We’d like to take the opportunity to discuss the risks with posting cash as bid security in lieu of a bid bond. We want you to understand that you may be jeopardizing that cash. If you are unable to meet the requirements to enter into the contract you may lose your cash. One of the contract requirements is likely posting payment and performance bonds.
What Is a Bid Bond?
The first step to understanding why cash may not be the best idea to post as bid security is to first understand what is a bid bond. A bid bond in a financial guarantee that you, as the contractor, have been prequalified by a surety company to enter into the contract for which you are bidding. The surety is guaranteeing to the project owner that you are financially sound enough to perform the project. The are also guaranteeing that you will pay all of the subs, labor and material suppliers related to that project. And that you are qualified to build that project. You may read this post to obtain more information on bid bonds.
What Happens If I Post Cash As Bid Security?
Let’s say that you’ve opted to post cash as bid security rather than a bid bond. Why might you do this? Perhaps you’ve never needed to post bid security and you were uncertain of the process to obtain a bond. Or perhaps you attempted to obtain a bid bond but you were unsuccessful. It is important to understand that bid security is a financial guarantee. You are guaranteeing to a project owner (or general contractor) that should you be the low bidder that you will enter into the contract. And, additionally, meet all of the requirement of the contract which most likely include the requirement to post payment and performance bonds. If you are low bidder on a project for which you posted cash as bid security and are unable to secure payment and performance bonds the owner will keep your cash as your penalty. Therefore, we would recommend that you get pre-qualified prior to bidding on a job that requires bonds. And post a bid bond as security. This will allow you to be certain that you will be able to meet all of the requirements and not forfeit your cash you posted as bid security.
What Are Other Risks With Posting Cash As Bid Security?
If you choose to post cash as bid security not only are you risking forfeiting that cash. But you are also tying up that cash that you could otherwise be using as working capital. If you post cash as bid security and you are not the low bidder then the owner will return your cash to you. However, it could take 30-60 days for you to get your cash back.
Bottom Line
It is risky to post cash as bid security. We would recommend that you post a bid bond. We can help you obtain a bid bond and get pre-qualified for surety credit. Here is an article on how to get payment and performance bonds.
Surety Bond Agency
We hope this article helped to answer this question. If you need assistance obtaining a Bid or Performance & Payment bond in Texas or other states, please reach out to us at Schmalz & Associates we’d love to help in any way we can. Please contact me, Eric Schmalz, at eric@schmalzsurety.com or call me at 512-640-6444 and I can help you obtain a bid bond to post as bid security.
Surety Bond Resources
- How to Get a Bid Bond
- Increasing Bonding Capacity
- How Much Does a Surety Bond Cost?
- What Is a Surety Bond?
