Definition of Bid Bond
A bid bond is a type of surety bond used when companies bid on public construction projects. If you have a business and you want to bid on the government’s construction work, one of the requirements you will come across is a bid bond that will be included with your proposal. If you plan on regularly bidding on construction work by the government, the best course is to set up a surety line with a surety insurance agent.
What is a bid bond and why is it important?
A bid bond is important because it guarantees the project owner that you can abide by the bid contract and accomplish the job that is laid out in the contract. Having a bid bond is an assurance that you have the capability to implement and take on the project if you are selected in the bidding process.
Project owners are unsure if a contractor has the necessary resources to take on the project or if he is even financially stable. But with the bid bond, the project owner will feel assured to award a project to a contractor knowing he can collect compensation from the surety bond if the project fails.
What if the Construction Bond Obligation is Not Met?
If worse comes to worst and the construction bond obligation is not met, the contractor and the surety are liable for the bond. The contractor will encounter penalties for failure to comply with the bond’s obligations and any additional costs the owner incurs in selecting and awarding another contractor. The penal amount of a bid bond is 10 to 20 percent of the bid amount.
What is a Bid Bond in the case of exporters?
To collateralize bid bonds and win foreign projects, exporters put up assets. By doing this, they tie up assets that could be used to finance the accomplishment of the export contract itself. This impedes the ability of exporters to take on new deals and creates serious working capital constraints. Banks are also unwilling to accept assets that are export-related as collateral because it is possible that they will encounter difficulty in collecting inventory or accounts receivable outside of the United States jurisdiction.
How do Bid Bonds Work?
Project owners are secured when they request a bid bond. Having this keeps contractors from proposing frivolous bids since they are obligated to perform the job or pay the bond premiums. Companies that issue bonds perform comprehensive financial and credit reviews before agreeing to provide bonds for a company.
A number of contractors estimate what the job will cost to complete during bidding. In the form of a bid, they submit the price to the owner. Usually, this means that the bonding company will recompense the owner the difference between the lowest and next lowest bid. To recover these costs, the bonding company may sue the contractor but the possibility of a lawsuit would depend on the bond’s terms.
What is a Bid Bond – Requirements
All bidders are obliged to submit bid bonds on any federal project under the Miller Act. Several private firms have imitated this trend to protect themselves from risk during the bid procedure. In the construction industry, getting surety bond is essential if you want your company to become competitive.
In some localities, a surety bond is a prerequisite to obtain permits and licenses. Most importantly, majority of developers and project owners require a bond from you before you can even start bidding on their projects.
Are you in a hurry for a bond? South West Bond Services offers various types of bonds. We select the best insurance companies with the highest standards as surety providers. You can feel confident that your bonds are placed with surety companies known for their integrity, quality and honesty. For more information, contact us at 623-974-6453 or e-mail firstname.lastname@example.org.
To delve into what a notary bond is, we first need to define what a notary public is.
The Secretary of State’s office in a given state appoints an official to the position of notary public. Just like many public officials, the State requires the person to acquire a notary bond or surety bond prior to receiving their appointment. This bond ensures that in case the official violates the public trust by neglecting his or her duties, there are funds available to reimburse the state for its loss.
A notary public’s primary responsibility is to authenticate that the individual parties in a contract are who they claim to be. If the notary fails to properly confirm the identity of the parties, the state can possibly suffer a loss.
Here is one example:
Nate wants to purchase a car that is currently titled to a guy named Simon. Nate and Simon take the title to their local notary public to have their signatures notarized on the transfer of title. The notary asks both men for their driver’s licenses to confirm their identities. Nate shows his driver’s license, but Simon states that he left his ID at home.
Simon wants to get the deal done as soon as possible, to the notary public asks both Simon and Nate to sign the title. The notary then signs or notarizes both men’s signatures. Unfortunately, the person who claimed his name was Simon is actually Simon’s roommate named Tyler.
The real Simon had no intention of selling the car and is, in reality, away on vacation. Simon would also still have the title to his car had the notary refused to witness the transaction because Tyler never had any identification to show in the first place.
In this example, the public official violated the public trust by failing in their duty confirm the person’s true identity. Simon will need to file a claim against the State where the transaction occurred for the loss of his car since the State was negligent through its appointed representative.
Going back to the question on what is a notary bond, it is a guarantee of payment to the State for a penalty amount in case a loss happens. Surety companies or insurance carriers are usually the ones who provide notary bonds. The bond generally runs simultaneously with the term of the notary public’s commission.
If you are familiar with an auto insurance policy and you have an auto accident, the insurance company pays the claim and writes off your loss. You won’t need to reimburse the company for the damages. However, unlike an auto insurance policy, a notary bond is just a guarantee that the funds will be available in case a loss occurs. When the surety or insurance company pays the State up to the penalty amount of the bond, the loss paid is not simply written off. They will seek reimbursement from the bonded party, the notary.
If a notary bond protects the public, who protects the notary? To provide this protection, insurance coverage is available. It is called Notary Public Errors and Omissions. This may be purchased from insurance companies for a nominal fee.
To sum up everything on what is a notary bond, it is a document that is needed by notary applicants before they are commissioned. It is required by many states to protect the public trust.