Bid/Tender Bonds

What is a bid/tender bond?

A bid bond guarantees two things: that the contractor will enter into the contract if their tender is successful, and that they will provide the required performance bond within the timeframe specified in the contract. If the contractor withdraws after being awarded the project, or fails to provide the required performance security, the principal can call on the bid bond to recover the costs of re-tendering.

Bid bonds are typically set at 5–20% of the tender value, depending on the contract and the principal's requirements.

When bid bonds are required

Bid bonds are most commonly required on major government and defence tenders, large infrastructure PPP bids, and international construction contracts. They're less universally required in Australia than in some other markets — many Australian construction tenders don't require a bid bond — but they remain important for contractors pursuing the largest government and institutional contracts.

How they work with your surety facility

Bid bonds are short-duration instruments — they're only in place from tender submission to contract execution, typically a period of weeks to a few months. Once the contract is signed and the performance bond is issued, the bid bond is released.

Because of their short duration and relatively low face value compared to performance bonds, bid bonds consume minimal facility capacity. However, a contractor pursuing multiple large tenders simultaneously may have several bid bonds outstanding at once, so they still need to be managed within the overall facility limit.

The strategic advantage

Having a surety facility that includes bid bond capacity allows you to tender for multiple large contracts simultaneously without each tender consuming bank facility limits. This is particularly valuable for growing contractors who are pursuing larger contracts than they've historically undertaken — the surety facility supports the tendering strategy rather than constraining it.

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