Bid bonds otherwise known as surety bonds are issued by a supplier to a customer in bidding for a project mainly in construction to act as a proof that they will undertake the job and do it successfully once awarded. This is often required as part of the bid process.
Although bid bonds do not benefit the owner of the project as much they offer them a security in case the awardee of attendee fails to meet the criteria of the agreements. A bid bond will ensure that the owner of the project gets the next least bidder on board thus ensuring success on the project. The amount of a bid bond is from 10% to 20% the full project bid.
- Bid bond triangle
A bid bond involves three parties, the obligee, the principal and the surety. The obligee is the owner of the project. In this case, the obligee is the one that receives the bid bond. If the contract is not met the obligee is the one who stands to be refunded.
The principal, however, is the proposed contractor or the bidder. In this case, he pays the surety to protect the obligee from a contract that he did not perform according to the standards or fails the contract as a whole.
A surety, on the other hand, is the body that ensures the obligee of getting the construction done or a refund in case they need to get the next lowest bidder to take on the construction project. A bid bond, however, is not intended in any way to benefit the obligee in any way, but just to protect him or her during the tendering process.
As stated the only purpose of the bid bond is to enable the obligee, the owner of the construction project to get funds to get the next lowest bidder of the project on board, in case the awardee of it fails to sign the contract after securing the tender. Bidding ensures the bidders are financially stable and sound and can deliver if awarded the tender. This also ensures that bidders do not submit offers that they cannot make, bids that will lure the obligee into warding them the tender then negotiate other terms after winning the tender.
During a bid for construction projects, many companies were noticed going bankrupt and out of business before the project was complete. This led to the legislation of using bid bonds as the obligee often found themselves in a situation they cannot rebid and the project is not yet done. For this reason, Governments across the work adopted the use of bid bonds to offer security to project owners and assurance that the project will be done and done as agreed in the contract without fail. In case of any failure, they are assured of getting the difference between the awardee who has failed the contract and the next least bidder on the project. Many private companies have however adopted the use of bid bonds too.
- The effect to you as a contractor
All contraction companies have a bond capacity, this is the rating a contractor company receives according to their past bid bond issuers. This is often derived from factors including its financial strength, credit history and the company information and history. At Momentum Credit, however, we do not focus on these either. We offer bid bonds from reputable bans within a period of only 1 hour. We also do not require any cash cover or collateral for bonds that are less than 20,000,000.00 shillings. This gets hustle free as you do not have to open an account with us either to get a bid bond now, contact us or click here to find out more about Guarantees.
Although the main intention of bind bonds was to prevent or reduce risks, it caused it the on other parties. While the obligee benefits from this provision, the contractor gets in a risk of expense. When the contractor undertakes the contract and satisfactorily completes it, the owner may claim the bond and state that the contract has not been submitted as required. In this case, the contractor may suffer the cost of construction and the bonds or have to fight it legally in court. They both are quite expensive.
Other projects may also require more than the amount bided thus forcing the contractors to either back out or undertake the project at a risk of a loss. In these cases, the contractor may end up paying premiums for contracts that are canceled. Bid bonds are also risky to Contracts in case the contractor underestimated or did not check the project requirements carefully. In such cases, they are often prompted to back out of the contract and suffer the cost of the bid bond.