Tender Guarantee or Bid Bonds
The Uniform Rules for Contract Guarantee, Article two states that for the purpose of these rules, a “tender guarantee” means an undertaking given by bank (guarantor) at the request of a tenderer (principal) to a party inviting tenders (beneficiary) whereby the guarantor undertakes, in the event of default by the principal in the obligations resulting from the submission of the tender, to make payment to the beneficiary within the limits of a stated sum of money.
A tender guarantee or a bid bond is issued by a bank at the request of the party submitting tender to avoid having to deposit earnest money by him. The amount is usually very small percentage of the contract e.g. two percent. A tender guarantee is an undertaking given by the bank, at the request of tenderer (contractor) that in the event the tender fails to accept the contract if awarded, is not replaced by a performance guarantee, the bank as guarantor, makes payment to the beneficiary within the limits of the guarantee, of the stated sum. The bank issuing a bid bond is usually committed to support the project and issue further guarantees such as performance bond.