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Estimating & Biddingaka: bid security

Bid Guarantee

In Plain English

Money or a bond a contractor puts up to prove they are serious about their bid price.

Definition

A bid guarantee is financial security submitted with a bid to ensure the bidder will honor the bid if selected. It may take the form of a bid bond, certified check, or cashier's check. The guarantee is forfeited if the winning bidder refuses to execute the contract.

Why It Matters in Bidding

A bid guarantee shifts the financial risk of a backed-out award from the owner onto the bidder and its surety, which is why owners size it as a percentage of the bid and forfeit it if the low bidder walks. For contractors, the need to secure a bid bond means a surety has already vetted their financial capacity, so the guarantee doubles as a prequalification signal. A bidder who cannot obtain the required guarantee effectively cannot compete on bonded public work.

Example

When the low bidder discovered an estimating error and refused to sign the contract, the owner forfeited the firm's 5 percent bid guarantee and awarded to the second-lowest responsible bidder.

Related Terms

Bid BondBid SecuritySuretyBid

Frequently Asked Questions

The most common form is a bid bond issued by a surety, but owners often also accept a certified check, cashier's check, or sometimes an irrevocable letter of credit for the required amount. The instructions to bidders specify which forms are acceptable. Cash-equivalent instruments tie up the bidder's capital, whereas a bid bond does not.
It is forfeited when the selected bidder fails to honor its bid, typically by refusing to sign the contract or to furnish the required performance and payment bonds within the stated period. The owner keeps the guarantee to offset the cost of re-bidding or awarding to a higher bidder. Bidders who simply lose get theirs returned.
No. A bid guarantee only protects the owner up to the bidding stage, ensuring the winner actually enters the contract. Once the contract is signed, a separate and much larger performance bond guarantees the work itself will be completed per the terms. The bid guarantee is released once the performance and payment bonds are in place.

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