PPR Rule 23 — Bid Security Explained

Bid security under PPR Rule 23 is a mandatory financial guarantee required for procurements exceeding BDT 10 lakh, set between 1% and 3% of the estimated procurement value (typically 2%), and must be submitted in the form of an unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. The procuring entity returns unsuccessful bidders' bid security within 28 days of contract award and releases the winning bidder's security upon performance security submission. Bid security is forfeited if a bidder withdraws during validity or fails to sign the contract after award.

Bid security—also called earnest money or EMD—is a cornerstone mechanism in Bangladesh public procurement that protects procuring entities from frivolous or non-compliant bids. Understanding PPR Rule 23 is essential for any bidder preparing a tender response, as failure to provide compliant bid security can result in automatic bid rejection.

What Is Bid Security Under PPR Rule 23?

Bid security is a financial commitment that demonstrates a bidder's serious intent to participate in a procurement and comply with tender conditions. Under PPR Rule 23, bid security is required for all procurements with an estimated value above BDT 10 lakh. This threshold ensures that smaller, routine procurements are not burdened with unnecessary administrative overhead, while larger, more complex procurements receive adequate financial safeguards.

The bid security serves multiple purposes: it deters speculative or non-serious bids, provides compensation to the procuring entity if a successful bidder fails to execute the contract, and ensures that bidders have carefully reviewed tender documents before submission. For procuring entities such as PWD, LGED, and DGHS, bid security is a standard requirement in their tender notices.

Acceptable Forms of Bid Security

PPR Rule 23 specifies three acceptable forms of bid security:

1. Unconditional Bank Guarantee — Issued by a scheduled bank operating in Bangladesh, this is the most common form. The guarantee must be unconditional and payable on demand by the procuring entity.

2. Pay Order — A negotiable instrument issued by a bank, payable to the procuring entity at sight.

3. Demand Draft — A bank draft drawn on a scheduled bank, payable to the procuring entity.

All three forms must be issued by scheduled banks in Bangladesh and must clearly identify the procuring entity as the beneficiary. Bidders should verify with their bank that the instrument complies with PPR Rule 23 requirements before submission. Bid security in any other form—such as personal cheques, post-dated cheques, or guarantees from non-scheduled institutions—will result in bid rejection.

Bid Security Amount: The 1–3% Rule

PPR Rule 23 mandates that bid security be between 1% and 3% of the estimated value of the procurement. In practice, most procuring entities set bid security at 2%, which balances the need for meaningful financial commitment against excessive burden on bidders.

To calculate your bid security:

• Identify the estimated procurement value stated in the tender notice.
• Apply the percentage specified by the procuring entity (commonly 2%).
• Round to the nearest taka if necessary.

For example, if a tender's estimated value is BDT 50 lakh and the procuring entity requires 2% bid security, the bid security amount would be BDT 1 lakh. This amount must be exact or slightly higher; submitting less than the required amount will result in bid rejection. Bidders should refer to the tender notice's financial schedule or bid security clause for the exact percentage and amount required.

Validity Period and Extension Requirements

Under PPR Rule 23, the validity of bid security must extend at least 28 days beyond the validity of the bid itself. This ensures that the procuring entity has sufficient time to evaluate bids, make award decisions, and call upon the bid security if needed, even after the bid validity period has technically expired.

For example, if a bid is valid for 90 days from the bid submission deadline, the bid security must remain valid for at least 118 days (90 + 28). Bidders must ensure that the bank guarantee, pay order, or demand draft explicitly states an expiry date that meets this requirement. If the bid security expires before the 28-day buffer is met, the bid will be deemed non-compliant and rejected. Procuring entities often specify the exact bid security validity date in the tender notice; bidders must read this carefully and instruct their bank accordingly.

Return and Forfeiture of Bid Security

PPR Rule 23 establishes clear rules for the return and forfeiture of bid security:

Return to Unsuccessful Bidders: The procuring entity must return bid security to all unsuccessful bidders within 28 days of the contract award. This timeline allows unsuccessful bidders to recover their funds promptly and reinvest in other opportunities.

Return to Successful Bidder: The winning bidder's bid security is returned upon submission of performance security (also called performance bond or contract security). Performance security is typically 5–10% of the contract value and is required before contract execution. Once the successful bidder submits compliant performance security, the bid security is no longer needed and must be released.

