How to Calculate Bid Security under PPR 2008

Bid security under PPR 2008 Rule 23 is calculated as a percentage of the estimated procurement value, typically between 1% and 3%, with 2% being the most common rate. This security is mandatory for all procurements exceeding BDT 10 lakh and must be submitted in the form of an unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. The bid security serves as a guarantee that the bidder will honour their bid and enter into a contract if awarded.

Bid security, also called earnest money or EMD, protects the procuring entity by ensuring bidder commitment. Understanding the calculation method and compliance requirements is essential for any organisation bidding on government tenders in Bangladesh.

Understanding Bid Security Requirements under Rule 23

Under PPR 2008 Rule 23, bid security is a mandatory financial commitment required for procurements valued above BDT 10 lakh. The procuring entity specifies the exact percentage—typically 2%—in the tender document. This security demonstrates that the bidder is serious about the bid and willing to enter into a contract upon award. The security must remain valid for at least 28 days beyond the validity period of the bid itself, ensuring the procuring entity has adequate time to evaluate bids and make award decisions.

Bid security is distinct from performance security, which is submitted after contract award. The two serve different purposes: bid security protects against bid withdrawal or non-performance before contract signing, while performance security guarantees contract execution.

Calculating the Bid Security Amount

The calculation is straightforward: multiply the estimated procurement value by the percentage specified in the tender document. For example, if the estimated value is BDT 50 lakh and the required percentage is 2%, the bid security amount is BDT 1 lakh. The PPR 2008 permits a range of 1% to 3%, but most procuring entities adopt 2% as standard practice.

Bidders must ensure they calculate this amount accurately and include it in their bid submission. Any shortfall in the bid security amount may result in bid rejection. The procuring entity will specify the exact percentage and acceptable forms of security in the tender document, so bidders should review these requirements carefully before preparing their financial bids.

Acceptable Forms of Bid Security

Under Rule 23, bid security must be submitted as one of three instruments: an unconditional bank guarantee from a scheduled bank in Bangladesh, a pay order, or a demand draft. Each form must be issued by a scheduled bank and must be unconditional—meaning the bank must pay the amount on demand without requiring additional documentation or conditions.

The bank guarantee is the most common form because it provides flexibility and is widely accepted by procuring entities. Pay orders and demand drafts are also acceptable but less frequently used. Bidders should confirm with their bank which form is most practical for their circumstances and ensure the instrument is issued in the name of the procuring entity or as specified in the tender document.

Validity Period and Extension Requirements

The bid security validity period must extend at least 28 days beyond the validity of the bid itself. If a bid is valid for 90 days, the bid security must remain valid for at least 118 days (90 + 28). This buffer period allows the procuring entity to complete bid evaluation, make an award decision, and notify the winning bidder without the security expiring prematurely.

If the bid validity is extended, the bidder must also extend the bid security validity accordingly. Failure to maintain adequate validity may result in bid rejection or forfeiture of the security. Bidders should plan ahead and request extended validity from their bank if they anticipate any delays in the procurement process.

Return and Forfeiture of Bid Security

Under Rule 23, 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 the required performance security. This return process is automatic and does not require a separate request from the bidder.

Bid security may be forfeited if the bidder withdraws the bid during its validity period or fails to sign the contract after award. Forfeiture is a penalty for non-compliance and serves to reinforce bidder commitment. Bidders should ensure they are confident in their bid before submission and prepared to sign the contract if awarded, as withdrawal or non-performance will result in loss of the security amount.

Bid Security in Multi-Stage Procurements

In procurements involving pre-qualification or two-envelope bidding, bid security is typically required at the first stage. The procuring entity will specify in the tender document whether bid security is required for subsequent stages or if the initial security covers all stages. Bidders should review the tender document carefully to understand the security requirements for each stage.

For works procurements, bid security requirements may be integrated with experience and financial capacity assessments. Bidders should cross-reference Rule 23 with other relevant rules such as Rule 95 (financial capacity) and Rule 96 (experience requirements) to ensure full compliance with all procurement conditions.

Common Mistakes in Bid Security Submission

Bidders frequently make errors that result in bid rejection or security forfeiture. The most common mistakes include submitting bid security in an incorrect form (e.g., a personal cheque instead of a bank guarantee), failing to ensure the security is unconditional, submitting an amount below the required percentage, or allowing the security to expire before the specified validity date.

Another frequent error is submitting bid security in the wrong name or to the wrong entity. The tender document specifies exactly how the security should be issued and to whom it should be payable. Bidders must follow these instructions precisely. Additionally, bidders sometimes confuse bid security with performance security and submit the wrong instrument at the wrong stage, leading to bid rejection.

FAQ

Q: What is the minimum procurement value that requires bid security?

A: Under PPR 2008 Rule 23, bid security is required for all procurements valued above BDT 10 lakh (1,000,000). Procurements at or below this threshold are exempt from bid security requirements. The procuring entity will confirm in the tender document whether bid security is required for a specific tender.

Q: Can bid security be submitted as a personal cheque or cash?

A: No. Rule 23 specifies that bid security must be in the form of an unconditional bank guarantee, pay order, or demand draft from a scheduled bank in Bangladesh. Personal cheques, cash, and other instruments are not acceptable. The security must be issued by a bank and must be unconditional.

Q: What happens if my bid security expires before the contract is signed?

A: If the bid security expires before the procuring entity completes bid evaluation and award, your bid may be rejected or the security may be forfeited. To prevent this, ensure the security validity extends at least 28 days beyond your bid validity period. If the procurement process is delayed, request an extension of the security validity from your bank before it expires.

Q: Is bid security refunded if I am not awarded the contract?

A: Yes. Under Rule 23, unsuccessful bidders must receive their bid security back within 28 days of contract award. This return is automatic and does not require a request. The winning bidder's bid security is returned upon submission of performance security.

Q: Can the same bid security be used for multiple tenders?

A: No. Each tender requires a separate bid security. You cannot use the same bank guarantee, pay order, or demand draft for more than one procurement. Each security must be issued specifically for the tender in question and in the amount specified by that tender's procuring entity.

Conclusion

Calculating bid security under PPR 2008 Rule 23 is a straightforward process: apply the specified percentage (typically 2%) to the estimated procurement value and submit the amount as an unconditional bank guarantee, pay order, or demand draft. Accurate calculation, timely submission, and compliance with validity requirements are critical to bid acceptance and contract award. Use TenderPulse to analyse tender documents, verify bid security requirements, and ensure your bid submission meets all PPR 2008 compliance standards.