Bid and Performance Bonds are types of Surety Bonds designed to cover losses incurred by poor contract performance in California. A surety bond is an agreement between 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
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. Bid bonds are particularly important on large projects like residential developments, commercial developments and public works projects. Bid bonds are required with all bids or the bid will be rejected. The bid bond provides both financial security and confidence to developers offering contracts.
Bid bonds were created to prevent construction companies from submitting frivolous bids to secure contracts. In the past, contract winners would either increase the cost of the job or refuse to complete the project because they bid the job to low. Now bid bonds assure developers that bidders are serious about the job and financially capable of completing the project. When a contractor wins a bid they are obligated to perform the job, or they will be liable to repay the surety company if the developer files a claim against the bond.
The surety company that issues a bid bond is also usually responsible to issue the performance bond on a contract. Because of 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 is frequently used during the underwriting process.
Specializing in construction and offering insurance for general liabilities in California, we provide bid and performance bonds to generate a reliable agreement for every project.
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.
The performance bond is purchased by a contractor during the contract negotiation phase of a construction job. The cost of the bond and amount of the bond is determined by both the size of the project and the contractor’s credit rating and financial history. Qualified contractors can expect to get competitive rates, but if a contractor lacks credit or has bad credit, the rate is typically considerably higher.
Performance bonds in California usually protect 100 percent of the contract price and replaces the bid bond when the contact is awarded. A Performance Bond is used to insure 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, so many private property projects also require a Performance Bond.
We are dedicated to serving the needs of our contractor clients by offering Bid and Performance Bonds, and contractor license bonds in Washington 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 based on the type of project you are bidding and your credit situation. Quote your Bid and Performance Bonds now by completing the form on this page or call us at (866) 961-4570 for your free, no obligation Bid and Performance Bonds quote.
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