A bid bond or tender guarantee is a safety mechanism that discourages companies from submitting a tender only to:
• Withdraw from the tender before its expiry
• Attempt to amend the tender
• Refuse to sign the contract when awarded to them
• Fail to furnish the required performance bond or other guarantees.
These guarantees are also called penalty bonds because the successful tenderer foregoes the amount of the guarantee should he default.
Bid bonds are also used as surety that the tendering company has the finances and the capabilities to undertake the contract.
The validity of the bond extends from date of issue to the signing of the contract or issuance of the performance guarantee.
Once the tender has been awarded, the bonds of the unsuccessful bidders are returned for cancellation.