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EMD vs Bid Security vs Performance Guarantee: 3 Key Differences Bidders Must Know
EMD, Bid Security, Performance Guarantee: Clearing Up the Confusion
Few things trip up new government bidders more than the money terms in a tender. EMD, bid security, and performance guarantee all involve depositing funds or furnishing a bank guarantee — and they are constantly confused with one another. Getting them wrong is not a minor slip: submit the wrong amount at the wrong stage, and your bid can be rejected or your contract delayed. Understanding EMD vs bid security and how both differ from a performance guarantee is essential for anyone bidding on government work.
This guide explains each term in plain language, shows exactly when each applies, compares the amounts and purposes side by side, and covers the MSME exemptions that can free up your working capital. By the end, you will know precisely what to furnish, when, and how much — so a financial technicality never costs you a tender again.
Key Takeaways
- EMD and bid security are the same thing — a refundable amount submitted with the bid to show serious intent.
- A performance guarantee is different: it is furnished only after winning, to guarantee the work is completed.
- In the EMD vs bid security question, the difference is only terminology — newer documents say “bid security”, older ones say “EMD”.
- EMD is usually ~2–3% of estimated value; a performance guarantee is larger, often ~3–10% of contract value.
- MSMEs are commonly exempt from EMD and get reduced performance security — if claimed correctly with Udyam registration.
- Match every amount and format exactly to the tender; errors cause rejection at the bid stage or delay at the contract stage.
EMD vs Bid Security: Are They Different?
This is the most common confusion, so let’s settle it first: in the vast majority of government tenders, EMD and bid security mean the same thing. Both refer to a refundable amount that a bidder submits along with the bid to demonstrate serious intent and to protect the buyer if the bidder backs out.
The difference is purely terminology and era. Traditional Indian tender documents call it “Earnest Money Deposit” or EMD. Modern procurement frameworks and General Financial Rules increasingly use the term “bid security”. When you see both in the EMD vs bid security debate, treat them as the same requirement unless a specific tender explicitly defines them differently — which is rare.
The simple rule: If a tender asks for “EMD” or “bid security”, it wants the same thing — a refundable deposit or bank guarantee submitted with your bid. Do not submit it twice, and do not treat them as two separate requirements. Read the tender’s definitions once, and you’ll see they point to the same clause.
Where Performance Guarantee Is Completely Different
The performance guarantee (also called performance security or PBG — Performance Bank Guarantee) is a genuinely separate instrument, and confusing it with EMD is what causes real problems. The distinction is about timing and purpose.
1
EMD / Bid Security
Submitted with the bid, before award. It protects the buyer during the bidding stage — ensuring you don’t withdraw your bid or refuse the contract if you win.
2
Performance Guarantee
Furnished after you win, before the contract starts. It protects the buyer during execution — ensuring you actually complete the work as agreed.
3
The Handover
When you win, you submit the performance guarantee and sign the contract — and your EMD is then refunded. One protection replaces the other.
EMD vs Bid Security vs Performance Guarantee: Side by Side
Here is the complete comparison in one view. This is the table to save.
| Parameter | EMD / Bid Security | Performance Guarantee |
|---|---|---|
| When submitted | With the bid, before award | After winning, before contract starts |
| Purpose | Shows serious intent; protects buyer during bidding | Guarantees completion; protects buyer during execution |
| Typical amount | Around 2–3% of estimated tender value | Larger — commonly around 3–10% of contract value |
| Who submits it | Every bidder (unless exempt) | Only the winning bidder |
| Form | Online payment, demand draft, or bank guarantee as specified | Usually a bank guarantee (PBG) or specified instrument |
| When returned | After tender decided / on furnishing performance guarantee | After successful completion and defect-liability period |
| MSME relief | Commonly fully exempt with Udyam registration | Often reduced for MSMEs (relief varies) |
EMD / Bid Security: The Full Picture
Because EMD sits at the bid stage, it is where most financial rejections happen. Understanding how it works protects both your bid and your money.
How Much and In What Form
EMD is typically a small percentage of the estimated tender value — often around 2% to 3%, though the exact figure and accepted forms are always specified in the tender. It may be payable online, by demand draft, or via a bank guarantee in a prescribed format and validity. The tender’s instructions are binding: an incorrect amount, format, or validity can make the bid non-responsive.
When EMD Is Refunded vs Forfeited
| EMD Is Refunded When | EMD Is Forfeited When |
|---|---|
| You are an unsuccessful bidder and the tender is decided | You withdraw or modify your bid during its validity period |
| You win and furnish the performance guarantee and sign the contract | You win but fail to accept the award or sign the contract |
| The tender is cancelled before award (as per terms) | You win but fail to furnish the required performance guarantee |
EMD mistakes are a leading cause of bid rejection. Wrong amount, invalid bank guarantee format, insufficient validity, an unapproved payment method, or submission after the deadline — any one can make your bid non-responsive before your price is even seen. Always match the EMD clause exactly, and re-check it against the latest corrigendum. See our deeper look at tender rejection over EMD and documentation errors.
Performance Guarantee: The Full Picture
The performance guarantee only becomes relevant once you win — but planning for it early matters, because it is a larger commitment than EMD and ties up more working capital or bank-guarantee limits.
