Bid Bonds

What bid security does

Bid security assures the procuring entity that a bidder will not withdraw its bid, will accept an award, and will post the required performance security. Posting it as a surety bond from an authorized insurance company is one of the accepted forms.

The percentage

Bid security posted as a surety bond is commonly required at 5% of the approved budget for the contract, higher than cash or bank-guarantee equivalents because it is a callable undertaking rather than a deposit. Confirm the figure in the bidding documents.

Validity

The bond must remain valid for the bid validity period stated in the bidding documents, including any extension the procuring entity declares. A bond that lapses before award is a disqualification risk.

What must be exact

• The obligee name, spelled as the procuring entity writes it.
• The project title and reference or bid number.
• The bond amount and the currency.
• The bidder's registered name, matching its SEC or DTI registration.

Common causes of rejection

• Bond amount computed on the wrong base.
• Validity period shorter than the bid validity.
• Bidder name that differs from the registration documents.
• Missing certification from the insurer, where required.

After the award

Once you are awarded, the bid bond is normally released and replaced by performance security. Track this — an uncancelled bid bond keeps exposure and, in some cases, collateral tied up unnecessarily.

Applying

Prepare the invitation to bid, the bidder's registration documents, and current financial statements before applying. Final terms, premium, and any collateral requirement are determined by the authorized issuing insurance company.