A contractor bond is a kind of financial security used in contract bid proposals, it is used as a way to guarantee that the bids are serious and that the contractors have enough financial stability to complete the project. They are required for public construction in America and it´s intended to keep bidders that are not committed or serious enough to carry on with a project. It´s usually accompanied by a performance bond and a payment bond. The first one will commit the contractor to perform the contract considering the proposed terms and conditions, with the agreed price and to have it ready at the stipulated time. The second one will protect the workers and suppliers against nonpayment. In most cases the three aspects go hand in hand, I mean, if you are presenting a contractor bond, it usually must have a performance and a payment bond as well for public construction projects. Here is an example of a performance bond.
Why are Contractor Bonds a way to be protected by the law?
In order to avoid failures in the contracts awarded to private firms and considering that years ago most of these contracts actually ended up in failure, mostly because the contractor didn’t have enough resources to complete the project and just used to abandon it. The consequence was that the taxpayers ended up assuming the extra costs in order to finish the abandoned projects.Of course, this also implied that the workers and suppliers were not paid for their services and that was another cost that the taxpayers also had to assume.
What happened after this story was that in 1894 the Congress authorized the use of security bonds to secure construction contracts and since 1935 the payment bonds are required to be considered in the awarding of any contract in the public sector by protecting the owner, laborers, and suppliers against a failure of the contractors.
What are the characteristics of a Bid Bond and what should you be aware of?
- Be aware of the job specifications and the specific requirements for the bond.
- They have a flat fee of $100 per contract
- They usually require a bid of performance and a bid of payment
- You should be aware of any formats that should be included with the bond or you can use a standard application online that covers most of the questions required for the Bid Bond
- You need to be aware of the credentials required to process your application
- Check with your bond agent in order to submit the bid proposal in an accurate and complete way.
- Complete thework, minding the specifications of the proposal.
- Once you have completed the job, talk to your bond agent to free your bond line.