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 Missouri Bid Bonds?
A Missouri bid bond is a contractor’s guarantee to a state or local contracting authority or private construction project that:
- The contractor’s bid price is accurate and realistic,
- The contractor (the bid bond’s “principal”) is able to obtain the necessary performance and payment bonds if chosen as the winning bidder, and
- The contractor will enter into a contract with the contracting authority or private project owner (the bond’s “obligee”) if awarded the job.
A bid bond provides a source of funds for compensating the obligee if the principal fails to live up to this guarantee.
Who Needs Them?
Under Missouri’s Revised Statutes, the Department of Transportation and other state agencies use a competitive bidding process to choose contractors for construction projects valued above a certain dollar amount. The required bid bond amount typically is 5-10% of the bid price.
How Do Missouri Bid Bonds Work?
A Missouri bid bond is a legally binding agreement between the three parties to the surety bond agreement: the obligee, the principal, and the bond’s guarantor (called the “surety”). While the principal is legally obligated to pay a valid claim by the obligee, the surety guarantees that payment by agreeing to put up the money and pay the obligee directly on behalf of the principal. The principal must repay the resulting debt in accordance with the surety’s credit terms or face legal action by the surety to recover the funds.
How Much Do They Cost?
The premium a principal will pay for a Missouri bid bond depends on two factors: the bond amount established by the obligee and the premium rate set by the surety. The premium rate will reflect the surety’s assessment of the risk of not being repaid for the credit extended to the principal for the purpose of paying a claim. The surety uses the principal’s personal credit score as the metric for risk.
A principal with a high credit score is assumed to present a low risk to the surety, which means the premium rate will be low as well. A principal with a low credit score poses a greater risk and will be assigned a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of 0.5% to 3%.
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