How bid bonds protect government agencies

Bid bonds are an essential link in any government project, meaning it’s a smart idea to learn how these products function and how they fit into the overall scope of working with contractors. The fact is that while bid bonds might not be the most exciting topic you’ll ever research, they might just ensure your next job gets completed correctly and in a timely way.

In this post, our team at CCI Surety will walk you through bid bonds, from what they do to where you can obtain them. We understand the fact that the process of working with contractors tends to be complicated, but let us reassure you that with our trusted experts, the process will be easy to navigate and provide peace of mind that work will proceed as planned. There’s nothing better than having the confidence that the work you set out to do will be finished in the way you anticipated at a quality that exceeds your expectations. We’ll do everything we can to set you on the right path.

How bid bonds work

These bonds are a necessary link in the chain of events that must occur before a construction project planned by a federal, state, county or municipal government can begin. Essentially, the bond is given to a government agency as a guarantee of a contractor’s good faith.

For the sake of clarity, we’ll refer to contractors as principals from here on out. Principals must give government agencies bid bonds to signal that if they are awarded a contract for a construction project, they will do two things. First, they will enter into the contract with the agency. Secondly, they will post the required performance and payment bonds.

Keep in mind that generally speaking, bid bonds only are required as a percentage of principals’ bid. The accepted range often is between 5% and 20%.

Next steps

At this point, it’s a good idea to clarify how these bonds fit into the overall scope of a construction project. As we just noted, they open the door to a principal fulfilling required performance bonds and payment bonds.

Let’s break that down. A performance bond acts as a guarantee that a principal will do everything that is spelled out in a contract with an agency. The principal will honor the relationship established in the document and meet all of the details, terms and conditions. It’s an essential part of the contracting process with the low bidder for any given project.

We also mentioned that payment bonds factor into this process. Just as performance bonds ensure work will be done in a timely way according to specifications listed in writing, payment bonds ensure key stakeholders in the construction project will be paid using the proper channels and according to the proper terms. These bonds guarantee suppliers of direct labor and materials will be compensated, and though they are separate from performance bonds, they typically are issued for no extra charge in cases where they are required.

Tying it all together

As you can see, bid bonds are a crucial step to ensuring that performance and payment bonds are issued, paving the way for work to be done on behalf of a government agency. At CCI Surety, our friendly team members are expert underwriters capable of helping you meet your goals, no matter how complicated the project.

Whether you have questions about the process or you know exactly what you need and want to get started, we’re here to help. Give us a call today at our home office in Minnesota by dialing 866-317-3294 or at our Southeast Region office in Tampa, Fla., by calling 877-320-6947. We look forward to serving you and to helping you navigate the process of obtaining bid bonds.