Louisiana Bid Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 75 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 Louisiana Bid Bonds?
Louisiana bid bonds play an important role in demonstrating the good faith of contractors bidding on construction projects funded by the state or by private project owners. They provide financial protection for the project owners by guaranteeing that:
- The contractor’s bid is accurate and realistic,
- The bidder can and will provide performance and payment bonds if awarded the contract, and
- If chosen as the winning bidder, the contractor will accept the job and enter into a contract to complete it.
The contractor (the bond’s principal) is legally obligated to compensate the project owner (known as the obligee) for any failure to live up to that guarantee.
Who Needs Them?
Louisiana requires the submission of a bid bond when bidding on state-funded construction projects. The required bid bond amount is five percent of the total bid price. It’s also fairly common for private project owners to require bid bonds on larger projects as financial protection for themselves and any investors.
How Do Louisiana Bid Bonds Work?
The bond’s guarantor (the surety) is the third party to the legally binding Louisiana bid bond. When the obligee has a legitimate claim on a bid bond, the principal is legally obligated to pay it. However, the surety guarantees that it will be paid by agreeing to lend the necessary funds to the principal for that purpose.
The obligee will pay the claimant directly as an extension of credit to the principal. The principal must then repay the resulting debt to the surety. Failing to repay the debt according to the surety’s credit terms can lead to the surety taking legal action to recover the funds.
How Much Do They Cost?
In Louisiana, determining the necessary bond amount is mostly up to the project manager, who also acts as the obligee for the bid bond. This sum is usually set at between 5% and 10% of the project's total bid.
When it comes to underwriting for various projects, the primary consideration is the contractor's personal credit history. For smaller contracts and enterprises, this aspect takes center stage. However, for larger and more complex projects, the underwriters of the assurance delve deeper into their assessment. They analyze factors such as:
- the project's location,
- the contractor's financial stability,
- and their overall creditworthiness.
This meticulous evaluation helps determine the final cost.
Bid bonds are provided free of charge by Surety Bond Professionals in Louisiana, with the understanding that if the contractor is awarded the contract, they will proceed to secure Performance and Payment (P&P) bonds through the surety to advance with the project.
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