GFR Rule 155, Bid Security (EMD)

GFR Rule 155 mandates bid security (Earnest Money Deposit) at 2-5% of the estimated contract value for all central government tenders, ensuring bidders are financially committed to their offers.

What is GFR Rule 155?

GFR Rule 155 (Bid Security) requires that all bidders in central government open tenders above Rs 5 lakh submit a bid security, the Earnest Money Deposit (EMD), equivalent to 2-5% of the estimated contract value. The EMD may be furnished as a bank guarantee from a scheduled commercial bank, a demand draft drawn in favour of the procuring entity, a fixed deposit receipt, or (for central government tenders on specified platforms) through an online payment mechanism.

The EMD serves a specific purpose: guaranteeing that the L1 bidder will execute the contract at their quoted price during the bid validity period. If the L1 bidder withdraws their bid after opening, fails to accept the Letter of Award, or refuses to execute the contract, the EMD is forfeited. For all other bidders, the EMD is returned within 30 days of contract award.

Rule 155 specifies important exemptions: Udyam-registered MSMEs are fully exempt from EMD for tenders up to the value specified in the MSME Public Procurement Policy. DPIIT-recognised startups are also exempt from EMD on many central government portals under Startup India provisions. Vendor-registered firms on GeM are deemed to have provided security through the GeM Caution Money mechanism, which is different from traditional EMD.

The EMD bank guarantee validity must extend 30-60 days beyond the bid validity period to ensure the guarantee remains enforceable for the full duration of the bidder's commitment. After the bid validity period, if the bidder is not L1, the BG is returned without encashment.

Why GFR Rule 155 Matters

EMD is the financial commitment that separates serious bidders from frivolous ones. It also creates the primary operational cost of bid participation for smaller firms, arranging a Rs 10-50 lakh bank guarantee for each tender is a genuine cash flow challenge. MSMEs saving this cost through Udyam exemption gain a significant working capital advantage. For all bidders, tracking EMD expiry dates across multiple live tenders is an essential treasury management function.

Example

A ministry tenders for supply of office furniture worth Rs 2 crore. Under Rule 155, EMD is set at 3% = Rs 6 lakh. Eight companies bid. Seven submit bank guarantees of Rs 6 lakh each; one Udyam-registered MSME submits a declaration and Udyam certificate claiming EMD exemption. The MSME's bid is accepted as responsive despite no BG. L1 is determined at Rs 1.78 crore. The six non-winning bidders' bank guarantees are returned within 30 days. The MSME (who was L3) has no BG to return. L1 receives the Letter of Award and submits their PBG within 15 days.

Frequently Asked Questions

What is the exact EMD percentage required under Rule 155?

Rule 155 specifies a range of 2-5% of estimated cost, with the exact rate left to the procuring entity's discretion within this range. In practice, 2% is common for large-value tenders (Rs 10+ crore) where even 2% amounts to substantial security. 5% is used for lower-value tenders or for categories with higher bid withdrawal risk. Some sector manuals specify a fixed rate (CPWD typically specifies 2% for works).

Can the EMD be submitted as cash or cheque?

No. GFR Rule 155 specifies acceptable forms: bank guarantee from a scheduled commercial bank; demand draft; fixed deposit receipt (FDR); or online payment mechanisms specified by the procuring entity. Cash is not permitted. Personal cheques are not accepted. The payment instrument must be from a scheduled commercial bank listed by the RBI, not a cooperative bank or non-banking financial institution.

What is a Bid Security Declaration and when does it replace EMD?

A Bid Security Declaration (BSD) is a written undertaking by the bidder that they will not withdraw their bid before the validity period and will execute the contract if awarded L1. It replaces the EMD bank guarantee in certain cases specified in GFR Rule 155, typically for large tenders above Rs 25 crore where the 2-5% EMD would be a very large amount, or as prescribed for specific procurement types. The BSD is backed by the bidder's legal commitment rather than a financial instrument.

How quickly is EMD released to unsuccessful bidders?

GFR requires EMDs to be released within 30 days of the award decision. In practice, central government releases are generally faster (7-15 days) than state government releases (which can take 2-6 months due to administrative backlogs). Delays in EMD release are a working capital burden on suppliers. Bidders can raise EMD release requests with the department after 30 days and can cite GFR Rule 155's 30-day requirement.