Bid bond in public tenders - what is its role?

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In public tenders, awarding entities, wanting to secure the procurement procedure and thus force contractors to act in accordance with the procedure, apply the institution of a security deposit. This security is obligatory for procedures the value of which exceeds or is equal to the EU thresholds. In the case of procedures on a smaller scale, the bid security is not obligatory, yet it is used very often.

The institution of the bid security is regulated by Art. 45 of the Act of January 29, 2004 - Public Procurement Law (hereinafter referred to as the Public Procurement Law). It is a specific amount of money submitted by contractors to meet the terms of the tender agreement. It is paid to the organizing body and may be a condition for participation in the tender. Moreover, its task is to protect the interests of the contracting authority, thus excluding the economic liability of contractors. After the end of the tender, the bid security will be returned to all participants.

What exactly is a bid bond?

The bid bond is defined in detail in Art. 704 § 1 of the Civil Code. This provision stipulates that in the conditions of the auction or tender it is possible to stipulate that the acceding party should pay the organizer a specified sum or establish an appropriate security for its payment under the pain of non-admittance. The tender bond in public procurement plays a similar role. The Public Procurement Law provides for it to be reserved in the documents specifying the terms of the contract, i.e. public procurement announcement and in the Specification of Essential Terms of the Contract (hereinafter referred to as SIWZ). The difference is, however, that in some situations the contracting authority is not free to establish a tender bond - in accordance with Art. 11 of the Public Procurement Law above the established EU thresholds, the security is obligatory.

Features of the bid bond

The Public Procurement Law provides for two functions for the bid bond. First of all, it is a security for the conclusion of the contract, but it only works for the contracting authority and refers to a situation where the contractor evades its conclusion.

Secondly, the payment of a bid bond is a condition for applying for the contract. Pursuant to Art. 89 sec. 1 point 7b of the Public Procurement Law, if the contractor fails to meet this requirement and fails to pay the sum specified in the SETC, the contracting authority is obliged to reject the contractor's offer. This function is aimed at ensuring that only entities capable of meeting the contract and actually interested in concluding a contract will take part in the tender.

Forms of a bid bond

The Public Procurement Law provides for forms of payment of a bid bond in the form of a closed catalog. This means that the awarding entity may not require the submission of a tender bond in a form other than that established by the Act.

In art. 45 sec. 6 lists forms such as:

  1. money - a specific amount of money that is transferred to the contracting authority by the contractor before entering the tender. The provision of paragraph 7 Art. 45 of the Public Procurement Law requires that this amount be paid to the bank account indicated by the contracting authority. The Act does not provide for the possibility of transferring the bid bond in any other way, e.g. in cash. Thus, any other method, apart from transfer to the contracting authority's bank account, will be invalid and will be tantamount to the contractor's failure to meet the requirements of the Terms of Reference.

  2. bank guarantee - this is a banking activity regulated in art. 5 sec. 2 point 8 of the Banking Law of August 29, 1997 (hereinafter referred to as the Banking Law). This surety is an agreement in which the surety (bank) undertakes to perform the obligation towards the creditor in the event that the debtor fails to perform it. It is important that the bank must submit its declaration in writing, otherwise null and void. As a result, the submission of the bank's declaration by e-mail or by fax will not meet the statutory requirements - this action will be invalid. The original of the statement must be provided with the submission of the offer. The surety is made for a specified period of time and lasts for the period of validity of the offer. A bank guarantee results in joint and several liability, i.e. liability consists in the fact that when the obligation becomes due, the contracting authority may pursue its performance at its own discretion from the contractor and the bank, jointly or separately from each of them.

  3. guarantee of a cooperative savings and credit union - this guarantee is used very rarely. This is due to the fact that SKOK-i are not reliable institutions - they are not subject to the provisions of the Banking Law on a par with banks - which makes it very difficult to assess the value of the surety document issued by them. Moreover, due to the fact that the sureties granted by SKOK are not subject to the provisions of the Banking Law on a par with bank sureties, the surety by SKOK is always a cash surety.

  4. bank guarantee - a banking activity regulated in art. 5 sec. 1 point 4 of the Banking Law. It is a unilateral obligation of the bank-guarantor that after the beneficiary of the guarantee (contracting authority) meets certain payment conditions, which may be confirmed by the documents specified in this assurance, which the beneficiary attaches to the payment request made in the indicated form, the bank will perform a cash payment for the benefit of the beneficiary. guarantees - directly or through another bank. The guarantee must be granted in writing, otherwise null and void. It should be remembered that the bank guarantee is payable - the bank always charges a commission for granting the guarantee - in public procurement, the commission is always covered by contractors. Pursuant to the Public Procurement Law, a guarantee may be granted by a domestic or foreign bank, however, mortgage banks, building societies, representative offices of foreign banks and the National Bank of Poland cannot be guarantors.

