There must have been a time when one must have seen the auction/bidding scenes in the movies, how one after another people go on bidding the prices for a specific asset, be it any painting, any wearable, etc. Bidding can be done for anything, and the same thing happens in the case of government assets, too. Whenever there is some work that the government needs to outsource or even when the government needs to sell something, they organize a bidding process or release a tender for it.
In this article, we will be going through what is earnest money deposit in a tender (EMD) is, how an earnest money deposit is beneficial, and why the concept of earnest money deposit came into place.
Table of Contents
Earnest Money Deposit
EMD or Earnest Money Deposit is the amount taken from the buyers by the sellers or the organization that is organizing the auction. This amount is taken in beforehand the actual bidding process to ensure that only genuine or serious buyers take part in the tender process. If, after the bidding process, the buyer is not able to meet the requirements or a discrepancy is found, then the Earnest Money Deposit is returned to the buyer.
EMD amount depends on the scale, size, and nature of the tender; usually, it’s a small percentage of the total tender amount (2-5% of the estimated tender value). This ensures the buyer’s good faith in the bidding process and also that he/she will not back off once he/she get the tender. Otherwise, it will cost the government or the tender organizer.
How is EMD calculated?
For instance, if the government puts up a tender of Rs 1 crore, and the Earnest Money Deposit percentage is set at 2%, then.
2% of 1 crore comes out to be 2 lakh rupees; this 2 lakh rupees then needs to be submitted to the tender organizing committee as a security to ensure the genuine participation of the buyer in the process.
Mode of Payment of EMD
The following modes of payment for Earnest Monet Deposit are allowed:
- Direct Bank Transfer – NEFT, RTGS
- Bank Draft or pay order in favor of the tender organizing authority
- Fixed Deposit Receipt
- Demand Draft
Note: Some of the options given above may or may not be accepted, it will depend upon the criteria and requirements of the tender issuing authority.
Exemption from Earnest Money Deposit
NSIC/MSE/DPS firms are exempted from paying the Earnest Money Deposit. Also, organizations that are treated at par with NSIC and MSE registered with the district industries centre and submitting Udyog Aadhar, startups recognized by the government of India, are also exempted from paying the EMD.
Refund of Earnest Money Deposit
Case 1: Buyer who got the tender
EMD of the buyers who have successfully participated and accepted the tender will be returned, preferably within 30 days of submission and acceptance of the contract.
Case 2: Buyer who did not get the tender
The rest of the buyers who did not get the tender will get the EMD after the evaluation of their offer and within the validity date of their offer, but not after more than 30 days.
Sometimes EMD may not be refunded in some scenarios. Below are a few points that one needs to keep in mind; if not followed properly, their refund can be held back by the tender releasing authority :
- If the buyer withdraws their bid before the tender auction process ends date mentioned in the official document.
- If the buyer, at a later point in time after accepting the bid, makes some changes in their terms and conditions that are not acceptable to the tender authority.
- If the buyer who wins the tender fails to enter into a contract with the tender releasing authority within the stipulated time.
- If the bidder fails to start the project at the time mentioned in the contract
- If the buyer who got the tender fails to pay up the other required fees of the tender as mentioned in the contract on time.
Conclusion
In summary, the Earnest money deposit or EMD plays a vital role in the tender auction process. It ensures that only genuine buyers participate in the process and also safeguards the interest of the tender organizing committee. It also promotes transparency and trust in the whole process. Whether you’re a new bidder or an experienced contractor, understanding the purpose, process, and implications of EMD can help you navigate tenders more confidently and avoid unnecessary setbacks.
FAQ
What is earnest money deposit in tender?
It is a deposit made by the buyer to the tender releasing authority to prove their willingness and ensure that only genuine and serious buyers participate in the process.
Is the EMD refundable?
Yes, it is refundable and usually it is returned within 30 days of when the auction is summed up.
Can I be exempted from paying EMD?
If you are an NSIC/MSE/DPS firm or an equally recognized org or a government of India-recognized startup, then you are exempted from paying EMD.
Is EMD required in all the tenders?
No, EMD doesn’t always need to be present in the tender requirements. Some tenders—especially smaller or internal procurements—may waive the EMD requirement. Always check the tender notice or bid document for details.
Can I submit the same EMD for multiple tenders?
No. EMD is tender-specific. You need to submit a separate EMD for each tender you participate in, unless a central EMD facility is allowed by the authority.
Disclaimer
This content is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making a financial decision.
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