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Bring Bid Bonds Back to Life

You used to be a big fan of them. They were extremely easy. They are now expressed in dollar amounts and percentages, with some having a maximum value. They can be digital or electronic. In certain cases, a letter is all that is needed. Occasionally, nothing is needed! There could be a one-time or monthly fee, or it could be free! It’s gotten out of hand… So here’s your chance to relive everyone’s favourite pastime: the exciting and fascinating world of Bid Bonds. Have a look at surety bonds.

The Fundamentals
During the procurement process for a new project, these instruments accompany a contractor’s proposal. This is standard procedure for government contracts, such as federal, state, and local municipal contracts. At the contract owner’s discretion, the technique can also be used on private projects.
If the offer is accepted, the bidder must sign the contract, have the requisite Performance and Payment Bond, and begin work – or pay the difference between their bid and the next highest bidder (subject to the maximum dollar value of the bid bond.)

The surety has the right to charge for them, but they are usually free. An annual bid bond service fee or a per bond charge are common charges.

Since the P&P bond is the real money transaction, the decision to issue the bid bond is dependent on the underwriter’s ability to provide it. The bid bond’s dollar value has no impact on the decision. Depend on the fact that if the underwriter does not think they can afford the final bond, they will not have the bid bond.

Spreads in Bids
The surety will decline the final bond if the bidder is more than 10% below the next bidder without a valid excuse (I have a special machine, I already have supplies, I’m already working next door, I’m super fabulous, etc.). This will result in a bid bond argument.

Alternative Security Measures
Proposals may be insured with a cashier’s check or an irrevocable letter of credit in addition to a bid bond, depending on what the project owner (Obligee) is prepared to accept.

Figures in percentages
The proposal specifications are defined in the Invitation or Bid Solicitation. It will state whether or not a bid bond is required, as well as the amount.
The value of a bond is often expressed as a percentage. “20% of the attached proposal number,” for example. Since the underwriter does not want to know the actual bid number, this is convenient (to preserve the bid confidentiality). When typing the bond in advance, it is the easiest way to convey the exact number.

Since the dollar value of a percentage bond is unclear at the time it is executed, language is often introduced specifying the maximum amount it may be worth (to stop a wildly high amount the underwriter didn’t expect). “10% of the attached bid, not to exceed $100,000,” for example.

The penalty is set in stone.
The word “Bond Penalty” is used to describe the bond’s dollar value. Regardless of the bid, a fixed penalty bond has a set number. “Max bid bond amount required: $20,000,” for example.

Letter of Guarantee
Some property owners choose to require only a letter from the bonding firm, rather than a bond. This is how certain federal programmes are done. The letter expresses their love for the client and the contracts to which they are prepared to commit.