What is EMD in tender? Earnest Money Deposit meaning, calculation and more (2024)

This article is curated for the people who are willing to understand the EMD – earnest money deposit in detail. You will learn about EMD role in e-tendering, its necessity, calculation, return policy, exemption policy, how it is different from security deposit, and more.

As a business owner, if you have applied for government tenders then you know that it often requires you to pay a tender fees and/or an EMD or Earnest Money Deposit. As a bidder, it s natural for you to have questions about EMD meaning, 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 other question.

Let us look at what is EMD in tender and as a bidder what are the key factors you should be familiar with when paying (or not) the earnest money deposit. We are also going to answer some frequently asked questions on EMD to help you stay informed and better prepared for government eProcurement and/or private tender bidding.

What is EMD in tender?

EMD stands for Earnest Money Deposit in Government tenders. It means the amount that is given as a deposit to the company/government department that issues the tender. It is the deposit paid by the sellers/tender applicants to the buyer when they submit the bid application for the relevant tenders.

What is an EMD payment?

EMD (Earnest Money or Earnest Money Deposit) is commonly used in the government tendering process, it can also be used in real estate purchases.

In e-tendering, EMD payment is a form of deposit or security payment made by the bidder to the Tender Inviting Authority (TIA) that represents the bidder’s good intention to participate in the government e-procurement process. EMD represents the bidder’s commitment and is usually requested on high-value projects. It also ensures that only serious bidders and those eligible for the tender participate in the tender bidding process, and enables to keep non-eligible bidders naturally away from the procedure.

It must be noted that tender notices that request EMD fees must be submitted with the EMD amount – else it will be rejected. Also, Micro and Small Enterprises or MSEs are usually exempted from EMD payment.

Also read:MSME classification – Know how micro, small and medium enterprises are classified based on annual turnover and investment in plant and machinery

Where to find details on Earnest Money Deposit?

When you browse through a standard tender notice, explore the section titled ‘EMD Fee Details’. It will contain the basic information on the EMD fees. Details might include:

• EMD Amount in ₹ – e.g., ₹20,000
• EMD fee type – e.g., fixed
• EMD percentage – e.g., N.A.
• EMD through BG/ST or EMD exemption allowed – e.g., Yes/No
• EMD payable to – i.e., name of the tender authority/ designation of person
• EMD Payable at – i.e., location, e.g., New Delhi

Note: An EMD tender is one that comes with EMD requirements. In such cases, if the EMD amount is not paid, the application for the tender cannot be processed. However, if the EMD amount details are missing from the tender notice, it means EMD is not required for applying for 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 they commit to the tender project. EMD amount is often demanded for high value tenders. When EMD is requested, tender applications submitted without EMD receipts will be rejected.

When browsing through the tender details, look for EMD fees/amount/details or similar. The EMD full form in tender is usually not used much as the abbreviation is commonly understood by all.

Is EMD mandatory?

Yes, paying the EMD amount in tenders is mandatory. The only exception is MSE business (i.e., registered micro and small enterprises as per the MSMED Act 2006) who are exempted from paying EMD fees as per Rule 170 of General Finance Rules 2017.

However, EMD is not mandatory and there are several tenders that do not require EMD payment. However, if EMD fees are mentioned, it is mandatory for the bidder to pay it.

The Earnest Money Deposit payable is a sign of commitment or assurance from the bidder about their intention and capability to undertake the government tender if the contract is awarded to them. It also prevents bidders from withdrawing their tender bids before the closing date, enabling Tender Authorities the time to evaluate each application meticulously.

EMD amount is usually refunded (terms and conditions apply) if the bidder does not win the contract. If the bidder wins the contract, the EMD money is usually applied or adjusted with the price or kept as further security (Note – Ensure you read the EMD refund terms carefully as it varies between tenders).

Is EMD refundable?

A common concern of every bidder submitting an EMD security is – Is the EMD money refunded/returned?

EMD is typically refunded but there are certain scenarios where it is not. When a bidder is not awarded a contract, the full EMD amount is returned through a demand draft or banker’s cheque, duly signed by a competent authority. This is done to encourage fairness and sincere participation in e-tendering.

However, there are certain scenarios, where the EMD amount is not returned. For instance, if the bidder withdraws the bid, the EMD is forfeited. Similarly, 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 amount will not be refunded. Listed below are some of the scenarios where the EMD amount is forfeited or confiscated as penalty for non-compliance.

• 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?

The calculation of EMD is crucial for bidders when applying for government tenders. Earnest Money Deposit acts as a security/assurance that the bidder is serious about the tender application. In general, the EMD fee is between 2% and 5% of the estimated tender value and specifically mentioned in the tender document/notice.

For instance, if the estimated value of a construction tender is ₹10 crores and the EMD rate is 2%, then the EMD amount payable will be:

EMD payable = 2% x ₹10,00,00,000 = ₹20,00,000 or ₹20 lakhs

As a bidder, you will not have to calculate the EMD money. The EMD amount will be specified in the tender document and as a bidder, you will have to submit the EMD payment receipt along with the tender application. This acts as a security against untimely withdrawal or alteration before the expiry or closing date.

Note: While EMD is charged at 2% to 5% of the tender amount, in general, there are some standard EMD amount that is charged by various tendering authorities. For instance, for projects valued at:

• ₹43,000 the EMD will be around ₹800
• ₹10,00,000 the EMD value will be around ₹50,000

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 tender 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 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 as security deposit. If the bidder fails to complete the project the security deposit in tender will be forfeited.

Remember to read the tender documents thoroughly to find all details related to payments and refunds.

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. Popular government projects include:

• Construction project tenders
• Civil work tenders
• Railway tenders
• Fire safety tenders

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 micro and small enterprises (MSEs) from paying EMD in tender.

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.

Alternatively, it you want to save time and find the most relevant government tenders for your business, try Tenders on Tata nexarc. You can subscribe and explore 1.3 lakh+ tenders in one place and receive email/SMS updates on the latest tenders added that match your business needs.

When preparing your checklist for tender submission, ensure that you include details on payments, especially tender fees and EMD. Also, read the document thoroughly to understand payment options. In many cases, you can pay EMD online and submit the EMD payment receipt along with your tender proposal.