Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your bid bond needs.
What Are Maine Bid Bonds?
Maine bid bonds provide important financial protection for both public and private construction project owners by guaranteeing that the bidding contractor (known as the bid bond’s “principal”):
- Has submitted a bid that is accurate and realistic,
- Can furnish the necessary performance and payment bonds if chosen as the winning bidder, and
- Will accept the job and enter into a contract with the government contracting authority or private project owner (the bond’s “obligee”).
The principal is legally obligated to compensate the obligee for any failure to live up to that guarantee.
Who Needs Them?
Most government contracting authorities in Maine will require contractors vying for a project through competitive bidding to furnish bid security, typically in an amount equal to five to ten percent of the estimated project value. While other forms of security, such as escrowed cash or an irrevocable letter of credit, most contractors prefer not to tie up their cash or credit and purchase a bid bond for much less.
Private project owners of larger construction projects often require bid bonds as financial protection for themselves and any investors.
How Do Maine Bid Bonds Work?
The bond’s guarantor (the surety) is the third party to any Maine bid bond. Although the principal is legally obligated to pay a valid claim by the obligee, the surety guarantees payment. To execute that guarantee, the surety will pay the claimant directly, creating a debt the principal must then repay according to the surety’s credit terms. Failure to do so typically results in the surety taking legal action to recover the debt.
How Much Do They Cost?
The premium for a Maine bid bond depends on two factors—the required bond amount established by the obligee and the premium rate the surety sets for the principal. The premium rate is based on the surety’s assessment of the risk inherent in extending credit to the principal, as measured by the principal’s personal credit score.
A high credit score is reliable evidence of a low risk of the surety not being repaid for claims paid on the principal’s behalf, so the premium rate will be low. A low credit score signifies a higher risk, which means the premium rate will be higher.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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