Many suppliers and contractors understand the concept of bid bonds. However, if you are a new business person, you might not really understand why bid bonds are essential, the responsibility they carry, and how they can be obtained. This brief article seeks to give more information about bid bonds and how they can help catapult your business.
What is a Bid Bond?
A bid bond is a written guarantee, usually from a financial institution, submitted to the individual/organization that has advertised for a service (project owner) by a business that is willing to supply the service to ensure that upon receiving the bid/tender, they shall take on the job and in the price terms that they had put in the bid/tender.
In Kenya, most public institutions will require that you have a bid bond submitted in their tender advertisements.
Bid bonds are the first thing you need in order to bid on these public jobs, as they guarantee the bids you submit are accurate. Bid bonds also stipulate that other necessary performance and payment bonds required throughout the project, as to further guarantee the work to be done and protect the project owner will be made available.
How a Bid Bond Works
A bid bond protects the organization that has advertised for the service (project owner) as there is a total bond amount that a supplier/contractor will be liable to pay should he/she breach the contract by not taking on the project or by asking for a higher price.
In the event default by the service provider, the project owner can file a claim against the bid bond, which the guarantor – usually a bank will pay in the amount of how much more he has to pay to contract the next-lowest bidder for the project or of the face value of the bid bond.
Where and How Can You Get a Bid Bond?
Usually a bank or financial institution will provide bid bonds and other sureties/guarantees.
Credit Bank provides bid bonds within limits stated on the contract/tender document calling for the bid bond. As for the how, when you apply for a bid bond at Credit Bank, we shall do an evaluation of the financials you have provided and where necessary, the applicable collateral. This process should not take more than a few hours and can cost from as low as KES 2,000.