Secrets of Bonding 116: How NOT To Handle Bid Bonds

Bid bonds are just like any other activity. There is a right and wrong way. Although you may be happy to learn from past mistakes, these lessons can prove costly. A bid bond error can lead to the termination of a lucrative contract. This could lead to the end of your bonding relationship or make you look bad before your boss. It’s best to take the easy route so…

When it comes to bidding bonds, there are three things you should remember:

The bid bond is seen by underwriters as the first in a series of events that will hopefully lead to the issuance of performance bonds. The surety’s ability and willingness to pay the P&P bond may determine whether the bid bond is provided. The bid bond is not considered a bid bond but the potential value of the contract. A $100,000 decision is not made by a 10% bid bond on a proposal worth $1 million.

Bid bond claims are a type of bid bond claim. They are not “just issued.”

What not to do #1

To ensure you receive the bid bond on time, you can move the Bond Request Form forward. Although the bid is on the 25th, they will ask you to indicate the 22nd so that you don’t get confused. You are very clever.

No. The underwriter will likely ask for a copy and verify the date. They may also have other bidders for the same job. The information is likely to be available online. These tactics can damage your relationship with the surety. This is not how you want to act.

What not to do #2

Certainties often indicate a bonding line (a maximum dollar amount) they will support for a single contract. Let’s assume it is $1,000,000 per job.

What do you do if your bid calculation is for a pending project at $1.25million?

Another scenario: While you expected the price to be under $1 million, the sub- or supplier price is higher than expected at the last minute.

To make the line fit, lower the bid to $1,000,000 and hope to make up any difference on the project.
You can request a bond for $1 million and then submit a bid for $1.25million. Then claim that it was a communication problem.
You can use the $1 million bid bond, and then you can plan to obtain a new surety that will give a $1.25million P&P bond.
Do not bid for the job.
It is impossible to “sneak into” a bid for higher amounts. This is why the system was designed to stop it. The surety might also issue capped bid bonds, which are void if it is used for any amount beyond the approved project amount.

It is best to present a unique proposal to the underwriter to gain support for $1.25million. The other options may not work out as well.

What Not to Do #3

There is a new project opportunity that has not been previously advertised, and it’s too late to obtain a bid bond. What is the best way to:

Send the bid without security and expect to receive it later.
You can use a check to replace a bid bond and exchange the bond for a check after the bidding opening.
Do not bid for the job.
An electronic copy of the bid bonds could be a solution. This can be printed and signed by the contractor. This will be accepted by most obligees, at least temporarily.

If the surety is not willing to support the project, we don’t recommend that you bid with a check. Failure to provide a P&P guarantee could result in the contract being canceled and the bid security forfeited. It could lead to a disastrous outcome.

Here’s #4: What You Shouldn’t Do

The proposals were submitted, and the results of the bidding are now known. You are a low bidder. Bids higher than 10% lower than the second bidder are a red flag to the surety and could result in them not supporting the P&P bond. What should you do?

Report the bid results, but fix the numbers to eliminate excess spreads of 10%.
Send the results to us, and we will be glad to approve them.
You can withdraw your bid.
This happens quite often. It is best to take a step back, review the bid calculation, bid results, and relative competitiveness between the proposers.

It may be prudent to immediately withdraw your bid if you discover an error in the calculation. This will help avoid losing the contract. A cluster of bidders may be shown in the bid results. If the lowest bid is less than 15% lower than the average bid of the second or third bidders, it may be acceptable. The idea is to avoid an overpriced project that could be costly for both the contractor and any other sureties who may need to take over to finish it.

The low bidder may also have an advantage, such as being closer to the project, having specialized equipment, prior knowledge, materials at hand, or having a special relationship or relationship with the owner or architect. This is why it is essential to give a written explanation to the underwriter.

These tips will be helpful as we move into the new bidding season.

Here’s the third thing you need to keep in mind:

Bid bonds should be considered the first step of a process. And, most importantly, it is essential to protect your surety bond. It is far more critical than any bond or project.

Steve Golia has extensive experience providing bid and performance bonds to contractors. He has been solving bond problems for contractors for over 30 years and helping them succeed when others have failed.

Bonding Pros has the market access and underwriting talent you need. All this is complemented by exceptional service and easy access.