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 performance bond needs.
What Are Utah Bid Bonds?
Utah bid bonds are a type of surety bond that provides some financial protection for construction project owners from financial losses experienced during the selection of a contractor through competitive bidding. Such losses typically occur when contractors:
- Submit unrealistic, inaccurate, or frivolous bids,
- Can’t qualify for the performance and payment bonds required in order to enter into a construction contract,
- Are unwilling or unable to accept the job if chosen as the winning bidder.
Bid bonds both 1) guarantee that the bidder will enter into a contract if one is offered, and 2) provide a way to compensate the project owner for monetary damages caused by a contractor’s failure to live up to that guarantee.
Who Needs Them?
The state of Utah requires a bid bond for all competitive bidding on government-funded construction projects. The bond must be in an amount equal to at least 5% of the bid price. Private project owners may also require them, particularly for larger construction jobs.
How Do Utah Bid Bonds Work?
A Utah bid bond is legally binding on its three parties:
- The project owner (known as the “obligee”),
- The bidding contractor (the “principal”), and
- The bond’s guarantor (the “surety”).
When the obligee submits a valid claim for monetary damages, the principal is legally obligated to pay it. But having guaranteed the payment of claims, the surety will pay it initially as an extension of credit to the principal. The principal must then repay the resulting debt to the surety according to the surety’s credit terms. Not repaying it typically results in the surety taking legal action to recover the funds.
How Much Do They Cost?
In Utah, bid bonds play a crucial role. Here’s how a surety might navigate the bid bond process to meet the unique needs of contractors:
- the obligee, typically the project owner, determines the required bond amount,
- they then determine a range between 5% and 10% of the total bid,
- when underwriting bid bonds for smaller contracts, the contractor’s personal credit history is a key factor in assessing financial reliability,
- as projects scale up, the underwriting process delves deeper by conducting a comprehensive analysis of the project’s specific location, the contractor’s stability, and a review of their creditworthiness.
Surety Bond Professionals offers bid bonds to Utah contractors without additional charges when they acquire Performance and Payment (P&P) bonds through us.
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