  5. insurance guarantee - unlike a bank guarantee, the institution in question is not regulated by any specific provisions. For this reason, the provisions of the Civil Code apply. Pursuant to Art. 805 § 1 of the Civil Code, by the insurance contract, the insurance company undertakes to fulfill a specific benefit in the event of an accident provided for in the contract, and the policyholder undertakes to pay the premium. The insurance contract is payable, which means that contractors submitting the insurance guarantee are obliged to pay premiums. The insurer is entitled to a claim for premium payment only against the policyholder (contractor), thanks to which the contracting authority is completely released from liability in this regard. It is important that the content of the guarantee includes the designation of its beneficiary, i.e. the ordering party, and the procedure (the guarantee serves as a deposit in a specific procedure). In addition, the guarantee should contain a record referring to an event that entitles the contracting authority to request payment of the amount resulting from the guarantee.

Payment of a bid bond in a form other than provided for in Art. 45 of the Public Procurement Law may not be considered as effective payment of a bid bond, even if it constituted sufficient security. In particular, the bid security may not be submitted in the form of securities, checks, bills of exchange or blockade of a term deposit on the contractor's account, indicating the contracting authority as the beneficiary.

The Public Procurement Law leaves the choice of the form of the bid security entirely to the contractor. The Ordering Party may not apply any limitations or "suggest" the preferred form of security. Moreover, the contractor has the right to provide a mixed bid bond, i.e. in two or more forms, and its total amount may not be less than the amount specified by the contracting authority. The contractor may also, until the deadline for submitting tenders, change the form of the submitted bid security.

Requirement to pay a bid bond

The tender bond is provided by contractors at the request of the contracting authority. It should be clearly indicated in the public procurement notice and in the Terms of Reference. At the same time, as it has already been mentioned, in procedures the value of which reaches the EU thresholds, a tender guarantee is obligatory. In procedures with a lower budget, this requirement is optional - it is the contracting authority that freely decides about the requirement to pay the bid security.

However, the tender guarantee will not always be required, in some procedures, irrespective of the contract value, the authority may not require a tender guarantee in the public procurement notice. It does not apply in the single-source procurement or the price inquiry procedure. On the other hand, in the negotiated procedure without publication, it is up to the awarding entity to establish a security deposit, and the value of the contract is irrelevant.

Additionally, in the case of utilities contracts, the contracting authority may refrain from demanding a tender guarantee, regardless of the procedure in which the procedure is conducted.

The amount of the deposit

The provisions of the Act do not specify the minimum amount for the bid bond. In turn, the maximum amount is set at 3% of the contract value. The contracting authority is not obliged to inform the contractors about the value of the contract on the basis of which the amount of the deposit has been determined. It also does not have to indicate what percentage of the contract value is the bid bond. The Public Procurement Law only requires that a specific amount specified in PLN was specified in the announcement and in the Terms of Reference.

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Deadline for submitting the bid security

As regards the deadline for submitting the bid security, the Public Procurement Law gives some freedom. The tender guarantee may be submitted before, together with the offer or at a later time. It is important that the offer and the tender guarantee are submitted before the deadline for submitting the offers. It should be remembered that the contracting authority has no right to demand the payment of the tender guarantee earlier than it results from the deadline for submitting tenders.

Non-compliance of the bid security with the requirements

As a rule, failure to submit a bid bond, or its payment in a form not provided for by the law or in a defective manner is the basis for rejection of the offer. However, not every contradiction in paying the bid bond with the Terms of Reference will automatically result in rejection of the offer. When considering a possible rejection, the contracting authority is obliged to check whether the offer has been effectively secured with a deposit, and not limit itself to checking whether the contractor has complied with the formal requirements related to the deposit.

In addition, it should be borne in mind that the payment of a bid bond in an amount smaller than required in the announcement does not constitute a formal defect that can be repaired at a later date. If the contractor pays a lower amount than the specified bid bond amount, this action is treated as failure to provide a bid bond, and thus the authority rejects the offer.

The role of a bid bond in public tenders - summary

The tender bond is a specified amount of money submitted by contractors to meet the conditions of the tender agreement. It is paid to the contracting authority. The tender guarantee is a condition of participation in the tender, but only in tenders where the contract value is equal to or exceeds the EU thresholds, the tender bond amount is obligatory. In other cases, the establishment of the bid security depends on the decision of the awarding authority.

A tender guarantee in public procurement is designed to protect the interests of contracting authorities, i.e. state authorities (including the State Treasury), and to ensure that only entities with real possibilities to meet the contract and are actually interested in concluding a contract enter the tender.