Bid Security and Performance Security in Philippine Government Contracts

Bid security and performance security are monetary guarantees required in Philippine government procurement. Bid security is submitted by bidders to ensure that a bidder will not withdraw its bid and will enter into the contract if awarded. Performance security is submitted by the winning bidder to guarantee faithful performance of the contract. Both are governed by Republic Act No. 12009, the New Government Procurement Act, and its Implementing Rules and Regulations (IRR), which pursue transparency, competitiveness, efficiency, proportionality, and accountability in procurement.

What is bid security?

Bid security is a guarantee submitted together with a bid. It protects the Procuring Entity by ensuring that the bidder is serious and will not withdraw its bid within the period stated in the Bidding Documents, and that the bidder will enter into the contract and post the required performance security if its bid is accepted.

The IRR defines a Bid as a signed offer, proposal, or quotation submitted by a supplier, manufacturer, distributor, contractor, consultant, or service provider in response to the requirements of the Procuring Entity as stated in the Bidding Documents. The Bidding Documents furnish all information necessary for a prospective bidder to prepare a Bid for Goods, Infrastructure Projects, and Consulting Services.

The amount, form, and validity period of bid security are prescribed in the Bidding Documents, which are standardized by the Government Procurement Policy Board (GPPB). Under Section 6 of the IRR, the GPPB develops generic procurement manuals and standard bidding forms, the use of which is mandatory upon all Procuring Entities once issued.

What is performance security?

Performance security is posted by the winning bidder after the award of contract. It serves as a guarantee that the contractor or supplier will faithfully perform its obligations under the contract in accordance with the terms and conditions set by the Procuring Entity.

The IRR recognizes that conditions and parameters in the implementation of contracts must be reasonably proportional to the needs and circumstances of the Procuring Entity and the nature, scale, and complexity of the project. This principle of proportionality under Section 3 of the IRR supports the requirement of security instruments that match the risk and value of the contract.

For Infrastructure Projects, the IRR requires that the warranty period for the type of project be specified in the Bidding Documents, as stated in Section 8.3(k). This is separate from, but related to, the performance obligations secured by the performance security.

How do these securities relate to the procurement process?

The procurement process is standardized under Section 6 of the IRR to systematize procedures, avoid confusion, and ensure transparency. Bid security and performance security are among the mandatory requirements in the Bidding Documents and the contract.

The Bids and Awards Committee (BAC) is the committee established in accordance with Rule V of the IRR. It evaluates bids and recommends award. The Head of the Procuring Entity (HoPE) is the official authorized to approve the award and enter into the contract, as defined under Section 5(q) of the IRR.

The IRR also provides that in case of doubt in the application, interpretation, and construction of any of its provisions or of RA No. 12009, the same shall be resolved in favor of government procurement, as stated in Section 2.

What happens if a bidder or contractor fails its obligations?

If a bidder withdraws its bid or fails to enter into the contract and post performance security after being awarded, the Procuring Entity may forfeit the bid security. If a contractor fails to perform its contractual obligations, the performance security may be called upon to cover the government's losses.

The IRR also provides for blacklisting, which is an administrative penalty imposed by the HoPE that prohibits a person or entity, including its affiliates, from participating in all government procurement activities during the period of disqualification. The rules on blacklisting are found in Rule XXI of the IRR.

Frequently asked questions

Is bid security required in all Philippine government procurements?

Bid security is generally required as stated in the Bidding Documents. The GPPB prescribes standard bidding forms, and the specific requirements depend on the nature of the procurement and the Bidding Documents issued by the Procuring Entity.

What is the difference between bid security and performance security?

Bid security guarantees that a bidder will not withdraw its bid and will enter into the contract if awarded. Performance security guarantees that the winning bidder will faithfully perform its contractual obligations. Bid security is submitted with the bid; performance security is posted after award.

What happens if a contractor fails to perform?

The Procuring Entity may call on the performance security to cover losses. The contractor may also be subject to blacklisting under Rule XXI of the IRR, which prohibits participation in government procurement during the period of disqualification.

Practical takeaways

• Bid security is submitted with the bid; performance security is posted after the contract is awarded.
• Both are governed by RA No. 12009 and its IRR, which promote transparency, competitiveness, and accountability.
• The GPPB prescribes standard bidding forms that Procuring Entities must use.
• Failure to comply with bid or performance obligations may result in forfeiture of security and blacklisting.
• In case of doubt in the interpretation of procurement rules, the IRR provides that the same shall be resolved in favor of government procurement.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• IRR of REPUBLIC ACT NO. 12009 - THE IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 12009 OR THE NEW GOVERNMENT PROCUREMENT ACT

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.