A contractor considering public works may wonder what bid bonds are and if they’re required for all tax-dollar funded projects. Public works can be great for contractors, and can lead to more profitable work. It’s important to consider the best steps to take in order to properly prepare for bidding on these types of jobs. With that, let’s discuss bid bonds for public works projects.
What are Bid Bonds?
Bid bonds are a type of construction bond that provides assurance to the owner of a project or the general contractor during the construction bidding process. It guarantees that the contractor (or subcontractor) bidding on the project will enter into the contract if they are low and awarded the job, and will provide the required payment and performance bonds. If the contractor fails to enter into the contract or fails to provide the other required surety bonds, the project owner can make a claim against the bid bond.
The bonds work the same way for privately owned construction projects, and involve three parties:
- The obligee: the owner of the job or general contractor who is requiring the bond.
- The surety: the bond company backing the bid bond
- The principal: the contractor or subcontractor who needs to provide the bond for their bid
You can consider the bid bond as a kind of pre-qualification tool that demonstrates to the project owner, in this case, the government or public entity, that the contractor has been vetted by the surety company. Having the bond shows that the contractor has the means and capability to complete the project.
When is a Bid Bond Needed for Public Works?
In California, typically projects over $25,000 that are funded by state, federal or local government dollars will require bid bonds. However, each government body can choose to require bonding at lower thresholds as well. For this reason, it’s important to set yourself up for bonding regardless of the size of job you plan to go after. If you’re concerned that you may not have the bonding capacity for the required bid bond size, there is a federal program called the SBA Bond program that can help you acquire the bid bond size necessary to bid on a public works project.
If you’re interested in exploring this program, we encourage you to visit our SBA Bond Program guide to discover more.
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How are Bid Bonds Calculated?
Whether for a public works contract or a privately owned project, the bid bond amount is fairly simple to calculate. The amount is determined by the project owner, the government in this case, and the bid bond amount will be outlined in the bid specifications. This is typically a percentage of the total bid amount and is commonly required to be 10% of the amount bid. If the bid you’re submitting is for a $1,000,000 public works project, then the bond amount would be for $100,000. Please keep in mind that even though the bid bond requirement would be for $100,000, the surety company would still be basing their underwriting requirements on your total bid amount of $1,000,000.
What Do Surety Bonds Companies Look At?
Applying to be bonded for a public works bid means a surety company will need to examine whether or not the contractor is both financially capable and sufficiently experienced for the construction project. To achieve this, the surety will look at several factors, including:
- The date of the bid
- Financial resources available to complete the job
- The contractor’s credit score
- How long the company has been in business
- The track record of profitable jobs finished, of similar scope and size
- The labor and equipment available that will help to complete the job in question
Public Works Construction and Surety Experts
Public works can be a great avenue of opportunity to your contractor business and building your bonding capacity will be an important step to opening that door. To make sure you can get the necessary bid bond, and bonding capacity, a surety expert gives you a better edge. While many contractors turn to their insurance agents for bonding, that would be akin to calling a plumber to put up drywall. It’s important to work with a surety agent that is well experienced in public works construction projects and the various factors that can help you get the bid bond required.
We at CSBA lead the way for California contractors, helping to improve their understanding of bonding while assisting in their business goals. Not only do we help you get the bonds required, we guide you in navigating the bonding capacity waters, so that you can focus more on your business and less on worrying about bonding.
Let’s get those public works bonds needed and keep you building California.
Bid Bond for Public Projects Testimonial
Click below to read the full testimonial about how CSBA was able to obtain a bid bond for Pacific Office Interiors in less than 24 hours after their prior agent wasn’t responding to their request.
Testimonial: Pacific Office Interiors
“We are very grateful to Shaunna and CSBA for their quick work on our behalf. This project will generate significant revenue for our company, and it would have been a shame to lose out on it for no reason.”
Free Taylor, President
Pacific Office Interiors
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quote now
We want to know more about how we can help your construction company get the right contractor bond for your next project.
