Bid security (financial)

Bid security is financial security submitted with a bid to protect the buyer if the bidder withdraws its bid or, after acceptance, fails to execute the contract and provide any required performance or payment bonds. In Canadian federal procurement, it takes the form of a security deposit or a bid bond, as set out in the Standard Acquisition Clauses and Conditions Manual.

Bid security is a form of tender security used mainly in competitive bidding, especially sealed bidding and construction procurement. Its purpose is to give the buyer financial protection if a bidder does not honour its offer or does not proceed to contract. Federal sources use the terms "bid security," "bid financial security" and "bid bond" for the same general requirement.

Forms of bid security accepted in federal tenders

The Standard Acquisition Clauses and Conditions Manual describes bid financial security as one of two alternatives: a security deposit under clause E0008T, or a PWGSC-TPSGC 504 bid bond accepted by an approved bonding company. Individual tender documents then specify which instruments they accept.

• A bid bond issued by an acceptable surety.
• A security deposit, such as a certified cheque.
• Government of Canada bonds, where the tender allows them.
• An electronic bid bond (e-bond) or electronic funds transfer, where the solicitation specifies it.

One federal tender package on CanadaBuys lists a certified cheque, Government of Canada bonds, or a bid bond/e-bond as acceptable forms of bid security.

How much security federal tenders have required

The amount is set by the buyer in each solicitation. Treasury Board guidance states that the contracting authority determines the amount of bid security, guided by practices customary for the type of contract. For construction contracts, the guidance gives percentage-based examples for bids over $30,000.

Published tenders show how this works in practice. One CanadaBuys invitation to tender required security of at least 10% of the bid amount, excluded applicable taxes from the calculation, and capped the required amount at $2 million. A federal minor-works parking lot pavement tender required an electronic bid bond or electronic funds transfer equal to at least 10% of the bid amount, with the same $2 million maximum.

Bid security as a mandatory requirement

The CanadaBuys checklist for preparing a bid identifies a surety bond as a possible mandatory bid criterion. A bid that fails a mandatory criterion is non-responsive. Where a bond is required, the bidder must include the applicable bond documentation and information about acceptable bonding companies.

Timing is part of the requirement. The tender package cited above states that a bid bond or e-bond must accompany each tender or, if sent separately, be provided no later than the tender closing time.

Bid guarantee in the U.S. Federal Acquisition Regulation

The closely related term bid guarantee is used in the U.S. Federal Acquisition Regulation. FAR 28.001 defines it as security assuring that the bidder will not withdraw its bid during the acceptance period and will execute the contract and furnish required bonds within the specified time. The standard clause at FAR 52.228-1 states that failure to provide the guarantee in the required form and amount may result in rejection of the bid. Canadian documents use "bid security" rather than "bid guarantee."

What bid security means for a supplier

Bid security shows up most clearly in federal construction and minor-works solicitations, including those run through Public Services and Procurement Canada. Suppliers bidding on this work should:

• Check the solicitation for a mandatory bid-security clause before starting the bid.
• Submit the security in the specified form, amount and deadline.
• Use a surety or financial institution that the solicitation accepts.
• Confirm the bid bond or security document is properly completed, signed, sealed and otherwise compliant.

Missing or defective security can make an otherwise strong bid non-responsive, so bonding arrangements should be confirmed early in the bid schedule.