Post by – Joe Allen –
Why am I being required to obtain a Bid Bond?
A bid bond provides financial protection to an owner if a bidder is awarded a contract but fails to sign the contract or fails to provide the required performance and payment bonds. Bid bonds also help screen out unqualified bidders, as a surety company will not issue a bid bond on behalf of a contractor it believes cannot perform the contract obligations. Before issuing a bid bond, the surety company qualifies the contractor by completing a thorough investigation and determining whether the contractor has the ability to carry out the work under the contract.
The Surety industry evaluates three basic factors, known as the three “C’s”. They are:
- Character – Does the Principal’s record suggest good character? Do they follow through with their obligations?
- Capacity – Does the Principal have the skill, experience, and knowledge necessary to perform their obligations?
- Capital – Does the Principal have the financial wherewithal to support or finance the completion of the project?
Why am I being required to obtain a Performance & Payment Bond?
Performance & Payment bonds help guarantee a project owner has financial peace of mind and a successful project.
Construction is a risky business with a high rate of default on project completion. Before issuing bonds, surety companies vet contractors through a rigorous qualification process. Approving only those with the right experience, equipment, and know-how. As part of the process, the surety does an in-depth financial review of the contractor’s financial capability.
The performance bond gives an owner a guarantee that, if the contractor fails to fulfill its contract obligations, the surety company can be called on to complete the contract.