Bid Security and Performance Guarantee: A Practical Guide for Bidders

Financial instruments in public procurement are frequently treated as formalities. They are not. The value, the format and the validity period of a bid security are among the most common reasons for rejection, and an error here is discovered at the last possible moment.

Bid security

Bid security protects the buyer against a bidder withdrawing after opening, and is normally a percentage of the bid value stated in the notice. It is returned after the award decision is notified, and in some cases after the performance guarantee is furnished. The format matters more than the amount: a bank instrument that names the wrong department, or that lacks the e-procurement cell reference, will be rejected.

Performance guarantee

This is furnished by the successful bidder after award and remains in force for the contractual period. It is usually a higher percentage of the contract value than the bid security, and for framework contracts it may be required per call-off order rather than once. Price the bank guarantee cost, or the deposit-linking arrangement, into your bid from the outset.

Retention and holdback

A portion of each running bill is withheld until defects liability or the end of the works, and released against a retention guarantee. For a two-year contract, the financing cost of a ten per cent holdback is not trivial and should be modelled explicitly.

• Model the annual cost of each instrument as a percentage of the bid value.
• Confirm whether the buyer accepts a bank guarantee or requires a direct deposit.
• Check whether the guarantee must be from a specific category of bank.
• Track the release date of every instrument in your contract file, not only the submission date.

Every tender page on TendersBox lists the bid security value and the method of procurement, so you can price the financing requirement before deciding whether to bid at all.