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
- bond libido-portugal.com/.
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.
Purpose
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.
Three Differences
- 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
Advantages
- 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.
Disadvantages
- 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.
The bid securing declaration (BSD) although recently provided for in my country procurement law (Uganda), the business community seems still stuck to the Bid security.
The idea of notarizing has added value to my understanding and application of the BSD. Otherwise, it is a good alternative to help capable companies that may not have the resources to secure bid security.
Isaac Kyaligonza
MIPS- Public Procurement Practitioner
Agreed Isaac,
In my experience, most procuring entities are reluctant to use the BSD instead of the bid security, but it is just as effective if correctly applied.
Thanks
Thanks for this insight. It is really helpful. The bid securing declaration looks like a best alternative of bid security.
Yes Dinesh,
In my mind, it should be applied more often, where permitted.
Thanks
Thank you Mr. Jorge, we appreciate your effort toward the development of the coming generation professionals.
Thanks Zubeir,
Your comment is encouraging.
Some Advantages of a bid securing declaration:
(1) Where it is required that a bid securing declaration is notarized, the cost of notarization may be included in the bidder’s bid price.
(2) For failure to observe the bid validity period or sign a contract on the part of a bidder, the bidder risks losing business opportunities.
(3) If the punishment required for failure to adhere to the bid validity period or sign a contract is harsher, competition may be reduced because bidders may be scared away.
Aaron,
Thanks for your comment.
Rather than “advantages”, I’d consider the points you indicated as possible consequences of using the bid securing declaration.
In case the validity period of Bid Security in the form of a Bid Securing Declaration is expired prior to award of the contract, how do the bidder extend the period of validity of bid and bid security? Should the bidder furnished or execute another BSD effective the date of expiry to extend, or any other means?
Good question, Julito,
The Bid Securing Declaration needs to be treated in the same manner as the Bid Security because it has the same function. So, the bidder would be requested to extend the validity of the Bid Securing Declaration, and they would have the right to comply or not, under the conditions clearly stipulated in the contract.
For a bid securing declaration to be responsive, it must also consider the bid validity period. Usually, a bid securing instrument will expire days after the expiry of the bid validity period. However, procurement entities are required to conclude decisions for the award before the expiry of the bid validity period.
If for any reason the procurement entity has to go beyond the bid validity period defined in the tender documents, the procurement entity must request the bidders to extend their bid validity period and that of the bid securing instrument (Bid Security or Securing Declaration, whichever is required as per the tender documents). The new bid securing instrument would also be valid for a period beyond the new bid validity extension. The minimum number of days above the bid validity for which a bid securing instrument can remain valid depends on the legal and regulatory framework under which a procurement entity is procuring. This goes with no modification to the bid. On the contrary, the bidder can withdraw their bid without forfeiting his bid security or bearing the consequences associated with the bid securing declaration for violation of the bid validity period.
The situation where a bidder would be required to extend his bid validity period, and the bid securing instrument’s validity, can only be initiated on request from the procurement entity. If there was a bid securing instrument with validity less than the bid validity period, that security would be non-responsive.
I agree, Aaron, but want to add that the validity of the bid securing instrument (bid security or bid securing declaration) is usually up to the end of the period the selected bidder is required to submit a performance security. This is usually for procurement of goods and works, and the period would be indicated in the letter of acceptance and must also have been stipulated in the bidding documents.
Can we ask for a bid securing declaration and a bid security (bank guarantee or bond) in the same process?
This is not permitted. It is either one but not both.