What are Bid Bonds?

Bid bonds are generally used in competitive bid situations, such as a Request for Proposal matters.  When a governmental entity has an RFP, they generally require a bid bond from the contractors.

A bid bond is a type of surety bond that requires a contractor accept the contract if they are awarded the contract.  Given that the contractor must accept the work, this requires a surety company to underwrite the entire contract before they issue the bid bond.

The rationale for this is that once the contractor is awarded the contract, they will then have to work on the deal pursuant to the terms set forth in the Request for Proposal.  Given that they are going to be on the hook for the entire contract, they surety company is going to underwrite the contractor for the entire agreement.  So, although it seems like a bid bond would be easy to get, they can sometimes be a bit more difficult than a typical credit-based bond.  Instead of just underwriting the contract based on the size of the bid bond (usually just 10% of the total of the entire agreement), the surety is really writing the bond based on the entire contract and will therefore require all of the documents that are generally required, such as financial statements, the agreement itself, a personal financial statement, etc.

So, go ahead and get a bid bond, but please realize that it can take a bit more work than you would originally think.

Good luck with everything.