What is EMD (earnest money deposit) in a tender?
An earnest money deposit (EMD) is a refundable sum a bidder pays with its tender, or secures with a bank guarantee where the tender allows, to show the bid is serious; the buyer can keep it if the bidder withdraws or, on winning, fails to sign or to furnish the performance security.
Also called EMD, bid security.
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Earnest money deposit in plain words
EMD is also called bid security. The notice inviting tender (NIT) states the amount and the forms accepted. Unsuccessful bidders get it back after the award, and the winner's EMD is returned or adjusted once the performance security is in place, as the tender sets out. For central government procurement, rule 170 of the General Financial Rules 2017 covers bid security, and some bidders, such as registered micro and small enterprises, can be exempt under the tender's own terms.
What is the difference between EMD and a security deposit?
EMD secures the bid and comes back once the contract is awarded and secured; a security deposit, or retention, secures performance of the contract and is held out of the bills until the release condition is met.
| Earnest money deposit | Security deposit | |
|---|---|---|
| Stage | Before award, with the bid | During and after the work |
| Who pays it | Every bidder, unless the tender exempts it | The contractor who won |
| How | A payment or a bank guarantee, as the tender allows | Deducted from each bill, or replaced by a guarantee where allowed |
| When it comes back | After the award, or adjusted for the winner | When the contract's release condition is met |
From the bid security rule in the General Financial Rules 2017 as applied in public tender circulars, and Crestline's security deposit entry. Each tender's own NIT and conditions decide.
Why does earnest money deposit matter?
EMD ties up cash or banking limit for every tender a contractor bids, not only the ones it wins. A contractor bidding many tenders at once can have a large sum waiting on refunds from bids it lost.
Where does earnest money deposit mislead?
The amount, the accepted forms, the refund timing and any exemption are set by each tender and by the buyer's procurement rules, and those rules change. Check the NIT and the current rules before relying on any of them.
What do people get wrong about earnest money deposit?
- Not chasing refunds on lost tenders
- The EMD on a lost bid is owed back, but nobody owns the follow-up once the bid team moves to the next tender. Keep a list of every EMD paid with its tender and its refund status.