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 Iowa Bid Bonds?
Government (state or local) contracting authorities and many private project owners rely on bid bonds to protect them against the financial losses they can experience due to the actions of the winning contractor chosen through competitive bidding. Iowa contractors purchasing a bid bond are guaranteeing that:
- Their bid on a project is accurate,
- They will be able to furnish any required performance and payment bonds required from the winning bidder, and
- They will accept the contract if offered the job.
A bid bond provides a way to compensate the project owner (the bond’s “obligee”) for monetary damages if the contractor (known as the “principal”) fails to live up to this guarantee.
Who Needs Them?
Nearly all construction projects funded by a state or local government contracting authority require bidders to provide a bid bond. So do many private construction projects. In Iowa, the required bond amount typically is five to ten percent of the full bid price.
How Do Iowa Bid Bonds Work?
In addition to the obligee and the principal there is a third party to every Iowa bid bond—the bond’s guarantor (called the “surety”). Although the principal is legally obligated to pay a valid claim, the surety guarantees that the principal will pay by agreeing to extend credit to the principal for that purpose if needed.
In practice, the surety will pay the claimant directly, creating a debt that the principal must then repay according to the surety’s credit terms. Not repaying that debt can subject the principal to legal action by the surety to recover the funds.
How Much Do They Cost?
The premium cost of an Iowa bid bond is based on two factors: the required bond amount and the premium rate. The surety assigns the premium rate for each bid bond applicant through an assessment of the risk of not being repaid for claims paid on the principal’s behalf. The best metric for that risk is the principal’s creditworthiness.
A high personal credit score indicates a low-risk level, so the premium rate will be low. A bond applicant with a low credit score presents a higher risk to the surety, which means the premium rate will be higher.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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