Maryland 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 Maryland Bid Bonds?
Maryland bid bonds are intended to protect construction project owners against the financial impact of choosing the wrong contractor in a competitive bidding situation. A bid bond guarantees that a contractor (known as the bid bond’s “principal”):
- Has submitted an accurate and realistic bid,
- Qualifies to obtain the necessary performance and payment bonds if awarded the job, and
- Will enter into a contract with the project owner (the bond’s “obligee”) if chosen as the winning bidder.
Who Needs Them?
In Maryland, a bid bond is required by state contracting authorities only for construction contracts expected to exceed $100,000. Private project owners of larger construction projects often require bid bonds as financial protection for themselves and any investors.
How Do Maryland Bid Bonds Work?
The bond’s guarantor (the surety) is the third party to any Maryland bid bond. Although the principal is legally obligated to pay a valid claim by the obligee, the surety guarantees payment. To execute that guarantee, the surety will pay the claimant directly, creating a debt the principal must then repay according to the surety’s credit terms. Failure to do so typically results in the surety taking legal action to recover the debt.
How Much Do They Cost?
Bid bonds are provided free of charge by Surety Bond Professionals, and they are typically issued with the understanding that if the contractor wins the contract, they will obtain Performance and Payment (P&P) bonds through the surety to move forward with the project. In Maryland, the project owner, who acts as the obligee for the bid bond, first establishes the required bond amount, typically set at 5%-10% of the total bid amount.
When assessing smaller contracts and enterprises, the primary focus is on the contractor's personal credit history. However, for larger projects, underwriters delve deeper into their analysis. They examine the project's location, the contractor's financial stability, and their overall creditworthiness. This comprehensive evaluation helps determine the final cost.
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