Michigan 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 Michigan Bid Bonds?
Michigan bid bonds provide financial protection for construction project owners when selecting a contractor through competitive bidding. By purchasing a bid bond, a contractor (the bid bond’s “principal”) guarantees that:
- The bid price is accurate and realistic,
- The principal can and will furnish the necessary performance and payment bonds if awarded the job, and
- The principal will accept the job and enter into a contract with the project owner (the bond’s “obligee”) if chosen as the winning bidder.
A bid bond provides a way to compensate the obligee if the principal fails to live up to this guarantee.
Who Needs Them?
In Michigan, a bid bond (or certified check or money order) is required from contractors submitting a bid for any state-funded construction project expected to exceed $50,000. Most contractors prefer not to tie up their cash and choose to provide bid security in the form of a bid bond. The bid bond must be equal to 5% of the bid price.
Many private project owners also require bid bonds as financial protection for themselves and any investors, particularly for larger construction projects.
How Do Michigan Bid Bonds Work?
A Michigan bid bond is legally binding on the obligee, the principal, and a third party—the bond’s guarantor (the surety). The principal is legally obligated to pay a valid claim filed by the obligee, but the surety guarantees the principal’s payment. That guarantee is in the form of an agreement to extend credit to the principal to pay a claim.
The surety will pay the claimant directly, which creates a debt the principal must subsequently repay. A principal who fails to repay the debt in accordance with the surety’s credit terms is likely to be sued by the surety to recover the funds.
How Much Do They Cost?
In Michigan, the project owner, who serves as the obligee for the bid bond, plays a key role in setting the required bond amount. Typically, this amount is established at 5%-10% of the total bid for the project.
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, 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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