Annual Bid Bonds are becoming more common for Contractors and Project Owners who regularly bid similar work. Find out what these bonds are and how to obtain one.
What Are Annual Bid Bonds?
Annual Bid Bonds are a type of Bid Bond that remains open for a period of one year. The Contractor (Principal) on these bonds gives the owner a new bond annually that allows the contractor to bid on all the Project Owner’s (Obligee) projects throughout the year.
The Surety Bond Company generally approves a single project limit for these bonds which is filed with the Owner. The contractor can then bid projects up to that level.
Example of an Annual Bid Bond
Bill’s Asphalt Construction wants to bid on Texas Department of Transportation’s road projects throughout the year. Usually the TXDOT has a monthly bid letting with multiple projects for bid. Instead of getting a separate bid bond for each separate project, Bill’s Asphalt can file an annual bid bond which will cover all projects for that year with that Obligee.
How are Annual Bid Bonds Different from Regular Bid Bonds?
The guarantee and obligation to the Contractor and Surety are the same on both regular bid bonds and annual bid bonds. The difference is that regular bid bonds are project specific. They cover one bid only and cease when the contractor’s bid is either accepted or awarded to another contractor.
Advantages of Annual Bid Bonds?
Annual Bid Bonds save time and paperwork when a Contractor bids frequently to the same Project Owner. Many DOTs and Owners that use annual bid bonds, combine them with electronic bidding systems such as Surety2000, or Tinubu. This not only saves time for all parties but shipping costs as well.
Disadvantages of Annual Bid Bonds
The biggest drawback to annual bid bonds is with the surety bond company writing the bonds. There has to be a large level of trust between the contractor and the bond company as they could allow the contractor to bid on many projects.
Annual Bid Bonds are also not useful for an Owner who has few projects bidding on a yearly basis.
What is the Cost for an Annual Bid Bond?
Like normal bid bonds, annual bid bonds do not have a cost with most brokers. Brokers and Surety Bond Companies make money when the contractor is awarded a project and Performance Bonds or Payment Bonds are required.
However, when an electronic bidding system is involved, these companies may charge contractors for their services.
Underwriting Annual Bid Bonds
Annual Bid Bonds are underwritten in the same way as regular bid bonds. Underwriters look at the 3Cs which are Credit, Capacity and Character. A surety bond underwriter wants to make sure that a contractor has the financial strength, people, equipment, systems and overall character to complete a project before issuing an annual bid bond. You can read more about the 3Cs here.
Additionally, new contractors, and contractors with financial challenges may find it more difficult to get an annual bid bond. Surety Bond companies often prefer to underwrite each project individually for these contractors.
Annual Bid Bonds Require Indemnity
Like all surety bonds, annual bid bonds still require indemnity. This means that if the surety bond company suffers a loss, they will seek to be reimbursed from the contractor and any other indemnitors. It is important to avoid all losses on annual bid bonds.
Annual Bid Bonds are easy to obtain for most contractors. The experts at Axcess Surety can help most contractors obtain and file these bonds in no time. Additionally, contractors may need other contract bonds and license bonds as well. Contact us anytime with all your surety questions and needs.