Bid Security / Bid Bond

Bid security, also called a bid bond, is a guarantee a bidder submits alongside its offer that the buyer can claim if the bidder withdraws during the validity period or wins but then refuses to sign the contract or provide the required performance security, deterring frivolous or speculative bids on major contracts.

What is Bid Security / Bid Bond?

On large goods and works contracts, especially under international competitive bidding and larger national competitive bidding procurements, the bidding documents require each bidder to submit bid security with its offer. It usually takes the form of a bank guarantee, a bid bond issued by an insurer, or occasionally a cashier's cheque, set at a fixed amount or a small percentage of the estimated contract value. The security stays valid for a period that comfortably outlasts the bid-validity-period. The buyer returns it to unsuccessful bidders after award and to the winner once it signs the contract and posts the performance-guarantee-performance-bond.

A growing number of institutions now accept a signed bid-securing declaration in place of a financial guarantee, where the consequence of default is suspension from future bidding rather than forfeiting cash. Bid security is separate from, and precedes, performance security. In some solicitations the bidder must also provide a power-of-attorney-bid-signing confirming that the person who signs the bid and the bid security form is authorised to bind the company.

Why Bid Security / Bid Bond matters for bidders

Bid security is a real cost and a real risk to manage, because arranging a bank guarantee ties up credit lines and takes lead time, so a bidder that leaves it to the last day can miss the deadline on an otherwise winning bid. The discipline is to confirm the exact required amount, form, and validity from the solicitation documents early and to line up the guarantee in parallel with writing the bid. Equally important is understanding the triggers for forfeiture: withdrawing a live bid or winning and walking away will cost you the security and your reputation with that buyer. Firms that bid regularly maintain banking facilities sized for their typical bid securities so the requirement never becomes the bottleneck.

FAQ

What form does bid security take?

Most commonly a bank guarantee or a bid bond, sometimes a cashier's cheque, and increasingly a bid-securing declaration where default leads to suspension rather than forfeiting a cash amount.

When does a buyer keep the bid security?

If a bidder withdraws its bid after the submission deadline within the validity period, or wins but refuses to sign the contract or provide the performance security, the buyer can call the bid security.

Is bid security the same as performance security?

No. Bid security accompanies the bid and protects against withdrawal or refusal to sign; performance security is provided by the winner after award to guarantee performance of the contract.