Surety Bond Professionals is a family owned and operated bonding agency with over 30 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 Delaware Bid Bonds?
Delaware bid bonds provide protection for state or local contracting authorities against the financial harm that can occur if a contractor is selected through competitive bidding:
- Submits an inaccurate bid,
- Cannot obtain the necessary performance and payment bonds if awarded the contract, or
- Does not enter into a contract if chosen as the winning bidder.
By furnishing the project owner with a bid bond, a contractor guarantees that none of the above will occur. But if that guarantee is not upheld by the contractor (referred to as the bond’s “principal”), the project owner (known as the “obligee”) can file a claim and be compensated for the resulting financial loss.
Who Needs Them?
A Delaware bid bond typically is required when a contractor is bidding on any public works job valued at more than $25,000. The required amount generally is equal to 10% of the full bid price for the contract. Once the bidder has won the contract, performance bonds and payment bonds are usually required.
Private construction project owners also have the option of requiring bid bonds from contractors bidding on a job.
How Do Delaware Bid Bonds Work?
In addition to the obligee and the principal, there is a third party to every Delaware bid bond—the “surety.” This is the party guaranteeing the payment of claims by the principal.
As the bond’s guarantor, the surety will ensure that a claim is legitimate and will then pay the claimant directly by drawing against a line of credit established for the principal at the time the bond was purchased. The principal must then repay the resulting debt to the surety. Failing to repay the debt is likely to lead to the surety taking legal action to recover the funds.
How Much Do They Cost?
The two factors that determine the premium cost of a Delaware bid bond are the required bond amount established by the obligee and the premium rate set by the surety. The premium rate will reflect the risk of the surety not being repaid for claims paid on the principal’s behalf. That yardstick for measuring that risk is the principal’s personal credit score.
A principal with a high credit score poses little risk to the surety, so the premium rate will be low. A principal with lesser credit presents higher risk, which warrants a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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