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Security deposit in tender is paid by the winning bidder. Once a company is selected for the tender, it will be required to pay a deposit, a percentage of the total value of the project under the tender contract. This article will talk about the security deposit in tender and how it is different from EMD in tender.

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Tenders

What is a security deposit in a tender?

Security deposit for government tenders is a mandatory part of the tender agreement. It is the money paid by the winning bidder/tenderer to the tender issuing authority/tenderee to ensure that the winning bidder performs all contractual obligations.

Failing to pay the finish contractual obligations can lead to the tenderee forfeiting the deposit. Security deposit is paid to the tenderee before the tenderer starts work as per the tender rules and regulations of India.

Tenderee – The government department/institution/organisation that invites tender proposals by issuing the tender notice.
Tenderer – The company/business enterprises that have submitted tender responses to the tender proposal including the winning bidder.

Security deposit percentage in tender

A percentage of the total contract value as determined by the tender issuing authority is the security deposit percentage in the tender. Usually, government tenders in India demand 10% of the total contract value as security deposit.

Also read: The ultimate guide to tender fee rules

How does security deposit work?

Have a look at the steps involved for the payment of security deposit in tender:

  1. A percentage of the total contract value is demanded by the tender issuing authority as per the tender documents
  2. The winning bidder pays the security deposit demanded before it starts work on the contract
  3. One the contract is completed the security deposit is released back to the bidder

Some contracts will have a clause which states that the security deposit will be returned after a defects liability period. This means that the tender issuing authority has allotted a period of time during which they will check the work done under the contract. If everything is found to be satisfactory, the deposit is refunded.

Important aspects of security deposit

The importance aspects of security deposit are as follows:

  • It is a guarantee to make sure that the winning bidder fulfills all contractual obligations.
  • There will be a deadline for the payment of security deposit.
  • Security deposit is usually submitted in a Demand Draft or a cheque to the tender issuing authority.
  • Security deposit will only be refunded fully if all conditions are met in time
  • Any loss of resources for the tenderee during the tender contract arising from the duties performed as a part of the tender will be subtracted from the security deposit
  • If the security deposit is not paid the contract will be cancelled with the winning bidder.
  • If the security deposit is not paid, this will be recorded in the tender issuing authority and will impact future tender applications of the winning bidder.

Security deposit examples

Have a look at a few tenders where the security deposit clauses have been mentioned:

Example 1: Security deposit rules for tender project titled Requirement of Hume Pipe NP3 1.20m Diameter for Birsa & Urimari issued by Central Coalfields Limited

  • The value of security deposit to be deposited by the successful tenderer in the form of Bank Draft/ Bank Guarantee of any Scheduled Bank shall be 10% of the value of the awarded contract.
  • Two weeks (15 days) will be given for the tenderer to furnish the security deposit
  • Security deposit will be refunded to the firm within 30 days of satisfactory execution of the contract.
  • For unsatisfactory performance and/or contractual failure, the EMD and Security Money shall be forfeited.
  • In case the firm fails to deposit the security money, the order shall be cancelled and the case shall be processed to order elsewhere and the firm’s performance is to be kept recorded for future dealings with them.

Example 2: Security deposit rules for tender project titled ‘Operation and comprehensive maintenance of electro- mechanical services in TE Bldg. at Mawana & Staff Quarters at Pallavpuram & Shradhapuri, Meerut’ issued by BSNL.

  • A sum of 10% of the gross amount of the bill shall be deducted from each running bill of the Service Provider till the sum along with the sum already deposited as earnest money and Performance Guarantee will amount to security deposit of 10% of the tendered value of the work.
  • The performance security deposit with BSNL will be considered for adjustment against any other statutory levies and any loss to BSNL properties, if any reported, at the time of conclusion of the contract and final settlement of account.
  • Security deposit shall be released after three months of the actual completion of work or along with final bill, whichever is later, only after successful handing over of the installation in healthy condition to the BSNL/new Service Provider in smooth manner without any interruption of entire electro-mechanical services.

EMD vs Security deposit

Earnest money and security deposit in the tender are both financial guarantees provided by the tenderer protecting the tenderee against losses.

Earnest Money Deposit or EMD in tender means the amount that is given as a deposit to the company/government department that issued the tender. An EMD tender fee is generally 2% to 5% of the estimated value of a tender contract an will be mentioned in the tender notice.

It is the deposit paid by the sellers/tender applicants to the buyer while they bid for the tender.  The EMD amount will be refunded to you whether you win the tender or not. The EMD of an unsuccessful bidder is refunded after the finalisation of the tender contract.

Have a look at the differences between EMD and security deposit:

EMD (Earnest Money Deposit) Security deposit
Deposit paid by all tender applicants while submitting the bids Deposit paid by the winning bidder after winning the tender but before the start of the tender project
Usually, 2% to 5% of the total value of the contract Usually, 10% of the total value of the contract
Refunded after the winning bidder signs the tender contract and pays the performance guarantee. Refunded to unsuccessful bidders after the tender announcement of the winning bidder. Refunded after the project under the tender contract is completed and when the defects liability period gets over
EMD will not be refunded if the winning bidder; withdraws the bid, fails to enter into a contract, start the project on time, fails to pay the security deposit or modify the terms of the tender Security deposit will not be refunded if conditions of the contract are not met or if contract is not finished within the agreed upon time

The winning bidder must also pay a performance guarantee fee to give the tenderee assurance that the company will complete all the contractual obligations. Therefore, EMD, performance guarantee and security deposit are the three payments to be made in a tender process.

If you are looking to find and apply for tenders, visit Tata nexarc. A subscription to our platform can give you access to the all the latest government tenders. We also deliver an updated list of new tenders that matches your business to your mail every day.