What Goes Into Bid Specifications for a Bond-Proceeds Investment?

Bid specifications for a bond-proceeds investment are the written document that fixes what providers bid on: the fund and the amount, the deposit and drawdown schedule, the permitted investments and rating terms, the collateral and downgrade terms, the withdrawal and termination rights, and the bid date logistics.

For the fair-market-value safe harbor, Treasury Regulation §1.148-5(d)(6)(iii)(A) requires a solicitation to rest on written bid specifications timely sent to potential providers, containing all material terms and only commercially reasonable terms, and stating a no-collusion representation; for guaranteed investment contracts the solicitation terms must also take into account the issuer's reasonably expected deposit and drawdown schedule.

Those specifications sit inside the framework of competitive bidding for bond-proceeds investments, and the safe harbor they support is explained on the fair-market-value safe harbor page.

The document reads in five blocks, and the table below maps each block to what it fixes and where its terms come from.

Fund, amount and draw schedule

The specifications open with the fund that holds the proceeds, the dollar amount to be invested, the date the issuer will deposit it, and the schedule on which the issuer expects to draw the money out.

For guaranteed investment contract purchases, Treasury Regulation §1.148-5(d)(6)(iii)(A)(5) requires the terms of the solicitation to take into account the issuer's reasonably expected deposit and drawdown schedule for the amounts to be invested.

The schedule is what tells a provider how long the deposited amounts are expected to stay invested, and the regulation defines a material term as one that may directly or indirectly affect the yield or the cost of the investment (Treas. Reg. §1.148-5(d)(6)(iii)(A)(2)).

The expected draws come from the project budget and the construction timeline, and the work of building them is covered on the draw schedule page.

Naming the fund also fixes which documents govern the investment, because a construction fund, a debt service reserve fund and a debt service fund each carry their own rules, as the guide to funds that hold bond proceeds sets out fund by fund.

Permitted-investment and rating terms

This section of the specifications states the instruments the fund's governing documents allow the issuer to buy and the minimum ratings it requires of the provider, any credit guarantor and the posted collateral.

What those instruments are comes from three places at once: the bond contract, the state's investment statute, and the issuer's investment policy, which together define the issuer's permitted investments.

GFOA recommends an investment policy with specific provisions for bond proceeds, provisions that ensure legal and regulatory requirements are met, that fair market value bids are received when required by tax law and by state or local laws, and that the issuer's objectives are attained.

For an issue without an indenture, such as a general obligation bond, GFOA says the policy should list the permitted investments, which may be a subset of those allowed for operating funds.

The specifications translate those sources into bid terms: the instrument types providers may propose, any state-law constraint on counterparties, and the rating floors the issuer will apply to the provider, its guarantor and the collateral.

For investments bought for a yield-restricted defeasance escrow, the hold-firm period must be no longer than reasonably required (Treas. Reg. §1.148-5(d)(6)(iii)(A)).

A stated rating floor leads directly to the credit terms, because the floor means little unless the document also fixes what happens when it is breached.

Which instruments and rating levels a particular fund can carry is a legal determination for bond counsel.

Collateral and downgrade terms

The credit section of the specifications fixes what protections attach if the provider or its guarantor is downgraded, and what the issuer receives when a trigger is hit.

One documented set of remedies appears in Ambac's Form 10-K for fiscal 2008, which reported that the 2008 downgrades triggered cure provisions in nearly all of its investment agreements and that most agreements offered several remedies: collateral posting, termination of the agreement, or designation of a replacement guarantor.

The same filing says most triggers were based on the lower of the Moody's or the S&P rating, and that Ambac could usually choose the remedy.

That filing describes one guarantor's contracts, not market-standard terms, so the trigger levels and cures in the specification itself are what govern.

The filing also notes that collateral posting and termination of the agreement introduce liquidity risk, which is why this page takes the credit terms and the withdrawal terms in adjoining sections.

Trigger levels and cure mechanics appear in the specifications because they are terms providers price, and under the regulation a term is material if it may directly or indirectly affect the yield or the cost of the investment (§1.148-5(d)(6)(iii)(A)(2)).

How these provisions are structured, and what each remedy means for the issuer, is covered in the guide to downgrade terms.

For a repurchase agreement, the protection is the collateral itself, and the specifications set what the provider must post and how margin is maintained; the mechanics are on the repo collateral page.

