How can it help me?
Providing a tender bond can help you to meet the tender requirements of a prospective buyer so that you can compete for an export contract.
What is it?
A tender bond—also called a bid bond or a tender guarantee—is an undertaking by a bond issuer to pay a sum of money to your prospective buyer if you win a tender for an export contract but then fail to enter into the contract.
How does it work?
When bidding for an export contract, your prospective buyer may require you to provide a tender bond with your tender submission.
If you win the tender but don’t formalise the export contract, or don’t issue additional guarantees to the buyer when required by the export contract (such as a performance bond), then the buyer can call the tender bond (that is, request payment of the bond amount from the bond issuer) to reduce their losses.
The amount of a tender bond is usually stated as a percentage of the export contract value, for example 5 or 10 per cent. The buyer is called the beneficiary of the bond.
A bank or other financial institution can issue a tender bond to your prospective buyer on your behalf. The bond issuer normally assesses your commitment and ability to undertake the export contract before issuing the bond. Typically, they will also require security from you in case your buyer calls the bond.
A tender bond is usually issued when you lodge your tender. It remains in force for the term required by the buyer’s tender process. If your tender is unsuccessful, your buyer returns the bond. If you win the tender, your buyer returns the bond when you formalise the export contract. The contract may require that you convert the tender bond into a performance bond or an advance payment bond.
A tender bond can be:
- conditional—the beneficiary can only call the bond when certain conditions are met, or
- unconditional—the beneficiary can call the bond at any time without giving a reason.
The diagram below shows the main steps in issuing a tender bond.
Notes to diagram
- The tender requirements for your export contract with a potential overseas buyer include the provision of a tender bond to the buyer. Your bank agrees to issue the bond and you provide security to the bank if required.
- The bank issues the tender bond to the potential buyer.
- You submit the tender to the buyer.
What are the pros and cons?
|Can help you meet the requirements of a prospective buyer’s tender
||Your bank may require you to provide security for the full amount of the bond before issuing it. This could tie up your working capital|
||It’s possible that an overseas buyer may unfairly call a tender bond when you’re not at fault. Bond insurance may help protect you in these circumstances|
What costs are involved?
Fees and charges depend on the term of the bond, the bond issuer’s risk assessment and the security you provide to the bond issuer.
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