How Much Is a Bid Surety Bond Premium?

Bid Surety Bond

If you’re a contractor and are looking to outbid other contractors in getting a public construction project, then you should be aware that you are required to have a bid bond.


What is a Bid Bond?

A bid bond is a type of guarantee that assures a project owner that his chosen contractor has finances and resources that will let him fulfill his duties in the project. Public projects are required to go through biddings wherein interested contractors are asked to pass a bid bond. However, bid bonds are not limited to public projects. There are also private individuals who have started requiring interested contractors a bid bond.

A bid bond is not made by the contractor himself. Instead, a contractor goes to a third party that will issue the guarantee. The guarantee is not given easily because the third party will have to go through the contractor’s history and financial statements to determine whether or not they have the means to take the coveted project on. Not only do third parties check financial statements, but they also go through a rigorous process of checking the past experiences and clients of the contractor.

Once the third-party guarantor sees that the contractor is able, a written guarantee is issued which will be given to the project owner as an entry to the bid.


How much does a bid surety bond cost?

There are different kinds of surety bonds and their prices vary because of the risks involved. However, surety bonds often range from 1 to 20%. Since construction projects are a lot riskier than permits, the former gets a higher cost which ranges from 5-15%.

Aside from the type of surety bond you are applying for, your third-party guarantors will also look at your credit score. In fact, your credit score has a big impact on how much your bond price will be. So, if you have a high credit score, this means that your bond price is relatively lower than someone who has a passing credit score.

Another thing that third-party guarantors use to determine your bond price is your experience. If the goal of a bid surety bond is to give a guarantee of how able you are to take up a project, then the third parties should consider the past projects you have had. The more large-scale projects you have, the lower your bond price will be. They will also look into how long you have been in the construction industry.

There is an assumption that the longer you are in the industry, the more experienced you are. However, this is not always true because some contractors do not gain credibility and expertise even if they have been in the construction industry for so long. With that said, third-party guarantors make sure that they juxtapose projects and length of time in the industry.

If you are wondering why these factors are considered, remember the purpose of a surety bid bond. It is created to reassure the project owner that you have the means and the expertise to take the project. In order to get that assurance, third-party guarantors calculate the risk they will face in backing you up based on financial records, history, and experience.

Another point you should consider is that whenever a contractor defaults, the third-party guarantor becomes liable to the project owner. So, when a contractor does not fulfill his obligation, the third party needs to pay for the cost.


A Few Things To Remember

When applying for a bid bond, the first thing you have to do is to fill out an application form. There are application forms given online, but best ask your chosen third-party guarantor first if they have any.

The whole process of checking whether or not you are financially stable as a contractor is tedious. The firm will ask for documents and interviews so that they can gauge not only your capabilities but also the risk they will take in giving the assurance to the project owner.

Applying for bid bond sureties are not complicated because all the work will be done by the third-party guarantor. If you want to know more about surety bonds and premiums, visit