How Should an Issuer Compare Investment Bids for Bond Proceeds?

Comparing investment bids for bond proceeds means putting every bid on the same basis: one rate standard, one set of material terms, and a documented look at who is offering the money and on what credit.

This page is the evaluation step of competitive bidding for an investment of bond proceeds, sitting between bid specifications and the certifications delivered after award.

The conditions that make a comparison count toward the fair-market-value presumption are covered on the fair-market-value safe harbor page; what follows takes the comparison itself.

How are rates compared on a common basis?

Rates are compared on a common basis once the specifications have fixed every material term, because Treasury Regulation §1.148-5(d)(6)(iii)(A) requires written bid specifications that include all material terms, and a term is material if it may directly or indirectly affect the yield or the cost of the investment.

With the terms fixed, the ranking rule is stated in the regulation: for a guaranteed investment contract, the winning bid is the highest-yielding bona fide bid determined net of any broker's fees, and for other investments, such as escrow securities, it is the lowest-cost bona fide bid including broker's fees and no more than the cost of the most efficient all-SLGS portfolio (Treas. Reg. §1.148-5(d)(6)(iii)(C)(1)-(2)).

The SLGS comparison is made when bids are due, it is not required on a day when SLGS sales are suspended, and the lowest cost may be measured by portfolio or investment by investment.

The market inputs providers quote against are described in how GIC rates are set.

The comparison is also only as good as the field it draws from: Treasury Regulation §1.148-5(d)(6)(iii)(A)(6) provides that no potential provider may be given an opportunity to review other bids that is not equally given to all potential providers, the rule against an exclusive "last look".

On July 7, 2011, the SEC charged J.P. Morgan Securities with rigging at least 93 municipal bond reinvestment transactions in 31 states, saying JPMS improperly won bids by entering secret arrangements with bidding agents to get an illegal "last look" at competitors' bids.

On December 8, 2011, it charged Wachovia Bank with rigging at least 58 transactions in 25 states and Puerto Rico, including through "set-ups" in which the bidding agent deliberately obtained non-winning bids from other providers to rig the field in Wachovia's favor.

Both cases settled, and their resolution amounts appear with the rest of the enforcement record in the table under provider credit below.

Which non-rate terms change a bid's value?

The non-rate terms change a bid's value because Treasury Regulation §1.148-5(d)(6)(iii)(A) treats any term that may directly or indirectly affect the yield or the cost of the investment as material, which is why the written specifications fix each of those terms before any rate is compared.

Withdrawal mechanics are covered in how withdrawals from a bond-proceeds GIC work, and repo collateral in repo collateral and margin.

Treasury Regulation §1.148-5(d)(6)(iii)(A)(3) adds a required term to every set of specifications: submission of 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.

Those representations are the ones that speak to whether a bid is an independent price rather than a coordinated one.

The three-way order itself is explained in safety, liquidity and yield.

How does provider credit enter the comparison?

Provider credit enters the comparison twice: as the credit terms priced into the bid, and as the identity of the institutions the rules allow into the field.

Credit terms such as ratings-based collateral or termination remedies meet the same materiality test the specification rule applies to every term, and their mechanics are covered in how a GIC is protected if the provider is downgraded.

On identity, Treasury Regulation §1.148-5(d)(6)(iii)(B)(1)-(2) requires 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.

The 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, any entity acting as financial advisor on the investment purchase when the specifications go out has one, and so do related parties of such providers.

On the underwriter's role, the MSRB glossary defines an underwriter as a municipal securities dealer that purchases a new issue of municipal securities from the issuer for resale in a primary offering, whether through negotiation or by competitive bid.

The agent running the bidding is kept out the other way: Treasury Regulation §1.148-5(d)(6)(iii)(B)(3) provides that if the issuer uses an agent to conduct the bidding process, the agent did not bid to provide the investment.

The enforcement record from 2010 and 2011 shows why the rules police who is bidding and not only what is bid.

Each case settled, and the SEC's accounts of the conduct are findings and allegations resolved without admissions.

The individuals faced their own exposure: former UBS executives Peter Ghavami, Gary Heinz and Michael Welty were convicted of wire fraud and/or conspiracy to commit wire fraud for rigging bids on municipal investment contracts, sentenced to 18, 27 and 16 months, and fined $1 million, $400,000 and $300,000, with the Second Circuit affirming.

