New Jersey Bid Bonds

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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 New Jersey Bid Bonds?

By submitting a bid bond during competitive bidding on a construction project, a contractor is guaranteeing three key things:

  • the accuracy of the bid price,
  • the contractor’s ability to purchase performance and payment bonds if necessary, and
  • the contractor’s intent to accept the job if chosen as the winning bidder.

A bid bond provides funds with which to compensate the project owner for any monetary damages resulting from the contractor’s failure to live up to these guarantees.

If a contractor violates the terms of a bid bond, causing the project owner financial harm, the bond provides a way for the project owner to recover monetary damages.

Requiring bid bonds also benefits project owners by preventing frivolous bids.

Who Needs Them?

New Jersey does not mandate bid bonds for all public works projects. However, some government entities (state and local) may require them from contractors bidding on certain government-funded construction jobs. Private project owners may also require bid bonds from contractors in competitive bidding situations.

The bid bond amount usually is 5 to 10% of the total bid price.

How Do New Jersey Bid Bonds Work?

In the language of surety bonds, the three parties to a New Jersey bid bond are referred to using the following terms:

  • obligee – the project owner requiring the bond
  • principal – the contractor purchasing the bond
  • surety – the bond’s guarantor

Under New Jersey law, the principal is legally obligated to pay a valid claim against a bid bond. However, the surety guarantees the payment of claims, so the usual practice is for the surety to extend credit to the principal, then draw against that credit line to pay the claimant directly. The principal must repay the resulting debt or risk being sued by the surety.

How Much Do They Cost?

Two factors go into the calculation of a bid bond’s premium cost: the required bid bond amount and the premium rate. The surety assigns the premium rate for each bid bond by assessing the risk to the surety. The greatest underwriting concern is the risk of the principal not repaying the surety for claims paid on the principal’s behalf. The risk assessment relies heavily on the principal’s personal credit score.

A high score strongly suggests a low risk to the surety, which leads to a low premium rate. A low credit score indicates higher risk, which means the contractor will pay a higher premium rate.

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.

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