Important note about the validity of the Bid Bond Letter

Saturday, 09 September 2023 11:19 AM
The bid bond is a mandatory and prerequisite requirement in wide-ranging bidding processes (except for consultancy packages) that every participating contractor must prepare. However, many contractors are disqualified due to minor mistakes, as the bid bond letter does not meet the requirements of the invitation to tender document. Let's explore and analyze specific situations related to the validity of the bid bond letter together with DauThau.INFO.
Important note about the validity of the Bid Bond Letter
Important note about the validity of the Bid Bond Letter

Nhấn VÀO ĐÂY để chuyển bài viết sang bản tin tiếng Việt

Regulations on bidding guarantees

As per Article 64 of the Bidding Law, one of the conditions for contract signing is that the selected bidder's bid documents remain valid. In practice, when a bidder violates the bidding regulations, they may not be entitled to a refund of the bidding guarantee, which usually occurs before the contract signing. Therefore, the Beneficiary (the inviting party / the investor) requesting the Guarantor to transfer the amount stated in the Bid Guarantee Letter usually takes place before the contract signing, that is, before the bid documents expire.

When participating in a wide-ranging bidding process, bidders must take measures to ensure their bid responsibility within the specified timeframe as required by the bidding invitation documents. Currently, the most common form of bid guarantee is through a guarantee letter from a bank or a legally recognized credit institution in Vietnam. In cases where the bidder provides bid guarantee in the form of a Bank Guarantee Letter (Guarantor), this letter is considered a "valuable document". Accordingly, during the validity period of the bidding guarantee, if the bidder violates the bidding regulations and is not entitled to a refund of the bidding guarantee, the Guarantor must immediately transfer to the inviting party (the Beneficiary) an amount of money not exceeding the total amount stated in the Bid Guarantee Letter, provided that the Guarantor receives a notice from the Beneficiary before the expiration date of the bidding guarantee.

Situation of inappropriate validity of the bid guarantee letter

In a wide-ranging construction bidding organized by Investor A, the bidding invitation documents stipulate that the minimum validity period of the bid documents is 90 days from the bid closing date, and bidders must submit a bid guarantee with a minimum validity period of 120 days from the bid closing date. The bid closing date is determined according to the Bidding Data Sheet as 9:00 AM on May 1, 2017, and the bid opening time is 9:30 AM on May 1, 2017.

By the time of the bid opening, the bid guarantee letter issued by the bank for bidder NT1 states "Bid guarantee effective from 8:00 am on May 1, 2017, until 9:30 am on August 28, 2017". The bid guarantee letters of other bidders, on the other hand, all state "Bid guarantee effective for 120 days from May 1, 2017". In terms of value and other valid conditions, how should the bid guarantee letters of these bidders be evaluated for this bidding process? Let's examine the issue with DauThau.INFO:

Regarding the way the validity is stated in the bid guarantee letter as "Bid guarantee effective for 120 days from May 1, 2017", this is a common and widely used practice. However, there are opinions that if it is stated this way, the bid guarantee letter is invalid because it does not accurately determine the exact time of the guarantee's effectiveness (9:00 am, 10:00 am, or 3:00 pm...). This understanding is quite mechanical and not accepted because once it is stated as "from May 1, 2017", it means that the guarantee is already effective from 12:00 am on May 1, 2017, and any liability-related matters to be fulfilled by the Guarantor on May 1, 2017, until the end of the validity period must be carried out.

Returning to the validity stated in the bid guarantee letter of bidder NT1, if we roughly calculate from May 1, 2017, to August 28, 2017, it is 120 days, which meets the requirements of the bidding invitation documents. However, because the bid guarantee letter states "Bid guarantee effective from 8:00 am on May 1, 2017, until 9:30 am on August 28, 2017", by August 27, 2017, only 119 days have passed, and it is not until 12:00 am on August 28, 2017, that it reaches 120 days. Therefore, if calculated correctly, this bid guarantee letter does not meet the 120-day requirement as stated in the bidding invitation documents, making it invalid for bidder NT1, and they will be disqualified. This situation becomes evident in the example where, at 2:00 pm on August 28, 2017, the inviting party/owner requests the Guarantor to pay the value stated in the bid guarantee letter due to the violation by bidder NT1 during the bidding process, but it cannot be fulfilled because the bid guarantee letter has already expired by 2:00 pm on August 28, 2017. This oversight is partly due to carelessness in preparing the bid documents, not checking the bid guarantee letter issued by the bank sufficiently, or not deeply understanding the issue. It also partly lies with the department requesting the bank to issue the guarantee (often the finance or accounting department), as they may not grasp the essence of the issue.

Similar situations related to the validity of the bid guarantee letter

In addition to the aforementioned scenario, there are other similar situations with different ways of stating the validity period, such as "Bid guarantee effective from May 1, 2017, to August 28, 2017", "Bid guarantee effective from May 1, 2017, to the end of August 28, 2017", "Bid guarantee effective from May 1, 2017, to 12:00 am on August 28, 2017", "Bid guarantee effective from 9:00 am on May 1, 2017, to 12:00 am on August 28, 2017". To determine the correctness for each situation, we must rely on the ultimate essence of the bid guarantee letter, which is valid when, within the validity period of the bid guarantee, the inviting party/owner is entitled to receive the amount stated in the bid guarantee letter if the bidder violates the terms. The bid submission date is considered one of the days within the total number of valid days, and the last effective day must include the end of the last day as requested, rather than just a time point within that day.

Some notes when issuing bid guarantee letters

To avoid unfortunate mistakes when preparing bank guarantee letters, bidders need to pay attention to the following issues:

  1. Carefully read the bidding documents to find information on the bid closing date, the validity of the bid documents, and the validity of the bid guarantee. Based on that information, calculate the exact time period from which date to which date the bid is valid as required by the Invitation to Bid document, and request the bank to issue the guarantee letter accordingly, or add a minimum number of additional days for safety.
  2. After receiving the original copy of the bid guarantee letter, double-check the effective time stated in the letter. Note that in cases where the Bidding Party/Investor extends the bid closing date, the validity of the guarantee letter must be extended accordingly.
  3. To avoid other errors in the guarantee letter, refer to standardized guarantee letter templates provided in the bidding documents issued by the Ministry of Planning and Investment. Readers can refer to some templates here.

For Evaluation Teams/Inviting Parties, when evaluating and reviewing bid guarantee letters submitted with bid documents, be cautious and thoroughly understand the essence of the issue, avoiding subjective assumptions to ensure fair, competitive, transparent, and economically effective objectives.

The above is an important situation to note about the validity of the bid guarantee letter in the process of consulting for contractors that Bidding encounters. Sincerely thank our readers for always supporting DauThau.info throughout the past process. If you need support, please contact:

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