same with bonding: It is also best to set it up in advance. So assuming the contractor has accomplished this, it is easy to pre-approve the new contract even if no bid bond is indicated.

no prob

Procedure:
We recommend the contractors submit the project in advance, as if bid security is required.

The bond request form is submitted with a notation that no bid bond is needed. The underwriters will review the opportunity in a normal manner. This process includes a view toward the upcoming performance and payment bond. Sureties will never issue a bid bond unless they are comfortable with the prospect of providing the P&P bond the contractor needs upon award.  By following this procedure, the contractor becomes prequalified for the final bond and can be confident that the acquisition effort is not wasted.

Work On Hand Analysis
Technically, the surety has no current obligation in connection with the potential new job. They have no bid bond exposure, and the final bond will only be issued at their discretion. Even if the new job doesn’t ultimately need a P&P bond, the project will affect the contractor’s total work load and available aggregate capacity. (* How is the available capacity calculated?)

Alerting the underwriters in advance allows a view of the client’s upcoming activity and helps them make their current decisions with the potential future workload in mind.

Obtaining the pre-approval of the contract clears a path for smooth processing when the performance bond is needed.  No bid bond, no problem!

*Undecided and low bids for the full estimated contract amount, awarded jobs, started contracts, plus the remaining portion of open contracts (bonded and unbonded).

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