What is Tender Guarantee?

 

Overview

Let's first understand what a bank guarantee is.

A bank guarantee is an assurance document from the issuing bank to pay an agreed amount of money to the beneficiary with the consent of the account holder, just in case the account holder fails to meet the contractual norms as specified in the bid documents and doesn't pay or fails to pay the agreed sum to the beneficiary. Once the property valuation is completed, the bank assigns the valued amount in four guarantee slabs as per the written application from the account holder or company.

Bank Guarantee types.

Basically, there are four types of bank guarantees for the e-tender process in Nepal. Let's discuss them point-wise.

1. Bid Bond Guarantee / Bid Security (BB)
2. Performance Bond Guarantee / Performance Security (PBG)
3. Advance Performance Guarantee (APG)
4. Payment/Credit Supply Guarantee

Bid Bond Guarantee / Bid Security (BB)

This is the very first step to entering the e-tender process. The bid guarantee amount is normally mentioned in Section I, Invitation for Bid (IFB), of the bid documents. Generally, the amount is 2–3% of the estimated tender amount, and the validity period of the guarantee shall be 120 days after the bid opening date (i.e., 2 quarters). The bank issues the guarantee upon filling out the form provided by the bank and charges about 0.25% to 0.30% of the bid amount quarterly; the charge differs as per the rules of the bank you choose. You should also provide a scan copy of Section I, Introduction to Bid (IFB), to the bank for the very process. If your bid amount is not the lowest one or if you are not selected for the tender process, you can request the release of the guarantee upon submission of a letter of intent (asaya-patra) from the beneficiary. What you should keep in mind is that if you are awarded the tender, you should place the performance bond guarantee or performance security (PBG) with the beneficiary within 15 days of receiving the acceptance letter. Generally, they mail the letter to the given email address, and the notice is published in any one of the national daily newspapers. The bank may take 1 to 2 days for the process.

Performance Bond Guarantee / Performance Security (PBG)

Once you are awarded the contract, you are supposed to place the PBG and insurance papers with the beneficiary for mutual agreement to kick off the work. If your bid price is below 15% of the estimated amount, the PBG amount is 5% of the bid price. But if your bid price below is more than 15%, the PBG amount is calculated as per the formula below. The amounts are also mentioned in the letter of intent or call for contract from the beneficiary.

PBG=(.85*estimate tender amount-bid price placed)*0.5+5% of bid price placed

Content regarding PBG is mentioned in Section-I, Introduction to Bidders, with a sub-heading award of the contract in table format. The completion time for the work is mentioned in Section-IX, Special Conditions of Contract, with the subheading general followed by the defect liability period as mentioned in Section-VIII, with the heading Additional Conditions of Contract (ACC) for Design and Build. Normally, the defect and liability period is 13 months after work completion, but for the Nepal Army contract, it's 25 months after work completion. The PBG assurance validity periods shall cover work completion and up to the time frame of defect and liability periods. The bank charges a fee about 0.35% of the bid price placed quarterly. In some banks, you need to deposit 5% cash of the bid amount up to the bid validity period for the process. The bidder needs to fill out a bank form and place a call for a contract letter from the beneficiary to receive PBG. The bank may take 1 to 3 working days for the process.

Advance Performance Guarantee (APG)

Once a mutual agreement for the contract is made, the bidder can request advance payment from the beneficiary or client upon placement of the APG document from the bank as per the terms and conditions mentioned in Section-IX: Special Conditions of Contract with subheading cost control. The advance payment amount receivable is 20% of the bid amount, excluding VAT. In some cases, it's 10% of the bid price. The bidder receives the payment in two steps upon placement of APG in equal half: the first half installment on placement of APG before the start of work and the next half after the start of work. The validity period of APG shall remain the same the same as that of the work completion period. The bank charges about 0.4% of the advance amount quarterly while issuing APG. The bidder needs to fill out a bank form and place a mutual agreement letter to receive APG. The bank may take 1 to 2 working days for the process.

Payment/Credit Supply Guarantee

This is the guarantee paper issued by the bank in the name of the beneficiary, just in case the bidder needs to purchase civil materials like rebar, cement, sanitary items, etc. from the manufacturer in credit for 90 days. The bank charges about 0.4% quarterly for the process.

Others

The bank service fee of government banks like Rastriye Banijye Bank, Agriculture Development Bank, and Nepal Bank is lower as compared to private banks, while the customer response is better in private banks.