The 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, a move that would transfer the risk of contract failures to the insurance market while strengthening accountability for erring contractors and non-compliant officials. The initiative, developed 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, addressing a pattern of failed, stalled, or abandoned federal government projects that have cost the nation trillions of naira over the years.
Bid bonds, tender bonds, performance bonds, and advance payment bonds are specialised surety bonds 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 a contractor defaults on obligations. By integrating these instruments into public procurement processes, the government shifts the financial consequences of contractor failure from the public treasury to the insurance market, where risks are distributed across multiple firms with the capital reserves to absorb losses.
Obinya Chilekezi, an insurance consultant and visiting lecturer at the West African Insurance Institute, described the collaboration as commendable, noting that it enables the government to transfer contract failure risks to insurers and that recoveries from insurers on failed contracts would translate directly into additional savings. The BPP reported that its ongoing procurement reforms saved the federal government over N1.1 trillion between January and December 2025, with reduced contract approval timelines, additional cost savings, and tougher sanctions imposed on erring contractors and non-compliant government officials.
NAICOM Commissioner for Insurance Olusegun Omosehin disclosed that the commission has entered into an agreement with the BPP to integrate insurance bonds into government procurement processes, noting that government procurement has historically relied heavily on bank guarantees, leaving significant opportunities in insurance underutilised. Following discussions with relevant authorities, insurance bonds have now been made a mandatory part of public procurement processes. To strengthen the framework, NAICOM has introduced stricter underwriting requirements, including a key provision that companies issuing these bonds must maintain a solvency ratio above 100 per cent. Firms that do not meet this threshold will need to participate through co-insurance or reinsurance arrangements with qualified insurers.
The magnitude of the challenge that this initiative seeks to address is substantial. Reports and audits over the years have documented 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 recent report by BudgIT’s civic accountability platform, Tracka, revealed that five states—Taraba, Abia, Nasarawa, Adamawa, and Ogun—account for 97.5 per cent of abandoned federal government projects in Nigeria, despite full disbursement of funds. The abandoned projects in these five states are valued at N7.8 billion out of a total N8 billion linked to projects where funds had already been released.
BudgIT said the findings underscore persistent accountability and oversight failures in public project execution, rather than a lack of financial resources. The integration of insurance bonds into procurement processes addresses these accountability failures by creating financial consequences for non-performance. When contractors know that default will trigger claims against bonds and potential exclusion from future bidding, the incentive to deliver on contractual obligations strengthens. Similarly, government officials who approve contracts without proper bonds or who fail to enforce bond provisions may face scrutiny for exposing public funds to unnecessary risk.
From a fiscal policy perspective, the initiative represents a shift from reactive recovery of lost funds to proactive risk transfer. Rather than attempting to recover funds after contracts fail—a process that can take years and often yields limited results—the government now ensures that financial protection is in place before contracts are awarded. The insurance market’s role in vetting contractors and pricing risk adds a layer of private sector due diligence that complements public procurement oversight.
