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 Virginia Bid Bonds?
Bid bonds are a vital type of surety bond. These bonds offer financial protection to project owners during the contractor selection process through competitive bidding. Financial losses are typically averted when contractors engage in unrealistic, inaccurate, or frivolous bids, fail to qualify for necessary performance and payment bonds, or exhibit an unwillingness or inability to accept the job upon winning the bid.
Bid bonds serve a dual purpose: 1) guaranteeing the bidder’s commitment to entering a contract if offered, and 2) providing a mechanism to compensate the project owner for monetary damages resulting from a contractor’s failure to fulfill that commitment.
Who Needs Them?
The state of Virginia mandates bid bonds for all competitive bidding on government-funded construction projects. The bond’s value must be at least 5-10% of the bid price. Private project owners may also stipulate bid bond requirements, particularly for larger construction endeavors.
How Do Virginia Bid Bonds Work?
Virginia bid bonds establish a legal agreement among three key entities: the project owner (obligee), the bidding contractor (principal), and the bond’s guarantor (surety). In the event of a valid claim for monetary damages submitted by the obligee, the principal is bound to pay it.
However, with the surety having guaranteed the payment, it steps in to cover the initial payment as an extension of credit to the principal. Subsequently, the principal must repay the resulting debt to the surety in accordance with agreed-upon credit terms. Failure to do so may lead to legal action by the surety to recover the funds.
How Much Do They Cost?
In Virginia, the bid bond process involves these factors:
- The obligee, often the project owner, determines the required bond amount.
- This amount typically falls within a range of 5% to 10% of the total bid.
- When underwriting bid bonds for smaller contracts, the contractor’s personal credit history becomes a pivotal element in assessing financial reliability.
- As projects scale, the underwriting process gains depth by conducting a comprehensive analysis of the project’s specific location, scrutinizing the contractor’s stability, and reviewing their creditworthiness.
At Surety Bond Professionals, we extend bid bonds to Virginia contractors without additional charges when they purchase a Performance and Payment (P&P) bonds through us.
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