Bid bonds are bonds that is issued with the sole purpose and intent of guaranteeing that the contractor who wins the bid will actually do their job. It is a type of insurance policy, one that will guarantee the person offering the job some amount of money if the job is not completed, or if the person that is bidding does not undertake the work at all. These can be very useful when you are working on multiple projects with hundreds of different people bidding on different aspects of, for example, a construction site. There will be multiple professionals at this one location, all of which are supposed to complete the projects that they have one by submitting their bids, and makes it possible for the contractor in charge of the project to not completely lose out.
How Do You Get One?
Your ability to get one will be through a company that offers them, a place where you will not pay more than 10% of the total contract order. This will be deposited if a contractor, also called the supplier, is not able to do what they have stated will be done. It’s also a way of prequalifying the contractor, and is a necessary security for the general contractor that is hiring them. This will dissuade people that just decided to bid on a project with no intention of actually doing the work.
Why Are These Useful?
Since they are obligated to pay as much as 10% of the amount that they haven’t been to do the job, if they are selected, and do not do the work, they must pay this to the general contractor. By requesting this as a prerequisite for meeting, it eliminates most of the people that are making ridiculous bids and wasting the time of the contractor that has the jobs available.
Why Do Contractors Prefer These?
They are preferable because they are one of the less expensive options and do not require the use of credit lines or banks during the bidding process. Essentially, if somebody is able to come up with the money to bid on a project, it shows that they are serious, and that they will likely have the money necessary to get started on the project right away.
Can They Actually Eliminate Potential Bidders?
The idea behind requiring this is to eliminate those that would probably not be able to do the job for the low amount that they are quoting. For example, if a project is obviously going to cost $100,000, and someone is bidding $30,000, it’s obviously someone making a ludicrous bid. However, if they are awarded the job, and then back out, if you have requested that a bid bond be taken out with every person that is part of this process, you are not eliminating any reputable companies because only the reputable ones that are serious about doing the work are actually going to submit an honest and reasonable bid.
If you are a contractor looking for subcontractors to work on a construction project that needs to be completed, make sure that you require this type of bond to be taken out so that you will not have to worry about frivolous bidders. It is very common in this industry for people to simply try to win, with no intention of actually taking the job. Bid bonds will definitely help improve the caliber of those that are going to work for you, and is what most contractors prefer doing today.