The Bid Security and Its Purpose

Last Updated on May 3, 2026 by Jorge Lynch

What Is a Bid Security?

A bid security is a financial guarantee required from bidders as a condition for submitting an offer in a competitive procurement process. It may be calculated as a fixed amount, as a percentage of the bidder’s bid price, or as a percentage of the procuring entity’s budget estimate for the requirement. Its primary purpose is to protect the client against bidders withdrawing their bids before the end of the bid validity period or refusing to sign the contract after receiving notification of award.

A bid security deters non-serious bidders and gives the client reasonable assurance that the selected bidder will proceed to contract signing. It should not be confused with a performance security, which is a separate instrument required after contract award to protect the client against contractor non-performance during contract execution.

When Is a Bid Security Required?

A bid security is commonly required for the procurement of goods, works, and non-consulting services. It is uncommon in the procurement of consulting services, although it may be applied if expressly stipulated in the solicitation documents and permitted under the applicable procurement rules. Many procurement frameworks require bid security only above a specified contract value threshold; below that threshold, the administrative burden of managing bid securities may outweigh the protective benefit.

Some procurement frameworks, including the World Bank’s Procurement Regulations for IPF Borrowers, provide for a bid-securing declaration as an alternative to a traditional bid security. Under this approach, bidders sign a declaration committing not to withdraw their bids or refuse to sign the contract. The consequence of breach is disqualification and possible debarment rather than forfeiture of a financial instrument.

Setting the Bid Security Amount

The bid security amount may be set as a percentage of the bidder’s offer or as a percentage of the allocated budget for the procurement requirement. However, where the procurement method does not permit disclosure of the allocated budget, care should be taken to set the bid security as a fixed amount or as a percentage of the bid price. Setting it as a percentage of the budget estimate in such cases would indirectly reveal the budget to bidders, undermining the integrity of the process.

Acceptable Forms of Bid Security

A bid security is typically acceptable in one of the following forms:

• Unconditional bank guarantee
• Irrevocable letter of credit
• Certified check
• Surety bond

The unconditional bank guarantee is the most widely required form. Regardless of the form used, the issuing institution should be acceptable to the client, and the solicitation documents should specify any requirements regarding the nationality, licensing status, or credit rating of acceptable issuers.

Bid Security Validity

The bid security must remain valid for a specified period beyond the bid validity period, commonly 28 days, to allow the client sufficient time to call on the security if a forfeiture event occurs after bid validity expires. The solicitation documents should state the required validity period explicitly.

Forfeiture of Bid Security

The bid security may be forfeited to the client if the bidder:

• Withdraws its bid before the end of the bid validity period
• Fails to sign the contract after receiving notification of award
• Fails to provide a performance security within the required timeframe, where one is required

Return of Bid Security

Bid securities should be returned to unsuccessful bidders promptly after contract award and to the successful bidder upon execution of the contract and submission of the required performance security. Unnecessary delay in returning bid securities is poor practice and may discourage future market participation.

Conclusion

A bid security is a practical instrument for protecting the client’s interests during the period between bid submission and contract execution. Used appropriately, with a clearly stated amount, validity period, and acceptable forms, a bid security supports a credible and competitive procurement process. Practitioners should ensure that the bid security requirements set out in the solicitation documents are proportionate, clearly drafted, and consistent with the applicable procurement framework.