WHAT IS A BID BOND FOR?
COUNT ON STOKES SURETY BONDS
Working in the Texas construction industry will be fun, exciting, and immensely rewarding.
Nevertheless, you need to go above and beyond to make sure that you do a good job for your clients. Failing to do so could lead to big problems and cause your company to lose contracts. Furthermore, you need to actively pursue new jobs, so you can keep revenue flowing in at all times. With this in mind, you’ll need to learn how to bid on a new Texas construction project. How does it work?
Well, you’ll need to start by obtaining a bid bond. This is the first step you must take before bidding on a new project. Texas’s construction contractors must learn the ins and outs of surety bonds. What is the bid bond for? This subject will be explored in greater depth below.
TOO LONG; DIDN’T READ (TL;DR)
The purpose of bid bonds is to protect the obligee from fraudulent contractors. Before a contractor can bid on the project, they must obtain a bid bond that acts as a guarantee that the contractor will complete the project at the stated price. This ensures that the contractor will be less likely to submit frivolous bids (low bids). As such, the obligee will have peace of mind knowing that the contractor has the financial resources to complete the project.
Over the years, the surety industry has grown considerably. In 2017, the industry experienced substantial growth with direct premiums increasing from $5.9 billion to $6.2 billion. This trend hasn’t slowed either. This is astronomical when considering that it was only $2.9 billion in 1998. A lot of this has to do with the growth of the United States, but the surety industry is imperative for anyone dealing with construction.
WHAT IS THE BID BOND FOR?
When it comes to the surety industry, bid bonds are the most common and likely the most important. Before a contractor can begin working on a project, they need to bid on a project. This requires them to obtain a bid bond, and here is the turnaround time for bid bonds. Even if the company’s bid is turned down, it will need a bid bond to submit its bid. This means that several companies will have a bid bond when submitting bids. To learn more about this in detail, please take a look at its meaning of bid bonds and the use of bid bonds in construction.
Only one company will move forward and be required to purchase performance bonds and payment bonds.
Suffice to say, the bid bond is very important, so you need to figure out what it does. Bid bonds help secure your bid while also eliminating unqualified companies. When you decide to purchase a bid bond, you will need to get in touch with a surety agency. This agency will study your company’s financial history to determine whether it can follow through with the bid.
The company’s evaluation determines how likely it is that the company will default on the contract. If the surety believes that the company is too risky to work with, they will not give them a bid bond. This offers numerous benefits but primarily protects the project owner since it reduces the likelihood that they’re going to choose an unqualified and underfunded company.
HOW THE BID BOND HELPS
At the end of the day, Texas’s construction industry is home to many good and bad construction companies. It is difficult for project managers to determine which group your company fits into. This is why the surety bond system was created. The system is designed to protect project owners. It is best to avoid picking a bad company from the beginning. The surety helps removes bad companies from the picture, so the project owner won’t pick them.
If they do and the company fails to follow through, the bid bond offers another layer of protection. When something goes wrong, the owner will be able to file a claim against the surety in hopes of obtaining compensation. They can get money from the surety agency, so they can begin searching for another contractor to finish the job.
To learn more about this in detail, please take a look at how does a bid bond work?
HOW SURETY BID BOND CLAIMS WORK
Ultimately, claims against bid bonds are very rare. Nevertheless, it could happen. With that being said, you need to be ready for anything. When a claim is filed against your bond, the surety company will investigate the claim. If they decide that your company was in the wrong, they will compensate them. The compensation can be up to the bond’s full penal sum.
The surety company will pay this money. Then, they will try to get the money back from the contractor. It is in your best interest to avoid having claims filed against your bid bond. If you have too many claims, it will be harder to find a surety agency to work with.
WHAT HAPPENS IF YOU TURN DOWN THE CONTRACT?
Texas’s construction industry is heating up. There is a good chance that you’ll bid on multiple projects in a short period. With this in mind, there is always a chance that you’ll need to turn down a job after winning the bid. Should you do that? While you could, it may create problems for your company. Since you submitted a bid with a bid bond, you’re going to be held accountable if you back out at the last minute. The project owner will have the opportunity to file a claim against your bond.
It is best to avoid being caught in this type of scenario.
AVOIDING BID BOND CLAIMS
Again, claims against bid bonds are uncommon. Nevertheless, you need to be ready for anything. It is pertinent to develop a good rapport with your customers. To do that, you want to get a good start. The best way to do that is by purchasing a bid bond and making your bid. If your bid is selected, you should begin working to obtain performance bonds and payment bonds right now. Don’t wait. Get the bond you need and begin working on the project as quickly as possible. More importantly, claims can also be filed against performance bonds.
After that, you’ll want to work hard to keep your client. Be sure to keep them up to date as well. If you need help getting bonds in Texas, you should call Stokes Surety Bonds. Let the professionals help!
It is important to note that the claims not only exist at the bid bond stage, but they also extend to performance bonds. If you fail to uphold your end of the agreement, the obligee has a right to file a claim against your performance bond.
NEED A CONSTRUCTION SURETY BOND FOR A JOB? COUNT ON STOKES SURETY BONDS