Bid security under PPR 2008 Rule 23 is calculated as a percentage of the estimated procurement value, typically between 1% and 3%, most commonly set at 2%. For procurements valued above BDT 10 lakh, bidders must submit bid security in the form of an unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. The security amount protects the procuring entity against bidder withdrawal or contract non-performance.
Understanding bid security calculation is essential for all bidders participating in government tenders in Bangladesh. Rule 23 establishes clear parameters for determining the required amount, and miscalculation can lead to bid rejection or forfeiture.
Understanding Bid Security Under Rule 23
Bid security, also known as earnest money or EMD, is a mandatory financial commitment required under PPR 2008 Rule 23 for procurements exceeding BDT 10 lakh. This requirement ensures bidders are serious about their offers and protects the procuring entity's interests. The security must remain valid for at least 28 days beyond the bid validity period, ensuring the procuring entity has adequate time to evaluate bids and make award decisions without the security expiring prematurely.
The Basic Calculation Formula
The bid security amount is calculated using a straightforward formula: multiply the estimated procurement value by the percentage specified in the tender document, which ranges from 1% to 3%. For example, if a tender has an estimated value of BDT 50 lakh and the procuring entity specifies 2% bid security, the required amount is BDT 1 lakh. Most procuring entities in Bangladesh apply the standard 2% rate, though the tender document always specifies the exact percentage applicable to each procurement.
Acceptable Forms of Bid Security
According to Rule 23, bid security must be submitted in one of three forms: an unconditional bank guarantee from a scheduled bank operating in Bangladesh, a pay order, or a demand draft. All three instruments must be issued by scheduled banks and must be unconditional to be valid. The bank guarantee is the most commonly used form as it provides the procuring entity with direct recourse against the bank if the bidder defaults. Pay orders and demand drafts are alternative instruments that serve the same protective purpose.
Validity Period Requirements
The bid security validity period is a critical compliance element. Under Rule 23, the security must remain valid for at least 28 days beyond the date on which the bid itself expires. This buffer period allows the procuring entity to complete bid evaluation, make the award decision, and take necessary action if a winning bidder fails to perform. If the bid security expires before this extended period, the bid may be rejected as non-compliant, regardless of the bid's technical or financial merit.
Return and Forfeiture of Bid Security
The procuring entity must return bid security to unsuccessful bidders within 28 days of contract award. For the winning bidder, the bid security is returned upon submission of performance security, which is a separate requirement under PPR 2008 Rule 25. However, bid security may be forfeited if the bidder withdraws its bid during the bid validity period or fails to sign the contract after the award is made. This forfeiture mechanism incentivizes bidders to honor their commitments and ensures the integrity of the procurement process.
Practical Steps for Bid Security Submission
When preparing your bid submission, first identify the estimated procurement value stated in the tender document. Next, locate the bid security percentage specified in the tender—typically 2% but always confirmed in the tender notice. Calculate the required amount by multiplying these two figures. Obtain the bid security instrument (bank guarantee, pay order, or demand draft) from a scheduled bank in Bangladesh, ensuring it is unconditional and valid for at least 28 days beyond your bid's validity date. Finally, include the original instrument with your bid submission package as required by the tender document. Failure to submit bid security in the correct form and amount will result in bid rejection.
Common Mistakes to Avoid
Bidders frequently make errors in bid security calculation and submission. Using the wrong percentage—for instance, applying 1% when the tender specifies 2%—results in insufficient security and bid rejection. Submitting conditional bank guarantees or using non-scheduled banks invalidates the security. Allowing the security to expire before the required 28-day buffer period ends is another common mistake that renders the bid non-compliant. Additionally, some bidders confuse bid security with performance security; these are separate requirements, and bid security must be submitted with the bid itself, not after contract award.
FAQ
Q: What is the minimum procurement value that requires bid security? A: Under PPR 2008 Rule 23, bid security is required for procurements valued above BDT 10 lakh (1,000,000). Procurements at or below this threshold do not require bid security submission.
Q: Can I submit bid security from a bank outside Bangladesh? A: No. Rule 23 explicitly requires bid security to be in the form of an unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. Foreign bank instruments are not acceptable.
Q: What happens if my bid security expires before the 28-day buffer period ends? A: If your bid security validity does not extend at least 28 days beyond your bid's validity date, your bid will be rejected as non-compliant. Always ensure the security instrument is valid long enough to cover both the bid validity period and the required 28-day extension.
Q: Is bid security the same as performance security? A: No. Bid security is submitted with your bid and is returned after contract award (or forfeited if you withdraw or fail to sign). Performance security, governed by PPR 2008 Rule 25, is a separate requirement submitted after contract award to guarantee contract performance.
Q: Can I use a conditional bank guarantee for bid security? A: No. Rule 23 requires the bank guarantee to be unconditional. A conditional guarantee does not meet the requirement and will result in bid rejection.
Conclusion
Calculating bid security under PPR 2008 Rule 23 is a straightforward process once you understand the percentage-based formula and compliance requirements. Accurate calculation, timely submission of the correct instrument form, and attention to validity periods are essential to avoid bid rejection. Use TenderPulse to analyse tender documents, verify bid security requirements, and ensure your submission meets all PPR 2008 compliance standards before you submit.