Bid Security

Understanding Bid Validity and the Bid Validity Period

1. What is bid validity?

When a bidder submits a bid or proposal in response to an invitation for bids or a request for proposals, they need to commit to their bid (this is done on the bid or proposal submission form) and also to how long the bid/proposal can be considered effective (this is what is commonly called the bid or proposal validity period). For the sake of simplicity and to avoid unnecessary repetition, we will refer from this point forward only to “bid validity”, but it must be understood that we are referring to the validity of a bidder’s offer, be it a bid or a proposal.
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Bid Security and Bid Securing Declaration: Similarities and Differences

Jorge Lynch 14 Comments

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.

The Bid Security and Its Purpose

Jorge Lynch 20 Comments

A bid security is an amount of money that may be calculated as a percentage of the budget estimate of a procurement requirement or a percentage of a bidder’s bid price. It is used by the client as protection against bidders withdrawing their bids prior to the end of their bid validity period, or for refusing to sign the contract.

The bid security is intended to deter bidders from withdrawing their bids because they would otherwise forfeit the bid security amount to the client. It gives the client some assurance that the selected bidder will sign the contract or otherwise forfeit their bid security.