Tender Bond

A buyer may sometimes require a tender bond when a supplier is tendering for large projects. The tenderers are required to submit a tender or bid bond as surety that, should their bid be accepted, they will honour the commercial terms in that offer. The bond will be forfeited if the bidder wins the work but declines to complete the project.

In short

A tender bond is security a tenderer provides with its bid. If it wins and then withdraws, or refuses to sign on the terms it offered, the buyer can claim the bond. Bid bond and tender security are other names for the same thing.

How a tender bond works

1. The tender documents say whether a bond is needed, its amount and the form it must take.
2. Each tenderer lodges the bond with its tender, usually as a bank guarantee or an insurance bond.
3. Unsuccessful tenderers get their bonds back once the contract is awarded.
4. The winner's bond is released when it signs the contract, and is often replaced by a performance bond.

Tender bond or performance bond?

A tender bond covers the bidding stage: it protects the buyer if the winner walks away from its offer. A performance bond covers the contract: it protects the buyer if the supplier fails to deliver what it signed up to.

When to ask for one

A tender bond adds cost and effort for every bidder, and can put smaller suppliers off bidding. It makes sense for large or complex projects, where a winner withdrawing would cost the buyer heavily in delay and a second tender. For most routine purchases, a clear evaluation and probity process does the job.

Help with tenders

Comprara runs tenders and negotiations alongside procurement teams through its procurement delivery support service. For advice on the evaluation report, read Give it to me straight: how to write effective tender evaluations.