Earnest money deposit: To ensure that a Bidder does not submit a Dummy Bid or back out at time of tender opening, Department collects a small refundable fee from each bidder, which is called EMD. EMD is always in form of a Demand Draft & cheques or cash are strictly not allowed. EMD is returned when all Bids are opened & tender is awarded to other firm. In case Tender is cancelled, the EMD is returned. in case, your firm is the winning bidder, the said EMD shall be returned to you only after you complete the supply or you make a security deposit. After Bid is opened, if a Bidders refuses to take the contract, then his EMD is forfeited. EMD is generally less than 5% of the Tender Value.
Security Deposit: Once it is decided that a Tender is awarded to a Bidder, he has to deposit a Security Deposit with the Buyers such that if he does not complete the task as per the work order, the Buyer can recover the loss by forfeitting his Security Deposit. For e.g. If a Bidders gets Rs.10 Cr contract to construct a Bridge withing 12 months , than he has to deposit a Security deposit of 10% i.e. 1 Cr with Buyers. Now if he does not complete the bridge on time or leaves it incomplete, the Department can forfeit his 1 Cr as penalty.
Security Deposit can be in form of Bank Guarantee, National Saving certificates, Cash, etc. Only when the Winning Bidders makes the Security Deposit, he gets his EMD Back.