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Here are the facts:
- Late Friday evening we got a call from an existing client “Presidential Construction, Inc.” They want to go after a public contract next week and a bid bond will be needed. The proposals go in next Thursday, in four business days.
- The new project is particularly large and we set a strategy for success. Due to the job size, updated financial statements are needed. They rely on their CPA firm for such info.
- On Monday, Presidential intends to call their accountant and try to rush the financials. They will also gather prices from subcontractors and material suppliers to formulate their bid estimate.
- Due to the short timetable, there is no guarantee that they can produce the financial info, gain approval of the bond, and have it issued prior to the bid date.
- On Tuesday the municipality, the entity offering the work, released an addendum stating that “No bid bond shall be required.” (Strange because such public work is normally always bonded.)
- Presidential was relieved and still intends to bid the project. No more rush on the financial info! They will “worry about the final bond later.”
Our client thinks this a lucky break. Is it? Let’s review the implications when a bid bond requirement… vanishes.
Presidential was concerned that they may incur the expense of preparing their proposal and then not be able to bid in the absence of a bid bond. Now they are willing to proceed without first establishing their surety support. The new risk is that they could face embarrassment and loss of the contract if they cannot produce a Performance & Payment bond when required. (This job is large and beyond their normal bonding capacity.)
Keep in mind, the bid bond is the predecessor of the P&P bond and establishes the surety’s willingness to support the new contract.
Secondly, as a bonded contractor, Presidential now loses a competitive advantage over unbonded firms. With the bond waived, more bidders can come in, potentially driving down the profitability of the contract or likelihood of winning an award. Assuming there will still be a P&P bond required, waiving the bid bond really doesn’t help anyone.
What’s the best move for our client? We recommended continuing to pursue the surety support with the knowledge that no bid bond is stipulated. This is exactly how we handle private contracts when there is no bid security, but a final bond is required to cover the project. Using this approach, the surety can give their pre-approval so the contractor knows they can qualify for the final bond.
So where did the vanishing bid bond go? Turned out the next addendum postponed the entire project. No revised bid date has been announced.
The good news: We approved Presidential so they are ready to go when this job is again offered for bid. Case closed!
KIS Surety is the national contract bond underwriting department for Great Midwest Insurance Company, a national, corporate surety with an A-8 rating. We throw all this underwriting talent at your bond opportunities and support contracts up to $10,000,000.
If you have a contract surety case that needs a fast, creative response, call us: 856-304-7348
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