What is a bid security?
A bank guarantee that a bidder hands in with its offer. If the bidder wins and then walks away, the buyer keeps the money.
Evaluating bids takes a public buyer weeks. If the winner then refuses to sign, the process has to start again. To discourage that, tender documents require each bidder to provide a bid security, also called a bid bond: a guarantee from a bank or insurer for a fixed amount.
The amount is set by the buyer and is usually a small percentage of the expected contract price, often somewhere between 1% and 5%. Losing bidders get theirs back. The winner's is released when it signs the contract and replaces it with a performance security, which is larger and covers the risk that the work is not completed.
For a small company the security is often the real barrier to entry. The bank that issues it counts it against the company's credit line, so a firm bidding on several tenders at once can run out of capacity before it runs out of ideas.
- Bid security
- Commonly 1% to 5% of the bid price, set in the tender documents
- Performance security
- Commonly 5% to 10% of the contract value
Explainers describe how things generally work. They are not advice for a specific project or country. See our editorial policy.