Most public works construction bids require bidders to submit with the bid a bid guaranty in the form of either a bid bond, cashier's check, certified check or cash.
Question: What is the purpose of the bid guaranty, and when can a public agency enforce or collect a bid guaranty?
Purpose: A bid guaranty is required to help ensure that a bidder will honor its bid if they are awarded the project. The bid guaranty is designed to provide a public agency with compensation (typically in the amount of 5% of the bid) for its expenses in the event the low responsible bidder with a responsive bid fails to sign a contract once the project has been awarded to them.
Bid errors: If a bidder submits a claim of error after the bid has been submitted, they are making a request to be relieved of their obligation for the bid. If the public agency then accepts the claim of error and allows the bidder to withdraw its bid, the agency would not be eligible to be compensated by the bid guaranty.
When is a bid guaranty enforceable? A bid guaranty only kicks in when a bidder is awarded a project and they fail to sign the contract.
Mike Purdy's Public Contracting Blog© 2012 by Michael E. Purdy Associates, LLChttp://PublicContracting.blogspot.com
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