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 Kansas Bid Bonds?
The purpose of a Kansas bid bond is to protect the project owner (known as the bond’s “obligee”) against the financial loss that can result if the winning bidder:
- Has submitted an inaccurate bid, or
- Cannot furnish any the required performance and payment bonds, or
- Backs out and does not accept the job.
A bid bond guarantees that none of the above will happen. If any of these do occur, the bid bond provides a way to compensate the obligee for monetary damages.
Who Needs Them?
Contracting authorities in Kansas, such as the Department of Transportation, typically require bid bonds, particularly for larger projects. For example, the DOT requires a bid bond in the amount of 5% of the total bid price, which obligates the contractor (the bond’s “principal”) to sign a contract within ten days of being chosen as the winning bidder. Many private project owners also require bid bonds.
How Do Kansas Bid Bonds Work?
The third party to every Kansas bid bond, in addition to the obligee and the principal, is the bond’s guarantor (called the “surety”). The principal is legally obligated to pay a valid claim. However, as the guarantor, the surety will extend credit to the principal for that purpose.
In fact, the surety will pay the claimant initially to ensure its swift resolution. The principal then must repay the surety in accordance with the surety’s credit terms. Non-repayment can result in the surety taking legal action to recover the debt from the principal.
How Much Do They Cost?
The premium cost of a Kansas bid bond is a small percentage of the required bond amount. The surety sets that percentage (the premium rate) based on the principal’s personal credit score. This is considered a reliable measure of the risk that the surety won’t be repaid for a claim previously paid on the principal’s behalf.
A high personal credit score means the risk to the surety is low, so the premium rate will also be low. A lower credit score is a sign of greater risk, which 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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