Applying for a tender involves submitting specified tender documents and paying tender fees and an EMD or Earnest Money Deposit. As a bidder, it s natural for you to have questions about EMD, how it is paid, whether EMD is refunded or not, are MSMEs exempted from paying EMD, how EMD and tender fees are different/same, and more.
In this article, we answer some frequently asked questions on tender EMD to help you stay informed and better prepared for government eProcurement and/or private tender bidding.
What is EMD?
EMD in tender means the amount that is given as a deposit to the company/government department that issued the tender. The full form of EMD in tender is Earnest Money Deposit. This deposit is paid by the sellers/tender applicants to the buyers while they submit the response to the tender.
Why is EMD payment necessary for tender applicants?
EMD is regarded as a financial guarantee demanded from the bidder to make sure that you committed to the tender project. EMD is often demanded for high value tenders. Tenders submitted without EMD will be rejected.
Is EMD refunded/returned?
The Earnest Money Deposit amount will be refunded to you whether you win the tender or not. The EMD of an unsuccessful bidder is refunded after the finalization of the tender contract. The unsuccessful tenders will be refunded with a demand draft/banker’s cheque that is duly endorsed by a competent authority.
If a business wins the tender but later refuses to accept the project, then EMD will not be refunded. There are a few exceptions to the rule where the EMD money will not be refunded:
- If the bidder withdraws the bid during the validity period of the bid before commencement of the project
- If the details in the response to tender are modified by the bidder which are not acceptable to the buyer
- If the bidder who wins the tender fails to enter into a contract with the buyer within the stipulated time
- If the bidder fails to commence the project at the time mentioned in the tender contract
- If the winning bidder fails to pay up the (usually for high-value tenders, explained in the following sections)
How is EMD calculated in tender?
EMD fee in a tender is generally 2% to 5% of its estimated price.
- For projects worth as much as ₹43,000 the EMD will be around ₹800
- For projects that cost ₹10,00,000 the EMD value in tender will be valued around ₹50,000
You don’t need to calculate the EMD fee as it will be directly given in the request for tender published.
EMD vs security deposit
Tenders demanding EMD are common when the estimated project costs are high. Adding to the financial guarantee provided in the form of EMD, high-cost tender projects demand a security deposit as well.
Once a bidder is selected for the tender, he/she must furnish a security deposit to the buyer. This is demanded by the buyer so to recover any loss in resources in case the winning bidder does not complete the task as per the work order.
For example, if a bidder has won a ₹2 Crore tender for laying roads, he/she will have to deposit 10% of the estimated cost i.e., ₹20 lakh. If the bidder fails to complete the project the security deposit in tender will be forfeited.
EMD in government tenders
Government tenders are the most popular tender projects among businesses. There are different government departments issuing tenders daily for large and small projects ranging from construction of drains to building of aircraft components. Government of India uses tenders as an opportunity to provide small businesses with a platform to sell their products and build reputation. Therefore, the government has exempted businesses that fall under the category of MSMEs from paying EMD.
Are MSMEs exempted from paying EMD?
As per Rule 170 of General Financial Rules (GFRs) 2017, Micro and Small Enterprises (MSEs) are exempted from submission of bid security. However, Ministries/Departments may ask bidders to sign a ‘Bid Security Declaration’ accepting that if they withdraw or modify their bids during period of validity, they will be suspended for the time specified in the tender documents. This EMD exemption in tender has brought more MSME registrants to the public procurement portal hosted by the government.
The government has also made tender fee rules favorable to MSMEs. MSMEs are exempt from paying tender fees specified in the request for tender. Tender applicants for government tenders are required to pay tender fees and EMD. Both these payments need not be paid by MSMEs. Only businesses with an MSME registration can avail these benefits.
How to find tenders online?
To find government tenders online you can enroll on the Central Public Procurement portal, or the GeM portal hosted by the Government of India. These portals will ask you to sign up and submit relevant documents requested to verify your business details. You can even visit websites of different government departments and search for specific tenders.
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