Do you need a bid bonds insurance broker in Mountlake Terrace that can provide you with reliable coverage, or guide you through the construction bond process if this is your first time? American Insure-All® has the know-how you need to make informed decisions about your bid bond insurance.
Here are the essentials for learning about bid bonds and how they work:
What is a bid bond?
This is a type of construction bond that protects the owner during the process of construction bidding. This bond is a guarantee that you, as the bidder, can provide the project owner compensation if you fail to honor the terms of the bid. This is usually obtained through a surety agency, such as a bank or insurance company, and it ensures that the contractor has the resources needed to take on a project. These bonds are usually required on projects that also need payment bonds and performance bids.
Who is involved in a bid bond?
Typically, three parties are involved in any bid bond: the obligee, the surety, and the principal. The obligee is the owner or developer of the project being bid on; the principal is the bidder or proposed contractor for this specific project; the surety is the agency that issues the bid bond to the principal.
These bonds are generally purchased from the surety for a fixed price and are not unlike a paying a premium for an insurance policy. The coverage value is called the penal sum and accounts for the maximum amount of damages that the surety can cover with the bond. Penal sums can be anywhere from 5% to 20% of the bid amount proposed.
How do bid bonds work?
Bid binds prevent contractors from making inappropriately low or frivolous bids to win a contract. During the bidding process, various contractors, or principals, estimate what the job costs to complete, and submit a price to the obligee, or the owner of the project, in the form of a bid. The contractor who gets the bid is given a contract.
A bid bond is a guarantee that the obligee is compensated if a contractor does not meet the obligations outlined in terms of their bid. Say, for example, a contractor raises the price for the job after the contract is signed. The contract can then be broken, and the owner can find another contractor for the project, presumably the next lowest bidder. A bid bond also compensates the owner for the cost difference between the initial contractor’s bid in the next lowest bid. In some cases, surety agencies can sue the contractor to recover these costs, depending on the terms of the bond. In short, if you’re a contractor looking to make a bid, it’s vital to make sure that you do your best to meet the terms of your contract to avoid such consequences.
If you need a reliable bid bonds insurance broker in Mountlake Terrace, American Insure-All® has you covered. For more information about the services that we offer, or to get a quote for your insurance needs, call our team today at (888) 411-AUTO.