Bid bonds are bonds that are placed on construction contract bids. The contractors are trying to get the contract, the owners choose and accept the winning contract, and the bid bond ensures that the winning contractor will complete the project under the presented proposal and on time. Backers of bid bonds stand to gain a good amount of money (or lose it), but it is no less risky an investment than trading stocks. Here is how to be a bid bond backer and why you should consider it:
First, Have Substantial Means
You cannot be a bid bond backer unless you have enough money to cover the losses. Some projects proposed may have completion values in the millions. An owner who selects one of your backed contractors, and then does not get the project proposed and requested, could sue you for the value of the project, or sue the contractor. Either way, you should have enough money to cover damages.
Second, Do Not Back without a Risk Analysis
You are taking huge risks with your money when you back a contractor for a bid bond. If you are unfamiliar with an investment risk analysis, hire a risk analyst. He or she can examine the contractor's history of completed projects, projects completed on time or early, the percentage of projects completed under budget or on target versus over budget, and calculate your risk investment. The lower the risk because of the contractor's history, the better the investment. If there are a lot of red flags in the data, do not back that contractor.
Third, When You Gain Profits, Reinvest
If you gain any profits from being a bid bond backer, you should reinvest these profits into either safer investment options or back into more bid bonds. After some time, you may even develop a feel or routine for backing bid bonds that brings you regular profits, or you just know when it is time to get out of the bid bond business. If you lose your shirt on a bid bond, you will need to reassess this type of investment.
Why You Should Be a Backer
Besides the money, you are backing some very important construction projects. These projects could develop into iconic buildings or structures, with your name attached. Additionally, backing the right contractors through risk analysis leads to consistent investment wins on your part, and adds to your investment portfolio.
Contact a company like Surety Bond Professionals for more information and assistance.