Construction Law

Bid Bonds And How They Work featured image

Bid Bonds And How They Work

In the construction industry, bid bonds are important because they are able to show proof of guarantee to the project owner that a contractor will comply with the bid contract and will finish the job in accordance to the contract. Because most project owners don’t know if a contractor is financially stable or has the resources to take on their project, a bid bond will guarantee that a contractor has the ability to take on the project if they are selected.

What Happens if the Bond Obligation is Not Reached?

As construction attorneys in Orlando, we know that in the case of a bid bond not meeting its obligations, the principal (i.e., the contractor) and the surety are liable for the bond, both together and individually. In addition, there are penalties that can occur for failing to comply with bond obligations. One penalty that can arise is the principal and the surety being liable on the bond for any additional costs the owner incurs while selecting and awarding another contractor’s bid.

How Do Bid Bonds Work?

Bid bonds are in place to prevent contractors from submitting time-wasting and frivolous bids, because they would end up being obligated to perform the work for the bid, or in the very least pay the bond premiums. A bond-issuing company will perform a comprehensive credit and financial review before they agree to provide bonds for a company. During the bidding process, contractors will estimate what they think the job will cost to complete, and submit this price to the owner in the form of a bid.

Bid Bond Requirements

Under the Miller Act, all potential bidders must submit bid bonds on any federal project. Federal bid bond requirements can be met in the following waysSurety bonds issued by an approved corporate surety

  • Surety bonds issued by an approved corporate surety
  • Surety bonds issued by an individual surety

Individuals are able to act as sureties to satisfy bonding requirements on federal projects only if they have acceptable assets in the required amounts to support the bonds. To support bonds issued by individual sureties, agencies may only accept:

  • Cash
  • Marketable assets
  • Letters of credit from a federally insured financial institution

To schedule a consultation with one of our experienced construction lawyers in Orlando, please call us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.