Withdrawal and termination terms

The withdrawal and termination terms state when the issuer may take money out before the investment matures, what notice and documentation each withdrawal requires, and when either party may end the agreement.

These terms are built on the same deposit and drawdown schedule as the rest of the document: the expected draws tell providers when the issuer plans to need its money, and flexibility beyond that schedule is a term providers can weigh in pricing.

A specification that leaves withdrawal rights vague does not put all the material terms in front of the providers, because withdrawal flexibility may directly or indirectly affect the yield or the cost of the investment (Treas. Reg. §1.148-5(d)(6)(iii)(A)(2)).

The termination provisions state the events that let each party end the agreement early and how the investment is unwound when that happens.

How fixed and flexible withdrawal provisions work in a guaranteed investment contract is covered on the GIC withdrawal provisions page.

When actual draws run ahead of or behind the expected schedule, the gap between the investment and the spend is a spend-down mismatch, and that page covers the options.

Bid date logistics

The closing section fixes the mechanics of the competition: when the specifications go out, when bids are due, how providers submit them, when the award is made, and which representations each bid carries.

Treasury Regulation §1.148-5(d)(6)(iii)(A)(1) requires the written specifications to be timely sent to potential providers, and it permits electronic form.

The solicitation list is part of the logistics as well: at least three reasonably competitive providers, meaning providers with an established industry reputation as competitive providers of that type of investment, must be solicited (Treas. Reg. §1.148-5(d)(6)(iii)(A)(7)).

The specifications must state that submitting a bid is a representation that the potential provider did not consult with any other potential provider about its bid, that the bid was set without regard to other agreements with the issuer or anyone else, and that it is not a courtesy bid (Treas. Reg. §1.148-5(d)(6)(iii)(A)(3)).

A separate provision requires that all potential providers have an equal opportunity to bid, so no provider may be given an opportunity to review other bids that is not equally given to all potential providers (Treas. Reg. §1.148-5(d)(6)(iii)(A)(6)).

The enforcement record shows why those two requirements matter: in the SEC's charges against Wachovia Bank, a last look meant a provider received competing-bid information from the bidding agent, and a set-up meant the bidding agent deliberately obtained non-winning bids from other providers to rig the field in the provider's favor.

The SEC said this kind of conduct deprived municipalities of the conclusive presumption that reinvestment instruments were purchased at fair market value, and it reported that by December 23, 2011 more than $743 million had been recovered from financial institutions in these settlements, with 18 individuals indicted or having pled guilty.

The full set of those cases, with the settlement amounts, is on the fair-market-value safe harbor page.

The logistics are built to produce a countable result: the issuer must receive at least three bids from solicited providers with no material financial interest in the issue, and at least one of those bids must come from a reasonably competitive provider (Treas. Reg. §1.148-5(d)(6)(iii)(B)(1)-(2)).

A lead underwriter in a negotiated underwriting transaction is deemed to have a material financial interest in the issue until 15 days after the issue date, an entity acting as financial advisor on the investment purchase when the specifications go out also has one, and so do related parties of such providers (Treas. Reg. §1.148-5(d)(6)(iii)(B)).

When the bids that come back fall short of three, the safe harbor is not met and the regulation prescribes no substitute; the fewer than three bids page covers what that means.

The solicitation form itself becomes part of the record, because, to use the safe harbor, the regulation requires the issuer to keep the bid solicitation form with an explanation of any deviations, along with each bid's submitter, time, date and result (Treas. Reg. §1.148-5(d)(6)(iii)(E)).

Once the deadline passes, comparing the bids on rate and non-rate terms is the subject of the evaluating bids page, and the closing documents are covered on the certifications page.

Drafting the specifications and running the solicitation is work an issuer can hand to an independent Bidding Agent: for a guaranteed investment contract, a full-flex repurchase agreement or a structured Treasury portfolio, you can use mGIC as Bidding Agent or start with a free, no-obligation conversation about a specific fund.

mGIC writes the bid specifications, solicits qualified providers, manages questions, and receives and compares bids on rate and non-rate terms, and its fee is paid by the winning provider rather than the issuer.

Which terms a particular issue's specifications can carry, and whether a completed solicitation meets the safe harbor, are determinations for bond counsel and tax counsel.

Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.