After I entered the job force at 18, I had money problems for quite a number of years. I earned a decent income, but I lived paycheck to paycheck and just felt like I would never get ahead financially. One day, determined to get ahead, I decided to record every purchase I made for a month to find out just where my money was going. I learned a hard lesson that day that small purchases here and there throughout the month really add up. I committed to a much smaller budget and began stashing savings away. Then, I researched the world of investing and made a few strategic ones with some of my savings. I am now doing much better financially, and I want to help others who need it, so I am starting a blog. Come back often for money management tips and tricks explained simply!
While starting a small business can be an exciting endeavor, it can also cause anxiety if you are worried about how to obtain customers and bid for lucrative contracts. In addition, you may think that you are too small to compete with large firms for local, state, and federal government contracts. However, that is not the case.
One of the most important things you need to do is understand the bidding process for contracts so you can compete with large companies. This involves knowing the ins and outs of bid bonds. The following primer on bid bonds can serve as your guide to understanding the bid bond process so you can help your business compete successfully for government contracts.
Bid Bond Basics
Bidding on government contracts requires more than just filling out a bid application. The government entity that is soliciting bidders, also known as a obligee, wants to make sure that bidders will fulfill contracts based upon agreed financial and performance terms.
So, if you are the lowest bidder that wins the contract, you cannot alter the financial terms or project specifications. The obligee will require you to purchase a bid bond for a certain amount of money to guarantee that you will not break the terms of the contract.
If you break the contract, the obligee can collect damages based on several factors including how much more they will have to pay the next-lowest bidder to begin work on the project. A bid bond also helps to prevent frivolous bids from contractors who may have no intention of fulfilling the contract or who plan to use subpar materials on the project.
How to Obtain a Bid Bond
Before you submit your bid, you need to find a surety agency who will issue a bid bond on your behalf. The agency is basically an underwriter for your project, and it takes on the responsibility of paying the obligee if you break the terms of the contract you earn via the bidding process.
In order to get your application to a surety agency for a bid bond rolling, you will need to submit several items to the agency, including the bid invitation information and the exact specifications of the project such as estimates of the cost of materials, labor subcontractors, and other overhead costs.
A surety agency will analyze your company's finances, credit, and experience. The agency may also take into consideration whether you have been issued a bid bond in the past.
Costs and Regulations
The cost of the bid bond will be a percentage of the project's total cost. Local and state regulations determine how much a surety bond agency can charge you. For example, in California, if you want to bid for a contract with the state's department of transportation, you must purchase a bid bond that is at least 10 percent of what you bid for the project.
When you are ready to bid for a contract, make sure that you can afford the cost of a surety bond.
Avoiding Bond Claims
When you submit a bid and it wins, the last thing you want is for the obligee to spot a mistake in the bid after you have started working on the project. Inaccurate information may lead to an obligee filing a claim against you and demanding that you pay damages. If this happens, you could be at risk for losing the bid and paying out a claim.
In order to avoid a bond claim, you should consult with an accountant to help you gather the information required by the surety agency and the obligee. Bond professionals with surety agencies can also walk you through the process of obtaining a bond and submitting an accurate bid.
If you are in the construction business, you can also purchase construction bid software to help you prepare an accurate bid.
Share28 March 2017
