Every general or filed sub-bidder on a public building project in Massachusetts must provide a bid deposit to the awarding authority with its bid. The deposit, which must be 5% of the total bid, guarantees that a successful bidder will sign a contract at its bid price and provide any required payment and performance bond. Failure to do either forfeits the deposit to the awarding authority as liquidated damages, up to the difference between the defaulter’s bid price and the next lowest bid price.
Although bidders may submit cash or a certified check as a deposit, the most common form of security is a bid bond. A bid bond simply guarantees the awarding authority that the bidder’s surety will pay up to the amount of the deposit in the event that the bidder refuses to sign the contract or provide the required payment and performance bond.
To be complete under Massachusetts law, bid bonds must satisfy four basic requirements. First, the bid bond must equal 5% of the total value of the bid. The Attorney General, who is charged with enforcing the bid laws, has ruled the total value of the bid includes the maximum price of the bidder’s work possible under the bid documents. Alternates adding work to the contract must be included in the total value of the bid even though they may never be awarded. Negative alternates are to be ignored. Second, the form of the bid bond must be acceptable to the awarding authority. This is usually not a concern because the awarding authority customarily provides the form in its bid documents. (If your surety uses a different form of bid bond make certain the awarding authority will accept it prior to submitting the bid.) Information on the bid bond must be complete and accurate. Bidders and their sureties must use official corporate names and the bond must include all bidders, including joint venturers, as principals. Also the bid bond must be obtained, provided, and paid for by the bidder and no one else. Third, the bid bond must be with a surety qualified to do business in Massachusetts. Bidders should confirm with the Massachusetts Secretary of State’s Office that their surety is qualified to do business in Massachusetts. Fourth, the bond must be conditioned upon the faithful performance of the agreements contained in the bid. If you are using the awarding authority’s form, this provision should already be included.
When a bid bond violates any of these four statutory requirements the bid must be rejected by the awarding authority. The awarding authority does not have the power to waive statutory requirements.
Even where a bidder satisfies these four statutory requirements the bid bond is not necessarily complete. The awarding authority has the discretion to impose additional bid bond requirements in the bid documents. These added requirements can range from how the bid bond must be executed to how the bid bond must be delivered. If the bidder fails to comply with these added bid bond requirements in the bid documents, the authority has the discretion to either accept or reject the bid. In an extreme example that highlights the importance of strict compliance with the statutory and bid document requirements, the Attorney General has ruled that the awarding authority could reject six sub-bids because the bidders didn’t place their bid bond in a separate envelope from their bid as required by the bid documents.
It is essential that bidders strictly comply with statutory bid bond requirements as well as all of the requirements stated in the bid documents. Instead of running the risk of having the bid rejected and losing the work, every bidder on a public project should take the time to review the bid bond to make certain it is complete, accurate, and satisfies the statutory and bid document requirements. That small investment of time could avoid a major disappointment of seeing a low bid invalidated by some minor technical deficiency in a bid bond.
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