Bid bonds

Public owners, and many private owners, will require contractors to submit bid bonds with their bids for construction projects. Bid bonds are used to secure the obligation of the successful bidder to enter into the contract as bid. Bid bonds are required of prospective bidders so that reparations are made available to an obligee if a bidder refuses to sign the contract. In Superior Hydraulic, Inc. v. Town Bd. Of Town of Islip (1982), it was determined that a valid bid bond is required of prospective bidders on a public contract so that reparations are available to a municipality in the event that a successful bidder refuses to sign the contract. This determination is also guided by General Municipal Law § 103(1).

The amount of the bond is set by statute or by the obligee and is usually specified in the bid instructions. Bid bonds are usually five (5) to ten (10) percent of the total bid price, although some bid bonds may provide for payment to the obligee the difference between the defaulting contractor’s bid and the next lowest bid, not exceeding the penal sum of the bond. A principal may be liable to the owner beyond the amount the bond for any losses suffered by the owner not covered by the bond sum.

Failure to follow the written directions regarding the bond requirements may and usually will cause the bid to be disqualified. In Marchionne v. New York State Dept. of Transp. (1982), while the court concluded that respondent’s two (2) bids on leases were invalid because neither bid was accompanied by a certified check, it was in error to order the Department of Transportation to award lease contracts to the petitioners considering that the bid proposals specifically stated that the department reserves the right to reject any and all bids, and to award contracts at its sole discretion, on a basis other than simply the highest fee bid.

Non-material errors or mere irregularities, however, may be waived by the owner if it chooses to do so. Waiver of a minor error, however, is not required, and it is wise to follow every instruction regarding bid bonds and to clarify unclear issues. All instructions should be followed carefully. If the bidding instructions call for submission of a certified check, the owner is not required to accept a bid bond instead and may refuse to consider the bid, as held in Frank Nowak Construction Co. v. County of Suffolk (1962).

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