Post-Bid Procedures, Contracts, Bonding, and Insurance

The four elements are critical to the success of projects and companies.

By Ed Butts, PE, CPI

Four subjects that are interconnected and important to the water well industry are bid aftermaths, contracts, bonding, and insurance. Knowledge of and the proper use of these elements is a required aspect for almost all projects as well as a vital component and administrative function to all water well businesses.

The financial considerations and impacts to the owner of a public works well and water systems construction and repair firm can be substantial, especially if the firm expects to perform local, state, or federally funded public bidding work. This month, we will examine these elements of running a business and some methods that can be implemented to improve them.

Following the Bid Opening

If after all my warnings from last month’s column, “Effective Project Bidding and Estimating” in the May 2026 Water Well Journal you decide to go ahead and bid for that government project, and lo and behold, you are the low bidder, what do you do now?

Well, after many hours of second-guessing yourself and wondering what you left out of the bid, you need to seriously review your bid, as well as the second- and third-place bids and even check it against the engineer’s estimate.

If there is a substantial cost difference (typically 10% or greater) between the first- and second-place bid, or your bid and the engineer’s estimate, you may want to quickly reevaluate your bid to make sure you did not make any serious errors or leave something out.

Contracting agencies will often allow a low bidder to back out of a bid without attaching the bid bond if it can be shown that an honest math or calculating error was made. Although you may lose the opportunity to construct the project, that outcome will be much better than trying to complete a project at a loss.

In addition, many bonding companies will not want to bond a project with more than a 10% to 20% spread between the first and second bidders without a valid explanation. In any event, you can almost be assured the bonding company will at least want a cost and profit analysis and possibly an attachment of the assets of the company or owner before agreeing to bond a project with a substantial difference between the bids.

Once the proposal or estimate has been submitted and accepted by the client, the duties change somewhat:

• Obtain contract documents and execute required contracts, bonding, insurance, and other forms
• Prepare a work plan and schedule versus equipment and material acquisition and availability
• Procure and purchase project material based on price, delivery, and work schedule
• Determine the lead time for non-stock and special-order items and order, if needed
• Prepare and execute subcontracts for selected subcontractors
• In some cases, perform project management and expense tracking.

One of the best words of advice I can offer to a contractor wishing to perform government work is to become good friends with your bonding agent.

After reviewing your bid and deciding you are comfortable with it, the next event will most likely be receipt of a notice of award from the contracting agency. This process can take up to four weeks depending on the complexity of the bid and whether any protests from unsuccessful bidders were launched.

The notice of award will often accompany the contract documents, which usually triggers the period permitted to execute the contract, complete the bonding requirements, and obtain any extra or additional insurance that may be required. My advice is to execute and return the contract documents as soon as possible. The faster you return the contracts, the faster you can start working on the project.

Sometimes contracts will need to be run past the client’s legal counsel or upper managerial levels of the bonding company for review and approval. Therefore, it is in your best interest to get this phase of the project underway as soon as you receive the documents.

Upon completion and return of the contract documents, typically the project engineer or manager will schedule a pre-construction conference. This conference will almost always include at least one representative from the owner, engineer, contractor, and possibly, a government funding or oversight agency.

Always be fully prepared for these conferences and be aware of any special contractual requirements that may come up during this conference. Ask the project manager to forward the agenda or an action list to you before attending the pre-construction conference. It will benefit you greatly plus save time and possible embarrassment if you have prior knowledge to issues likely to come up during this conference.

Even starting a government project can contain pitfalls and special conditions. Virtually all specifications will contain a requirement for temporary sanitary facilities and may even require you provide the engineer with a telephone, computer, and field office, complete with heating and air conditioning, all at your expense.

Watch out for these types of projects as you can quickly get nickeled and dimed out of your profit. As I stated in last month’s column, read and fully understand all provisions of the contract documents, plans, and technical specifications before bidding on the job.

Contracts

Once a proposal is accepted and awarded by the owner, these elements of a project must be handled as a regular business task with combined importance. Contracts are now considered an expected part of doing business, particularly in government-related construction.

In fact, drilling a well or installing a water system without a fully completed and duly executed contract is a hazardous practice that generally places the contractor in an unnecessarily risky and untenable position. Contracts are essentially a formalized and substitute method of performing a handshake between participants in a business transaction.

