In any major transaction, there's a certain amount of risk to both buyer and seller that the goods, service, or payment agreed on may not be correctly delivered. This is true in construction, too. When you place a bid on a project, the project owner needs some assurance that you'll honor that bid—otherwise, they could lose time, money, and opportunities if they commit to you over other companies. One way to formalize this agreement and provide the property owner with a certain amount of insurance is a bid bond.

What Is a Bid Bond?

A bid bond is a guarantee that the companies that bid on a project will honor those bids. If the bidder fails to live up to that agreement, the project owner will receive compensation—usually between 5% and 20% of the bid amount. To enforce this penalty, the bond is overseen by a third party called a surety. This is usually a trustworthy financial institution like a bank or insurance company. The surety accepts a small fee from the contractor to provide this service, which is based on the size of the project.

Why Is a Bid Bond Needed?

First, all companies submitting bids on federal projects must arrange a bid bond according to the Miller Act. They are also commonly required by private companies because of the level of security they provide. Without this process in place, contractors might be tempted to bid inappropriately low, then raise their estimate after competitors have been dismissed, causing difficulty and expense for the project owner. A bid bond provides insurance that allows the owner to trust the contractor's quote.

If you need to arrange a bid bond, visit Ebert Agency in Foley, AL. Serving Baldwin County for over 90 years, these experts are a trustworthy, reliable source for this service as well as auto insurance and a range of other insurance policies. They offer end-to-end coverage with the backing of several major providers. To discuss your needs, call (251) 943-2281 or request a quote on their website.