Importance of Earnest Money Deposit (EMD)

EMD stands for Earnest Money Deposit. Many times it is also called Bid EMD stands for Earnest Money Deposit. Many times it is also called Bid Bond. EMD is taken by the Government organizations / PSUs for the tenders to ensure that only serious bidders have to participate in those tenders. EMD does not apply to every tender. This EMD is always refundable deposit, which can be in the form of a fixed deposit Receipt or crossed Bank Draft or Irrevocable Bank Guarantee.


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Generally, earnest money is demanded by the Government Organizations to ensure the bidder/Owner that a tenderer/bidder does not withdraw his bid/tender before his acceptance or refuse or show inability to execute the work after it has been award to the concern bidder/tenderer.

EMD works as a safeguard of the process of bidding as well as time and resources spent during the tendering process. If EMD is not applicable, any bidder/ tenderer will withdraw his bid at any stage then the bidding process may become useless. It is a loss of money as well as a loss of time and effort who are involved in this process.

Paying EMD indicates that participating bidders/tenderers are serious about the work. If the bid will awarded those bidder, they might be start to work on it.

If the bidder/tenderer withdraws their bid, EMD gets fortified by the Government Authority. In short, EMD ensures their capability and seriousness for the works.

While submitting the bid, there are many terms and conditions to accept by the tenderer.

Start-ups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and Micro and small enterprises, as per the Department for MSMEs, are exempt from depositing EMD in Govt. tenders.

According to Rule 170 of GFR, there is an EMD exemption on tenders for MSME businesses. To support small businesses, according to this rule, those who can participate in the tenders are EMD-free. But to get this privilege, small businesses has to submit the MSME Certificate every time.

In the following cases, your EMD gets fortified.

  1. You cannot withdraw your bid during its validity period. Otherwise, your EMD gets fortified.
  2. If the bidder has not submitted the Security Deposit in the specified period, then the EMD get fortified.
  3. Bidder shows inability to procure the product, as per technical specifications mentioned in tender documents.

EMD is returned by the Government Organizations, if the tender/bid not get awarded to you.

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