1
Larger Amount
Commonly a bigger percentage of contract value than EMD — often in the 3–10% range depending on the authority and contract type.
2
Usually a Bank Guarantee
Typically furnished as a Performance Bank Guarantee (PBG) in a prescribed format, valid through the contract and any defect-liability period.
3
Released After Completion
Returned after successful completion and the defect-liability period — later than EMD, so plan your bank-guarantee limits accordingly.
MSME Relief: Exemptions That Free Your Capital
This is where MSMEs gain a real edge. Under government procurement policy, registered Micro and Small Enterprises are commonly exempt from EMD / bid security altogether — a significant advantage, since it frees working capital that would otherwise be locked for the whole bidding cycle. Performance security requirements are also frequently reduced for MSMEs, though a smaller performance guarantee may still apply after award.
Claim it correctly, or lose it. MSME relief on EMD and performance security only applies if claimed properly, with valid Udyam registration and details that match your bid. Do not assume the exemption is automatic — attach the right documents and check each tender’s specific terms. For the full set of provisions, see our guide on MSME benefits in government tenders.
Common Mistakes to Avoid
- Treating EMD and bid security as two separate payments — they are the same; submit once.
- Confusing EMD with the performance guarantee — they apply at different stages and different amounts.
- Submitting the wrong amount or format — match the tender exactly; approximations get rejected.
- Missing MSME exemptions — failing to claim EMD relief locks up capital you didn’t need to.
- Ignoring corrigenda — an amendment can change the EMD or performance security; always check the latest version.
- Letting a bank guarantee lapse — validity that falls short of the tender’s requirement invalidates the security.
Never Lose a Bid on a Financial Technicality
EMD amounts, bid-security formats, and performance-guarantee terms change from tender to tender — and through corrigenda. TenderKosh tracks tenders and their amendments across 1,000+ government procurement portals, alerting you to changes in EMD, security, and deadlines, so you always furnish the right amount, in the right form, at the right stage.
Browse Live Tenders View Plans Why TenderKoshFinal Takeaway
The confusion around these three terms is easily resolved once you fix the timeline in your mind. EMD and bid security are the same thing — a refundable deposit submitted with your bid to show you’re serious. The performance guarantee is a separate, larger instrument furnished only after you win, to guarantee you complete the work. One protects the buyer while choosing a contractor; the other protects the buyer while the contractor delivers.
Get the EMD vs bid security distinction right (they’re identical), keep the performance guarantee mentally separate (different stage, bigger amount), claim your MSME exemptions correctly, and match every figure exactly to the tender. Do that, and these financial requirements become a routine step rather than a hidden trap that costs you the work.
Frequently Asked Questions
What is the difference between EMD and bid security?
EMD (Earnest Money Deposit) and bid security are effectively the same thing, and the terms are used interchangeably in most government tenders. Both refer to a refundable amount a bidder submits along with the bid to demonstrate serious intent. It is forfeited if the bidder withdraws during the bid validity period or, after winning, fails to accept the contract or furnish the performance guarantee. Modern procurement documents increasingly use the term “bid security”, while “EMD” remains the traditional and still very common name for the same requirement.
What is the difference between bid security and performance guarantee?
Bid security (EMD) is submitted with the bid, before award, to show the bidder is serious and will honour the bid. A performance guarantee (also called a performance security or PBG) is submitted only after winning the tender, before the contract begins, to guarantee that the awarded work will be completed as agreed. In short, bid security protects the buyer during the bidding stage, while the performance guarantee protects the buyer during the execution stage. They apply at different points and are usually different amounts.
How much are EMD and performance guarantee usually?
EMD or bid security is typically a small percentage of the estimated tender value, often around 2% to 3%, though the exact figure is specified in each tender. The performance guarantee is usually a larger percentage of the contract value — commonly in the range of 3% to 10% depending on the procuring authority and contract type. Both figures are set out in the tender document, and bidders must match them exactly, since an incorrect amount can lead to rejection at the bid stage or delay at the contract stage.
Are MSMEs exempt from EMD and performance guarantee?
Under government procurement policy, registered Micro and Small Enterprises are commonly exempt from paying EMD or bid security, which frees up working capital during bidding. Performance security requirements have also been reduced for MSMEs in many cases, though a reduced performance guarantee may still apply after award. Exemptions must be claimed correctly with valid Udyam registration and supporting documents, and the exact relief available is stated in the tender, so bidders should always confirm the terms of each specific tender.
When is EMD refunded and when is it forfeited?
EMD or bid security is refunded to unsuccessful bidders after the tender is decided, and to the successful bidder once they furnish the performance guarantee and sign the contract. It is forfeited if a bidder withdraws or modifies their bid during the validity period, or if the winning bidder fails to accept the award or provide the required performance security. Because forfeiture is tied to specific breaches, understanding exactly when EMD is at risk helps bidders avoid losing it unnecessarily.
Related Guides
- Tender Compliance Checklist: 7 Things to Verify Before You Submit Any Bid
- Tender Rejection Over EMD & Documentation Errors: The Mistake Every Bidder Must Avoid
- MSME Benefits in Government Tenders: 9 Provisions Every Small Business Must Know
- Technical Bid vs Financial Bid: Difference, Process and Examples
- How to Find Corrigenda on GeM, CPPP & State eProcurement Portals
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