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What is a bid bond?

What is a bid bond?

Bid Bond Definition

A bid bond is a debt that is secured by a business bidder for a construction job or any other similar type of business that requires a bid. It acts as a guarantee that in the event that the job is contracted, there will be funds to complete the job. When the bond is present, it automatically means that the business contracting has the financial muscle or rather, the means to start and complete the project without any hitch along the way.

In most tenders, companies that are guaranteed with bid bonds are given preference because chances of the project stalling midway are minimal. Project owners are very careful first of all, knowing the bidding companies’ financial status before awarding the tender contract.

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Everything You Need To Know:

Let us give you a proper bid bond definition.  For most people who wonder what they are, it is important for them to, first of all, understand how it works. First of all, it is important to understand that once a company requests a bond, they are by all means kept away from making other frivolous bids because, in the first instance, they are completely obligated morally and legally to perform the job. In the event that they do not undertake the contract, they will still be expected to pay the bond premiums.

Before a company is issued their bond, bond-issuing companies perform very deep and comprehensive credit and financial reviews before they can agree to provide bonds for the company in need. In the bidding process, different contractors make an estimate about what the job cost will be and soon after that, they submit the amount to the owner in the bid form.

Simply put, this means that the job owner will be needed to pay the owner the difference between the highest and the lowest as well as the next lowest bid. In some instances, however, the binding companies are forced to sue the contractor so as to be in a position to recover the costs. However, the possibility of lawsuits is to a very big extent dependent on the specific terms of the bond.  [We do cost bonds too!]

How much does a bid surety bond cost?

In most instances, many contractors get their bond costs included in the general condition of the bid although it only happens if the company looking for the tender is awarded. Bonds can range from $100 to $250 for small projects although, for the larger projects, the cost is calculated in relation to the total project cost. In many instances, the bid surety bond cost can range from around 1 percent of the total cost to 3 percent although, it is determined by the creditworthiness of the construction company involved as well as their financial history.  Learn more about license and permit bonds on our dedicated page, or reach out to us and learn about the bid bond definition.

What is a bid bond in construction


The issuance of bonds is guided by the Miller Act. All bidders are required by law to submit bid sureties for any federal projects. Today, many private companies have copied the trend and now want to protect themselves from risk as well in the tendering process. It is imperative for those asking what are bid surety bonds to understand that getting a surety is paramount so as a company can be competitive enough during the tendering process.

In some places, a bond is required by any construction companies before it is given permits and licenses to start construction. However, it is important to take note that all project owners and developers must have a bond before they can start bidding on any project.

For federal bonds, the following is required:

  • Active bonds that are issued by a corporate surety company that is approved.
  • For individual ones, they must be defined by a number of assets to attach some monetary value.
  • In the case of an individual acting as a surety, they must be in a position to satisfy bonding requirements on the federal level and have assets to sufficiently support the bond.
    • To support individual bonds, agencies accept the following:
      • Assets that are marketable
      • Cash
      • Letters of credit from institutions that are federally insured.

When acceptable assets are included as a bond alternative, they must be in the form of U.S agency securities, bonds and stocks that are traded in the New York, the American stock exchange as well as other major exchanges in the world. However, it is important to note that assets that might prove a little difficult to liquidate for example jewelry, the individual’s surety home, and many others.

Bid and Performance:

The two types of bonds work hand in hand and in many instances, are not separable. State and federal projects require tendering companies to, first of all, obtain a bid surety bond before they can enter the bid. Once they are successful in winning the bid, they will be issued with a performance bid and later on, with a payment bond.  If you want some help learning about the bid bond definition, please contact our office today.  We’re happy to help.

Different from other types of bonds, this type of bond does not cost a lot. This is because a very detailed and extensive check is first of all carried out to make sure that the personal credit score is in tandem with the bond requirements.what is a bid bond

How To Get One:

There are many different avenues that companies can apply for a bid surety to enable them to get better opportunities in the business world. Luckily for many these days, there is the internet which has made it practically possible for such applications to be made irrespective of the location one is in provided all requirements are met.  At NFP, we can write all types of sureties.  Contact us today by visiting our website.

All said and done; bonds have for a long time been very instrumental in helping developments happen in different parts of the world by financially supporting them. Anyone who was asking what they are knows exactly how they work, how they can help in business and how to apply for them. The best thing with the application process is the fact that it is not complex and gives all companies equal opportunities regardless of the size.  Click our apply button to fill out the quick application.  It only takes a few minutes, and we can have it to you in short order.

At Surety by NFP, we have been the industry leader in bonding solutions since 1984.  Let the experts handle your bond and make sure your venture is properly bonded!  Call us if you have any more questions.  We specialize in all kinds of building bonds!

bid bond definition

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