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Estimating & Bidding

Bid Security

In Plain English

A deposit or bond submitted with a bid that the owner can keep if the winning contractor backs out.

Definition

Bid security is a financial instrument required with a bid submission to protect the owner if the winning bidder fails to execute the contract. Common forms include bid bonds, certified checks, and letters of credit. The amount is typically 5–10% of the bid price and is returned to unsuccessful bidders after award.

Why It Matters in Bidding

Bid security is the owner's insurance that the competitive process produces a contract rather than a wasted bid opening, since it gives the owner a recoverable sum if the apparent low bidder withdraws. The typical 5 to 10 percent amount is calibrated to roughly cover the gap between the low bid and the next acceptable bidder, capping the owner's re-procurement exposure. Requiring bid security also filters out under-capitalized or speculative bidders who cannot obtain surety backing.

Example

The agency's instructions to bidders required bid security equal to 10 percent of the bid, so each contractor attached a bid bond for that amount to keep its proposal responsive.

Related Terms

Bid BondBid GuaranteeSuretyBid

Frequently Asked Questions

It is commonly set at 5 to 10 percent of the total bid amount, with the exact figure stated in the instructions to bidders. The percentage is meant to approximate the owner's potential loss if it must award to the next-lowest bidder. Some public agencies fix a flat dollar amount or cap instead of a straight percentage.
Yes. Bid security is returned to unsuccessful bidders, usually shortly after the award is made or once the winning contractor executes the contract and provides performance and payment bonds. If a bidder posted a certified check rather than a bond, the owner returns the check. Only the defaulting winner risks losing its security.
Bid security is the broad requirement to post recoverable value with a bid, while a bid bond is one specific instrument that satisfies it. A bid bond is a surety-backed promise, whereas other acceptable forms of bid security include certified checks, cashier's checks, or letters of credit. So every bid bond is bid security, but not all bid security is a bond.

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