Bid Bond vs Bid Security

There are many terms in the construction industry that may seem alien or confusing to a contractor, especially if they’re similar. One good example of terms that can confuse is bid bond vs. bid security and what the difference is. Beyond knowing that bid bonds can often be required in order to bid on a construction job, many contractors aren’t aware of the nuances or process to get them or how it relates to bid security.

The surety bond world can be complex and that’s why we at CSBA work to help navigate California contractors through the bonding process. To help clear up any misunderstandings or confusion around bid bonds vs. bid security, you’ll find descriptions of what they both are and how they are related to working in construction.

What is Bidding Security in Construction?

Bid security can be thought of as a kind of risk mitigation tool  specifically for use in the construction industry. The bid bond is a form of bid security for the owner of the project. Think of the phrase bid security like medical professional, they both include sub-categories, but sometimes it’s easier to use a single phrase rather than specify other items. 

The concept of bid security relates to having a legal guarantee that the contractor will compensate the project owner if you fail to enter the contract and provide any required bonds, like a performance bond, after submitting the construction bid and being awarded the job. When a contractor reneges on their bid, the project owner must go to the next bidder, which is costly. Bid security helps discourage these instances and protects the owner from financial loss.  Bid security can come in the form of cash, a cashier’s check or a bid bond

Bid Bonds Procurement

Now that you know that a bid bond is a form of bid security, it’s important to understand the process by which you can be issued one. When needing a surety bond, many contractors will plan on talking with their longtime insurance agent about it but that isn’t the best idea. To better understand why you shouldn’t go to an insurance agent to get a bid bond, we encourage you to read here: Difference Between Surety Specialist & Insurance Agent

Applying for a bid bond can be similar to applying for a bank line of credit. It’s essential to understand the process as any hiccup can create a delay or mean failure in securing the bid bond in time and risk losing your bid on the job. Below, you’ll find an overview of what is typically needed to prequalify for a bid bond:

  • Your credit score
  • The bid date
  • The length of time your construction company has been operating
  • Depending on the size of the bid, financial information might be needed
  • Your track record of profitable projects completed
  • The labor and equipment that is available to you for finishing the project.

Being prepared to provide and/or discuss these things will help ensure the underwriting process goes smoothly and demonstrates you’re capable of handling the construction project.

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Surety Providers and Bid Bonds

Bid bonds are an important type of bid security and before they were required by law for construction funded by tax dollars, there were financial catastrophes and failed developments littering the U.S. While the road to secure a bid bond could feel like a thorn in any contractor’s side, it helps ensure the integrity of the construction industry. To better help you navigate the bonding process (and make it less painful), it’s also a good idea to work with a surety specialist to avoid any mishaps or mistakes that can cost you the bond or the bid itself.

We at CSBA write these articles for the California contractor to achieve two things:

  • improve the surety literacy 
  • to demonstrate our expertise in surety bonds

Our commitment is entirely to surety bonds and growing contractor businesses by helping them gain the bond they need and growing their bonding capacity to reach greater opportunities, as well as to guide contractors through the process successfully. Working with an experienced surety expert provides more than avoiding hiccups while going through the prequalification process, it means having access to surety providers that insurance agents and others don’t. 

It’s to your advantage to partner with a surety agency that has that kind of access and knowledge, being able to guide you through the bonding leg of the construction industry with the sole goal of growing your business. Being those specialists, we have an internal team of underwriters that are able to take you each step of the way, thoroughly understand your unique circumstances, and the goals you want to reach for your company. 

Think of working with a surety expert as internal bid security. Aligning with CSBA provides just that.

Shaunna Ostrom.
About The Author

Shaunna Ostrom

Senior Underwriter

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