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 Washington Bid Bonds?
The purpose of Washington bid bonds is to provide financial protection for public or private project owners in the event that a contractor:
- Submits an inaccurate or unrealistic bid and then can’t do the work for that price,
- Cannot qualify for the necessary performance and payment bonds if chosen as the winning bidder, or
- Does not accept the job if offered the contract.
A Washington bid bond is a contractor’s guarantee that the project owner will not experience a financial loss due to any of these scenarios. If such a loss does occur, the bond provides a way for the contractor (known as the bond’s “principal”) to compensate the project owner (the bond’s “obligee”).
Who Needs Them?
Washington contracting authorities can require a bid guarantee for contracts valued in excess of $100,000. The bid guarantee can be in the form of a certified check, but most contractors choose to purchase a surety bond, which must be in an amount equal to 5% of the bid price. Private project owners may also impose a bid bond requirement.
How Do Washington Bid Bonds Work?
The bond’s guarantor (called the “surety”) is the third party to a Washington bid bond. While the principal bears the full legal obligation for paying claims, the surety guarantees that they will be paid. Therefore, the surety will pay a claim initially, which creates a debt owed by the principal to the surety. Failing to repay the surety can result in the principal being sued to recover the funds.
How Much Do They Cost?
The premium cost of a Washington bid bond is calculated by multiplying two factors—the required bond amount established by the obligee and the premium rate set by the surety on a case-by-case basis.
The premium rate is based on the risk of the surety not being repaid for claims paid on the principal’s behalf. The principal’s personal credit score is considered the best measure of that risk.
A high credit score means the risk to the surety is low, which merits a low-interest rate. A low premium rate means the risk level is higher, which warrants a higher interest rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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