Bid bond

A public water authority launches an international tender for a desalination plant: bids valid for 120 days, a 2% bid bond required from every bidder. The lowest bidder is selected, finds a costing error on the civil works and refuses to sign. The authority calls the bond and moves to the runner-up. That is the whole job of the bid bond, or tender guarantee: making the bidder pay for the seriousness of its price. The amount runs between 1 and 5% of the bid, often set by the buyer as a round sum so that nothing about the price leaks before bids are opened. Tender documents almost always list the same grounds for a call: withdrawal of the bid during its validity, refusal to sign after award, failure to deliver the performance bond on time. The bond falls away for losing bidders at award, for the winner when it delivers its performance bond, and its term covers the bid validity plus a margin, 28 days in World Bank standard documents. Outside the United States it is almost always an on-demand bank guarantee, often subject to URDG 758. US federal construction contracts instead require a bid guarantee of at least 20% of the bid price, capped at 3 million dollars (FAR 28.101-2), issued by a surety. The World Bank also accepts a bid-securing declaration, a bare undertaking by the bidder which, if it backs out, is barred from the buyer's contracts for a set period. For the guarantor the credit risk is small; what it fears is the buyer who calls to force a renegotiation.