Tenders Agent

EMD and bid security, explained

6 min read · Last reviewed 14 August 2026

Earnest Money Deposit (EMD), also called bid security, is a refundable amount a bidder furnishes with their bid as security against withdrawing the bid or refusing the contract after being selected; it is returned to unsuccessful bidders after the award and is forfeited only on specified defaults.

EMD exists to make bids serious. Without it, a bidder could quote a price they had no intention of honouring, win, and walk away — leaving the buyer to re-tender. The deposit gives the buyer something to forfeit, which is why the grounds for forfeiture are narrow and specific rather than general dissatisfaction.

How much, and in what form

The amount is set in the tender document, normally as a percentage of the estimated value. Do not carry a rule of thumb between tenders — read the figure in the notice, because it is a per-tender decision by the buyer and the acceptable instruments vary too.

Commonly accepted forms include an online payment through the procurement portal, a demand draft or banker's cheque, a bank guarantee from a scheduled bank, or an insurance surety bond. Where the tender permits a Bid Security Declaration, no money moves at all: you sign an undertaking accepting that you will be suspended from bidding with that buyer for a stated period if you withdraw or default. Central government policy has been moving deliberately toward declarations in place of cash deposits, precisely because tying up working capital was excluding smaller suppliers.

When EMD is forfeited

The grounds are stated in the tender and are typically limited to:

Losing on price is not a forfeiture ground. Neither is being found technically ineligible in good faith. If you are unsuccessful, your EMD comes back.

Getting it back

Unsuccessful bidders' EMD is released after the award decision; the successful bidder's is normally released once performance security is furnished, or adjusted against it. The timing is stated in the tender, and in practice refunds are the part of the process most likely to drift — which makes tracking them your job, not the buyer's.

EMD is a capital constraint, not just a formality

This is the part that surprises growing bidders. Every open bid has money locked behind it, and that money is unavailable until the tender is decided. Ten simultaneous bids with EMD furnished in cash can immobilise a meaningful share of a small firm's working capital for weeks — so the real question is not 'can we afford this EMD' but 'how many bids can we hold open at once'.

Three things ease it: claim the MSE exemption wherever you qualify, prefer tenders that accept a Bid Security Declaration or a bank guarantee over cash, and keep a register of every deposit with the date it became refundable, so nothing quietly sits with a buyer on a bid that closed months ago.

Key takeaways

Frequently asked questions

What is EMD in a government tender?

EMD, or Earnest Money Deposit, is refundable bid security furnished with a bid. It protects the buyer against a bidder withdrawing the bid or refusing the contract after selection. Unsuccessful bidders get it back after the award; it is forfeited only on the specific defaults listed in the tender.

Are MSMEs exempt from EMD in government tenders?

Micro and small enterprises registered on Udyam are exempt from EMD and tender fee under the Public Procurement Policy for MSEs, 2012. The exemption must be claimed in the bid and supported by the Udyam registration certificate — an unclaimed exemption can result in the bid being treated as lacking bid security.

What is a Bid Security Declaration?

A Bid Security Declaration is an undertaking a bidder signs instead of depositing EMD, accepting suspension from bidding with that buyer for a stated period if they withdraw the bid or fail to execute the contract. It achieves the same deterrent without tying up the bidder's working capital, and is accepted where the tender document permits it.

When is EMD refunded?

Unsuccessful bidders' EMD is released after the award decision. The successful bidder's EMD is usually released once performance security has been furnished, or adjusted against it. The tender document states the timing; tracking outstanding deposits is the bidder's responsibility in practice.

Is EMD forfeited if I lose the tender?

No. Losing on price or being found technically ineligible in good faith does not forfeit EMD. Forfeiture applies to defaults such as withdrawing the bid during its validity, refusing the award, failing to furnish performance security, or material misrepresentation.

References

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