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 Kentucky Bid Bonds?
Kentucky bid bonds protect construction project owners against any monetary loss caused by a contractor who:
- submits a winning bid that is later found to be inaccurate or unrealistic,
- cannot qualify for the performance and payment bonds required from the winning bidder, or
- does not accept the job and enter into a contract to complete it.
A bid bond guarantees that none of these situations will arise. If the contractor (known as the bond’s principal) fails to live up to that guarantee, the bid bond provides a way to compensate the project owner (the obligee) for any resulting financial harm.
Who Needs Them?
Kentucky requires bid bonds for all competitive sealed bidding for state-funded construction contracts estimated by the contracting authority to be valued in excess of $40,000. Many private project owners also require bid bonds.
How Do Kentucky Bid Bonds Work?
Every Kentucky bid bond is a legally binding contract between the obligee, the principal, and a third party—the bond’s guarantor (referred to as 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. The principal must subsequently repay the resulting debt to the surety. Failing to do so can lead to the surety suing the principal to recover the funds.
How Much Do They Cost?
The premium a principal will pay for a Kentucky bid bond is the product of multiplying the required bound amount (established by the obligee) and the premium rate (assigned to the principal by the surety). The premium rate will reflect the surety’s assessment of the risk of extending credit to the principal. The best measure of the risk of the surety not being repaid for claims paid on the principal’s behalf is the principal’s personal credit score.
There is an inverse relationship between credit score and risk. A high credit score indicates a low-risk level, which deserves a low premium rate. A low credit score is a sign of high risk, so 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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