---
title: "Bid bond and performance bond"
subject: "Construction Management"
chapter: 5
key: "semester_8/construction_management:bid-performance-bond"
source: https://www.bctengineer.com/q/semester_8/construction_management/bid-performance-bond
site: BCT Engineering
---

# Bid bond and performance bond

Construction Management · Chapter 5: Contract Management

- Asked in: 2066 Magh (old course); 2064 Poush (old course) (asked 2 times)
- Video: [Construction Bid Bond with Performance and Payment Bond](https://www.youtube.com/watch?v=fS9wSvUR1Cc) — MEP Academy
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/bid-performance-bond
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-5

## Question

What are Bid bond and Performance bond (what is performance bond)?

## Short answer

A bid bond is a guarantee submitted with the tender, usually 2-3% of the estimate, to prevent frivolous bids; it is forfeited if the bidder withdraws or refuses to sign. A performance bond is a guarantee of about 5% of contract price submitted before signing, ensuring completion and quality until the defects liability period ends.

## Answer

#### 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.

| Point | Bid bond | Performance bond |
|---|---|---|
| Stage | At tender | After award, at contract signing |
| Amount | About 2-3% of the estimate | About 5% of contract price |
| Purpose | Prevents frivolous bids | Ensures completion and quality |

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Why is a bid bond taken?
   A. To show the bidder's seriousness and prevent frivolous bids
   B. To ensure the work is completed with quality
   C. To cover defects after completion
   D. To pay the contractor's advance
   Answer: A. Bid bond ensures bidders do not withdraw or refuse to sign; performance bond ensures completion. (Key point: Bid bond purpose)

2. When can the bid bond be forfeited?
   A. If the bidder asks a question at the pre-bid meeting
   B. If the bidder withdraws within validity or refuses to sign the contract or submit the performance security
   C. If the bidder loses the competition
   D. If the work has defects after completion
   Answer: B. Unsuccessful bidders get it back after award; forfeiture is for withdrawal or refusal. (Key point: Forfeiture)

3. What is the typical performance bond in Nepal and when is it released?
   A. 2-3% of the estimate, released after award
   B. 10% of the estimate, released at contract signing
   C. About 5% of the contract price, valid until the end of the defects liability period
   D. 5% of the estimate, released when bids open
   Answer: C. It is given before contract signing and released after completion and defects liability obligations. (Key point: Performance bond)