Wednesday, October 3, 2018

What are Bid Guarantees?

A "bid guarantee" (sometimes referred to as a "bid bond") is a form of security assuring that the bidder will not withdraw a bid within the period specified for acceptance and will execute a written contract and furnish required bonds, including any necessary coinsurance or reinsurance agreements, within the time specified in the bid, unless a longer time allowed, after receipt of the specified forms (See FAR 28.001).

The purpose of a bid guarantee is to secure the liability of a surety to the Government by providing funds to cover the excess costs of awarding to the next eligible bidder in the event that the successful bidder defaults by failing to fulfill these obligations. The amount of the bid guarantee is specified in the solicitation and is expressed as a percentage of the bid price up to a maximum: "The amount of the bid guarantee shall be xxx percent of the bid price or $xxx, whichever is less." (see FAR 52.228-1(c)).

A bid bond or guarantee is a material part of the bid with which there must be compliance at the time of bid opening. When a bidder submits a defective bid bond or uncertainty exists at the time of bid opening that the bidder has furnished a legally binding bond, the bid itself is rendered non-responsive and generally requires rejection of the bid (see FAR 28.101-4(a)).

Bidders usually submit an SF 24 Bid Bond form to establish that the guarantee is enforceable however the use of a SF 24 is not mandatory as long as the alternate form (such as a "commercial" bid bond form, does not represent a significant departure from the rights and obligations of the parties as set forth in the SF 24. The determinative factor s whether the bond establishes unequivocally at the time of bid opening, that the bond is enforceable against the surety should the bidder fail to meet its obligations. If, for example, the contracting officer (or whoever is awarding the contract) cannot determine definitively from the bid bond documents that the surety would be bound, the bond is defective and the bid must be rejected.

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