Arizona Bid Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your bid bond needs.
What Are Arizona Bid Bonds?
Arizona bid bonds protect project owners against financial losses incurred when the winning bidder for a construction job pulls out and does not accept the contract. This typically happens when a contractor concludes that their bid was too low to make money on the job or when a contractor submits bids on multiple jobs knowing they don’t have the resources to accept more than one contract. Bid bonds help deter such frivolous bidding.
A bid bond is a contractor’s guarantee that a bid is accurate and that the contractor is capable of furnishing any required performance of payment bond. When a bidding contractor violates the terms of a bid bond, the project owner can file a claim to be compensated for the costs and delays resulting from having to select another contractor.
Who Needs Them?
In Arizona, bid bonds usually are required for public works projects valued in excess of $25,000. Increasingly, private project owners, as well as public awarding authorities, are requiring bid bonds from potential contractors.
The required bid bond amount typically is 10% of the contractor’s full bid price for the job.
How Do Arizona Bid Bonds Work?
An Arizona bid bond is legally binding on all three parties to the bid bond agreement:
- The obligee – the project owner requiring the bond,
- The principal – the contractor purchasing the bond, and
- The surety – the party guaranteeing the payment of valid claims.
The surety guarantees that claims will be paid and extends credit to the principal for that purpose, if necessary. When the surety’s investigation of a claim determines that it is valid, the surety pays the claimant directly, which creates a debt that the principal must subsequently repay. If the debt is not repaid, the surety can take legal action against the principal.
How Much Do They Cost?
Since bid bonds are issued with the understanding that, should the contractor be awarded the contract, they would purchase a payment and performance bond with the surety, Surety Bond Professionals do not charge for bid bonds.
The project owner, who also serves as the obligee for the Arizona bid bond, normally determines the necessary bond amount. Usually, this represents 5% or 10% of the entire bid amount.
The principle's creditworthiness is taken into account when underwriting smaller contracts and businesses in order to determine the risk of nonpayment. Low risk is indicated by an excellent personal credit score, which lowers the premium rate. A higher price is justified by a lower credit score, which suggests a greater risk to the surety. For larger projects, the assurance underwriters might look into the location, creditworthiness, and stability of the contractors more thoroughly.
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