For construction companies performing public contracts, for example, for municipality, state or federal government bonds are a fact of tender life. These contracts were awarded through a bidding system in which proposals are submitted by interested contractors. A review of the proposals made, and the work is awarded to the "most responsible bidder." This is to ensure that taxpayer dollars are spent efficiently, and a contractor quality is compromised.
Contractors need to involve an insurance company, such as the guarantee of an individual or corporate enterprise. Both are equally accepted by the federal government and many other public and private entities. The individual bond issue Bond to accompany the proposed tender of contract performance and payment bonds when executing the construction contract.
For the issuance of the bond offering is made when the individual surety complete its review of the qualifications of the contractor to perform the contract in question. This evaluation is done in advance since the contractor has not won the project
After the tenders were submitted the details of individual proposals become a matter of public record. When successfully the needs contractor performance and payment bond, the guarantee will review the results of the tender. The warranty insurer want to calculate the propagation of the offer to determine if the low bid is the relationship is "online", ie not too low.
The magic number is 10%. Offers more than 10% below the second offer or more than 15% below the average of the second and the third requires a written explanation. This explanation should make sure that the estimate was revised offer is correct, and that the contractor expects a reasonable profit and the desires of the bond to be issued.
Here is how the calculation is performed.
In this example, there were three offers. The low bid was $ 100,000. Second bidder was $ 112,000 and the bidder third was for $ 114,000. First, find the difference between the second and bids low. $ 112,000 – $ 100,000 = $ 12,000. Then divide this by the low bid. $ 12,000 / 100,000 = .12. This means that the lowest bidder is 12% below the second.
Since this is more than 10%, let's try the second analysis.
$ 112,000 + $ 114,000 = 226,000 / 2 = $ 113,000. Now run the analysis of the lowest bid: $ 113,000 – $ 100,000 = $ 13,000 / 100,000 = .13 or 13%. So the lowest bid is 10% below the second (which was 12% below), but no more than 15% below average the second and third (which is 13% below).
Therefore, this offer may not require any special explanation and performance bonds and payment may be issued by the Guarantor individually.
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