Bid bonds and tender security

What a bid bond is

Some employers ask bidders for security with the tender. The aim is to discourage bidders from withdrawing after submission, and to give the employer money towards the cost of re-tendering if a successful bidder does not sign the contract or deliver the security the contract requires.

A bid bond is one way of providing that security. A guarantee provider undertakes to pay the employer up to a stated amount if the conditions in the wording are met. Other forms of bid security may be accepted, depending on the tender documents.

The tender documents prescribe what is required: the amount or percentage, the form of wording, the period for which it must remain valid and where it must be lodged. Follow them exactly, because a bid security that does not comply can lead to the bid being rejected.

When bid security comes up

• Tenders for larger or more complex contracts where the employer wants early security.
• Private and parastatal tenders that include bid security as a standard requirement.
• Contractors preparing a tender who have not previously provided security and want to plan time for assessment.
• Joint ventures where each member’s position and the combined structure need to be considered. See CIDB joint ventures.

What to check in the tender documents

Whether bid security is required

Not all tenders require it. Check the tender data and conditions.

Amount and wording

The amount or percentage, and whether a prescribed form must be used.

Validity period

The security usually has to remain valid for the tender validity period. If the tender is extended, the security may need to be extended too.

Where and when to lodge it

The place and deadline for submission. A bid security that arrives late is generally treated as non-compliant.

Return or release

When the security is returned or released if you are unsuccessful, and what is needed from the successful bidder.

Important limitations and obligations

Not universally available

Whether a bid bond can be issued depends on the guarantee provider’s assessment of you and the tender. We cannot promise it for every tender.

Timing

Assessment takes time and cannot be assumed to fit a short tender period. Start well before the closing date.

Repayment

If the provider pays the employer, it will normally look to you for reimbursement under the counter-indemnity you signed.

Link to performance security

A bidder that wins is usually expected to provide further security, such as a performance guarantee. Consider this before you commit to the tender.

Cost

Providers charge for the guarantee. Include that cost in your tender decision.

Bid security checklist before you submit

Further guidance on tender documents is in our tender document checklist and in how to get construction tenders.

Information we usually need for a quotation

We would normally ask for the following to start a bid security enquiry:

You do not need everything on day one. A short description of the work is enough to start, and the quote form only asks for the details relevant to your enquiry.