How to Get a Tender Security Clause Amended to Accept a Surety Bond

When a tender names a “bank guarantee only” for bid or performance security, ask the issuing authority (the Obligee) to amend the security clause to also accept an IRDAI-licensed Insurance Surety Bond (ISB) — via a pre-bid query or representation citing GFR 2017 Rule 170(i)/171(i), which places surety bonds at par with bank guarantees for Government of India procurement (and, for highways, the NHAI circular). Most “BG only” clauses simply pre-date the rule change, so a short, sourced request usually clears them.

This is the request playbook: when to raise it, the legal basis you cite, how to draft the representation, and what to do when the Obligee won’t budge.

In one line: A tender that says “bank guarantee” is usually working off an old standard format, not a deliberate ban — so a short, sourced amendment request through the pre-bid window asking the Obligee to add “Insurance Surety Bond” to the acceptable security forms (citing GFR Rule 170/171, and the NHAI circular for highways) is often all it takes to unlock the cheaper instrument.

Before drafting, know where this sits: the policy door for government work is already open. Our Insurance Surety Bonds pillar covers the framework; this article is the narrow how-to for the one obstacle that still stops contractors using an ISB — a tender clause that names only a bank guarantee.

Why “bank guarantee only” usually isn’t a real bar

For Government of India procurement, the Ministry of Finance amended General Financial Rules Rule 170(i) (bid security) and Rule 171(i) (performance security) — via Department of Expenditure OM dated 2 February 2022 — to add Insurance Surety Bonds to the list of acceptable security forms, at par with bank guarantees. So when a central or state tender still says “bank guarantee,” it is far more often a stale standard format than a conscious decision to exclude ISBs.

That shapes how you frame the request. You are not asking for a favour or a relaxation; you are asking the Obligee to bring the tender into line with a rule that already binds government procurement. Framed that way, the amendment is administratively easy to approve.

For highway work the basis is even more specific: NHAI expressly permits ISBs (and e-BGs) across EPC, HAM and BOT (Toll) bidding documents, including for mobilisation advance in EPC, under Policy Circular No. 3.1.41/2025 dated 2 January 2025 (the origin being Circular 18.88/2023 dated 13 June 2023). MoRTH amended its standard RFP and Model Concession Agreement documents in parallel.

One caution before you assume the door swings open everywhere: government acceptance is broad and improving, but private and some PSU contracts have no blanket rule — there, an ISB is an accepted alternative only if the Obligee agrees, so confirm it contract by contract. A surety bond is an accepted substitute, never mandatory.

The legal basis you cite — by Obligee type

Match your citation to who is issuing the tender. Using the wrong basis (a highway circular for a GeM tender, say) weakens the request.

Always check the specific tender’s security clause and the latest circular wording — formats are updated periodically, and a state entity may not yet have adopted the central rule.

How to raise the request — use the pre-bid window

The cleanest route is the tender’s own pre-bid query / clarification mechanism, before the bid deadline. Almost every government tender has one. Raising it there puts your request on record, lets the Obligee issue a corrigendum that benefits every bidder, and avoids any suggestion of a post-facto special concession.

1. Read the security clause precisely. Note whether it says “bank guarantee only,” lists “any acceptable form of security under GFR,” or is silent. The exact wording decides how hard you push — and sometimes it already permits an ISB and no amendment is needed.
2. Identify the right legal basis for this Obligee (see the table). Cite the instrument that actually binds them.
3. Raise a pre-bid query or written representation asking that the security clause be amended to add “Insurance Surety Bond issued by an IRDAI-licensed general insurer” to the acceptable forms. Keep it short, sourced and non-adversarial.
4. Ask for a corrigendum, not a one-off waiver. A formal amendment to the tender protects you at evaluation and helps the next bidder too.
5. Line up the insurer in parallel. Confirm an IRDAI-licensed insurer’s appetite and indicative wording while the request is pending, so you can issue promptly once the clause is amended — see how to get a surety bond.

If you have already won the contract and the executed contract names “BG only,” the same logic applies post-award: request an addendum allowing an ISB. That is the mechanism behind our playbook on replacing a live bank guarantee with a surety bond, where the prize is releasing FDR margin mid-contract.

How to draft the amendment request

The request should make it effortless for an officer to say yes. A workable structure:

• Reference the tender number, the exact security clause, and what it currently permits.
• State the ask plainly: add “Insurance Surety Bond issued by an IRDAI-licensed general insurer” as an acceptable form of bid / performance security, at par with a bank guarantee.
• Cite the basis: GFR 2017 Rule 170(i)/171(i) as amended by DoE OM dated 2 February 2022 (for GoI/GeM); NHAI Policy Circular 3.1.41/2025 (for highways). Note that ISBs are placed at par with BGs.
• Pre-empt the worry: clarify that an ISB is a contract of guarantee issued by an IRDAI-regulated insurer — distinct from a bank guarantee, but accepted as an equivalent security form under the rules cited.
• Request a corrigendum amending the clause for all bidders.

