Bid bond
A bid bond goes in with your bid. It promises that if you are chosen, you will sign the contract at your price and provide the bonds the tender requires. If you walk away, the surety can be called on for the loss, up to the bond's amount.
Tenders often ask for around 10% of the bid price, but read yours. Some state a fixed dollar amount, and some give you a choice of a certified cheque instead.
Consent of surety
Also called an agreement to bond. This is your surety's written promise that it will issue the performance bond and the labour and material bond if you win. It costs the owner nothing and tells them you can get bonded.
It is not a bid bond. A tender may ask for both, and sending one does not satisfy the other.
Performance bond
You provide this after you win. If you default on the contract, the surety steps in to have the work finished or pays for the loss, up to the bond's amount. Public construction often asks for 50% of the contract price.
Labour and material payment bond
Also provided after you win. It protects your subcontractors and suppliers. If you don't pay them, they can claim against this bond. It is also commonly 50% of the contract price, and it is separate from the performance bond.
What about a letter of credit or a certified cheque?
Some tenders accept a certified cheque, a bank draft or an irrevocable letter of credit as bid security. They tie up your cash or your credit line until the bid is settled, while a bond usually doesn't. If the tender does not list one as allowed, don't send it.
How to avoid being thrown out
- Use the form the tender names. Canadian construction often uses the CCDC 220 bid bond, CCDC 221 performance bond and CCDC 222 labour and material bond.
- Check the amount, the owner's exact legal name, the project name and the closing date on the bond.
- Check the signatures and the seals, and any electronic bond rules. Some buyers accept only certain e-bonding services.
- Read every addendum. An addendum can change the bond amount or the closing date, and your bond has to match.
- Call your broker when you decide to bid, not the day before closing. A new surety will want your financial statements, and that takes time.
Knowing your limit before you read the tender
Your surety will give you a limit for a single job and for all your work together. Enter those limits in BidCaliper and any tender that goes past them is flagged before you spend a day on it.