In recent years, the construction industry has been witnessing a boom because of the global demand for properties and construction materials. With the population increasing rapidly, the need for more private and commercial properties is rising simultaneously. As a result, the construction businesses are leading markets. If you are that lucky professional who is a part of this booming industry, if you are a contractor or work with projects, you must consider buying bid bonds.
Whether for your business or working under someone, a bid bond can help you significantly. But what are bid bonds, and how beneficial are they for contractors and project owners? Follow this article to learn about such bonds and discover some good reasons to buy them.
Table of Contents
What Are Bid Bonds?
Bid bonds are mostly an agreement between a Principal and an Obligee. The Principal is a contractor for construction businesses, whereas the Obligee is the project’s owner. There is also an involvement of a surety company in such agreements. These bonds are most common in jobs that include a process of selection that is bid-based, and construction jobs are mostly bid-based.
Even if there is confusion regarding what bid bonds are, you can say that it is a type of agreement that acts as a guarantor for two parties. This agreement guarantees that the contract will be handed over to a winning bidder abiding by the terms and conditions.
But what about bond owners? Do they get any benefits from such bonds? They surely do. An owner of a bid bond gets compensation when bidders cannot begin a project. These bonds are most common among construction-based jobs, including Mechanical, Road Paving, Electrical, Landscape, and Heavy Civil contractors.
Who Needs A Bid Bond?
Various types of businesses require bid bonds; however, they are most common among construction companies and contractors. Contractors that generally need to purchase bid bonds include:
- Heavy Civil Contractors.
- Mechanical and Electrical Contractors.
- Road Paving and Landscape Contractors.
- General And Snow Removal Contractors.
Besides construction businesses, a bid bond can be a requirement for hospitals, school boards, municipal owners, defense construction, and so on. In general, such bonds are required mainly by public job owners.
9 Reasons To Buy A Bid Bond
Before purchasing a bond, you should know how beneficial it can be for your business. Or you need to know some good reasons why you need one. Here are a few reasons for you to consider:
- Contractors or subcontractors generally purchase them to secure their bids. This prevents fluctuations in bids, and you get precisely what you have asked for.
- It acts as a guarantee between a project owner and a contractor.
- Since it is a legal agreement, it can help you from legal troubles or similar scenarios.
- They are known to help their clients with avoiding frivolous bids.
- Such bonds also ensure that a contractor has the funds required to execute a project.
- It acts as a safeguard for a developer.
- It makes the bidding process easier.
- The amount you deposited in the bond gets returned after a project is completed successfully.
- You can obtain such bonds even when facing issues like poor credit.
Final Thoughts
Whether you have a construction business or are a contractor, if you wish to get the highest tenders and avoid risks related to bid fails or fluctuations, then purchasing a bid bond is mandatory. While reading the long list of benefits you get from purchasing such a bond, you must have realized how it serves as a legal agreement and can get you out of severe trouble in case of unexpected legal issues.