Why This Is Important

When a service provider submits a bid bond on a public works project, the bond becomes a matter of public record and cannot be returned to the contractor, even if the contractor requests its return. This permanence is a fundamental distinction from private-sector documents. Beyond just a theme, our step-by-step interview process makes it easy to create a bid bond.

You’ll need to send your bond company the proposal invitation letter, bid request form, and work specifications that you receive from the obligee for all bid bond requests. Have a look at our construction bonds page where you might find every bond you need to work on public initiatives. Nonetheless, it is advisable to provide more than just the items listed above when requesting bid bonds for larger projects. For instance, include financial statements, a list of completed similar projects, and a current work-in-progress schedule to expedite underwriting.

An In Depth Look

In business, you are typically required to demonstrate your performance to satisfy various obligations with a financial institution guarantee. Another possible situation where perhaps only a performance bond is needed is if the project is predominately a service-oriented contract where the owner understands that all the work can be performed promptly by the contractor and that the contractor is not going to be sub-contracting any portion of the work. In such cases, the surety’s risk assessment focuses primarily on the contractor’s operational capacity rather than on supply-chain coordination.

If the obligee/owner has their own performance bond form, the surety company will want to verify that the form contains acceptable language. If no required form exists, many sureties have their own standard form. Additionally useful is the standard AIA performance bond form, which is widely recognized and accepted across the industry.

A surety bond is not an insurance policy. A surety bond is a guarantee, whereby the surety guarantees that the contractor, referred to as the “principal” in the bond, will perform the obligation stated in the bond. For example, the duty identified in a bid bond is that the principal will honor its bid; the duty in a performance bond is that the principal will complete the project; and the obligation in a payment bond is that the principal will properly pay subcontractors and suppliers. Bonds typically state, as a condition, that if the principal fully performs the stated obligation, then the bond is void; otherwise, the bond remains in full force and effect.

Tender Guarantee

Construction contractors have very unique and specialized bonding needs. At the Construction Stage, upon execution of a written agreement between the Contractor and the Owner, a Performance Bond protects the Owner from financial loss should the Contractor fail to perform the Contract in accordance with the contractual obligations. Whereas generally requested by the Owner in the amount of fifty percent of the original contract price, the bond may also be issued for up to one hundred percent. The Surety is not liable for more than the total amount of the bond.

The bond does not undermine the borrowing capacity of the contractor and is perhaps even seen as enhancing their credit reputation.

What Companies Need To Know

Commonly used within the construction trade, but also applicable to many different non-construction legal relationships, contract surety bonds protect the Owner (usually referred to as the “Obligee” or beneficiary) from financial loss in the event the Contractor (the “Principal”) fails to fulfill their legal obligations to the Owner. Verification of Financing: On privately financed construction projects, Insurance Associates can perform due diligence on the availability of one hundred percent construction financing to ensure that funds are available to pay you, as well as your vendors and subcontractors. Verification of financing will be presented to the owner as a bond underwriting condition.

Before signing any bond, always request a complete copy of the bond form and review the indemnity agreement carefully. A common mistake contractors make is assuming the bond covers their own negligence, but sureties will seek reimbursement from the contractor for any claims paid out. Additionally, confirm that the bond amount matches the contract value exactly — over-bonding can tie up your credit line unnecessarily, while under-bonding can void your eligibility for the project.