Many contractors have questions about a bid bond guarantee and SBA surety bonds and if their rejected bids can be protested on these grounds. Many government contracts require some form of a surety guarantee or bond.
If your proposal does not comply with the solicitation requirement for a bid guarantee, then your bid is typically rendered non-responsive and is rejected. You may, however, be successful in a GAO protest if you can prove your bid bond guarantee was improperly rejected as non-responsive.
What is a Bid Bond Guarantee?
“A bid guarantee is a form of security that ensures that a bidder will not withdraw its bid within the period specified for acceptance and, if required, will execute a written contract and furnish required performance and payment bonds.” FAR 28.001.
A bid bond guarantee is there so that if the contractor fails to fulfill its obligations under the contract, the government can then award the remaining part to the next eligible bidder without having to incur excess costs.
The government’s primary interest is to make sure that the contract can be completed even if the first contractor defaults. Find out more about Surety Bond Tips for Government Construction Contracts.
If a solicitation requires a bid bond guarantee, it is considered a material part of the bid and your bid must include the required bid guarantee form.
Types of SBA Surety Bonds
In order to even be considered for contract award, a contractor often has to obtain a surety bond from a surety company. This surety company is then obligated to find another contractor to either complete the contract or compensate the project owner should the initial contractor default.
There are four types of SBA surety bonds:
- Bid Bond: ensures the contractor can enter into the contract and furnish the required payment and performance if awarded
- Payment Bond: ensures suppliers and subcontractors are paid for the work performed under the contract
- Performance Bond: ensures the contract will be completed in accordance with the contract’s terms and conditions
- Ancillary Bond: ensures the requirements that are connected to the contract (but are not directly performance related) are performed
Do I need an SBA Surety Bond?
The Miller Act requires both performance bonds and payment bonds for any construction contracts on any public building worth more than $100,000. 40 USC § 3131(b). Additionally, service contracts and some supply contracts also require a bid bond guarantee.
How do I know if my Bid Bond is ‘Responsive’?
The GAO has consistently held that a bid bond guarantee is defective, and thereby non responsive if it is unclear whether the bond will bind the surety. Shaka, Inc., B-405552, Nov. 14, 2011. A person (surety) has to expressly agree to incur liability to pay someone else’s debt or performance duties.
A bid bond guarantee which names a principal different from the bidder is generally deficient unless the contractor can show that the different names identify the same entity. Hostetter, Keach & Cassada Construction, LLC, B-403326, Oct. 15, 2010.
A bid bond guarantee must be proper on its face to be considered acceptable and responsive. This occurs where:
- The bid bond guarantee has been duly executed by the surety’s agent,
- The surety has agreed to be obligated for the penal amount of the bond, and
- The surety appears on the Treasury Circular list of acceptable sureties