Bids bonds are a must in the construction industry

by | Nov 8, 2013 | Business

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If you are a contractor you will be well aware of what a bid bond is and why it is important in the construction industry. Basically it is a bond that acts as a guarantee to the owner that you can complete the job as specified in the bid documents. In many cases the owner does not have intimate knowledge of the contractor, they do not know whether the company is financially capable of performing or not. Because of the bid bond that is taken out, the owner knows that should the contractor fail to perform that the Texas surety bonds will compensate them.

If a contractor is awarded the job and the obligations are not met, the surety and the contractor are liable jointly and severally. Texas surety bonds will cover the penalties that are imposed when the contractor fails to comply with the terms of the contract. The surety bond will compensate the owner for any costs incurred while selecting another contractor to complete the project. In many cases the maximum penal sum of the bond ranges from 10 to 20 percent of the amount that was originally bid.

How does a bid bond work?

When a bid bond is part of the demands for the contractor it will stop contractors from bidding that have no potential of completing the job. If they post a bid bond they know they are obliged to complete the job. Bonds are not given without a thorough review of the contractor’s credit and financial position. During the bidding process different contractors make their bids; in most cases Texas surety bonds will cover the difference between the lowest bid and the second lowest bid should the winning contractor go into default.

The requirements:

Any company bidding on a federal project and in many cases, private projects, must submit a bid bond. In some areas a surety bond is a necessity for licenses, permits, etc can be obtained. Surety bond requirements may be met in a number of different ways:

Marketable stocks and bonds
Letter of Credit

Unacceptable assets for the granting of a surety bond are those assets which are difficult to dispose of; this can be jewelry, property and the applicant’s home.

If your company is called upon to provide Texas surety bonds you are invited to work with Having been in business since the 90s, Buy Surety has forged relationships with surety companies that can save you money.

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