Demand Draft (DD)

A Demand Draft (DD) is a bank instrument where the buyer's bank guarantees payment of a specific amount to a named payee. In government procurement, DDs are used for paying Earnest Money Deposit (EMD) and tender fees, payments that the government requires as guaranteed funds, not contingent on the bidder's account balance.

What is a Demand Draft in government procurement?

A DD is issued by a bank at the request of its customer after debiting the customer's account for the DD amount plus charges. Unlike a personal cheque, a DD cannot bounce, the funds are already held by the issuing bank. This makes it acceptable as bid security because the government knows the money is available even if the bidder's account is later emptied.

In the two-cover system, the EMD must typically be submitted as part of Cover 1. Acceptable instruments for EMD are prescribed in the NIT and typically include: Bank Guarantee (BG), Fixed Deposit Receipt (FDR) in the government's favor, or Demand Draft drawn in favor of the specified officer. For smaller EMD amounts (typically below Rs 2-5 lakh), a DD is the simplest and most common instrument. For larger EMD amounts, a Bank Guarantee is more common because DDs require the bidder to lock in the full cash amount.

Tender fees, the payment to purchase or download official tender documents, are also typically paid by DD in older tendering systems, though most modern e-procurement portals now accept online payment (net banking, NEFT) and some have eliminated tender fees entirely.

When a DD is submitted as EMD, the issuing details, bank name, branch, DD number, date, and payee name, are noted in the technical bid evaluation record. Invalid payee names (the DD must be drawn in favor of the exact officer or account specified in the NIT) or expired validity are grounds for disqualification.

Why it matters for bidders

DD-based EMD payments must be arranged before the submission deadline. Issuing a DD takes time, you need to visit the bank branch (or use net banking for some banks), and for larger amounts, your bank may require prior notice or may have per-day DD issuance limits. Planning DD procurement 5-7 days before the bid deadline is prudent.

DDs are returned to unsuccessful bidders after the award is made, the NIT specifies the timeline (typically within 30 days of LOA issue). For the winning bidder, the EMD is typically adjusted against the Performance Bank Guarantee requirement or returned after PBG submission.

On GeM and many modern portals, DD has been replaced by online payment and BG submissions. For CPPP and state portals still requiring physical DD for EMD, the DD must be couriered or handed over to the designated officer, this physical step creates a submission logistics challenge for bidders in distant cities.

Example

A SME firm wants to bid on a state PWD civil works tender worth Rs 80 lakh. The NIT requires an EMD of Rs 1.60 lakh (2 percent of estimated cost) by way of DD or Bank Guarantee in favor of the Executive Engineer, State PWD, drawn on a scheduled commercial bank and payable at the headquarters town. The firm's accounts team requests a DD from their bank on day 15 of the 21-day bid period. The bank issues the DD in one working day. The DD is attached to the Cover 1 documents and uploaded as a scanned copy, with the original sent by speed post to reach the Executive Engineer's office before the submission deadline.

Key rules / thresholds

• DD must be drawn in favor of the exact payee name specified in the NIT; any deviation leads to disqualification.
• DD validity must cover the bid validity period specified in the NIT, typically 180 days from the submission date.
• For EMD above Rs 5-10 lakh, a Bank Guarantee is typically required instead of (or in addition to) a DD.
• DDs of unsuccessful bidders must be returned within 30 days of LOA issuance per GFR 2017 requirements.
• MSMEs (Udyam-registered) are exempt from EMD on GeM and in many NIT-based central government tenders.