Tennessee Bid Bonds

Tennessee 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 Tennessee Bid Bonds?

In Tennessee, as in other states, bid bonds help prevent construction project owners from financial losses caused by contractors who:

  • Submit unrealistic or inaccurate bids,
  • Are unable to obtain the performance and payment bonds required for the winning bidder to enter into a construction contract,
  • For whatever reason, don’t accept the job if offered a contract.

Having to find another contractor, which may require vetting another of the original bidders or re-advertising the job and evaluating a new batch of proposals of, takes time and effort. It can also cause significant project delays. Bid bonds are a form of bid security that 1) guarantees that the bidder can and will accept the job if offered a contract and 2) ensures that project owners will be compensated for monetary damages resulting from a contractor’s failure to live up to that guarantee.

Who Needs Them?

There is no universal requirement for bid bonds in Tennessee. However, they are commonly required for projects funded by the state or a local government entity. Private project owners may also require them in competitive bidding situations, particularly for larger projects. The required bond amount is typically between five and ten percent of the bid amount.

How Do Tennessee Bid Bonds Work?

A Tennessee bid bond brings together three parties with different interests:

  • The project owner (the “obligee”),
  • The contractor (the “principal”), and
  • The bond’s guarantor (the “surety”).

The bid bond agreement is legally binding on all three parties. The legal obligation to pay the obligee’s valid claim for damages belongs entirely to the principal. 

However, the surety has guaranteed the payment of a valid claim by agreeing to extend credit to the principal for that purpose, if necessary. Therefore, the surety will pay the obligee directly, which creates a debt that the principal must subsequently pay back in accordance with the surety’s credit terms. A principal who does not repay that debt is likely to be sued by the surety to recover the funds.

How Much Do They Cost?

In Tennessee, bid bonds are essential for guaranteeing the integrity of projects. The obligee, who is usually the project owner, establishes the required bond amount, which usually falls between 5% and 10% of the project offer. Surety Bond Professionals provides Tennessee contractors with bid bonds at no cost. We are able to offer this because contractors will need to get Performance and Payment (P&P) bonds from us after winning the contract. 

For underwriting for smaller companies, a personal credit score is what is weighed most heavily. Underwriters perform a more thorough review as project size increases. This entails assessing the precise location of the project, analyzing the stability of the contractor, and carefully examining their creditworthiness.

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Our surety bond professionals will help you grow your revenue by maximizing your surety capacity. Call us today!