If you are looking for a contractor to do work on your home, one of the first things you'll need to do is get estimates, also known as bids, on the job. As you do so, you should make sure that the contractors who give you estimates are backed by bid bonds. You may have never heard this terminology, let alone, an explanation of what bid bonds are. It really is important to know this information as you pursue estimates for your home -- so read on to learn!
What is a bid bond?
Bonds, in general, are a sort of insurance policy. Essentially, a bind on a bid ensures that if the contractor is hired to do the job, they will only charge the amount specified in the estimate for the materials. What this prevents is a contractor giving you an unreasonably low estimate in order to get chosen for the job, and then charging you an arm and a leg more than the estimate once the work is done.
How do bid bonds protect you?
With a bid bond, if the contractor does deviate from the estimate by more than a specified amount, they will be required to pay a fee to the bonding company. The amount depends on the exact contract, but it is typically enough to make it financially unwise for the contractor to deviate from the estimate. Why would they charge you an extra $3,000 if it means they would have to pay a $3500 fee to the bond company?
Who pays for the bid bond?
Bid bonds are usually a small percentage of the cost of the project to be done. For instance, if you need $10,000 of work done on your home, the bid bond may cost $100 or so. Typically, the contractor will pay for the bond, but they may include the cost of the bond in your bill if you decide to hire them. Other contractors just roll bid bond costs into their overall operating costs. In either case, the contractor will be the one to contact and coordinate with the bonding company. All you need to do is sign the bond and read it over carefully to ensure the terms are agreeable.
Now that you know the basics about bid bonds, you can make a smarter choice as you get estimates for your home. Talk to your contractor to learn more.