How To Bid On Security Contracts – Whether you are a newly licensed insurance agent or a seasoned industry veteran, contract bonds can sometimes be confusing. Between the jargon of legal contract language and the internal jargon of a Surety Company, insurance agents often get stuck in the middle, asking, “Can we just issue this bond?” Fortunately, the basics can be broken down into a few key definitions and explanations, so agents can rely on warranty experts to keep these important products safe for your contractor customers.
A contract bond is a security bond that a contractor acquires when bidding or signing a contract to perform work for the project owner.
How To Bid On Security Contracts
Most construction projects begin with a bidding process where qualified contractors submit their cost estimates (bids) to the project owner. Usually, the contractor who offered the lowest price gets the project. But how can project owners be sure that applicants are qualified to complete the project?
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Enter the security of the offer. A bid bond provides financial compensation to the project owner that the contractor bidding on the project will sign the contract and meet all requirements of the bid specification, including the ability to provide a performance and/or payment bond if the contractor is the winning bidder. .
If the contractor does not meet these requirements or does not sign the contract, the bond company must pay the project owner the difference between the bid of the winning contractor and the next lowest bidder, but not more than the amount of the bond. The bid security amount is usually calculated as a percentage of the contractor’s bid amount, usually 5%, 10% or 20%.
We understand that project owners can ensure the selection of qualified bidders by requesting a bid. However, bid bonds do not protect project owners outside of the bidding process. To provide assurance that the project will be completed, the owner may require a performance and payment bond. A performance bond provides security to the project owner if the contractor does not complete the work specified in the contract within the specified time.
Payment bonds are used in conjunction with performance bonds to secure contractor payments for labor, vendors, and vendors, preventing project encumbrances that could affect project owners and project success.
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Performance and payment bonds can be requested by any project owner, but in most cases government owners (i.e., federal, state, and local government agencies) require these guarantees. For federally funded projects valued at $100,000 or more, legislation passed in 1935 known as the Miller Act required performance and payment bonds. Many states and municipalities have adopted the so-called “Miller Act,” which extends similar bond requirements to state and municipal programs.
With a few basic questions, an insurance agent can quickly determine what type of bond is needed and the information needed to begin the underwriting process. We recommend asking the following questions:
Now that we know how to determine the type of bond, your client may ask, “How much is the bond?”
Performance and payment guarantee rates are determined by the guarantor company based on the creditworthiness, financial stability and experience of the executor. Rate structures also vary by project size, with smaller projects (less than $1 million) typically charging a 3% rate, and larger projects ranging from 1% to 3%.
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Most major projects are evaluated using a sliding scale. Here’s an example of premium payouts for a $1 million bond:
.Since the premium is calculated based on the amount of the deposit, the guarantee company will charge an additional premium for the cost difference between the winning bid and the final project cost. In contrast, projects completed for less than the original bid will be covered
The warranty company will refund the difference between the winning bid and the final construction cost.
A final important note on cost, performance and payment bonds are priced on the assumption that both bonds will be issued and that the above rates are the sum of the two bonds.
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Performance and payment bonds not only provide agents with significant commission opportunities, but also help build strong client relationships. An agent who can solve the often-misunderstood contractor’s surety product will become a trusted advisor to contractor clients, increasing retention and cross-selling opportunities.
The initial signing of the contract bond can be quite cumbersome and overwhelming for your contractor, but once the bond is in place, the rest of the process is painless. Most contractors do everything they can to avoid the underwriting process, so securing a down payment is key to success. Great programs for aspiring contractors that make it easy for your agency to first bond so you can get started as your contractor business grows.
Construction contracts often require other insurance products, such as general liability and workers’ compensation, which facilitate cross-selling.
Makes it easy to obtain performance bonds and payment bonds. We have programs for prospective contractors who need very limited coverage for projects up to $1 million. We can also help contractors with large, complex projects and even help contractors with questionable credit. Our access to over 30 leading warranty markets means we can insure your customers’ warranties in virtually any situation.
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Simply log into your account and use our keyword search to find “contract” bonds in our database. Not logged in? Sign up today and let us help you meet your customer needs. Our friendly underwriters are available to assist you by phone, email or chat between 7:30am and 7:00pm EST. Bidding for a contract can be overwhelming even at the best of times, especially if you’ve never done it before. However, bidding work is a great way to grow your business.
COVID-19 has changed the way companies do business. Gone are the days of face-to-face meetings and traditional social events. Contests are a great way to keep things flowing as we come out the other side. We’ve developed five steps to help you understand what to expect when bidding on a contract.
Once you’ve decided to bid, you’ll want to know how to find the right contract for your business. There is no shortage of websites that post multi-industry opportunities and leads every day. Ideally, you should look for industry-specific portals that post unique public and private sector opportunities.
A centralized and easy-to-navigate portal helps you save time. Relying only on CPV codes can lead to missed opportunities as they are often mislabeled. Finding a portal that uploads and categorizes bids by keyword, location, budget, etc. can simplify the process. Our sister company, Hudson Discover, has 11 industry-specific bidding portals.
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Once you’ve signed up, you’ll have access to an on-site account manager. They will be able to answer any questions you may have about contracting. You will also receive an email alert when new and related proposals are uploaded.
Planning and research are two of the most important aspects of offering a contract. You want to write down all the important dates and necessary documents. These may include:
You should double check that you meet the minimum eligibility criteria when bidding on a contract. For example, you don’t want to spend resources starting an offer only to realize your financial situation doesn’t qualify.
When bidding on a contract, your goal should be to have enough time to complete it before final submission. It can help reduce stress and anxiety. Pricing can be long and difficult at the best of times, so allow plenty of time. Unexpected delays can happen, and planning ahead can help you ensure your response if they do. Setting internal deadlines for you and your team can help with this.
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Proper pricing of services is an important aspect of contract bidding. You don’t want to underprice your services, as this can lead contractors to question your legitimacy. The evaluation criteria are different for each contract, depending on the buyer’s needs. The scales may vary, but in general you can expect differences between two or three areas:
The private and public sectors differ in the way contracts are awarded. The private sector is not bound by or governed by the same rules and regulations as the public sector. If private organizations want to award contracts based on price alone, they can.
However, the public sector has certain rules and regulations that it must follow in order to tender for suppliers. Public sector organizations will apply for the most economically advantageous offer known as MEAT. MEAT seeks to obtain maximum value for money from contracts. The purchaser will consider a number of factors set out in the bidding documents. They will be evaluated both individually and together. These may include:
It is very important to write high quality price answers. As mentioned above, buyers care about quality, even if it weighs less than cost. You want to be persuasive when bidding on contracts. You want buyers to believe that you are the best
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