The deposit answers
Has the bidder put something at risk?
The deposit shows the bidder has put something at risk. It says nothing about whether the bidder could carry the work.
Net Worth & Solvency Glossary · Solvency & Courts
Earnest Money Deposit (EMD) in Indian Tender Bidding
noun · the full form of "EMD"; a tender may call the same deposit "bid security" or "earnest money"
Definition
An earnest money deposit (EMD) is a refundable amount a bidder lodges with a tendering authority to show that its bid is serious. It is bid security.
A bidder who withdraws during the bid validity period, or refuses the contract after being selected, forfeits it.
The life of the deposit
From the day the bid goes in to the day the money comes back, or does not.
- 1Lodged with the bidEvery bidder sends the deposit in with its offer. The tender fixes the amount and the mode.
- 2The award is decidedThe authority opens the technical bids, then the price bids, and selects a bidder.
- 3Performance security takes overThe winning bidder furnishes the performance security, which runs through the contract.
- 4The deposit comes back, or is keptReturnedto the unsuccessful bidders once the contract is awarded, and to the winner once its performance security is in Forfeitedif the bidder withdrew, refused the contract or did not furnish the performance security on time
Meaning
01What an EMD secures and when a bidder forfeits it
The EMD protects the tendering authority against bidders who bid and then walk away. It is returned to unsuccessful bidders once the contract is awarded. For the winning bidder, it is returned or adjusted once the performance security is furnished.
Forfeiture is what gives it force. When a tender says the "EMD is forfeited", it means the authority keeps the deposit.
When the authority keeps the deposit
Three usual grounds- Withdraws or changes its bidduring the bid validity period, after the offer has gone in
- Refuses the contractafter being selected as the successful bidder
- Fails to furnish the performance securityon time, once the award has been made
Some tender conditions add forfeiture for materially false statements in the bid.
EMD and security deposit
The two are often searched together but sit at different stages. The EMD secures the bid; the security deposit, or performance security, secures the contract.
Earnest money deposit
Security deposit
Secures
The bid
The contract, once awarded
Lodged by
Every bidder, with its offer
The winning bidder, after award
Size
As the tender fixes it
Usually larger than the EMD
Runs
Until the award is decided
Through the contract
The EMD amount, the mode and the refund
Fixed byEach tender document
The notice inviting tender sets the amount, not a general rule, so it is read from the tender in hand.
Paid byDemand draft, bank guarantee or online transfer
The mode depends on the portal and the tender's own conditions.
RefundableYes, so it is not a cost
But the money is tied up until the award is decided.
A bidder tendering for several contracts at once can have a large sum locked up across them.
In the bid pack
02How solvency proof and EMD conditions interact inside a bid pack
The EMD and the solvency proof sit in the same bid pack and answer neighbouring questions. An authority reads them together.
The certificate answers
Could the bidder carry the contract if it wins?
A solvency certificate shows the bidder could carry the contract if it wins. It says nothing about whether the bidder is committed to the bid.
Neither reassures on its own. A large deposit from a bidder with no demonstrated standing does not reassure an authority, and neither does a strong certificate from a bidder unwilling to lodge a deposit.
Read both figures from the tender in hand
Tender conditions often set the deposit and the solvency figure together
A solvency figure tied to the contract value, alongside the deposit. If the certificate is written to the wrong figure, the bid can be rejected at the technical stage before the price is opened. That is why the required figure is taken from the tender document, not from the last tender.
Financial criteria often also ask for a turnover certificate for a tender.
- Technical stageEligibility and documents are checked first. A certificate to the wrong figure fails here.
- Price stageOnly bids that cleared the technical stage have their price opened.
Does the deposit appear in a net worth statement?
While it is held, the money still belongs to the bidder, so it is shown as an amount receivable from the authority, not as an expense. Where several bids are live, lodged deposits are worth showing separately rather than folded into general balances.
Small enterprises
03MSME exemptions and bid security declarations on GeM and CPP Portal
Indian public procurement has moved towards relieving small enterprises of the cash deposit. A tender can offer up to three routes.
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Route 1
Cash or an instrument
The deposit as the tender fixes it: a demand draft, a bank guarantee or an online transfer, depending on the portal. Open to every bidder.
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Route 2
Exemption on registration
Registered micro and small enterprises may be exempted from lodging an EMD on producing their registration.
Under Rule 170(i) of the General Financial Rules, bid security is not taken from Micro and Small Enterprises defined in the MSE procurement policy or registered with the Central Purchase Organisation or the Ministry or Department concerned, nor from Startups recognised by DPIIT. That rule governs central government procurement; states and public sector units set their own.
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Route 3
A bid security declaration
In place of cash, several portals, including the Government e-Marketplace (GeM) and the Central Public Procurement (CPP) Portal, accept an undertaking not to withdraw or vary the bid during its validity, with suspension from bidding as the consequence of breaking it.
Under Rule 170(iii) of the General Financial Rules, a bidder who signs the declaration and then withdraws or changes the bid during its validity, or wins and fails to sign the contract or furnish the performance security in time, is suspended for the period the bid document states.
Two practical points that catch bidders out
An EMD exemption is not a performance-security exemption
An exemption from the EMD should not be assumed to cover the performance security; the tender's terms decide.
The registration goes in with the bid, and must be current
Where an exemption is claimed, the registration certificate goes in with the bid, and an expired registration fails the claim.
Written by Subham Jhunjhunwala · Reviewed by CA Sundram Gupta
This entry describes Indian tender practice in general terms. The tender document governs each bid.
Need help with a certificate for a tender? See our Solvency Certificate.A CA-certified statement of standing written to the figure the tender asks for.