Bid and Performance Bonds California

Bid and Performance Bonds, in California and elsewhere, are types of surety bonds created to cover losses incurred by poor contract performance. A surety bond is an agreement consisting of three parties:

  • The Principal – the contractor that purchased the bond
  • The Obligee – the “consumer or project owner” who requires and is protected by the bond
  • The Surety – the company who financially backs the bond

What is a Bid Bond?
A Bid Bond is a type of contract bond that guarantees a contractor can comply with the bid contract and will also accomplish the job as specified in the contract. When it comes to larger projects like commercial or residential developments, and public works projects, bid bonds are particularly important. In order for a bid to not be rejected, bid bonds are required. The bid bond provides not only financial security, but also confidence to developers offering contracts.

bid and performance bonds california

Bid bonds came about as a way to prevent construction companies and contractors from submitting flippant bids to secure contracts. In years past, contract winners would do one of two things. They either would increase the cost of the job or refuse to finish the project because they bid the job too low. Bid bonds now assure developers that companies bidding on a job are serious and able to complete the project. After a contractor wins a bid, they are obligated to perform the job. If they are unable to, they will have to repay the surety company if the developer files a claim against the bond.

The surety company that issues a bid bond is generally the ones who are responsible for issuing the performance bond on a contract. Due to this, the application and underwriting process of a bid bond is just as strict as the performance bond. Often, the surety company requires a financial indemnity from the owner or owners of the construction company in case the company fails to complete the contract or encounters financial hardship during the contract. Because of this, the owner’s personal credit and financial history are frequently used during the underwriting process.

Specializing in construction and offering insurance for general liabilities in California, we provide bid and performance bonds in California to generate a reliable agreement for every project.

What is a Performance Bond?
A Performance Bond is a type of contract bond that guarantees the satisfactory completion of a construction project. Performance bonds are typically issued with a payment bond when a contract is awarded. Performance bonds ensure that a contractor will complete a project. If the contractor does not complete the project, the performance bond guarantees against financial loss to the project owner.

During the contract negotiation phase, the performance bond is purchased by the contractor of the job. The cost and amount of the bond are determined by both the size of the project and the credit rating and financial history of the contractor doing the work. Qualified contractors can generally expect to receive competitive rates, while contractors who lack credit or have bad credit may have rates that are higher.

Performance bonds in California usually protect 100 percent of the contract price and replace the bid bond when the contract is awarded. A performance bond is used to ensure that a contractor will complete construction work in accordance with the contract. If the contractor defaults, the surety usually has three options:

  1. Pay the amount set in the bond as a penalty (or can settle that amount with the owner).
  2. Complete the project themselves or by hiring a new contractor.
  3. Provide money to the principle to complete the project.

Performance bonds are especially important for public works projects because they are required by law. Federal law requires surety bonds on all projects over of $100,000.

We are dedicated to serving the needs of our contractor clients by offering bid and performance bonds in California, as well as contractor license bonds in Washington and other states from a variety of surety companies. Because we specialize in the construction industry, we know which surety markets to shop to get the best rate. Get a free, no-obligation quote for your bid and performance bonds now by completing the form on this page or call us at (866) 961-4570.



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