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 Hawaii Bid Bonds?
When a bid bond is required for a construction project in Hawaii, the purpose is to provide financial protection for the project owner. A bid bond is a contractor’s guarantee that:
- The bid being submitted is accurate,
- The bidder will be able to provide performance and payment bonds if awarded the contract, and
- The contractor will enter into a contract if chosen as the winning bidder.
If the contractor (known as the bond’s “principal”) fails to live up to that guarantee, the project owner (the bond’s “obligee”) can file a claim and be compensated for monetary damages.
Who Needs Them?
Contractors bidding on state or locally-funded construction projects may be required to provide a bid bond, especially for larger projects. And it’s becoming more common for private project owners to require a bid bond as well. When a bid bond is necessary, the bond amount typically must be between 5% and 10% of the contractor’s full bid price.
How Do Hawaii Bid Bonds Work?
The third party to every Hawaii bid bond, in addition to the obligee and the principal, is the “surety.” This is the bond’s guarantor—the party guaranteeing the payment of valid claims. However, the legal obligation for paying claims belongs entirely to the principal.
The surety makes good on its guarantee by agreeing to extend credit to the principal for the purpose of paying a claim. But the surety will pay the claim initially, and the principal must repay that debt to the surety. Not repaying the surety can result in the surety suing the principal to recover the debt.
How Much Do They Cost?
The premium a contractor will pay for a bid bond is the product of multiplying the required bond amount by the premium rate. The surety assigns the premium rate based on the risk of not being repaid for claims paid on the principal’s behalf. The underwriting assumption is that a creditworthy individual is a low risk to the surety. So, a principal with a high personal credit score will be assigned a low premium rate. Conversely, someone with a low credit score is at a higher risk and will pay 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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