Construction guarantees
Bid Bonds
A bid bond, also called a tender guarantee, is submitted with your tender. It is the employer’s security that if you win, you will stand by your price, sign the contract and provide the guarantees the tender requires. Mostly asked for on public sector and larger commercial contracts, and all applications are subject to underwriting.
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- Who issues it
- The guarantor, an insurer
- Who it protects
- The employer
- When it applies
- At tender stage
- What replaces it
- A performance guarantee
- Who applies and pays
- You
What it is
Proof you are serious about the tender
A bid bond is used during the tendering phase, when contractors are putting in prices to win the job. It gives the employer security that if you are awarded the contract, you will stand by your price and sign. If you back out after winning, the employer can call on the bond towards the cost of re-tendering or the price difference.
The employer is what contracts call your client: the party that awarded you the work, not your own boss. The bond protects the employer, not you. If the guarantor pays out, you remain liable to reimburse it under your indemnity.
The bond stays in place until the contract is awarded. If you win, it is usually replaced by a performance guarantee. If you do not win, it falls away at the end of the validity period.
CivilSure arranges bid bonds for contractors across the civil and construction industry, from owner-run businesses to large national companies. Guarantees are issued by the guarantor, an insurer, not by CivilSure.
How it works
From tender to award
A bid bond has a short, well-defined life. It exists for the window between submitting a price and signing a contract.
With your tender
It goes in with the bid
Submitted as part of your tender proposal, usually on larger public or commercial projects where the employer wants to know the offer is firm.
While tenders are assessed
Your price is held
It gives the employer confidence that if they pick your bid you will not walk away or change the number during the bid validity period.
If you win
It hands over
The bond is usually replaced by a performance guarantee once the contract is signed and the required guarantees are in place.
If you do not win
It falls away
If you do not win, the bond falls away at the end of the validity period. The premium you paid for it is not refundable.
The trade-off
Who benefits, and what it costs you
Worth being clear-eyed about, because it runs both ways.
The employer
They are the . They gain financial protection if the contractor they choose backs out, which is a real cost: re-tendering takes time and can cost more.
You
An insurer-backed bid guarantee shows your financial standing has been assessed, and it is what makes your tender responsive where one is required.
The catch
It is not a deposit. You pay a premium for the bond to be issued and that premium is not refundable, and if it is called you remain liable to reimburse the insurer under your indemnity.
A bid bond is a promise about your own conduct, not about the works. It is called when you win and then do not proceed, so the risk sits mainly with how you tender and what you can deliver after award. One common trigger, failing to provide the performance guarantee in time, depends on underwriting as well as on you. Price the tender so you can live with winning it.
Claims
What could trigger a call
A bid bond can generally only be called if you win the tender and then do not follow through. These are the common situations. Whether a demand is valid depends on the wording of the bond issued.
Not signing the contract
Where you are awarded the contract but refuse or fail to sign within the required timeframe. For example, winning a tender and then deciding not to proceed because the pricing was too low.
Not providing the performance guarantee
Most tenders require a performance guarantee within a set period after award. Failing to arrange it in time can allow the employer to call on the bid bond.
Withdrawing during validity
Where you withdraw your tender before the bid validity period expires, for example because material prices moved after you priced the job. The tender document sets that period, and on public tenders it is often several months.
Misrepresentation in the tender
Where the employer finds that information or qualifications in your submission were not accurate and that disqualifies you after award, such as a CIDB grading you do not hold.
Other breaches the tender names
Some tender conditions allow a call for failing to meet any material condition of the award, such as not attending a compulsory site handover or not mobilising when required.
Common questions
Do all tenders need one?
No. They are mostly required on public sector projects, large commercial contracts, and by employers who want extra assurance. The tender document will say.
Do I need collateral for a bid bond?
Not always. Security requirements are set on underwriting: the guarantor may ask for some form of security where the financials or the tender value warrant it. What applies to you is confirmed on your facility quotation.
Is the bond amount refunded after the tender?
No, and it is worth being clear about this because the language on some tenders suggests otherwise. The bond is not a cash deposit lodged with the employer. You pay a premium for the guarantee to be issued, and the premium is the price of the bond, not a refundable amount. Some tenders do allow a cash deposit or a bank-guaranteed cheque as an alternative to a bond. Those are different instruments and are treated differently, and the tender document says which it will accept.
Can the employer call it unfairly?
A bid bond generally responds only if you win and then refuse to sign or fail to provide the required performance guarantee. Insurers will check that a demand complies with the wording before paying. Whether a demand is valid depends on the wording of the bond issued, not on who is right about the tender.
How do I apply?
Send us your company financials and CIPC documents, the tender details (employer, value, closing date) and your construction experience. We put the application to the guarantor, which assesses it and, if approved, issues the bond. Start early: tender deadlines do not move, and a facility takes time to open.
What does it cost?
Two main amounts, and they work differently. The premium is the price of the guarantee and is not refundable. is security held by the rather than a fee: it stays your money and is refundable once the guarantee has expired or been returned and anything owed has been settled, under the terms of your agreement. If a guarantee is called, the guarantor recovers against the securities on your facility. Both amounts are set on underwriting and shown on your facility quotation before you commit, along with any other charges that apply. Whether collateral earns interest, and on what basis, is set out in that agreement.
What do I need to apply?
- Company profile, two years of financials, three months of bank statements
- Company registration, letterhead, directors’ IDs and tax numbers
- Tax clearance and CIDB certificates
- The contract information and the wording the employer requires
It is gathered once when the facility is opened, and a guarantee request after that draws on what is already held. The full list, and what the guarantor assesses, are on Guarantees Explained.
Tender closing? Start now.
Send us the tender document and we will tell you what bond it asks for and what is achievable before the closing date. No obligation either way.