Skip to main content

Contractor Bond: What is a New York Bid Bond?

Today we’re going discuss a specific type of contractor bond, the New York bid bond.

new york bid bondContractors, home builders, re-modelers and construction industry professionals often need bid bonds as part of bidding on new jobs.  New York bid bonds are a crucial function of procuring work for a construction firm in New York State, especially when working with municipalities or state government.

From Business Dictionary – a Bid Bond is a written guaranty from a third party guarantor (either a bank or insurance carrier) submitted to a principal (client or customer) by a contractor (bidder) to win a bid.

A bid bond is NOT the same thing as business insurance.

A New York bid bond is not providing protection for the contractor.  The bid bond is providing financial reimbursement to the entity offering the work in the event the contractor makes an offering but is unable to perform work.

Why is a Bid Bond necessary?

A bid bond is only necessary if the Principal, the entity requesting work, requires a New York bid bond.  Small or independent ny contractors dealing primarily with homeowners may never have a reason to purchase a New York bid bond.  However, almost without exception, any job dealing with a business, municipality, or State / Federal government will require a bid bond.

Why does the Principal request a New York Bid Bond?

The bid bond provides two protections against contractors placing bids on requested work and then being unable to perform.

  1. Guarantee Performance Bond – Bid Bond ensures the Principal that upon acceptance of a contractors work-bid, the Bid Bond will be replaced with a Performance Bond.  Insurance Carriers underwrite Bid Bonds and Performance Bonds at the same time ensuring consistency between the two products.
  2. Liquidated Damages – In the event work cannot be performed by the contractor who’s work-bid was accepted, the Bid Bond will pay the Principal the difference between the accepted bid and the next highest bid (this amount cannot exceed the face value of the Bid Bond). This is also known as cashing the bond.

What happens when a New York Bid Bond is cashed?

The repercussions to a contractor who has a bid bond cashed can be harsh.  A New York bid bond is not an insurance policy, but rather a surety bond product. In the event that a New York bid bond is cashed the guarantor (bank or insurance carrier) sends the appropriate payment amount to the Principal to cover the bond obligation.  However, unlike an insurance policy once payment is made from guarantor to Principal, the guarantor seeks recovery of that payment from the offending contractor.

Let’s get this idea clear because it’s very important!

NY Contractors – Bid bonds provide a guarantee to the Client, they do not release your business from the bid obligation.  The contractor will be responsible to repay the Bank or Insurance Carrier any payments made to the Client.

If you need a New York bid bond for a job you’re bidding on call our Bonding Specialist at (518) 456-6688 and click here to contact us via email.