A point worth getting right in the drafting, because a fact-checker on the Obligee’s side will: an ISB is commercially substitutable for a BG but legally distinct — a conditional contract of insurance under IRDAI, not an on-demand banking instrument under the RBI. Claiming they are “legally equivalent” overstates it and can invite a refusal. The accurate framing — accepted at par as a security form under GFR — is both correct and persuasive.

This is where a banker’s-eye draft earns its keep: the request must be legally accurate, cite the right instrument for the right Obligee, and read as routine compliance rather than a special plea.

For GeM tenders specifically

On the Government e-Marketplace, ISB acceptance flows from the same GFR Rule 170/171 change, so an ISB can be used for EMD/bid security and performance security. But the GeM bid format and the buyer’s clause settings drive what the portal will actually accept, so confirm the security options in the specific bid and raise a clarification if it still defaults to BG-only. We cover the portal mechanics in using a surety bond for EMD on GeM.

How fast acceptance has moved — the hard number

These requests increasingly succeed because ISBs are no longer novel. The strongest evidence is government-sourced: ISBs issued for NHAI contracts crossed ₹10,369 crore — around 1,600 bid bonds plus 207 performance bonds, from 12 insurers, till July 2025 (PIB/MoRTH, 11 September 2025). Broader market-size figures of roughly ₹60,000 crore issued are industry estimates rather than official statistics. Cite a live, working market alongside the rule, and an Obligee has little reason to refuse.

When the Obligee still won’t amend

An honest playbook flags the limits:

• No reply before the deadline. If the pre-bid query goes unanswered and the clause stands, bid with a bank guarantee for this tender, then pursue the ISB on the next one or, post-award, request a contract addendum.
• A genuine BG-only requirement. Some private or PSU Obligees deliberately want an on-demand BG. There is no statutory lever to force an ISB; respect the clause and target Obligees that accept ISBs.
• A state entity that hasn’t adopted the rule. GFR binds central procurement; a state or its PSU may not have issued its own enabling order. Cite GFR as persuasive precedent, but don’t assume it is binding on them.

For everything else — central, GeM and highway tenders where the clause simply hasn’t caught up with the 2022–2025 rule changes — a clean, well-sourced amendment request is usually all that stands between you and a bond that stops blocking crores in FDR margin.

FAQ

What do I do if a tender says “bank guarantee only”? Raise a pre-bid query (or written representation) asking the Obligee to amend the security clause to also accept an Insurance Surety Bond from an IRDAI-licensed insurer, citing GFR 2017 Rule 170(i)/171(i) — which places ISBs at par with bank guarantees for GoI procurement — and, for highways, NHAI Policy Circular 3.1.41/2025. Ask for a corrigendum that applies to all bidders.

Can a government Obligee legally accept a surety bond instead of a BG? Yes. The Ministry of Finance amended GFR 2017 Rule 170(i)/171(i) (DoE OM, 2 February 2022) to add Insurance Surety Bonds as an acceptable form of bid and performance security, at par with bank guarantees, including on GeM. NHAI/MoRTH accept them for highway contracts. ISBs are an accepted alternative, not mandatory, so the clause should still be confirmed.

Which legal basis do I cite in the amendment request? Match it to the Obligee. For central/Government of India and GeM tenders, cite GFR 2017 Rule 170(i)/171(i) as amended by the DoE OM of 2 February 2022. For NHAI/MoRTH highway work, cite NHAI Policy Circular 3.1.41/2025 (2 January 2025). For state PSUs, use GFR as persuasive precedent and check whether the entity has adopted its own enabling order.

Will a private project owner amend the clause to allow a surety bond? There is no statutory rule compelling private Obligees, so acceptance is a commercial decision. Make the case on merit — the bond is insurer-backed and credit-underwritten — and get any agreement in writing before you bid or issue. Government acceptance is broad and growing; private acceptance is growing but not universal, so always confirm the specific contract or tender wording.

Is a surety bond legally the same as a bank guarantee? No — and saying so can backfire in a request. An ISB is commercially substitutable for a BG but legally distinct: a conditional contract of insurance regulated by IRDAI, where the insurer assesses a claim’s validity, versus an on-demand banking instrument regulated by the RBI. The correct framing in your representation is that GFR accepts an ISB at par with a BG as a security form.

Need a sourced amendment request drafted for your tender and an IRDAI-licensed insurer lined up to issue once the clause is fixed? See the Insurance Surety Bonds service or talk to Finnova — CA- and ex-banker-led, insurer-agnostic across IRDAI-licensed surety insurers. Part of Finnova’s ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011.