Bid Bonds
Propeller Bonds has reinvented how bid bonds can be accessed. As a type of surety, and often used for construction projects, a bid bond safeguards business owners before entering into a partnership with a general contractor. Propeller offers a new way to amplify returns in this demanding sector for minimal effort. Propeller Bonds’ platform currently houses over 7,000 Contract, Commercial, and Fidelity surety bonds. Propeller private labels the platform for agencies, allowing agents to purchase bonds for clients or empower clients to purchase bonds directly. Agents are compensated for all purchases via their unique site link. The company partners with highly respected "A" rated carriers.
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What is a Bid Bond?
A bid bond acts as an assurance that the business making a bid on a project will enter into a contract should they win the bid. The bid bond definition is a legally binding contract designed to guarantee that contractors will fulfill their stated obligations within a project. This essential guarantee offers both financial and legal protection to the project owner. These bonds are typically submitted alongside the project's contract, serving as an additional layer of security.
Bid bonds are crucial in maintaining fairness by preventing general contractors from submitting projects they cannot fulfill, ensuring project owners are protected throughout the process. Bid bonds safeguard project owners, shielding them from entering into contracts with companies that lack the commitment to undertake the project as initially proposed. Essentially, bid bonds serve as a protective measure for both parties involved, promoting integrity and accountability in the bidding process.
How does a Bid Bond work?
A bid bond is a common form of contract bond, backing up a promise (i.e. contract) between two parties. They’re designed to compensate the obligee if the principal fails to do their job. While contract surety bonds can be used in any industry, they’re most common in the construction industry, partly because they’re required on a state level for any project over a certain amount. A federal act (the Miller Act) requires a contract bond for any construction project worth more than $100,000.
The principal refers to the contractor who procures the bond, while the obligee represents the project owner or general contractor who benefits from the bid bond's protection. On the other hand, the surety company is the entity responsible for issuing the bond, thereby ensuring its validity and coverage.
The process to apply for a bid bond is simple. When a general contractor requires one, they obtain one from a surety broker for a specific percentage of the bid amount. This percentage assures that the contractor will fulfill the project at the proposed value. If the contractor successfully secures the bid but fails to proceed with the project, the project owner can file a claim against the bond.
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Importance of having Bid Bonds
Surety bonds, including bid bonds, are an important layer of protection for obligees, or business owners, if the principal, or general contractor, fails to do their job. If one of these parties is financially damaged by the principal's violation of bonding terms and conditions, a claim may be filed against the bond.
The bond guarantees that the successful bidder will fulfill the contractual obligations based on their bid terms. It assures the bond owner that they will receive compensation if the bidder fails to initiate the project. Bid bonds in construction projects or other endeavors that employ a bid-based selection process are commonly used.
