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A Florida surety bond guarantees principal owners and the public that services will be performed with excellence and security. Florida legally requires a variety of contractors and organizations to secure bonds to conduct business across the public service industry. Single Source Insurance is a leading Florida bonding company. Apply easily online and take advantage of lowest rates. Browse the most common types of FL surety bonds, or contact us for a full list.
Bid bonds are intended to cut down on contractors who bid on and win a job, but then do not accept it.
It�s not uncommon for contractors to bid on multiple projects to increase their odds of landing one, despite their lack of sufficient capacity to handle multiple jobs at a time. Sometimes a winning bidder discovers that their bid is too low to make a profit on the job, and therefore doesn�t sign the contract. Other times, a contractor can�t get the performance and payment bonds required of the winning bidder.
A bid bond is a contractor�s guarantee to accept the job if awarded a contract. The required amount of a bid bond is typically between 5% and 10% of the total contract amount.
Florida bid bonds also provide a source of funds to compensate project owners for costs incurred if the winning bidder does not accept the job or fails to provide the required performance and payment bonds. It costs money to issue a new RFP, go through a second round of vetting bidders, and evaluate proposals. Plus, there are costs associated with delaying the project�s start date.
Bid bonds are usually required for contractors bidding on public works projects funded with taxpayer monies. They�re becoming an increasingly popular risk management tool for owners of private construction projects as well.
A contractor who purchases a Florida bid bond as a prerequisite for bidding on a job, is selected as the winning bidder, and then doesn�t accept the job, is likely to have a claim filed against the bond by the project owner (the �obligee� requiring the bid bond). The claim is essentially a demand for compensation for costs incurred as a result of the winning bidder�s failure to enter into a contract with the obligee.
The surety bond company (known simply as the �surety�) will first make sure that the claim is valid. If it is, they may attempt to negotiate a settlement for less than the claim amount. If no settlement is reached, the surety will go ahead and pay the claim on behalf of the contractor (referred to as the �principal�).
In paying the claim, the surety is activating a credit line that the surety established for the principal when the bond was purchased. The surety bond agreement, which is a legally binding contract, obligates the principal to repay the surety in full.
The principal�s personal credit score, overall financial strength, and history of prior claims are the surety�s primary considerations in setting the premium rate for a given contractor. With good credit, your premium rate for a bid bond could be as low as 1% to 3% of the required bond amount. In general, the better your credit and the larger the bond amount, the lower the premium rate.
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