Although there may be additional participants in the negotiation, preparation, and execution (i.e., signatories) of a contract, such as attorneys, engineers, clerks, administrative personnel, and witnesses, the actual contract and terms are almost always between two parties: the owner, client, or their authorized representative and the individual, firm, or entity performing the work or delivering the goods or services.

Contracts are almost always written by attorneys to reinforce or favor the position of the owner. Thus, the other party must carefully examine all terms and conditions of the contract before signing it.

A contract can consist of various business entities, including corporations, limited liability corporations, partnerships, DBAs, and individuals. The owner can consist of a municipality, public works agency, utility, private entity, or individual. Contracts can be as detailed and long as 40 pages with numerous conditions, covenants, and paragraphs or as brief as a few pages if the owner desires.

A contract generally specifies, at a minimum, the parties and terms of the contract, description of the project, cost of the contract, methods and time of payment requests and issuance of payments, bonding and insurance requirements, retainage and conditions for release of retainage, subcontractor relationships,
contractor and owner responsibilities, and jobsite safety provisions. However, additional clauses, covenants, or provisions are often included depending on the type and scope of the project and owner’s protocol.

Bonding

Bonding is another contractual aspect of most government and some industrial and commercial projects. Although not as often required for residential projects, many states now require surety bonds as a part of their licensing. Bonding a project typically involves three parties:

• The first party is the principal, typically the prime contractor or subcontractor in a construction project.
• The second party is the obligee, which is the project owner, general contractor, or public entity hiring the principal.
• The third party is the surety, which is an insurance or bonding company providing the bond.
  The ability to obtain and the actual cost of a bond will depend on a few salient factors, such as the contractor’s personal and business credit history, years of operation, financial statements and credentials, and past bond and work history with similar projects.

Project risk, complexity, and completion time will all play significant roles in obtaining any bond along with determining the overall premium. The cost for bonding is generally included as a separate cost within a line item for mobilization or prorated over unit or lump sum costs.

Bonds are typically issued on forms provided by the bonding company along with a power-of-attorney form authorizing the signatory to act on behalf of the bonding company. They are incorporated into and become part of the contract documents.

The first consideration for a prospective bidding firm should always be the need for obtaining bonding and insurance. Bonding is a specialized type of insurance policy that is generally only valid during the duration of the project up to acceptance and guarantees the work or payment performed as specified on a contract.

There are various types of bonds used in private or public works construction, including performance, payment, warranty, and maintenance. However, the two most common and almost universal bonds on government-funded construction projects are performance and payment bonds.

The performance bond guarantees the project will be conducted and completed on time and as per the conditions of the project plans, specifications, and contract, and is used on virtually all government and many privately funded construction agreements.

Essentially, performance bonds are designed to protect the owner from the risk of contractor default. They provide a safeguard that ensures the completion of the project according to the terms of the construction contract.

The bond amount usually reflects the full contract price and is amended for change orders. It guarantees the owner that the surety will take responsibility for completion of the project or will provide compensation to the owner up to the bond limit should the contractor fail to successfully complete the project.

A separate document, a payment bond is an assurance that all suppliers and subcontractors will receive timely and full payment for their goods and services in case the contractor defaults. Typically, the contractor pays a percentage of the contract amount to an insurance or bonding firm (surety) for these bonds. The percentage will vary based on the project’s dollar amount, the bonding company, type and scope of project, and the contractor’s relative risk rating but is generally between 1.5% to 5% of the total contract amount.

Prospective bidders must also examine the need for supplemental or special bonds at the project’s conclusion. These bonds are often required to ensure the continued operation of a plant or facility for a specified period of time after the project’s completion and acceptance. Generally, this constitutes a maintenance bond, also often referred to erroneously as a warranty or guarantee bond.

A maintenance bond is a supplementary bond guaranteeing a contractor will repair any workmanship problems that arise after a project is finished for a specified period. The project owner typically requires the bond as protection from potential financial losses that may occur during this period. It safeguards the owner against defects or shortcomings in workmanship, ensuring the contractor remains accountable for their obligations even after project completion.