UBS also entered a non-prosecution agreement with the Justice Department accepting responsibility for employees on its municipal reinvestment and derivatives desk who rigged bids in violation of the Sherman Act, and, per the department's brief, UBS, JP Morgan and Bank of America together paid $525 million in civil fines and restitution under their agreements with the department.

By December 23, 2011, the SEC put the totals at more than $743 million recovered from financial institutions and 18 individuals indicted or having pled guilty, and said the corrupted bidding deprived municipalities of the conclusive presumption that reinvestment instruments were purchased at fair market value.

The litigation release in the Wachovia matter said the bidding corruption jeopardized the tax-exempt status of billions of dollars in municipal securities.

What documentation and stated exceptions apply?

The comparison leaves a defined paper record, and the rules set their own limits where a requirement does not apply.

To use the safe harbor, the issuer must keep records with the bond documents until 3 years after the last outstanding bond is redeemed, and the list covers the contract or purchase agreement, each bid's submitter, time, date and result, the bid solicitation form with an explanation of any deviations, the receipt for the amount paid with any administrative costs and the provider certification, and, for non-GIC purchases, the cost of the most efficient SLGS portfolio when bids were due (Treas. Reg. §1.148-5(d)(6)(iii)(E)).

The provider of the investment, or the GIC obligor, must certify the administrative costs it pays or expects to pay to third parties in connection with supplying the investment (Treas. Reg. §1.148-5(d)(6)(iii)(D)), and the regulation does not itself require a separate Bidding Agent certificate, which is market practice.

Documents are only as strong as the process behind them: per the Justice Department's brief in the case, the former UBS executives convicted of rigging bids had conspired with counterparts at Bank of America and JP Morgan and with a broker that gave UBS last looks, and had falsely certified compliance with Treasury regulations.

The certifications delivered after an award are described in what certifications must be delivered after an investment is bid, and the wider record in what records an issuer should keep.

Two limits come from the rules themselves.

The first sits on the cost side: the SLGS comparison drops out on a day when SLGS sales are suspended, as noted above.

The second sits on the field side: Treasury Regulation §1.148-5(d)(6)(iii)(B) does not prescribe what happens when fewer than three bids from providers without a material financial interest arrive, and a shorter field means the safe harbor's conditions are not met rather than that a cure is prescribed.

What an issuer weighs at that point is covered in fewer than three bids.

For a refunding escrow, GFOA's account of the financing team adds a check outside the bidding itself: a verification agent, typically a CPA firm, confirms the escrow is sufficient and, where yield is limited, that escrow yield does not exceed the permitted yield, while an escrow bidding agent solicits bids for open-market escrow securities.

The verification engagement is covered in what an escrow verification agent checks.

How is the award made, and what is the fallback?

The award applies the winning-bid standard to the bids as received: the highest-yielding bona fide bid net of broker's fees for a GIC, the lowest-cost bid for other investments, with each bid's submitter, time, date and result kept in the record described above.

Whether a bid is bona fide, whether the field met the regulation's conditions, and which conclusions an issue can support are determinations for bond counsel and tax counsel.

The frame for those decisions is usually written down before bidding starts: GFOA recommends an investment policy with specific provisions for bond proceeds, ensuring legal and regulatory requirements are met, fair market value bids are received when required by tax law and state or local laws, and issuer objectives are attained.

Where there is no indenture, such as a general obligation bond, GFOA says the policy should list permitted investments, which may be a subset of those for operating funds.

What such a policy contains is covered in what a bond-proceeds investment policy should include.

When a solicitation falls short, the alternatives are decisions of their own: a direct purchase of SLGS, or a state investment pool weighed against a bid.

On the escrow side, GFOA notes that a municipal advisor, if engaged, may be able to act as the escrow bidding agent, and for GIC and repurchase agreement solicitations the regulation works from the same structure: an agent the issuer uses to conduct the bidding process (Treas. Reg. §1.148-5(d)(6)(iii)(B)(3)).

mGIC performs that role as an independent, SEC-registered municipal advisor that sells no investment product and does not act as principal, with a fee paid by the winning provider rather than the issuer.

To have the bids on your issue received and compared on rate and non-rate terms, use mGIC as Bidding Agent, or ask for a free, no-obligation reinvestment review through the same page.

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.