Does the Bid Bond Call for a Forfeiture or Payment of Damages?
We all know that the bid bond guarantees that the principal will sign the contract and provide the required performance and payment bonds, insurance policies and other contract documents. We also know there are two basic bid bond forms. One bid bond guarantees payment of the damages incurred by the public agency if the principal does not sign the contract. The damages are usually measured as being the difference between the winning bid and next lowest bid and they are capped by the penal sum of the bond. The second form of bid bond is the forfeiture bond whereby, if the principal does not sign the contract, the penal sum of the bond is forfeited to the agency without regard to any damages that it suffered. But…,
Principal’s Exposure to Damages Limited to the Bid Bond
Something that many contractors are not aware of is that most of the bid bonds also insulate or protect the principal contractor from damages in excess of the penal sum of the bond. So that if the bond is10 percent of the amount bid, for example, and the damages are in excess of 10 percent of the amount bid, the surety and the principal contractor are only liable for the 10 percent. Of course all of this depends upon the wording of the bond itself and the wording of the contract documents but generally these rules apply.
But what if the contractor doesn’t want to pay the damages but wants out of the bid, on a public works job?
Can the bid be withdrawn? That depends on certain statutory factors, which we have set forth and formatted below for easy use as a checklist.
Withdrawal of the Bid Checklist
1. Was there a mistake made in the bid?
If yes, go to number 2. If no, call your lawyer.
2. Did the mistake result in a bid that was materially or crucially different than what was intended?
If yes, go to number 3. If no, call your lawyer.
3. Was the mistake in filling out the bid and not a mistake in judgment or in careless site inspection or a mistake in reading the plans and specs?
If yes, go to number 4. If no, call your lawyer.
4. Give the public agency notice of the mistake within five working days of the bid opening, specifying the mistake and how it was made (remember numbers 1 and 3 above) and include any documentation that supports your position. For example, if you forgot to carry over a number from your bid workup sheet to the bid itself and it is a relatively big number, you have good grounds to withdraw your bid. You must have documentation.
Send your request by certified mail, return receipt requested or hand deliver it. If you fax it, make sure you have documentation to prove when it was faxed and when it was received but be careful because you might not able to prove to whom you sent it or who received it. Better not to fax it.
5. If you do not get relief from the bid within 90 days from bid opening, you must bring suit before the expiration of that 90 days to recover your forfeited bid security. In other words, call your lawyer.
The above situation and grounds are not the exclusive situation and grounds for being allowed to withdraw a bid and your contractor should check with its lawyer immediately if such a situation arises.