What is a Surety Bond in Procurement?
A surety bond (German: Bürgschaft) is a key security instrument in public procurement. A third party – usually a bank or insurance company – guarantees the contractor's fulfillment of contractual obligations.
Types of Bonds in Procurement
| Bond Type | Purpose | Timing | Typical Amount |
|---|---|---|---|
| Performance bond | Securing proper delivery | At contract signing | 5–10% of contract value |
| Warranty bond | Securing defect claims | After acceptance | 3–5% of final amount |
| Advance payment bond | Securing advance payments | Upon advance payment | Amount of advance |
| Bid bond | Securing bid validity | With bid submission | 1–5% of bid amount |
Legal Framework
- Sections 765–778 BGB: General provisions on sureties
- Section 17 VOB/B: Security for construction contracts
- Section 18 VOB/A: Requirements for securities
Proportionality
Authorities must observe proportionality when requiring bonds. Excessive requirements disadvantage SMEs, and multiple bond types simultaneously may be inadmissible.
Bond Costs
Costs depend on the contractor's creditworthiness, bond amount, and duration. Typical fees range from 0.5–3% of the bond amount per year.
How Patterno Helps
Patterno helps you identify bond requirements in tenders early. Our AI analyzes tender documents and flags required securities, so you can arrange necessary bonds with your bank in time.