What is Security deposits in Tender

When you participate in a government or private tender, then you must have heard the word “ Security Deposit”. Whether it is the railway, Municipal corporation, or PSU’s tenders, almost every tender has a condition of tender security deposit. But,

1. What is a tender security deposit?
2. Why is it important?
3. How much money is required?

Let’s answer all these questions.

What is a Tender Security Deposit?

A tender security deposit which is also known as performance guarantee or contract security is a guarantee amount, which is deposited by the bidders of the tender. Its objective is to ensure that the vendor or contractor will meet all the conditions of the tender. 

Why is the Tender Security Deposit Important?

It is used when the government or any buyer wants to ensure:

1. That you don’t step back from the work after you won the contract
2. You fulfill all contractual obligation
3. You follow timebound delivery and quality standards
4. The buyer doesn’t go through financial risk if you leave the project in between.

That is why tender security deposits are present in almost all tenders.

How Does Security Deposit in eProcurement Work?

These days most tenders are published on eProcurement portals like GeM, CPPP, MSTC, or state level portals. Security deposits in eProcurement process are completely digital. It is deposited through an online challan, payment gateway, or eWallet. It could also be deposited in the form of a fixed deposit receipt (FDR). It is verified through a UTR number and the refund is also made online.

How Much Money is Required For Tender Security Deposit?

The value of a tender security deposit depends on the value of the tender. Usually, it is between 2% to 10% of the total value of the tender.

It is important to know that in some government departments, the security deposit is waived for MSMEs and startups. A valid MSME or startup certification is required in this case.

How to Deposit Tender Security?

For tender security deposit, the following modes are commonly accepted:
1. Online NEFT/RTGS
2. E-challan
3. Fixed Deposit Receipt (FDR)
4. Bank Guarantee
5. Demand Draft (DD)

This entire process is online in portals like GeM. You can also track its status from the portal.

What is the Difference Between Security Deposit and Ernest Money Deposit (EMD)?

What Happens If You Don’t Submit Tender Security Deposit?

If a bidder doesn’t deposit the tender security after winning the bid, then:
1. The tender award is canceled
2. The bidder is blacklisted
3. The EMD money is forfeited
4. Could be blocked from future participation

That is why it is crucial to deposit the security within the prescribed time limit.

What is The Validity of the Security Deposit and When does it Get Refunded?

Usually, the tender security deposit is valid during the entire duration of the project. For example:

1. If the contract is for 6 months, then the deposit will be for 6 months.
2. If there is an extension then the security deposit duration also gets extended.

Refund is made when:
1. All the deliverables are received.
2. There is no penalty or default
3. A satisfactory completion report is received from the buyer.

The refund is done online and it can take around 15 to 30 days.

What kind of Concessions are Available for MSMEs?

MSME registered firms sometimes get waivers from security deposits, but this depends from tender to tender. To avail of this benefit:

1. You should have a UDYAM or MSME certificate
2. The product or service should fall in the concerned category
3. Buyer should allow exemption

This kind of benefit is only available when you upload all the related documents on GeM.

Real Life Scenario

Suppose an IT company has won a tender worth ₹50 Lakhs to supply cloud software. The tender document mentions that a “5% tender security deposit is mandatory”. Now the seller has to deposit ₹2.5 Lakhs of FDR or bank guarantee. If the IT company doesn’t meet this mandatory requirement the contract gets cancelled. Thus, a tender security deposit is not just a formal process but a proof of responsibility and reliability of the seller.

Final Thoughts

A tender security deposit is a process that establishes trust between the buyers and sellers. On one hand, it gives contractual safety to buyers on the other hand it shows the seriousness and capacity of the sellers. These days this entire process is online which makes it easy, efficient and transparent.

A tip for the sellers: Please read the terms of a tender carefully, understand the amount of tender security deposit and modes of payment accepted, and the timeline in which you have to deposit the security amount. Tracking these kinds of details for all your tenders can get tedious. BidAssit is a PAN India tender platform that notifies you only when there is a tender that meets your opportunity identification criteria. So you can focus on what’s important: delivering quality.

FAQs: Common Questions Related to Tender Security Deposit

Q1: Does every tender require a security deposit?
A: Yes, it is mandatory in almost all tenders unless the buyer exempts it.

Q2: Is the tender security deposit refundable?
A: Yes, it is refunded once the contract is completed to the buyer’s satisfaction.

Q3: Does MSME get a waiver for the security deposit?
A: Yes, but the buyer’s approval and valid documents are necessary.

Q4: What happens when a tender security deposit is not submitted?
A: The tender award could get canceled and your business can get blacklisted.

Q5: How to track a security deposit in eProcurement?
A: You can log in to GeM, CPPP, or the state’s portal and check it.