Bid Security Explained: What to Know Before You Submit a Tender

Nadia is preparing her first bid, a janitorial contract for a municipal administrative centre. She has the equipment, the insurance, the Attestation de Revenu Québec. Everything is ready. Then she reads this in the tender documents: "The bid must be accompanied by bid security equal to 10% of the total bid amount."

10% of $120,000 = $12,000. Nadia doesn't have $12,000 to tie up. She's tempted to give up. That would be a mistake, because bid security isn't a blank cheque, and there's more than one way to obtain it.

When it's required (and when it isn't)

Bid security isn't a universal legal obligation. No law forces municipalities to require it systematically, neither the old framework nor the new Act respecting contracting by municipal bodies (LCOM, in force since April 1, 2026). It's a decision made by the buyer, written into the documents of each call for tenders.

In practice, construction contracts above certain thresholds almost always require it. Services contracts (maintenance, cleaning, security, IT) require it less often, but it varies from one body to the next.

The only way to know: read the tender documents. If bid security is required, it's stated clearly, the amount, the accepted form, the validity period.

The three types of bond

There are three types of bond in public procurement. They come into play at different points in the process:

Bid security: required when you submit your offer. It guarantees you'll sign the contract if you're selected. The amount is typically 10% of the value of your bid. It's released after the contract is signed (or after the contract is awarded to another tenderer).

Performance bond: required after the contract is awarded, before work begins. It guarantees you'll perform the contract according to its terms. The amount can go up to 100% of the contract value for construction work. If you abandon the contract midway, the surety company must complete the work or pay the difference.

Labour and material payment bond: protects subcontractors, workers and suppliers. If the prime contractor doesn't pay them, the surety covers the amounts owed. Mostly used in construction.

How to obtain one

Three forms are generally accepted (always check the tender documents, since the body may restrict the accepted forms):

The certified cheque or bank draft: the simplest. Your bank or caisse populaire certifies a cheque, or issues a bank draft, for the required amount, made out to the public body. The money is frozen in your account until the security is released. Cost: the usual bank fees.

The irrevocable letter of credit: your financial institution commits directly to the body. You don't tie up the funds, but the bank assesses your financial capacity before issuing the letter. Cost: typically 1-2% of the amount, per year.

Security issued by a surety company: a specialized company (a surety broker) vouches for you. It's the most common solution for businesses that don't want to tie up cash. The company evaluates your financial health, your experience and your ability to perform the contract before issuing the security. Cost: it varies by profile, but generally between 1% and 3% of the amount secured.

What happens if you win (and if you don't)

If you don't win: the security is returned to you (certified cheque) or released (letter of credit, surety bond). You lose nothing but the issuance fees.

If you win: you sign the contract on the terms of your bid. The bid security is released. If a performance bond is required, you have to provide it at that point (it's a separate document).

If you win but refuse to sign: bid security isn't a cheque the body simply pockets. The body enforces its rights under the security against the surety, up to the amount guaranteed. What follows (awarding the contract to the second tenderer, reissuing the call for tenders, or dropping it) depends on the documents and on the body's decision; a price difference that exceeds the amount guaranteed can also be claimed from you. That's the situation to avoid at all costs.

The bottom line

Bid security isn't an obstacle, it's a filter that weeds out tenderers who aren't serious. And that's good news for you: if the security discourages your competitors, there are fewer bids and better odds of winning.

Nadia contacted a surety broker. For a few hundred dollars, she obtained her $12,000 bid security. She bid, she won, and the security was released when the contract was signed. The real cost: a fraction of what she feared.

Sources

LCOP, Fédération québécoise des municipalités, Civil Code of Québec (art. 2333).