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 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?
The surety calculates the premium for a Maryland bid bond by multiplying the required bond amount established by the obligee by the premium rate. The surety assigns each principal a premium rate based on their creditworthiness, as measured by the principal’s personal credit score.
A high credit score is considered the best evidence that there is little risk of the surety not being repaid for claims paid on the principal’s behalf. Low risk earns the principal a low premium rate. A low credit score, on the other hand, signifies a higher risk to the surety, 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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