Bid Bond / Tender Guarantee

A bid bond (also called a tender security or tender guarantee) is a financial instrument — typically a bank guarantee or surety bond — submitted alongside a tender to demonstrate the bidder's seriousness and financial commitment to its offer. If the winning bidder then refuses to sign the contract or withdraws its bid during the validity period, the contracting authority can call on the bond and receive compensation.

Bid bond amounts are usually set as a percentage of the estimated contract value, commonly ranging from 1% to 5%. World Bank, ADB, and other development bank procurement guidelines specify maximum bid security amounts and require they be in an acceptable form (unconditional, irrevocable bank guarantee or certified cheque). The bond is returned to unsuccessful bidders after award and to the winner upon contract execution.

For vendors, bid bonds have cash-flow implications — particularly for SMEs bidding on multiple contracts simultaneously. Each bond ties up bank credit facility capacity. Some jurisdictions accept bid declarations (self-declarations) instead of financial instruments for below-threshold contracts, reducing burden. Vendors operating in markets such as India (EMD requirement under GeM), the Middle East, and sub-Saharan Africa must factor bid security costs into their BD budgets and maintain adequate banking relationships.