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 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?
The premium for a Louisiana bid bond is determined by multiplying the required bond amount by the premium rate the surety sets for the principal on a case-by-case basis. The premium rate depends on the risk of extending credit to the principal, as measured by the principal’s personal credit score.
The higher the principal’s credit score, the lower the risk to the surety and the lower the premium rate will be. Conversely, a low credit score means the risk level is higher, so the premium rate also 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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