All City Insurance, Inc.
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CONTRACT BONDS

Bond Program for Contractors

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BID BOND


Bond Penalty: 5% to 10% of project bid


A bid bond is a contract surety bond that serves a specific purpose. Contracts that are negotiated between a project or job owner and a contractor generally to not require submission of a bid bond. Competitively bid projects, i.e., projects that are "let" to the public or to a pool of preapproved contractors often do. The bid bond guarantees two specific obligations.


  • The contractor has diligently prepared his or her estimates and is submitting an offer in good faith. The surety bond guarantees that if awarded the contract that he or she WILL sign the final agreement at the price and in compliance with the specifications of the project.
  • The surety issuing the bid bond will provide the appropriate performance and/or payment bond(s) if the contractor wins the bid.


On a practical note, requiring a bid bond relieves the project owner from being obligated to background and qualify a particular contractor. That prequalification ("due diligence") is work delegated to the risk underwriting specialists of a surety company with vast experience and resources to choose whom may be properly qualified. The surety bond allows the project owner to file a claim for damages against the surety company. The bid bond may be written with indemnity language, allowing claims for only real damages, or forfeiture language which allows a claim for the full penal sum of the surety bond in the event of contractor default.


A bid bond amount is often left "open" until the contractor submits his or her final response to a request for proposal from a project owner. It is rare for a project owner to fix a specific bond amount (bond penalty) because bids often vary during the response period based on changes in work as well as changes in the contractor's estimates. It is easier and general practice to require a bid bond in an amount that represents a percentage of the final bid amount. Bid bond penalties are generally five to ten percent (5% to 10%) of the bid.


Contractors Professional Liability Claims Example

David, a roofing contractor, incorrectly installs the roof of an apartment complex. The tenants of the property discover leaks coming through the ceiling and report this to the property owner. The property owner then files a suit for the damages against the roofing contractor. David’s GL policy covers the property damage to the apartment complex owner’s ceilings, floors and cabinets but does not cover the cost to replace the faulty roof. Since there is no Contractor’s Professional Policy in place, David is now responsible for the cost of materials and labor in replacing the roof.



A construction management firm responsible for the management of multiple subcontractors failed to adhere to change order provisions in the client contract. The failure to coordinate, manage and report changes to the owner resulted in project delays and contingent business interruption damages in the amount of $570,000.


GET A QUOTE


PERFORMANCE AND PAYMENTS BONDS


Bond Penalty: Based on Contract Total 


A bid bond is a contract surety bond that serves a specific purpose. Contracts that are negotiated between a project or job owner and a contractor generally to not require submission of a bid bond. Competitively bid projects, i.e., projects that are "let" to the public or to a pool of preapproved contractors often do. The bid bond guarantees two specific obligations.


  • The contractor has diligently prepared his or her estimates and is submitting an offer in good faith. The surety bond guarantees that if awarded the contract that he or she WILL sign the final agreement at the price and in compliance with the specifications of the project.
  • The surety issuing the bid bond will provide the appropriate performance and/or payment bond(s) if the contractor wins the bid.


On a practical note, requiring a bid bond relieves the project owner from being obligated to background and qualify a particular contractor. That prequalification ("due diligence") is work delegated to the risk underwriting specialists of a surety company with vast experience and resources to choose whom may be properly qualified. The surety bond allows the project owner to file a claim for damages against the surety company. The bid bond may be written with indemnity language, allowing claims for only real damages, or forfeiture language which allows a claim for the full penal sum of the surety bond in the event of contractor default.

A bid bond amount is often left "open" until the contractor submits his or her final response to a request for proposal from a project owner. It is rare for a project owner to fix a specific bond amount (bond penalty) because bids often vary during the response period based on changes in work as well as changes in the contractor's estimates. It is easier and general practice to require a bid bond in an amount that represents a percentage of the final bid amount. Bid bond penalties are generally five to ten percent (5% to 10%) of the bid.


Contractors Professional Liability Claims Example

David, a roofing contractor, incorrectly installs the roof of an apartment complex. The tenants of the property discover leaks coming through the ceiling and report this to the property owner. The property owner then files a suit for the damages against the roofing contractor. David’s GL policy covers the property damage to the apartment complex owner’s ceilings, floors and cabinets but does not cover the cost to replace the faulty roof. Since there is no Contractor’s Professional Policy in place, David is now responsible for the cost of materials and labor in replacing the roof.



A construction management firm responsible for the management of multiple subcontractors failed to adhere to change order provisions in the client contract. The failure to coordinate, manage and report changes to the owner resulted in project delays and contingent business interruption damages in the amount of $570,000.


GET A QUOTE

applications AND FORMS

Contractors Professional Liability Application (pdf)

Download

General Contractor and Project Manager Supplemental Application (pdf)

Download

Architect Engineers and Construction Managers Professinal Liability Application (pdf)

Download

Real Estate Developers E&O Insurance Application (pdf)

Download

Contractors Pollution Liability Application (pdf)

Download

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All City Insurance, Inc.

(305)463-9431

Hours

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09:00 am – 05:00 pm

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09:00 am – 05:00 pm

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All City Insurance, Inc.

1400 NW 107th Avenue, Suite 210 - Doral, FL 33172

(877) 463-9431 - gmail@allcityins.com

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