What is a California Bid Bond?
Updated: Oct 16, 2021
When your potential client wants to ensure that a project is completed, they will usually find contractors that have bonded licenses. These licenses acts as insurance on the contractors work. If a project is not up to par with contractor’s requirements then the client can request a pay off.
When this occurs the surety company (Company issuing the bond) will pay the client for the any incomplete work. This acts as a benefit for contractors as it makes them look more trustworthy in the eyes of clients.
These bonded contractors are more likely to find new work whenever they want. In most cases a contractor will take out a California bid bond on a new project.
Under the terms of this bond, a project owner is guaranteed that the bid will be accurate and the contractor will submit a performance bond.
The contractor can be held liable if it submits an inaccurate bid, fails to submit a performance bond, or backs out of the project.
It is a first bond between the contractor and the project owner. It provides assurance to the project owner that the contractor has good financial standing and will fulfill its contractual obligations.
The contractor has to pay out on the bond if it fails to honor the bid. The payout amount can include payments for legal expenses. A claim can be filed against the contractor if it fails to abide by the terms of the bond.
Some contractors encounter an unexpected problem that makes it difficult for them to fulfill the bid terms and conditions.
When the principal (the contractor) fails to honor the bid terms, both the principal and surety become liable for the additional expenses incurred by the project owner in finding a replacement contractor.
The main purpose of the bid bond is that the contractor will enter into an agreement with the project owner if the contract is awarded to it. The contractor has to provide all necessary items needed to fulfill the contractual obligations of bidding. Such items include a signed contract, performance payment bond and proof of insurance. The bid guarantee is released after these items have been submitted.
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