How to Obtain a Bid Security Guarantee from a Bank

For most public tenders in Sri Lanka, your bid is not complete without a bid security. Its job is simple. It assures the procuring entity that you will not withdraw your bid during its validity period and that, if you win, you will sign the contract and provide the performance security. The most common way to provide it is a bid security guarantee issued by a bank. It is also one of the most common reasons bids are rejected, usually because of a wrong amount, a wrong beneficiary name or an expiry date that is too early.

This guide walks you through how a bid security guarantee works, how to apply for one from a bank in Sri Lanka, what the bank will ask for, how to check the wording, and how to avoid the mistakes that lead to rejection.

Note: The required amount, form, validity and acceptable issuers are set in each tender's bidding documents, and bank requirements and charges differ. Always verify with the bidding documents and your bank.

What Is a Bid Security Guarantee?

A bid security guarantee (sometimes called a bid bond or tender guarantee) is a written promise by a bank to pay the procuring entity a stated sum if the bidder fails to meet certain obligations during the tendering process.

The three parties

| Party | Role | |---|---| | Applicant (you, the bidder) | Requests the guarantee and is liable to reimburse the bank | | Issuer (the bank) | Promises to pay on a valid demand | | Beneficiary (the procuring entity) | Can demand payment if the conditions are met |

When can it be called?

The exact conditions are written in the bidding document's bid security form. Typical triggers include:

• Withdrawing your bid during the bid validity period
• Refusing to accept a correction of arithmetic errors, where the bidding document provides for this
• Failing to sign the contract after award
• Failing to provide the performance security after award

If you do none of these, the guarantee simply expires or is returned to you.

Bid security versus bid-securing declaration

Some bidding documents allow, or require, a bid-securing declaration instead of a bank guarantee. This is a signed statement in which you accept that you may be suspended from bidding with that procuring entity for a period if you breach your obligations. Read the Bid Data Sheet to see which one applies. Do not substitute one for the other unless the document allows it.

Step 1: Read the Bidding Document Carefully

Before you go to the bank, extract these details from the Invitation for Bids, Instructions to Bidders and Bid Data Sheet:

• Amount: usually a fixed sum stated in the bidding document. Check whether it is a fixed figure or a percentage, and in which currency.
• Form: bank guarantee, insurance bond or other instrument. Some tenders accept guarantees from insurance companies or other institutions. Others accept only commercial banks.
• Acceptable issuers: for example, a licensed commercial bank in Sri Lanka. Foreign bank guarantees may need confirmation by a local bank.
• Validity: often a stated number of days beyond the bid validity period. Calculate the exact date.
• Format: the wording in the bid security form included in the bidding document.
• Beneficiary name and address: exactly as stated.

Write these on a one-page instruction sheet for your bank.

Step 2: Choose the Right Bank and Facility

Use your existing bank

It is usually quickest to apply to a bank where you already have a current account and a credit relationship. The bank already knows your business and has your KYC documents on file.

Arrange a guarantee facility in advance

If you bid regularly, ask your bank for a guarantee facility or limit. Once approved, each new bid security can be issued against the facility much faster than a one-off application. This is important when tender periods are short.

Compare costs

Banks usually charge:

• A commission, often calculated on the guarantee amount and its period
• Fixed issuance or handling fees
• Charges for amendments such as extensions
• Possibly a margin deposit or other collateral

Charges vary between banks and depend on your relationship and risk profile. Ask for a written quote.

Step 3: Prepare the Application

Most banks will ask for some or all of the following:

• Completed guarantee application form, signed by authorised signatories
• Board resolution authorising the company to obtain guarantees, for companies
• Copy of the tender notice and the bid security form from the bidding document
• Business registration or incorporation documents and director details, if not already on file
• Recent financial statements, for new or larger facilities
• Counter-indemnity: your undertaking to reimburse the bank if the guarantee is paid out
• Collateral or margin, if required, such as a fixed deposit lien or cash margin

Banks may ask for more, depending on the amount and your credit history.

Example of an instruction sheet

Hypothetical example only:

| Field | Instruction | |---|---| | Beneficiary | [Exact name of procuring entity as in BDS] | | Tender reference | [Contract number as in IFB] | | Amount | LKR [amount in figures and words as in BDS] | | Expiry date | [Calculated date, with a buffer] | | Format | As per attached bid security form, no changes | | Delivery | Original to be collected by [authorised person] |

Step 4: Check the Draft Guarantee

Ask the bank for a draft before it issues the final document. Check it line by line against the bidding document.

Wording check

• Is the bank's text identical to the format in the bidding document, or at least substantially the same as the bidding document permits?
• Are the call conditions the same as in the format? Extra conditions added by the bank can make the guarantee non-compliant.
• Is it "unconditional" or "on first demand" if the format requires it?

