During the bidding process, it is customary to require interested bidders to provide a bid security or bid securing declaration along with their bid. This may be necessary in order for the procuring entity to have a certain degree of assurance that bidders would be discouraged from withdrawing their bid or refusing to sign the contract if they are selected for contract award.
What is a bid security?
A bid security is a monetary guarantee intended to dissuade bidders from withdrawing their bids before the end of the bid validity period because they would otherwise forfeit the bid security amount to the procuring entity. A bid security may be a fixed monetary sum or a percentage of the bid price, usually less than 5%. The format and amount should be stipulated in the governing procurement rules and clearly stated in the bidding documents.
Some of the acceptable formats of the bid security are:
- unconditional bank guarantee,
- irrevocable letter of credit,
- certified check, or
What is a bid securing declaration?
The bid securing declaration is a non-monetary form of bid security. It is a notarized sworn statement made by a bidder committing to sign the contract if they are selected before the end of the bid validity period stipulated in the bidding documents. In this sworn statement, the bidder agrees to be automatically disqualified from bidding for any future government contracts for a stipulated period of time if they either withdraw their bid, fail to sign the contract before the end of the bid validity period or are unable to provide a performance guarantee, if required.
The main purpose of the bid security and the bid securing declaration is to prevent bidders from withdrawing their bids before the end of the bid validity period or from refusing to sign the contract if awarded. Any of these actions by the bidder could result in delaying the procurement process, with the adverse consequence of not only possibly delaying the delivery of public good and services, but also wasting public funds as a result of time and effort expended in the procurement process.
- A bid security requires a bank guarantee, while the bid securing declarations requires only a notarized sworn statement
- The bid security implies a possible material loss in case it is forfeited, while a bid securing declaration entails a potential loss of future bidding opportunities.
- A bid security may result in a direct monetary loss to the bidder, while the bid securing declaration may result in an opportunity cost.
Advantages and Disadvantages
- The bid security assures the procuring entity that the bidder is serious. If the bidders are eligible and qualified, and their prices are reasonable, there is a greater probability that a contract will be signed.
- A bid securing declaration allows qualified bidders to participate in the procurement process without incurring the cost of obtaining the bid security, and thus may increase the level of participation in the bidding process.
- Some bidders may be deterred from bidding if they consider the bid security amount too high.
- The cost of the bid security may be added by the bidder into their bid price to cover the expense incurred.
- Some qualified bidders may not be able to afford the bid security, resulting in a reduction of the number of bids received, effectively restricting the competition.