Bid Bond

When there is a large construction project you will often see bid bonds. The different contracting companies are competing for the business. They will make their offer to do the work at a certain price and part of the bidding process is that there has to be a bond in place. A bid bond guarantees the sincerity of the bidding companies.

The requirements of a bid bond are complex, including financial statements, proof of life insurance and a history of similar work performed before a bond will be granted. This type of bond is best started well ahead of the project so that it can be in place when the bids are to be processed.

This type of coverage is different then your usual insurance policy. This is known as surety.

A bid bond is a three-way agreement where the principal (contractor) makes a guarantee to the owner (obligee). This agreement states the the the principal will honor the bid and the sign the contract, if the bid is awarded.

If the contract does not complete the bid and defaults then the owner may sue the obligator (principal and the insurance company, known as the surety).

It is important to note that if the bidding company (bidder) is allowed to take away the bid before it has been awarded then no action may be taken against the bidder or surety.

Talk to your insurance agent or broker. This is an important area for your business and you need to understand and control your insurance and surety needs.