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Assure the project owner that the contractor submitted the bid in good faith, intending to complete the contract at the bid price, and has the financial resources to obtain the requisite Performance Bonds. It provides project owner (Oblige) with economic downside security in the event that a contractor is awarded a project but declines to proceed, forcing the project owner to accept the next highest bid. To compensate the project owner for the cost difference, the defaulting contractor must forfeit up to their full bid bond amount (a percentage of the bid amount).Do you want to learn more? Visit MEY’S INSURANCE SERVICES
Performance Bonds – Provide financial security to the Oblige (project owner) from the Surety in the event that the Principal (contractor) is unwilling or otherwise fails to fulfil their contractual obligations. Payment Bonds – Provides the Oblige with guarantees that material suppliers and subcontractors will be compensated by the Surety if the Principal defaults on his payment commitments to certain third parties, avoiding project delays and mechanics’ liens.
Surety underwriters have the difficult and ongoing task of evaluating Principals requesting a bond. Companies who depend on bonding to win projects realise how important it is to build and maintain a positive relationship with their Surety companies. Before issuing a bond, surety underwriters must put the Principal through a stringent underwriting procedure, and they will continue to track the progress of the Principal’s projects for any warning signs of potential default. Firms applying for a surety bond must have the most comprehensive details in any “insurance” application process. Companies that would need bonds should have a current portfolio of the necessary documents on hand to make the underwriting process easier and faster. Bid Bonds are usually issued at no expense or as a bonus in exchange for the Surety’s underwriting of the Performance Bond if the contractor is awarded the project.