A maintenance bond covers the cost of necessary repairs, replacements, or corrections of defects that may arise during the defined maintenance period, often one to two years. Warranties on installed materials are not typically covered under this bond. The cost for a maintenance bond will vary based on the type and scope of the project, specific items covered by the bond, contract amount, length of bond coverage, and the
bonding company, but is generally an additional cost of 0.1% to 1% of the contract’s total amount.

Although warranty bond and maintenance bond are often used interchangeably, they can have vastly different interpretations and coverage depending on the context. Generally, a warranty bond implies a broader coverage that extends beyond maintenance, including protection against defects, malfunctions, or performance issues on equipment as well as installation. It is a financial guarantee made by the contractor to protect the owner of a project from defects in materials or workmanship that might arise after the project is accepted.

The cost for a warranty bond can vary significantly and is usually based on the number and type of covered items, dollar amount, length of coverage, and risk.

Insurance

Providing adequate types and levels of insurance on a project is often considered an automatic part of business, but certain projects and funding agencies require different types, levels, and limits of insurance. Thus, it is critical business owners obtain the actual adequate coverage.

Projects funded by federal agencies, such as the Farmers Home Administration, Housing and Urban Development, and Environmental Protection Agency, include stringent requirements for insurance. These requirements can also vary between funding agencies and states but are generally greater in scope and higher in dollar amount than most standard insurance policies.

Insurance requirements, including coverage amount and limits, for government-funded projects usually include general liability, workers’ compensation, and automobile liability at a minimum, but some agencies may require additional insurance for comprehensive or all-risk coverage that may include on or off site, theft, environmental, or equipment damage.

Additionally, most states have their own established public bidding rules and regulations that dictate the scope and type of project that must prescribe to these rules.

In addition to insurance that covers the owner, many specifications require extending the coverage to other parties. These entities are referred to as “additional insured,” and are often engineers or other contractors engaged on the site under a separate contract.

Most insurance stipulations require insurance companies to advance notice of impending cancellation of the policy with an extended period of coverage. Insurance for public works projects is generally issued on a standard certificate of insurance, which is incorporated as an element of the contract documents.

NGWA Insurance Program

This leads me to the National Ground Water Association’s Business Insurance and Employee Voluntary Benefit Program. This is a comprehensive program that offers member benefits from various insurance firms for business and personal insurance, including life, health, long- and short-term disability, accidental death and dismemberment, dental, vision, workers’ compensation, auto and home, pollution, umbrella and general
business and personal liability insurance, and even cyber risk and errors and omission insurance for those of us in the technical and consulting arena.

I have reviewed the various types of coverage and other services offered by this program and compared it to policies I have or once had, and believe this program offers NGWA members significant benefits and potential premium savings that only a plan with this type of comprehensive scale and diversity can provide.

In addition to the scope of available plans, I was also impressed that many of the programs are oriented and offered as employee voluntary programs, with optional employer/ employee/mutual co-pay types of premium payment plans to provide flexibility for small and large contractors.

I will be the first to admit I don’t have the ready answers as to how much and what type of insurance a specific individual or business should acquire. That’s what insurance agents and brokers are for.

In addition to the diverse insurance plans offered in this program, the NGWA Benefit Program also offers business management, human resources, and payroll assistance, including employee handbook preparation, payroll services, and tax preparation and filing.

Now, before anyone develops the cynical viewpoint that I must be a paid endorser (Ha, I should be so lucky), let me put your mind at ease: I absolutely do not receive any compensation for endorsing this program. I simply feel this type of offering is the epitome of what member benefits should be and am pleased to see that NGWA agrees.

Go ahead, compare the benefits and premiums to what you currently have. If these NGWA programs are not competitive to what you currently have, stay put. But what if you can save money while providing better coverage at the same time? Isn’t that worth a look?

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This wraps up this installment of Engineering Your Business. Next month we’ll continue our business-oriented series with a look at project management techniques.

Until then, work safe and smart.

Ed Butts, PE, CPI, is the chief engineer at 4B Engineering & Consulting, Salem, Oregon. He has more than 40 years of experience in the water well business, specializing in engineering and business management. He was honored by the National Ground Water Association with the 2025 Technology Award. He can be reached at epbpe@juno.com.