Bid security and performance bond requirements in Nepal are mandatory financial guarantees used in public procurement to ensure bidder seriousness and contract performance. Governed by Nepal’s public procurement laws, these instruments protect public entities from non-compliance, withdrawal, or failure to execute contracts as agreed.
Public procurement in Nepal involves significant public funds and infrastructure delivery. To safeguard transparency, accountability, and timely execution, procurement laws require bidders and contractors to furnish bid security at the tender stage and performance bonds after contract award.
Failure to understand or comply with these requirements is one of the most common reasons for bid rejection, forfeiture of security amounts, or contract termination. This makes bid security and performance bonds not just procedural requirements, but risk-allocation tools embedded in Nepal’s procurement framework.
Bid security and performance bond requirements are primarily regulated by:
Guidelines issued by the Public Procurement Monitoring Office (PPMO)
These instruments apply to procurement by ministries, departments, public enterprises, local governments, and other public bodies.
Bid security is a financial assurance submitted with a bid to confirm that the bidder:
Will not withdraw the bid during its validity period
Will sign the contract if selected
Will submit the required performance bond
A performance bond is a post-award guarantee ensuring that the contractor fulfills contractual obligations according to agreed terms, timelines, and specifications.
Both instruments function as deterrents against non-serious bidding and non-performance.
Bid security is a financial guarantee submitted with a tender to secure the bidder’s commitment to the procurement process.
Purpose and scope:
Discourages frivolous or speculative bids
Protects the procuring entity from bid withdrawal losses
Ensures post-selection compliance
Bid security is mandatory unless expressly exempted in the bidding documents.
A performance bond is a contractual security provided by the winning bidder to guarantee proper execution of the contract.
Practical use includes:
Covering losses from non-performance or delayed performance
Enabling contract enforcement without lengthy litigation
Providing financial recourse to public entities
Under Nepalese procurement law, bid security must meet the following criteria:
Amount: 2% to 3% of the estimated contract value (as specified in bidding documents)
Form:
Bank guarantee from a recognized commercial bank
Cash deposit (rarely preferred)
Validity:
At least 30 days beyond bid validity period
Irrevocability:
Must be unconditional and payable on first demand
Failure to meet any of these conditions results in automatic bid rejection.
After contract award, the selected bidder must submit a performance bond with these characteristics:
Amount: 5% of the contract price (unless otherwise specified)
Form:
Unconditional bank guarantee
Submission deadline:
Before signing the contract
Validity:
Up to completion of contractual obligations and defect liability period
Public entities cannot execute contracts without receipt of a valid performance bond.
Bank guarantee format prescribed in bidding documents
Power of attorney authorizing signatories
Company registration certificate
PAN/VAT registration
Contract award letter (for performance bond)
Submitting conditional bank guarantees
Using incorrect validity dates
Issuing guarantees from non-approved banks
Mismatching bid amount and guarantee amount
Even minor deviations are treated as material non-compliance.
Review Bidding Documents
Confirm amount, format, and validity requirements.
Apply to Bank
Request issuance of unconditional bid guarantee.
Verify Guarantee Text
Match wording exactly with tender requirements.
Submit with Bid
Attach original or digital copy as instructed.
Monitor Validity
Extend if bid validity is extended.
Receive Letter of Intent or Award
Confirm performance bond deadline.
Arrange Bank Guarantee
Ensure correct percentage and validity.
Submit to Procuring Entity
Prior to contract signing.
Contract Execution
Contract becomes effective only after acceptance.
Release Upon Completion
Bond is released after obligations are fulfilled.
Bid security and performance bonds do not constitute direct costs but involve bank commissions, collateral requirements, and opportunity costs.
| Item | Typical Financial Impact |
|---|---|
| Bank Commission | 0.75% – 2% per annum |
| Collateral Requirement | 10% – 100% (bank-dependent) |
| Validity Extension Costs | Additional commission |
Actual costs vary by bank, bidder creditworthiness, and guarantee duration.
| Instrument | Typical Validity Period |
|---|---|
| Bid Security | Bid validity + 30 days |
| Performance Bond | Contract period + defect liability |
Total duration: Depends on project length and procurement timeline.
Bid security may be forfeited if the bidder:
Withdraws the bid during validity
Refuses contract signing
Fails to submit performance bond
Performance bond may be invoked if the contractor:
Abandons the project
Fails to meet contractual standards
Breaches material contract terms
Release is mandatory upon satisfactory completion.
Contractors and bidders must:
Track guarantee expiry dates
Request extensions promptly
Maintain consistent contract compliance
Coordinate with banks and procuring entities
Proactive management prevents accidental forfeiture.
Cross-check guarantee text against tender documents
Verify issuing bank eligibility
Confirm validity covers required period
Ensure unconditional and first-demand language
Maintain documentary proof of submission
These checks are frequently used by evaluation committees.
A compliant security structure:
Protects bidders from technical rejection
Preserves financial credibility
Reduces dispute risk
Supports long-term participation in public procurement
Legal and procurement-led review significantly reduces exposure.
Yes. Bid security is generally mandatory for public procurement in Nepal unless explicitly waived in the bidding documents, and non-submission results in automatic disqualification.
Yes. Cash deposit is legally permissible, but most procuring entities prefer unconditional bank guarantees due to administrative efficiency and risk management.
The bid becomes non-responsive, and the procuring entity may reject it or forfeit the security if required extensions are not submitted on time.
Yes. Performance bonds are required for most public contracts in Nepal, particularly works, goods, and service contracts above prescribed thresholds.
Performance bonds are released after completion of contractual obligations and expiry of the defect liability period, subject to certification by the procuring entity.
Yes. Performance bonds are typically unconditional and payable on first demand, allowing invocation without prior judicial approval.
Bid security and performance bond requirements in Nepal are foundational elements of the public procurement system. Understanding their legal basis, structuring requirements, and risk implications is essential for compliant participation. Properly managed guarantees protect both public entities and contractors while ensuring project integrity and accountability.
This article is intended for general informational purposes only and does not constitute legal or financial advice. Procurement laws, regulations, and practices in Nepal are subject to change. Professional legal or procurement consultation is recommended for project-specific matters.
February 02, 2026 - BY Admin