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 Illinois Bid Bonds?
The purpose of an Illinois bid bond, when one is required, is to protect the project owner against financial loss by guaranteeing that:
- The contractor’s bid price is accurate,
- The bidder can and will provide any necessary performance and payment bonds if awarded the contract, and
- The contractor will accept the job and enter into a contract if chosen as the winning bidder.
If the contractor (referred to as the bond’s “principal”) does not live up to that guarantee, the bid bond provides a way to compensate the project owner (the bond’s “obligee”) for monetary damages.
Who Needs Them?
Bid bonds are typically required from contractors bidding on public works construction projects, especially larger projects, in Illinois. Private project owners also have the option of requiring bid bonds when selecting a contractor through competitive bidding.
How Do Illinois Bid Bonds Work?
An Illinois bid bond is a legally binding agreement between the obligee, the principal, and a third party called the “surety.” The surety is the bond’s guarantor and guarantees that the principal will pay valid claims.
Although the principal is legally obligated to pay a valid claim, the surety will pay the claim initially as an extension of credit to the principal. The principal’s obligation then shifts to repaying that debt to the surety. If the debt is not repaid according to the surety’s terms, the surety can sue the principal to recover the funds.
How Much Do They Cost?
The premium cost of an Illinois bid bond is calculated by multiplying the required bond amount by the premium rate. An appropriate premium rate is determined through an underwriting analysis of the potential risk of the surety not being repaid for claims paid on the principal’s behalf. The risk level is inversely proportional to the principal’s personal credit score. A high credit score means low risk, which is rewarded with a low premium rate. A low credit score signals higher risk and calls for 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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