Updated : Apr 15, 2020 in Finance

Learn How to Handle the Bid Bond Account

Surety BondsFor contractors, the main thing they wish to learn about Bid Bonds is when they need them, they have them. However, this account’s management requires controlling a variety of elements. Let us review them.The bid bond facility includes a single and aggregate limitation. The Single is the maximum size job which may be bonded andthe Aggregate is the maximum combined exposure on the account at any particular time.It is Important to be aware the only limit refers to the job amount not the penal sum of the bond. If a contractor is bidding a 500,000 national job together with the 20% bond demand the total amount of capacity involved is 500,000, not the bid bond amount which would be 100,000. The underwriting decision is based on the contract amount.Bear in mind Bonding Company does not want to learn the bid amount.

When asking the bid bond, the underwriter is provided the bidding contract amount in order.Let us stay with the 500,000 example. If the contractor’s calculation is 485,000, it would be good to round up and make the bond request. Again, it needs to be rounded up to allow for gains if the calculation is 510,000. A bid bond request for 525,000 or more could be advisable.While it is true that the penal amount of the bid bond if expressed as a percentage of the attached bid, will automatically adjust up or down to the actual bid amount, an issue arises when the bonding company issues a restricted bond. This means it cannot adjust beyond the amount stated on the approved bond request. If a bond is used, the contractor will invalidate the bond and their proposal ifthe bidding exceeds the amount.

  1. The rule in handling the bid bond account is to ask the bond for an amount to accommodate gains. This avoids the temptation to bid over the level that is approved – a practice that is detrimental to the relationship.
  2. The second the capability is concerned by guideline that is important. The calculation is made and includes the part of jobs tasks, given low bids, projects undecided bids. A portion of the aggregate that is available will be consumed if bid quotes are rounded up large. In our case if a bid that is 510,000 was calculated by the contractor and asked approval for 600,000, capacity that might have remained available to encourage another bidding may be needlessly consumed by them.
  3. Another point, Submit the bond request early enough to allow time for processing and discussion. A few days arenecessary for processing.

The experts at Bid, Performance & Payment Bonds have market accessibility and the underwriting ability you require. This is coupled with accessibility and service.