Tender Guarantee or Bid Bond

This short note looks at tender guarantees or bid bonds which are often used in the commercial context.

In practice tender guarantees or bid bonds are often used by a party to safeguard its interest in the event that the party submitting the tender withdraws prior to entering into a legally binding contract. If a party that has submitted a tender later withdraws it from the buyer this could cost the buyer dearly in terms of time and costs in retendering.

One way to combat this is to require anyone tendering for the contract to also provide a tender guarantee or bid bond for a sum acceptable to the buyer. In such circumstances if the party submitting the tender was to default and withdraw prior to signing a full contract then the amount agreed in the tender guarantee or bid bond would become payable.

Tender guarantees or bid bonds are usually drafted in favour of the buyer and are therefore very onerous on party’s submitting tenders. The documents are negotiable and I would always advise that due consideration is given to them.

Izaz Ali (Izaz.Ali@lawdit.co.uk) Izaz is a commercial lawyer who specialises in information technology law and intellectual property law with an emphasis on IT, escrow, online and off-line contracts, and the buying and selling of online businesses.

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