Bid Bonds, What are they ? (Part 1) - YouTube

Hello I'm Razelle with Farmer Brown insurance agency

we've put together this informative video for you, I hope you enjoy.

In this video, we will give you a quick tutorial concerning the ins and out of bid bonds

and remember It's okay If you don't catch all the information

you will have a link in the description bar for you to download the transcripts to the video

So let's get started

What is a Bid Bond? It is important to understand that a bid bond is not an insurance policy?

It is a written guarantee from a third-party guarantor usually a surety company.

This guarantee is submitted to a project owner by a contractor for work they are bidding on

When do you need a bid bond?

When a contractor wants to bid on a construction job that is advertised by governmental entities

and are over $25,000 there's usually a requirement for a bid bond.

This guarantee document should be submitted by the contractor along with their bid proposal.

If the bond is not included as required, this almost always results in contractors bills being disqualified

even if they submit the lowest bid.

Why do project owners require bid bonds?

The bid bond also gives the owner of the project

the security that the contractor submitting the bid has been vetted by a third party

assuring the contractor's credit and work history are positive.

Also the bid bond guarantees the owner that the contractor will honor his bid.

A little note, in this type of documents the owner of the project, is called "the obligee" and the Contractor is called "the principal"

so the obligee may sue the principal and the surety company to enforce the bond

If the principal refuses to honor its bid, both the principal and the surety company are

responsible by laws for the following

#1 any additional cost the owner incurs when fulfilling the contract

This is usually the difference in the dollar amount between the lowest bid and the second lowest bid

#2 if necessary the cost of having the job rebid

The amount of bid bond is generally 5% to 25% of the bid amount

This is called the penal sum and is the upper limit on the liability under the bid bond.

In certain instances private owners can request bid bonds when they solicit work

This is generally not a problem as long as the funds to finance the project can be verified

The major exception to this is the construction or repair of single-family homes?

Bonds and personal credit score.

The first thing any underwriter checks when a new application for a bid bond crosses their desk is the credit of the owner and their spouses

If you have poor credit, it makes it very difficult to become bonded.

As a result of the poor economy during the last few years many small contractors have suffered.

In many instances this was through no fault of the contractor themselves

Prime contractors and developers often times went bankrupt and left small contractors holding the bag.

Contractors who are able to hold on during these lean times are usually not in the greatest financial shape.

Now with the economy improving they find themselves in the position to get back on their feet

But only to get knocked back down again as they unable to secure bonding because of a low credit score.

What credit score is ideal to get a bond approved?

Generally the minimum credit score is around 700.

This number is taken from the so called credit score range given by the data analytics company FICO.

And that usually goes between 300 and 850.

If you don't know your credit score you should obtain a free copy by using sources like creditkarma.com or

Similar sites a quick way to figure out if your credit is over 700 is if you have unsecured

Visa, Master or American Express credit cards. If you are current on the payments and do not have any other

recent past due bills, it typically have a credit score of at least 700.

If you have any questions

feel free to contact our specialist Tom at (312)878-2372

or you can email him with any questions at [email protected]

Thank you, and have a great day