Earnest Money Deposit (EMD)

Earnest Money Deposit (EMD) is a refundable bid security a bidder pays along with a tender bid to prove serious intent. It is usually 2 to 5 percent of the estimated cost of the work and is returned if the bidder does not win.

What is Earnest Money Deposit (EMD)?

EMD is money a bidder commits when submitting a bid, so the procuring entity knows the bid is genuine and the bidder will not back out without reason. Under the General Financial Rules (Rule 155), EMD is set at 2 to 5 percent of the estimated cost. You can usually furnish it as a Bank Guarantee, a Demand Draft (DD), or a Fixed Deposit Receipt (FDR), and on many portals you can pay online.

The EMD must stay valid for the bid validity period plus an extra buffer (commonly bid validity plus 60 days). For unsuccessful bidders, the EMD is refunded, typically within 30 days of the award. For the winning L1 bidder, the EMD is often adjusted against the Performance Bank Guarantee (PBG). Udyam-registered MSMEs are exempt from paying EMD on many tenders, which lowers the cost of bidding for small firms.

Why EMD matters for bidders

Getting the EMD right is one of the most common make-or-break checks at bid opening. A missing EMD, the wrong amount, an expired Bank Guarantee, or the wrong format can get your bid rejected outright, no matter how strong your price or technical offer is. The exact EMD amount, accepted formats, and validity are published in the Notice Inviting Tender (NIT), so read these conditions early and arrange the instrument in time (issuing a Bank Guarantee can take a few days).

Example

A state PWD floats a road works tender with an estimated cost of Rs 2 crore and specifies EMD at 2 percent. The bidder must furnish Rs 4 lakh as EMD, valid for the bid validity period plus 60 days, in one of the accepted forms (Bank Guarantee, DD, or FDR). If the firm does not win, the Rs 4 lakh is refunded within about 30 days of award. If the firm is the L1 bidder, the EMD is adjusted against the PBG at agreement execution.

Frequently Asked Questions

How much is the EMD usually?

EMD is generally 2 to 5 percent of the estimated cost of the tender, as set under Rule 155 of the General Financial Rules. The exact percentage or fixed amount is stated in the tender notice. For very large tenders this can run into lakhs or crores, so plan your funds or guarantee early.

Is EMD refundable?

Yes. EMD is a refundable bid security, not a fee. Unsuccessful bidders usually get the refund within 30 days of the award. For the winning bidder, the EMD is often adjusted against the Performance Bank Guarantee instead of being returned separately.

In what form can I submit EMD?

Common accepted forms are a Bank Guarantee, a Demand Draft (DD), or a Fixed Deposit Receipt (FDR), and many portals also allow online payment. The tender document lists the exact formats allowed. Submitting EMD in a form the tender does not accept is a frequent reason for rejection.

Are MSMEs exempt from EMD?

Udyam-registered MSMEs are exempt from paying EMD on many tenders, which reduces their bidding cost. Always confirm the exemption in the specific tender conditions, since rules can vary by procuring entity. For a deeper walk-through, see our EMD and bid security guide.

What happens to EMD if I withdraw or default?

If a bidder withdraws the bid during its validity, or wins but refuses to accept the award, the EMD can be forfeited. The same risk applies if you fail to honour the conditions tied to your bid. This is exactly why EMD exists, to discourage bidders from backing out after submitting a serious-looking offer that may include detailed pricing in the Bill of Quantities (BOQ).