Business News of Sunday, 23 July 2017
Bid securities or guarantees are instruments issued by Insurance Companies or banks at the Instance of Bidders to secure or guarantee a bid in a procurement process to assure a client that in the course of the journey from solicitation of bids/procurement proposals to Contract Award, the Bidder will not withdraw his Bid and thus disrupt the bidding process or timelines.
A bid security may be required of firms that submit offers in response to an invitation for bids. It is commonly used when procuring goods, works and non-consultant services. Although uncommon for consultant services, it could be applied if stipulated in the bidding documents and in the public procurement rules.
A bid security guarantee is usually acceptable in one of the following formats: (i) unconditional bank guarantee, (ii) irrevocable letter of credit, (iii) certified check, or (iv) bond. The bid security must be surrendered to the client if the bidder: (i) withdraws their bid before the end of the bid validity period, (ii) fails to sign the contract after the notification of award, or (iii) fails to provide a performance security if required.
The call for acceptance of Bid Declaration Form
In the Ghanaian context, hardly do bidders withdraw their bids after submission. Occasionally, bidders may not be able to provide the performance guarantees required to proceed to contract to sign. In this case, it goes to the next most responsive bidder hence cures the situation of having to start the bidding process all over again, noting that most evaluations will have more than one person qualified and are ranked in an order of merit.
The call for accepting Bid Declaration as one of the forms of bid securities/ guarantees to is coming at the time when GHANA is desirous to join the League of Nations who wants to develop and grow their economies through the removal of bottlenecks that impedes the growth and development of the private sector thus empowering it.
Bid Securities/ Guarantees comes at a great cost to the Bidder. The bid security amount is set either as a percentage of the bidder’s offer or as a percentage of the allocated budget for the procurement requirement which could range between 1% to 3%. Some times clients will state a huge sum without reference to the contract sum. Insurance companies and Banks charge as much as between 1% to 3% of the required bid security amount. In most cases, the bidder must provide a collateral security or any form of security acceptable to the insurance company or to the bank. In some cases, clients will limit the requirement to getting the bid guarantee to the bank. The banks have more stringent requirements and in most cases, local contractors are not able to meet the requirement and thus are unable to lend themselves to the bidding opportunity.
The use Bid Securities or Guarantees becomes a burden to the Bidder since they would have to pre- finance that cost in advance irrespective of whether one gets the contract or not. At the end of the day, this costs swell the cost of the projects since the Bidder will include this cost in the contract price. At the end of the day, neither the contractor/Bidder nor the client gains. The Contractor/Bidder suffer cash flow problems as a result and also prevents others from making attempts due to their inability to raise funds particularly where one has to bid for several projects to increase one’s chances of winning a contract. The effect poses a serious threat to the sustainability of Local Ghanaian Contractors who are already plagued with liquidity and cash flow challenges. Other countries have cured this situation by accepting the Bid Declaration Form in addition to the Bid Security and Bank Guarantee.
What is a bid securing declaration?
The bid securing declaration is a non-monetary form of bid security. It is a notarized sworn statement made by a bidder committing to sign the contract if they are selected before the end of the bid validity period stipulated in the bidding documents. In this sworn statement, the bidder agrees to be automatically disqualified from bidding for any future government contracts for a stipulated period of time if they either withdraw their bid, fail to sign the contract before the end of the bid validity period or are unable to provide a performance guarantee, if required
A bid security requires a bank guarantee, while the bid securing declarations requires only a notarized sworn statement . The bid security implies a possible material loss in case it is forfeited, while a bid securing declaration entails a potential loss of future bidding opportunities.
A bid security may result in a direct monetary loss to the bidder, while the bid securing declaration may result in an opportunity cost.
The Public Procurement Authority has recognized the use of the Bid Declaration Form in their new Standard Tender documents but yet to be launched. In view of the above, we wish to appeal to PPA to speed up the process of launching the new standard document so as to ease the burden on Ghanaian Contractors.