Surety Bonds NJ: Understanding Bid Bonds
Bid bonds are an essential commercial construction standard. These bonds are intended to serve as proof to a project owner that a contractor has the capabilities to comply with the financial confines of the bid contract and execute all contract requirements to complete to project. Bid bonds serve as a guarantee to the project owner that the chosen contractor is financial capable of providing the services offed at the agreed upon price. Essentially it proves that a contractor has the resources to undertake all the necessary financial responsibilities that accompany a project, such as labor costs, materials and other fees. The bonds are designed to protect a project owner’s investment in a contractor’s services. Should the contractor or project fail, the project owners is able to collect compensation in the form of a construction surety bond, bid bonds are one such bond.
Requiring a bid bond is designed to keep contractors from submitting frivolous bids on projects they cannot afford to decrease a project owner’s risk exposure to financial losses. While some private project owners may not require bid bonds, contractors are required under the Miller Act to submit bid bonds on any federal project they are bidding for. The majority of private development firms have adopted the policy of requiring bid bonds for their projects as well. In NJ and other states, surety bonds are even required for contractors to obtain their necessary licenses and permits.
Contractors that fail to comply with the terms of the bond, typically reflecting of the contract, will be subject to penalties and could even be exposed to legal complications depending on the terms of the bond. Should a contractor default, both the bond holding contractor and the surety provider are liable for any additional costs a project owner incurs by selecting and awarding a new contractor. The amount is typically the difference between the lowest bid and the second lowest bid. In order to recover their losses, a bonding company can sometime press legal charges against the contractor to recover these costs.
As a NJ contractor it is important not only to be properly bonded, but to have comprehensive contractor insurance as well to protect yourself from the risks you face through the course of your business. At Provident Protection Plus Insurance Agency, we specialize in both NJ Surety services and Commercial Insurance to help New Jersey contractors protect their operations. To learn more about all our offerings, give us a call today at (888) 990-0526.