Forfeiture Conditions: Bid security is forfeited (retained by the procuring entity) if:

• The bidder withdraws its bid during the bid validity period without valid justification.
• The bidder fails or refuses to sign the contract after being awarded the tender.
• The bidder fails to submit required performance security within the stipulated time.

Forfeiture is an automatic consequence; the procuring entity does not need to seek permission or issue a separate notice. Bidders should understand that once a bid is submitted, withdrawing it or failing to honour the award carries a financial penalty.

Common Mistakes and Compliance Tips

Bidders often make preventable errors with bid security that lead to bid rejection:

• Wrong form: Submitting a personal cheque or guarantee from a non-scheduled bank.
• Insufficient amount: Providing less than the required percentage or amount.
• Expired validity: Submitting bid security that does not extend 28 days beyond bid validity.
• Wrong beneficiary: Issuing the guarantee or pay order to an entity other than the procuring entity named in the tender.
• Conditional guarantee: Submitting a bank guarantee with conditions or qualifications, rather than an unconditional guarantee.

To avoid these errors, bidders should:

1. Read the tender notice's bid security clause carefully and note the exact amount, form, and validity date required.
2. Instruct your bank in writing with a clear reference to the tender number and procuring entity.
3. Request the bank to issue the instrument at least 5–7 days before the bid submission deadline to allow time for corrections.
4. Verify that the instrument names the correct procuring entity and is unconditional.
5. Attach the original bid security document to your bid submission; photocopies are typically not accepted.

For detailed guidance on bid security calculation, see our guide on calculating bid security under PPR 2008.

Bid Security and Tender Evaluation

Bid security compliance is typically checked during the initial bid evaluation stage, before technical and financial evaluation. If a bid lacks compliant bid security, it is rejected outright, regardless of the quality of the technical proposal or the competitiveness of the price. This is why bid security is sometimes called a "gateway" requirement—failure to meet it bars entry into the evaluation process.

Procuring entities such as BREB, REB, and BWDB strictly enforce bid security compliance. Bidders should treat bid security preparation with the same care as they would technical documentation or financial schedules. Submitting a bid without bid security, or with non-compliant bid security, is a common reason for bid rejection in Bangladesh public procurement.

FAQ

Q: Is bid security required for all procurements? A: No. Under PPR Rule 23, bid security is required only for procurements with an estimated value above BDT 10 lakh. Procurements at or below BDT 10 lakh are exempt from bid security requirements. Always check the tender notice to confirm whether bid security is required.

Q: Can I submit bid security in the form of a personal cheque? A: No. PPR Rule 23 specifies only three acceptable forms: unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. Personal cheques, post-dated cheques, and guarantees from non-scheduled institutions are not acceptable and will result in bid rejection.

Q: What happens if my bid security expires before the 28-day buffer is met? A: Your bid will be rejected as non-compliant. PPR Rule 23 requires bid security validity to extend at least 28 days beyond the bid validity period. If the expiry date does not meet this requirement, the procuring entity will reject your bid during the initial compliance check, before any technical or financial evaluation.

Q: When will my bid security be returned if I am unsuccessful? A: The procuring entity must return bid security to unsuccessful bidders within 28 days of the contract award. You should receive your bid security (bank guarantee, pay order, or demand draft) back within this timeframe. If you do not receive it, contact the procuring entity's tender cell.

Q: Can I withdraw my bid after submission without losing my bid security? A: No. If you withdraw your bid during its validity period, your bid security will be forfeited. PPR Rule 23 treats bid withdrawal as grounds for forfeiture. Only in exceptional circumstances (such as force majeure) might a procuring entity consider returning bid security; this is at the entity's discretion and is not guaranteed.

Q: What is the difference between bid security and performance security? A: Bid security is submitted with your bid and is typically 1–3% of the estimated procurement value. Performance security is submitted by the successful bidder after contract award and is typically 5–10% of the contract value. Bid security is returned once you submit performance security; performance security is held throughout contract execution and returned after satisfactory completion.

Conclusion

PPR Rule 23 bid security is a non-negotiable requirement for procurements above BDT 10 lakh in Bangladesh. Compliance with the rule—correct form, adequate amount, proper validity period, and correct beneficiary—is essential to avoid bid rejection. Use TenderPulse's bid analysis tools to verify your bid security compliance before submission and ensure your tender response meets all PPR 2008 requirements.