Government Organizations and Institutions, Corporations, Companies etc. generally invite tenders for completion of their projects, such as road building, construction of bridges, building construction, use of facilities, performance of any service.
Parties bidding for the tender must submit with their bids a guarantee to the beneficiary or issuer of the tender (Government organizations and institutions, Corporations, Companies etc.). This type of Guarantee is known as a “Tender or Bid Guarantee”. It is, generally, sought for 5 per cent to 10 per cent of the contract amount.
After the declaration of the successful bidder(s), the original guarantee, of parties whose bids have not been successful, are returned to the Bank for cancellation. Only the Guarantee of the successful bidder is retained till the signing of the final agreement and submission of another Guarantee under the name of “Good performance of undertaking Guarantee”. In case of default of the successful bidder, at whose request the Guarantee is issued, in entering into the agreement and/ or in submitting a Good performance of undertaking Guarantee, the beneficiary may encash the “Tender or Bid Guarantee’ from the issuing Bank. As such, this type of Guarantee should usually be issued at higher cash margin with collateral security covering the Guarantee amount.