Earnest Money Deposit (EMD): All you Need to Know
EMD means Earnest Money Deposit. Many times it is also called Bid Bond.
Why EMD is Demanded?
Earnest money is demanded from each tenderer to ensure the owner that a tenderer/bidder does not withdraw his tender / offer before its acceptance, or refuse or deny to execute the work after it has been awarded to him.
This is to safeguard the process of bidding and time and resources spent during process by all. If this is not done, any bidder will withdraw at any stage and the bidding process would become a laughing stock or a joke and hence redundant. If no such financial guarantee is demanded, the bidder would not take the bidding process seriously in terms of time, process, offer and conditions. Not only that after bidding process is over and contract is finalized, the bidder has to start work i.e. performance of the contract. EMD is also a guarantee against that. In short EMD is one type of guarantee that once the bidder enters the bidding process and the owner awards the work or contract to any of the bidder, the bidder can neither withdraw nor change any terms of contract of the bid and has to perform once the deal is done.
How to Submit EMD?
The amount of EMD as demanded in the tender shall be submitted by bidder while submitting the tender / bid. Generally amount of EMD is 1% of total estimated cost put to tender. The tender without EMD is considered non responsive and rejected outright. The EMD of unsuccessful bidder is generally refunded after finalization of contract.
Many times in private works when the owner and the contractor are knon to each other and mutual trust prevails between them, this may not be at all necessary. However for any Government or Public institution it is must.
When EMD is fortified?
The EMD of such tenderer / bidder is forfeited if the tenderer/bidder fails to fulfill either of these conditions.
a) If Bid is withdrawn during the validity period of bid or any extension given thereof duly agreed by the Bidder.
b) If bid is varied or modified in a manner not acceptable to owner during the validity period or extension of validity period duly agreed to by the bidder.
c) If the successful bidder fails to submit Contract Performance Guarantee/Security Deposit as specified in Bid Document and/or fails to enter into Contract with owner within stipulated time after the date of issue of Letter of Acceptance / Letter of Intent or within such extended time as may be permitted by owner, the EMD amount shall be forfeited.
d) In case the contractor fails to commence the work specified in the tender documents on the mentioned day or such time period as mentioned in letter of award, after the date on which the owner gives written orders to commence the work, or from the date of handing over of the site, whichever is later, the owner shall have liberty to forfeit whole of the earnest money absolutely without any prejudice.
When EMD is Returned?
The Earnest Money Deposit of the successful bidder is generally returned after the bidder submits the Contract Performance Guarantee / Security Deposit as specified in General Conditions of Contract. If no security deposit is specified than the Earnest money deposit will be retained as security deposit.