EMD, or earnest money deposit, is a refundable amount that holds you to your offer until a contract is signed. Under the General Financial Rules 2017 it is normally 2 to 5 percent of the estimated value, and a buyer may accept a signed Bid Security Declaration instead. After award the winner furnishes performance security, which protects the buyer during the contract itself.
What EMD is for
Every bid is a promise. If a bidder could walk away after the prices are opened, buyers would face fake bids, price testing and failed awards. EMD puts a small amount of money behind the promise. You deposit it with your bid, and you lose it only if you break the rules of the tender.
In central government procurement the governing text is Rule 170 of the General Financial Rules 2017 (GFR). It describes bid security as normally between 2 and 5 percent of the estimated value. Many tenders instead state a fixed rupee figure. Always use the amount printed in the tender, not a figure you calculate yourself. State governments and public sector undertakings follow their own rules, which are usually similar but not identical.
Accepted forms of EMD
The tender lists the forms it accepts. Common ones are:
- Online payment through the portal's payment gateway
- Demand draft or banker's cheque in favour of the named payee
- Fixed deposit receipt pledged to the buyer
- Bank guarantee from a scheduled commercial bank in the prescribed format
- Insurance surety bond, where the tender allows it
The Bid Security Declaration
GFR 2017 allows a buyer to ask for a signed Bid Security Declaration in place of a deposit. You pay nothing. Instead, you declare that if you withdraw or change your bid during its validity, or if you win and fail to sign the contract or furnish performance security in time, you will be suspended from bidding with that buyer for the period stated in the tender.
The declaration costs no cash, but it is not free of risk. A suspension can shut you out of a department's tenders for a long period, which may cost far more than a deposit. Sign it only when you are certain you will honour the bid.
Who is exempt from EMD
Two groups are commonly exempt in central procurement. The first is micro and small enterprises registered under Udyam, under the Public Procurement Policy for Micro and Small Enterprises. The exemption applies to micro and small units, not medium ones, and only for the goods they manufacture or the services they provide themselves. Trading activity does not earn the procurement benefit. The second group is startups recognised by DPIIT.
An exemption is never automatic on paper. Upload the valid Udyam certificate or DPIIT recognition letter the tender asks for, and check that the category on your certificate matches the item you are bidding. Claiming an exemption you do not hold is treated the same as not paying EMD at all, and can be worse if it looks like a false declaration. Keep these certificates ready in your standing document vault.
When you get EMD back
Under GFR 2017, the bid security of unsuccessful bidders should be returned at the earliest after the bid validity expires, and no later than the 30th day after the contract is awarded. The winner's EMD is returned once performance security has been received, or is adjusted against it where the tender says so. Bid security itself should remain valid for 45 days beyond the final bid validity period.
In practice, delays happen. Keep the payment reference, the instrument copy and the bid acknowledgement together, and write to the buyer if the refund does not arrive within the period the tender states.
When EMD is forfeited
The tender lists the forfeiture events. The usual ones are:
- Withdrawing or modifying your bid after the submission deadline and within the validity period
- Refusing to accept the award or to sign the contract
- Failing to furnish performance security within the time allowed
- Submitting false or forged documents, which can also lead to debarment
Performance security after award
EMD guarantees your bid. Performance security guarantees your delivery. GFR 2017 sets it at 5 to 10 percent of the contract value, to be furnished within 21 days of the award notification and kept valid until 60 days after all contractual obligations, including warranty, are complete. Tenders state their own percentage and format, and GeM bids state the ePBG percentage in the bid details. Read the figure in your tender rather than relying on a rule of thumb.
Performance security ties up bank limits for the whole contract, often longer than the work itself. Arrange the guarantee with your bank before you need it, and build its cost into your price. Our guide on pricing from past awards shows where it belongs in the calculation.
Common questions
Is EMD the same as the tender fee?
No, they are two different payments. Think of the tender fee as the price of getting the documents or having the bid processed: it is spent the moment you pay it and does not come back. EMD is money held as a promise that you will stand by your offer, and unsuccessful bidders get it returned. Many notices ask for both, each with its own due date and refund path.
Can a medium enterprise claim EMD exemption?
Not under the Public Procurement Policy for Micro and Small Enterprises, which covers micro and small units only. A specific tender may still offer wider relief, so read its exemption clause.
What happens if I sign a Bid Security Declaration and then withdraw?
You do not lose money, but you can be suspended from bidding with that buyer for the period stated in the tender. For a firm that depends on one department, that suspension can cost more than a deposit.
Is ePBG the same as EMD?
No. An ePBG is an electronic performance bank guarantee, furnished by the winning seller after award to secure delivery. EMD is furnished before award to secure the bid.