The Cost Impact of Bonding on Bidding and Estimating
Bonding in the construction industry plays an essential role in the process of bidding and estimating . There are several types of primary bonds and each of these has a cost ; and their effect on the bidding process and cost estimation can be significant .
These bonds - including bid bonds , performance bonds , and payment bonds - may affect project costs , risk mitigation factors , the cost of prequalification and bonding capacity , competitive pricing , and project type / bond requirements .
There is a direct cost of bonds and contractors must obtain bonds from surety companies , which charge a premium based on the total contract value , the contractor ’ s financial health , and project complexity . Typically , bond premiums range from . 5 % to 3 % of the contract value .
The bid bond ensures that , if selected , the contractor will enter into the contract as agreed ; the cost for this type of bond is usually minimal , but is also part of the overhead . The performance bond
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