Do I Need a Bid Bond to Bid on a Government Job?

If you want to bid on a public construction project, then getting a bid bond is a must. The purpose of a bid bond is to show the project owner, in this case, the government, that you have the means and resources to fulfill their project if ever it is awarded to you. It sounds simple, right? But before you go celebrating and move to the next bid bond company you see, make sure to familiarize yourself with bid bonds and how it affects your chances of getting a public construction project.

What are bid bonds?

A short definition would say that a bid bond is a guarantee given to the project owner to show that the contractor will be able to do his part of the contract. This guarantee is not given by the contractor himself but by a bid bond company that looks into the projects and the financial accounts of the contractor.

How do you know which bid bond company to go to?

Of course, you can’t just entrust your books to a company you barely know. Since bid bond companies are the ones that peer into your financial accounts to know if you are able to finish a project, you want a firm that is known for their experience and their superb service.

To be able to know which firms are trusted, the best thing you should do is to ask fellow contractors. Ask them about the bid bond company they went to and if it’s something they would recommend. If not, go to the next contractor and ask. It would help if you have had enough recommendations for you to be able to pick properly. Once you have at least three options, inquire in those companies and ask about their experience and the whole process of how they give you a guarantee.

How are guarantees given?

Once you’ve picked your bid bond company, you should have an idea of how the process works so you can understand the timeline of getting a guarantee.

If you’re interested to getting a bid guarantee, get the bid bond application given by the project owner. Most project owners who participate in biddings (like the government) have an invitation letter to contractors who want to bid on their project. If there’s none, you can use a generic one provided by your bid bond firm.

This application is like a paper form of an interview regarding your assets and past projects as a contractor. The questions you’ll see here are supposed to give the firm an idea of your financial standing and how you were able to accomplish your past projects. Moreover, your answers will also determine if you are fit for the project. It is not just a question of resources in bidding. It is also a question of your expertise. Part of the interview phase is the company’s independent analysis of your books. They will look into your liquidity and assets and at the same time, they will check the manpower you can provide.

Together with this application, you will be asked to give certain documents to prove that you are a legitimate contractor with legitimate projects. The documents you give will vary depending on the size of the project you are eyeing. The bigger the project, the more documents needed for you to be given a guarantee.

Applying for a bid guarantee usually costs at least a hundred dollars. Naturally, the bigger the construction the higher this cost will be. If you want, you can make this cost as part of your bid. You can only get this cost repaid if you will be chosen by the project owners.

How do bid bonds work?

Say you already have a guarantee given by a third party guarantor. For it to be considered in the bid, you are supposed to give a cash deposit. Once all bids are placed, the project owners will decide who they will give it to.

Projects are awarded to the lowest bidder. In the event that that contractor fails to fulfill his part of the contract, the project is handed over to the second lowest bidder. The difference in the bids of the lowest and the second lowest should be paid both by the guarantor and the contractor.