July 3, 2022
Technical Assurance, LLC

Bid Bonds

The intent of the bid bond is to keep frivolous bidders out of the bidding process by assuring that the successful bidder will enter into the contract when tendered by the owner at the price bid and provide the performance and payment bonds as required by the contract documents. Failing to do so is normally the difference between the low bidder and the second bidder up to the penal amount of the bid bond issued, generally expressed as a percentage of the amount bid, between 5 and 20%.

The most important facet in issuing bid bonds is the pre-qualification process that takes place before the surety’s approval of the bid bond.  By the sureties’ issuance, they are making a statement to the owner that, after evaluation of the contractor’s abilities, the contractor has both the financial capacity and resources to complete the project.  This prequalification and third party guarantee has protected the taxpayer for years and is the cornerstone of the industry’s competitive bid process.

Electronic Bidding

The enactment of the Uniform Electronic Transactions Act, (“UETA”) and the Electronic Signatures in Global and National Commerce Act, (“E-Sign”,) establish legal foundation and validity to electronic records and signatures.   Essentially, UETA gives e-records and e-signatures the same legal status as their paper counterparts which allow for the electronic execution of contracts and surety bonds. 

 While changing the way business transactions are conducted, electronic bidding simply replicates the bond execution process, from signing the bond form by the principal and surety to physically delivering the form to the obligee electronically through the Internet or other electronic medium without paper or delay.  The NASBP and the SFAA strongly support the electronic execution and filing of surety bonds as a way to reduce processing costs and increasing efficiency.