Surety Bond under Brazil's New Procurement Law (14.133)
How the surety bond (seguro garantia) works under Brazil's new public procurement law: accepted at the bid stage and during contract performance, a 5% limit (up to 30% for large works), the insurer's step-in clause, cost, and issuance time.
Under Law 14.133/2021 (Brazil's new public procurement law), the surety bond is an accepted guarantee for public contracts — up to 5% of the contract value (or up to 30% for large-scale works with the "step-in" retomada clause). It replaces cash and bank collateral without tying up the company's cash or bank credit line.
Key facts
- Where it is accepted: Accepted both at the bid stage (bid guarantee / bid bond) and during contract performance (performance guarantee), under arts. 96 and 98 of Law 14.133/2021.
- Standard limit: Up to 5% of the contract value, at the discretion of the competent authority (art. 98).
- Large-scale works: Up to 30% of the contract value when the step-in (retomada) clause is adopted, for large-scale engineering works and services (art. 99).
- Step-in clause: Allows the insurer to take over and complete the contract object in case of the contractor's default, instead of merely paying an indemnity.
- Typical cost: A premium of roughly 0.5% to 5% per year on the guaranteed amount, depending on risk, term, and modality.
- Issuance time: After risk analysis and documentation, the policy is usually issued within 24 to 72 hours.
Guarantee modalities under Law 14.133
| Criterion | Cash Deposit | Surety Bond | Bank Guarantee |
|---|---|---|---|
| Consumes cash | Yes — ties up cash | No | No |
| Consumes bank credit line | No | No | Yes — reserves the line |
| Step-in (retomada) clause | No | Yes (optional, up to 30%) | No |
| Cost | Opportunity cost of idle capital | ~0.5% to 5% per year | ~2% to 5% per year + reciprocity |
| Recommended | Rarely — locks up cash | Yes — preserves cash and credit line | Only with a spare bank credit line |
What changed with Law 14.133
Law 14.133/2021 replaced the former Law 8.666/1993 as the framework for public tenders and administrative contracts in Brazil. It reorganized the guarantee modalities and reinforced the role of the surety bond as a modern alternative to cash deposits and bank guarantees.
The contractor may choose the guarantee modality among a cash/securities deposit, a surety bond, or a bank guarantee. In practice, the surety bond has become the preferred option because it does not tie up the company's cash or consume its bank credit line — two resources essential to carrying out the work or supply.
The new law also introduced an important innovation for large works: the step-in (retomada) clause, which lets the insurer take over and complete the contract in the event of default, protecting the public administration against the risk of a stalled project.
Limits and percentages (5% and 30%)
As a general rule, the tender may require a performance guarantee of up to 5% of the initial contract value (art. 98 of Law 14.133/2021). This ceiling applies to most supply, service, and ordinary works contracts.
For large-scale engineering works and services, the law allows raising the guarantee to up to 30% of the contract value, provided the step-in (retomada) clause is adopted (art. 99). The higher percentage is the counterpart of the insurer's commitment to take over completion if the contractor fails.
There is also the bid guarantee (bid bond), required during the tender stage to ensure that the winner signs the contract. The percentage and conditions vary by tender, always within the limits of the law. In all cases, the surety bond meets these requirements with a single policy.
The insurer's step-in (retomada) clause
The step-in clause is the main innovation of the surety bond under Law 14.133/2021. Rather than merely indemnifying the public administration when the contractor defaults, the insurer can directly take over performance of the object — hiring third parties or continuing the work through to completion.
This mechanism (known internationally as step-in) reduces the risk of stalled works and losses to the public interest. To support this expanded liability, the law authorizes a guarantee of up to 30% for large-scale works that adopt the clause.
For the contractor, the step-in clause is not a hidden extra cost: it is a contractual design that gives the public entity more security and often makes participation in larger contracts feasible. ERGO structures surety bond policies with and without the step-in clause, according to the tender.
How to contract one for a tender
The first step is to read the tender and identify which guarantee is required: bid guarantee (during the tender) and/or performance guarantee (at contract signing), plus the percentage and whether a step-in clause applies.
With this information, the company sends the insurer its corporate and financial documents and the tender itself for risk analysis. Once approved, the policy is issued — usually within 24 to 72 hours — in the amount and under the conditions the public body requires.
The surety bond policy is then presented to the contracting body as proof of the guarantee, replacing a cash deposit or a bank guarantee. ERGO specializes in surety bonds for tenders under Law 14.133/2021 and supports the company at every stage.
Frequently asked questions
Does Law 14.133 accept a surety bond?
Yes. Law 14.133/2021 (the new procurement law) expressly provides for the surety bond as a guarantee modality, both at the bid stage (bid guarantee) and during contract performance (performance guarantee).
What percentage of guarantee is required?
The general rule is up to 5% of the contract value (art. 98). For large-scale engineering works and services, the percentage can reach up to 30% when the step-in (retomada) clause is adopted (art. 99).
What is the step-in (retomada) clause?
It is the clause that allows the insurer to take over and complete the contract object (step-in) in case of the contractor's default, instead of only paying an indemnity. It is the counterpart of the up-to-30% limit for large works.
Does the surety bond cover both bid and performance?
Yes. The same modality covers the bid guarantee (bid bond), required at the tender stage, and the performance guarantee (performance bond), required at signing and throughout the contract.
Does the surety bond replace the cash deposit?
Yes. The surety bond replaces the cash deposit and the bank guarantee provided for in Law 14.133/2021, without tying up the company's cash or consuming its bank credit line.
How much does a surety bond for a tender cost?
The premium usually ranges from roughly 0.5% to 5% per year on the guaranteed amount, depending on risk, term, and modality. It is far cheaper than the capital that would sit idle in a cash deposit.
Bidding on a tender under Law 14.133?
ERGO issues bid and performance surety bonds under the new procurement law — with or without the step-in clause, preserving your cash and your credit line.