Bid Security

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Author Message David J. Wyatt, CSI, CCS, CCCA (Unregistered Guest) Unregistered guest Posted on Thursday, April 03, 2008 - 09:34 am:    Scenario: Project for a not-for-profit organization. Organization, although not a political subdivision or other publicly-controlled agency, is considering requiring bid security for a project. Bidding is not restricted. My experience has been that bid security is only necessary in public projects per se. As I understand it, bid security compensates the owner (at least partially) for the difference between the lowest bidder and the next lowest bidder if the former defaults. Or, the procedes provide some compensation if default forces the owner to re-advertise for other bids. Does bid security provide any other benefits? Ralph Liebing, RA, CSI Senior Member Username: rliebing Post Number: 812 Registered: 02-2003 Posted on Thursday, April 03, 2008 - 10:33 am:    The attributes you noted also would provide very good protection for a not-for-profit organziation, and prevent needless expenditures if things goes askew. Don't think that soely applies to public/political entities. Also, with unrestricted bidding, it is protection against the low, but wholly unworthy bidder, who is either preened out by not being bondable or will default. Roy Crawford CSI CCS CCCA Senior Member Username: roy Post Number: 14 Registered: 03-2005 Posted on Thursday, April 03, 2008 - 11:14 am:    David: Basically you are correct; but one additional aspect that a bid bond gives, if issued by a national surety company, is some assurance that the bidder is financially stable and somewhat competant for this particular type of work, or the surety com,pany would not have issued the bond. If the project is invitation only, this would not be an issue, but it helps give backgraound on unknow bidders. George A. Everding, AIA, CSI, CCS, CCCA Senior Member Username: geverding Post Number: 415 Registered: 11-2004 Posted on Thursday, April 03, 2008 - 11:20 am:    It could also be a requirement of the funding sources used by the NFP. Bob Johnson (Unregistered Guest) Unregistered guest Posted on Thursday, April 03, 2008 - 11:57 am:    Another factor that could affect the situation is whether performance/labor and material bonds are required on the project. Unless things have changed recently, I believe you will find that the surety companies do not charge for bid security when performance/labor and material bonds are also required on the project. In other words the benefits of the bid security come at no additional cost when bonds are also required. The bonds are obviously a cost item for the contractor. Wayne Yancey Senior Member Username: wayne_yancey Post Number: 28 Registered: 01-2008 Posted on Thursday, April 03, 2008 - 12:10 pm:    I agree with replies above but Bid Bonds do not necessarily originate from a surety. B. Bid bond in the amount of [________________________] $[____________], [in an amount not less than [10] [5] [2.5]% of the bid price]; [or a] [certified cheque in the amount of [_______________________________] $[_____________]]. C. Endorse the Bid Bond [or certified cheque] in the name of the [Owner] [____________] as obligee, signed and sealed by the principal (Contractor) [and surety]. I have used the simple security deposit (certified check) in the past without issues. It may weed out the weaker contractors in the same way as a bid bond from a surety. The security deposit was returned after delivery to the Owner of the required Performance and Labour and Materials Payment Bonds by the accepted bidder. It is common practice to include a Bid Bond or Security Deposit in an amount of not less than 10% for up to $5M, 5% for $5M to $10M, 2.5% for over $10M of the project estimate stated in a lump sum figure derived from a current project cost estimate. Other forms of security may be considered. David R. Combs, CSI, CCS, CCCA Senior Member Username: davidcombs Post Number: 267 Registered: 08-2004 Posted on Thursday, April 03, 2008 - 12:50 pm:    My understanding was that "BID SECURITY" is the proper term for the generic category. Within that category, there is the Bid Bond (issued by a surety? - Who else might issue it?), Certified Check, or Cashier's Check. Not aware of any others, but there may be. Ron Beard CCS Senior Member Username: rm_beard_ccs Post Number: 269 Registered: 10-2002 Posted on Thursday, April 03, 2008 - 01:35 pm:    Bid securities can also be used were the owner may incur a financial loss or loss of revenue as a result of the lowest bidder not executing the construction contract. For example, (i) a private school who absolutely has to have the project complete by a September deadline; or (ii) a commercial project [ie, hotel, shopping complex, etc.] who may miss a seasonal shopping season or funding deadline. Owners should access their specific project needs. Many times there are significant reasons that the lowest bidder can't or shouldn't go to contract. I've seen several cases where it benefited the owner not to. David J. Wyatt, CSI, CCS, CCCA (Unregistered Guest) Unregistered guest Posted on Thursday, April 03, 2008 - 01:27 pm:    All good and helpful comments. Thank you. David Combs is correct - I was using the broader categorical term I understand that letters of credit also may serve as bid security. To derive the benefits noted by Roy Crawford and Bob Johnson, the type of bid security should be limited to a bond underwritten by a surety. I will make that recommendation to the owner. Thanks again, 4-specs folks!