Guide 04 Procurement and tendering
EMD and performance bank guarantee rules in defence tenders
Earnest money deposit and performance bank guarantee are two separate securities in a defence tender, covering different risks at different stages. EMD, ordinarily 2 to 5 percent of the estimated value under the General Financial Rules, protects the buyer if a bidder withdraws; a performance security, taken after award, protects the buyer if the winner fails to deliver.
- Topic
- Procurement and tendering
- Checked
- 23 September 2026
- Sources
- 3
- Questions
- 5
01
What EMD (bid security) is
Earnest money deposit, or bid security, is money a bidder puts down with its bid to show it is serious. Under Rule 170 of the General Financial Rules it ordinarily ranges from 2 to 5 percent of the estimated procurement value, and it is forfeited if the bidder withdraws before the validity period ends or fails to sign the contract after winning.
A Bid Securing Declaration is sometimes accepted in its place: a signed undertaking that, instead of depositing money, commits the bidder to accept suspension from that buyer's tenders for a stated period if it withdraws or modifies its bid during validity, or fails to sign the contract or furnish performance security. DRDO's own Procurement Manual 2020 built this route in explicitly for its laboratories' purchases.
02
MSMEs are exempt from EMD, not from performance security
Micro and small enterprises registered on Udyam are exempt from paying earnest money deposit under the Public Procurement Policy for MSEs, in tenders run by central ministries, departments and CPSUs. That exemption does not extend to performance bank guarantees or security deposits, and it does not apply to works contracts at all, since the MSE policy covers goods and services only.
So an MSE bidder can skip the EMD cheque, but if it wins, it still has to furnish whatever performance security the tender specifies, on the same terms as any other supplier, unless the tender itself says otherwise.
03
Performance bank guarantee: how much, and when
Rule 171 of the General Financial Rules sets performance security as a percentage of contract value, stated in the bid document; a Department of Expenditure amendment on 3 April 2023 revised the applicable range, and current guidance is commonly quoted at 3 to 10 percent, against an earlier 5 percent floor. Always read the percentage and the acceptable form, typically a bank guarantee, printed in a specific RFP rather than assume a figure from elsewhere.
A performance bank guarantee is distinct from a security deposit: the guarantee is a bank's undertaking submitted after award, while a security deposit is often cash retained or deducted from running bills, more common in works contracts. The contract states which applies, how much, and when it is released.
04
DRDO's more relaxed terms
DRDO's Procurement Manual 2020, effective from 20 October 2020, exempts bid and performance security altogether for purchases up to Rs 10 lakh, on top of allowing the Bid Securing Declaration in place of EMD. It also lets an order go to L2 if L1 backs out, raises the advance payment threshold, and reduces liquidated damages on development contracts, terms noticeably more industry-friendly than the General Financial Rules default.
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EMD and performance bank guarantee rules in defence tenders
What is EMD or bid security in government tenders?
Earnest money deposit, or bid security, is money a bidder deposits to show a serious bid; it is forfeited if the bidder withdraws or fails to sign after winning. Under Rule 170 of the General Financial Rules it ordinarily ranges from 2 to 5 percent of the estimated value. Registered MSEs are exempt under the MSE policy.
Are MSMEs exempt from EMD in defence tenders?
Yes. Micro and small enterprises registered on Udyam are exempt from earnest money deposit under the Public Procurement Policy for MSEs, in tenders by central ministries, departments and CPSUs. The exemption does not cover performance bank guarantees or security deposits, and it does not apply to works contracts.
Do MSMEs have to give a performance bank guarantee?
Yes. The MSE procurement policy exempts micro and small enterprises from earnest money deposit, but it gives no exemption from security deposit or performance bank guarantee. If a tender asks for performance security, an MSE winner must provide it on the same terms as other suppliers unless the tender itself says otherwise.
What percentage is the performance bank guarantee in government contracts?
Rule 171 of the General Financial Rules, as amended by the Department of Expenditure on 3 April 2023, sets performance security at a percentage of contract value specified in the bid document, commonly quoted at 3 to 10 percent against an earlier 5 percent floor. Defence RFPs state the exact percentage and acceptable form for a given tender.
What is a Bid Securing Declaration?
A Bid Securing Declaration is a signed undertaking a buyer may accept in place of earnest money. By signing, the bidder accepts suspension from that buyer's tenders for a stated period if it withdraws or modifies its bid during validity, fails to sign the contract, or fails to furnish performance security. DRDO's PM-2020 also permits it.
Checked against
Sources
- 01General Financial Rules 2017, CPPP guidelines summary, Department of Public Enterprises
- 02FAQs on the Public Procurement Policy for MSEs, Development Commissioner (MSME), Ministry of MSME
- 03DRDO Procurement Manual 2020 features, Press Information Bureau, Ministry of Defence
This guide explains how the system works in general, as the documents above describe it, and was last checked on 23 September 2026. Rules and thresholds change: the governing document is the authority, not this page.
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Where this meets the work
- Vendor registration information for new suppliers
- Defence contract works
- The maintenance contract record
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- Where Indian defence tenders are published, and how to bid
- MSME benefits in Indian public procurement, and what is excluded
- How L1 evaluation and reverse auctions work in government tenders
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