Bid Bonds
A Bid Bond – also called a Tender Bond, Tender Guarantee or Tender Security – is submitted alongside your tender to confirm that the offer is serious and that you will sign the contract at the price quoted if you win. It replaces the cash deposit some clients would otherwise demand, and it signals to the client that a surety has already reviewed your finances. Aedis Surety issues bid bonds quickly, because tender deadlines do not move.
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What is a Bid Bond?
A Bid Bond is a surety bond given by a tendering contractor or supplier to the party running the tender. If the contractor is awarded the contract but then refuses to enter into it, or cannot provide the performance bond the contract requires, the client can call on the bid bond.
The bond value is a set percentage of the tender sum. Depending on the wording, a call may be limited to the client’s actual loss – usually the difference between your bid and the next acceptable bid, plus the cost of re-tendering – or the full bond amount may be forfeited outright. Those two positions are very different and it is worth knowing which one you have agreed to.
Where you will actually encounter a Bid Bond
It is worth being straightforward about this. Bid bonds are relatively uncommon in domestic UK private-sector construction. Most UK employers rely on prequalification and a performance bond after award rather than bid security at tender stage.
Where they do appear regularly is:
- International tenders, particularly across the Middle East, Africa and Asia, where tender security is close to universal.
- Contracts let under FIDIC and other international standard forms.
- Projects funded by development banks and multilateral agencies, which routinely mandate tender security.
- Export and cross-border supply contracts.
- Certain UK public sector, utility, rail and defence procurements, and some large framework competitions.
If you are moving from domestic work into overseas or publicly funded tendering for the first time, a bid bond requirement is often the first unfamiliar document you will hit.
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How does a Bid Bond work?
The tender documents specify bid security
The instructions to tenderers set the required bond value, the acceptable form and the validity period. Read this before you start pricing.
You apply for the bond
Aedis Surety reviews your financial position, the tender and the required wording.
The bond is issued
It is issued in favour of the client for the specified percentage of your tender sum and the required validity period.
The bond is submitted with your tender
A non-compliant or missing bid bond will usually see the tender rejected outright, regardless of price.
Award or no award
If you are unsuccessful, the bond simply lapses at the end of the validity period. If you win, you must sign the contract and provide any required performance bond.
Release
The bid bond is released once the contract is signed and the performance bond is in place, or when the validity period ends without an award.
How much is a Bid Bond for?
The bond value is dictated by the tender documents, not by you. Internationally, tender security commonly falls between 1% and 5% of the tender sum, with 2% a frequent figure under FIDIC-based forms. Some tenders, particularly in North America and certain public procurements, specify substantially higher percentages, and 10% is not unheard of.
Never assume a standard figure. Take the percentage, the currency, the validity period and the required wording directly from the instructions to tenderers, and send them to us with your enquiry. A bond issued for the wrong amount or with the wrong expiry date is as good as no bond at all.
On-demand wording and the risks worth understanding
Most bid bonds are issued on an on-demand basis. The client can call the bond without proving that you defaulted, and the surety pays. That is the whole point from the client’s perspective, and it is why bid bonds are accepted as an alternative to a cash deposit.
The corollary is that an on-demand bid bond can be called unfairly. On international tenders, contractors also encounter extend-or-pay demands, where the client asks for the validity period to be extended and threatens to call the bond if the contractor refuses. This is a normal feature of the market but it is not always understood before the first time it happens.
None of this is a reason to avoid bid bonds – without one you simply cannot bid. It is a reason to have the wording read by someone who has seen it before, and to make sure the validity period is defined and finite rather than rolling.
Bid Bond, Performance Bond or Advance Payment Bond?
These three bonds appear at different points in the same project and are frequently confused.
| Bid Bond | Performance Bond | Advance Payment Bond | |
|---|---|---|---|
| Stage | Tender submission | After contract award | Before an advance payment is released |
| What it secures | That you will sign the contract at the price bid | That you will perform the contract | Repayment of money paid to you in advance |
| Typical value | 1–5% of tender sum, occasionally higher | Around 10% of contract value | 100% of the advance, reducing as it is recovered |
| Duration | The tender validity period | Construction and often the defects period | Until the advance has been fully recovered |
| Usual wording | Generally on demand | Conditional or on demand | Frequently on demand |
A single project can require all three in sequence, which is why sureties look at your total bonding requirement rather than one bond in isolation.
Set up a bond facility before you tender, not after
The most common problem we see is timing: a contractor discovers on the return date that bid security is required, then tries to arrange a bond in forty-eight hours while also finalising the price.
The solution is a bond facility – an agreed line with a surety, underwritten in advance, up to a set aggregate limit and maximum single-contract size. Individual bid bonds can then be drawn down quickly, because the underwriting is already done.
If you tender regularly, particularly overseas, a facility removes the single biggest source of last-minute tender failure. It also gives you a realistic view of what size of contract you can credibly bid for, since the surety’s single-contract limit is a reasonable proxy for what your balance sheet will support.
Our team can provide an instant quote—ideal for tender pricing
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How much does a Bid Bond cost?
Bid bonds are short in duration and, viewed in isolation, lower in risk than the bonds that follow, so they usually price competitively. Some sureties charge a modest flat fee rather than a percentage premium, particularly where the bid bond forms part of a wider facility.
The more significant cost usually arrives after you win, in the form of the performance bond. Sureties assess bid bonds on the basis that they may shortly be asked to bond the contract itself, so the underwriting reflects the whole project rather than the tender stage alone. It is worth establishing at the outset that a surety is willing and able to support the performance bond, not just the bid bond.
We provide indicative pricing for the full bonding requirement so you can price the tender properly rather than discovering the bond cost after award.
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Why choose Aedis Surety for bid bonds
Speed when it matters. Tender deadlines are fixed, and we work to them.
Bond facilities arranged in advance so bid bonds can be drawn down quickly.
Whole-of-market access across a panel of specialist surety underwriters.
Experience with international and FIDIC-based tender security wordings.
No cash collateral in most cases, and no drain on your bank facility.
A view on the whole bonding requirement, not just the bond in front of you.
Frequently Asked Questions
Are bid bonds common in the UK?
Less so than internationally. Most UK private-sector work relies on prequalification and a post-award performance bond. Bid bonds appear most often on international tenders, development-bank-funded projects and certain public sector, utility and defence procurements.
What happens if I win and then withdraw?
The client can call the bond. Depending on the wording, it may recover its actual loss – typically the difference between your bid and the next acceptable one, plus re-tendering costs – or forfeit the full bond amount. The surety then seeks reimbursement from you under the indemnity.
What if I do not win the tender?
Nothing happens. The bond lapses at the end of the validity period and no claim arises. You should still confirm the bond has been released rather than assuming it.
Can a bid bond be extended?
Yes, where the surety agrees. Tender validity periods are frequently extended, and on international tenders an extension request may be accompanied by an implied threat to call the bond if refused. Speak to us before responding to one.
Do I need a bid bond and a performance bond?
Often, yes. The bid bond covers the tender stage and is released once the contract is signed and the performance bond is in place. Sureties usually assess both together.
How quickly can you issue a bid bond?
For clients with an existing facility, very quickly. For a first-time applicant we need financial information and the required wording before we can issue, so the earlier you come to us in the tender period the better.
Get a quote for your Bid Bond
Send us the instructions to tenderers and the required bond wording and we will confirm terms. If you tender regularly, ask us about setting up a bond facility. Contact the Aedis Surety team today.