Bid bond and performance bond

Bid bond (bid security)

A bid bond is a guarantee, usually from a bank or an insurance company (or sometimes a cash deposit), submitted with the tender, to show the bidder's seriousness. In Nepal it is generally 2-3% of the estimated cost, valid for the bid validity period plus 30 days. The employer can forfeit it if the bidder withdraws the bid within the validity period, or refuses to sign the contract or to submit the performance security after award. It is returned to the unsuccessful bidders after the contract is awarded.

Performance bond (performance security)

A performance bond is a guarantee from a bank or insurance company, given by the successful bidder before signing the contract, to ensure that the work will be completed according to the contract. It is generally 5% of the contract price in Nepal (with an additional amount if the bid is abnormally low), and valid until the end of the defects liability period (or as per contract). If the contractor defaults, the client may claim the amount to cover losses and for completion of the work by another contractor. It is released after the work is completed and the defects liability obligations are met.