Is Your Bid Bond Really for 5%?

The language of some Bid Bonds limits the amount of the surety's obligation to the difference in the bid amount between the low bid and the second low bid, up to a maximum of 5%.

This limitation of the Bid Bond amount is sometimes in conflict with either state or local regulations that require a bid guaranty in the amount of 5% of the amount of the bid.

5% Bid Bond Required for Some Agencies:  For example, in Washington state, the following state laws for specific types of public agencies requires a 5% Bid Bond on public works projects.  Check your authorizing legislation to determine what you are required to obtain from bidders.

• Second-Class Cities:  "Each bid shall be accompanied by a bid proposal deposit in the form of a cashier's check, postal money order, or surety bond to the council or commission for a sum of not less than five percent of the amount of the bid..."  RCW 35.23.352 (1)

• Counties with Population of 400,000 or More:  "No bid may be considered for public work unless it is accompanied by a bid deposit in the form of a surety bond, postal money order, cash, cashier's check, or certified check in an amount equal to five percent of the amount of the bid proposed."  RCW 36.32.235

• Public Utility Districts:  "Each bid shall be accompanied by a certified or cashier's check, payable to the order of the commission, for a sum not less than five percent of the amount of the bid, or accompanied by a bid bond in an amount not less than five percent of the bid with a corporate surety licensed to do business in the state..."  RCW 54.04.080

• Water-Sewer Districts:  "Each bid shall be accompanied by a certified or cashier's check or postal money order payable to the order of the county treasure for a sum not less than five percent of the amount of the bid, or accompanied by a bid bond in an amount not less than five percent of the bid with a corporate surety licensed to do business in the state..."  RCW 57.08.050

Competitive Advantage?  If an agency requires a 5% bid guaranty, but accepts a bid bond that is limited to the difference between the low bid and the second low bid, there is an argument that:

• The bid is non-responsive for failure to provide a 5% bid guaranty.
• The contractor submitting such a bid bond has an advantage over contractors submitting a certified or cashier's check or cash, who must provide the full 5% bid guaranty.

Practical Tips:  If you are required to obtain a 5% bid guaranty, or if your policies or specifications require a 5% bid guaranty:

1. Include language in your bidding documents noting that you will not accept any limitation on the 5% amount.  
2. Review all bid bonds for compliance with the 5% amount.  
3. Consider developing your own standard bid bond form that you require bidders to use.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

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