A bid bond is a non-payment guarantee and represents an irrevocable obligation on the part of the bank to pay a financial sum specified in advance if the mandator fails to meet its obligations ensuing from the conditions of a tender, e.g. that the mandator (the bidder) not cancel a bid during its validity; that it conclude a contract with the tender authority under the conditions specified in the bid in the event of being awarded the contract; that it submit a performance bond, if required.
- A bid bond represents a reliable security of the mandator’s obligation, while its recipient (the tender authority) is secure in the knowledge that it will receive the settlement ensuing from the bond from Raiffeisenbank if the mandator fails to meet its obligations ensuing from the tender conditions and if the recipient (tender authority) requests this settlement in accordance with the conditions of the bid bond.
- The bond reinforces the creditworthiness of the mandator (the bidder) in relation to the tender authority.
- It allows the mandator to participate in public tenders without having to deposit financial resources in the tender authority’s account.
A bid bond allows a bidder to meet the conditions for winning a contract.
Drafting a bid bond and the settlement from the bond
- Upon being requested by the client Raiffeisenbank drafts a bid bond to a level and with a maturity term in accordance with the conditions of the contract between Raiffeisenbank and the client.
- Along with the application for the drafting/provision of a bid bond the client submits documents containing the conditions and requirements in accordance with which the bond is to be drawn up.
- In the contract on the provision of a bid bond or the loan agreement the client agrees that, if Raiffeisenbank is requested for a settlement under the bond in accordance with the conditions of the bond, it will provide an irrevocable settlement to the benefit of the bond recipient (the beneficiary).
- Given that the bid bond represents an irrevocable obligation, Raiffeisenbank cannot change the conditions of the bond to the detriment of the recipient (beneficiary) or cancel the bond without the consent of the recipient (beneficiary).
- Raiffeisenbank will only provide a settlement under the bond if it receives a request for settlement submitted by the recipient (beneficiary) in accordance with the conditions of the bond.
Raiffeisenbank will inform the client of the need to secure the bond depending on the results of its audit of the client’s creditworthiness.
Course of the bid bond