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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Bid bond (tender guarantee)

What is a bid bond, and what happens to it when the contract is awarded?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

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A bid bond, or tender guarantee, is a bank guarantee that a bidder for a contract will stand by its bid: if it wins and then refuses to sign, or fails to provide the performance bond the tender requires, the project owner can claim the stated amount, often a small percentage of the bid price. It is returned or expires once the winner signs and posts its performance bond, or once another bidder wins. Each bond is small, but a contractor bidding for many jobs at once is asking the bank for the capacity it would need if several of them succeeded.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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