Detail check

• Beneficiary name: spelled exactly as in the bidding document
• Bidder name: exactly as it appears on your bid, including joint venture names where applicable
• Tender name and reference number: correct
• Amount: correct in figures and words, in the right currency
• Expiry date: on or after the required date

Joint ventures

If you bid as a joint venture, check how the bidding document wants the bid security issued, for example in the name of the joint venture or all its partners. A guarantee in the name of only one partner may not be accepted unless the document says it is.

Step 5: Collect, Copy and Include the Original

• Collect the signed original and check signatures and bank seal.
• Keep a certified copy for your records.
• Place the original in the bid as instructed, usually with the original bid, not a copy.
• For electronic submission through the government e-GP system (PROMISE) or other platforms, follow the specific instructions in the bidding document. Some require the original to be submitted physically by a deadline. Others may accept electronic guarantees.

Some procuring entities verify guarantees directly with the issuing bank. Make sure your bank is ready to confirm authenticity quickly.

Step 6: Manage the Guarantee After Submission

Extensions

If the procuring entity asks bidders to extend bid validity, you can usually agree or refuse. If you agree, you will normally need to extend your bid security as well. Ask your bank for an amendment before the original expires.

Return or release

Unsuccessful bidders' securities are normally returned after the contract is signed with the winner and the performance security is provided, or once the bid validity has ended. If you win, your bid security is usually released once you provide the performance security.

Once the original is returned, give it back to your bank so it can close the liability and stop charges, where the bank's process requires that.

Common Mistakes That Cause Rejection

| Mistake | Consequence | Prevention | |---|---|---| | Amount below requirement | Bid may be rejected | Copy amount exactly from BDS | | Expiry date too early | Bid may be rejected | Calculate date and add a buffer | | Wrong beneficiary name | Bid may be rejected | Copy name exactly | | Bank adds extra conditions | Guarantee may be non- compliant | Insist on the bidding document format | | Photocopy instead of original | Bid may be rejected | Include original as instructed | | Issued by non-accepted institution | Bid may be rejected | Check acceptable issuers in BDS | | Wrong form (e.g. cheque when guarantee needed) | Bid may be rejected | Follow BDS on acceptable forms |

Planning Your Timeline

Banks need time to process guarantees, especially new applications. A rough, hypothetical plan:

• As soon as you decide to bid: send the bank your instruction sheet and the bid security form.
• A few working days later: review the draft.
• Several days before closing: collect the original.

If you have a pre-approved facility, issuance may be faster. Without one, allow more time. Ask your bank for its typical turnaround.

Key Takeaways

• A bid security guarantee assures the procuring entity that you will honour your bid.
• Extract amount, form, issuer, validity, wording and beneficiary from the Bid Data Sheet first.
• A standing guarantee facility saves time if you bid often.
• Always review a draft before the bank issues the final guarantee.
• Keep track of expiry dates and extend promptly if bid validity is extended.
• Return released originals to the bank to close the liability.

Frequently Asked Questions

How much is a bid security in Sri Lanka?

It depends on the tender. The procuring entity sets the amount in the bidding document, often as a fixed sum. There is no single figure for all tenders, so always use the amount stated in the Bid Data Sheet.

Can I use a cheque or cash instead of a bank guarantee?

Only if the bidding document lists that form as acceptable. Many tenders accept only a bank guarantee or another specified instrument. Using a form not listed can lead to rejection.

How long does it take a bank to issue a bid security guarantee?

It varies by bank and by whether you have an existing facility. With a facility in place, it can be quick. A new application may take longer because of credit checks. Ask your bank early.

Will I lose money if my bid security is called?

If the guarantee is called, the bank pays the procuring entity and then recovers the amount from you under your counter-indemnity. You would also normally lose the chance to proceed with that contract.

Can an insurance company issue a bid security?

Some bidding documents accept bonds from insurance companies or other institutions. Others accept only banks. Check the list of acceptable issuers in the Bid Data Sheet.

What happens to my bid security if I lose?

It is normally returned after the contract is awarded and signed, or after bid validity ends. Check the bidding document for the exact process.

Conclusion

A bid security guarantee is a small document with big consequences. Treat it as part of your bid strategy, not a last-minute errand. Set up a guarantee facility, give your bank clear written instructions, and check every draft against the bidding document. These steps remove one of the most common, and most avoidable, causes of bid rejection.

To plan ahead for the tenders you want to bid on, follow the daily tender notices on TenderHub.lk. You can browse by category and province, watch tenders closing soon, and use its bid bond calculator as a quick reference while you prepare.

Related guides

• How to Calculate Tender Pricing and Profit Margins
• Complete Tender Submission Checklist for Sri Lankan Businesses
• CIDA Registration Guide for Construction Contractors
• How SMEs Can Become Government Suppliers

Browse live tenders in Sri Lanka, see what is closing this week and get daily tender alerts on TenderHub.lk.