BPP could double N1.1trn savings with insurance backed procurement bonds

Nigeria’s Bureau of Public Procurement (BPP) could double its N1.1 trillion savings, recovered last year by tightening enforcement with insurance-backed bonds across public procurements.

The initiative, in collaboration with the National Insurance Commission (NAICOM), will make instruments such as bid bonds, performance bonds and advance payment bonds central to contract awards, increasing accountability for erring contractors and non-compliant officials while safeguarding public funds.

Bid bonds, tender bonds, performance bonds, and advance payment bonds are specialised surety bonds (or guarantees) used in construction and procurement to mitigate risk between parties. They ensure fair bidding, contract fulfilment, and protection of funds, with sureties covering financial losses if the contractor defaults on obligations.

Obinna Chilekezi, an insurance consultant and visiting lecturer at the West African Insurance Institute (WAII), the Gambia, said the collaboration between NAICOM and BPP would enable the government to transfer the risks of contract failures to the insurance market, where such risks are distributed across multiple firms.

“This is a commendable move by the Commission and should be emulated by other institutions and individuals that engage contractors,” he said.

On whether the initiative could boost government savings, Chilekezi added: “It certainly has the potential to do so.”

He noted that as the government increasingly recovers funds from insurers on failed contracts, those recoveries will directly translate into additional savings.

BPP said its on-going procurement reforms saved the Federal Government over N1.1 trillion between January and December 2025.

Adebowale Adedokun, director-general of the Bureau, revealed recently while defending the agency’s 2026 budget before the Senate Committee on Public Procurement in Abuja.

Adedokun also reported reduced contract approval timelines, additional cost savings, and tougher sanctions imposed on erring contractors and non-compliant government officials.

Olusegun Omosehin, commissioner for Insurance/CEO NAICOM said the Commission has entered into an agreement with the BPE to integrate insurance bonds into government procurement processes.

According to Omosehin, government procurement has historically relied heavily on bank guarantees, leaving significant opportunities in insurance underutilised.

He said following discussions with relevant authorities, insurance bonds such as bid bonds, performance bonds, advance payment bonds, and tender bonds have now been made a mandatory part of public procurement processes.

“To strengthen the framework, NAICOM has introduced stricter underwriting requirements.”

“One key requirement is that companies issuing these bonds must maintain a solvency ratio above 100 percent,” he said, adding that firms that do not meet the threshold will need to participate through co-insurance or reinsurance arrangements with qualified insurers.

He described the move as a major growth opportunity for the insurance industry. “This collaboration is designed not only to strengthen regulation but also to open new business opportunities for insurance operators.”

The commissioner also emphasised the Commission’s commitment to transparency and fairness in its dealings with sister agencies.

He assured that NAICOM, under his leadership, would ensure strict adherence to claims, solvency requirements, and regulatory standards.

Reports and audits over the years suggest a pattern of failed, stalled, or abandoned Federal Government projects running into trillions of naira. A December 2021 estimate by the Nigerian Society of Engineers put the value at more than ₦17 trillion, citing over 56,000 affected projects.

A new report by BudgIT’s civic accountability platform, Tracka, has revealed that five states, Taraba, Abia, Nasarawa, Adamawa and Ogun account for 97.5% of abandoned Federal Government projects in Nigeria, despite full disbursement of funds.

According to the Tracka report, abandoned projects in the five states are valued at N7.8 billion out of a total N8 billion linked to projects where funds had already been released.

Taraba tops the list with 29.90% of abandoned projects, followed by Abia (20%), Nasarawa (10.53%), Adamawa (7.48%) and Ogun (7.14%). Seventeen states recorded no abandoned projects during the tracking period.

BudgIT said the findings underscore persistent accountability and oversight failures in public project execution, rather than a lack of financial resources.