EMD, security deposit, PBG and retention: money across the tender lifecycle

Why "security deposit" means two different things

Our EMD in tender guide defines each payment and compares them side by side. This one follows the money through time instead: what the buyer holds from you at each stage of a contract, in what form, and when it should come back.

Start with the term that causes most of the confusion. The Department of Expenditure's Manual for Procurement of Goods, 2024 (opens in a new tab) describes performance security as "(or Performance Bank Guarantee (PBG) or Security Deposit (SD))". In many goods tenders, then, security deposit and PBG are one thing under two names.

Works contracts add a second, separate deposit. The Manual for Procurement of Works, 2025 (opens in a new tab) says that, in addition to performance security, works contracts usually withhold a percentage of each running bill as "Security Deposit/ retention money" until final acceptance. When a civil contractor complains about SD, this deduction is often what they mean.

So the honest answer to "what is the difference between EMD and security deposit" starts with a question back: which security deposit? Read the definitions clause and the conditions of contract before you price.

At the bid stage: what you put at risk before award

Before award, the only thing at stake is your bid security: an EMD, or a bid securing declaration where the tender allows one. It sits with the buyer through the bid validity period and must stay valid for the extra period the tender sets.

Two things can stretch this stage. Evaluation may run past the validity period, and the buyer may ask bidders to extend both the bid and the bid security. The Goods Manual says a bidder may refuse that request without forfeiting its bid security, and those who agree must not change their bids. Each extension also means amending a bank guarantee or keeping cash locked longer.

The other is a two-packet tender in which you are knocked out at the technical stage. Your EMD should then come back well before the price bids are settled. The due dates for each case are in our EMD refund process guide.

At award: EMD converts or comes back, and the PBG goes in

Award is where the money changes shape. The winner furnishes performance security by a date in the tender, which the manuals put at generally 14 to 28 days after notification of award. The current manuals, following a Department of Expenditure OM effective 1 January 2024, set it at 3 to 5 percent of contract value for goods and 3 to 10 percent for works, with the exact figure in the tender. Older tender templates still carry older percentages, so read your own.

What happens to the winner's EMD depends on the tender. The Goods Manual says it is refunded on receipt of performance security, or adjusted against the security deposit as the tender provides. A GeM-hosted RFP from IIFCL in 2026 takes the second route: "EMD of successful bidder will be retained as Performance Security and the amount would be reduced from the performance security amount to be submitted" (IIFCL RFP (opens in a new tab)). The manual's model award letter even tells the supplier to "apply for a refund of EMD deposited over and above the SD, if any".

Miss the performance security deadline and the award can be treated as a withdrawal of your offer. The Goods Manual then allows forfeiture of the EMD and action such as deregistration and debarment. A late PBG is one of the costliest mistakes a winning bidder can make, so line up your bank before the result, not after it.

During execution: retention money from running bills

In works contracts, each running bill is paid net of a retention deduction, which the Works Manual describes as usually five percent of each bill, until it reaches a limit set in the contract. The manual also notes that the EMD, instead of being released, may form part of this security deposit.

The contractor can swap cash for paper. Under para 5.1.3, it may replace the retention with an unconditional bank guarantee or insurance surety bond at two points: when the deduction reaches half the retention limit, and when it reaches the full limit. That frees working capital in the middle of the job, at the cost of bank limits or a premium.

Goods contracts work differently. The Goods Manual says that, unlike works, taking part of the performance guarantee as money retained from the first or progressive bills is not acceptable in goods procurement. If a goods tender proposes bill deductions as security, ask about it in a pre-bid query.

Defect liability and release: when the PBG and retention come back

The performance security must stay valid for 60 days, or whatever period the tender states, beyond completion of all contractual obligations, including the defect liability or warranty period. It should be refunded without interest once all obligations are complete, and not later than 60 days after the defect liability or warranty period ends.

Retention comes back in two halves under the Works Manual. One half is released when the taking-over certificate is issued, in proportion where sections are taken over separately. The other half is released 60 days after the defect liability period ends or after final payment, whichever is earlier, on the engineer's certificate. Where parts of the work carry different defect liability periods, the latest one governs.

Long supply contracts have a useful provision. For rate contracts and other multi-year goods contracts, the Goods Manual lets buyers reduce performance security in proportion to the balance contract period instead of holding the full amount throughout. It is not automatic, so ask for it.

Release is where many contractors wait longest. LiveLaw reported one Delhi High Court ruling under the headline "Employer Cannot Retain Performance Bank Guarantee After Acknowledging Of Due Performance (opens in a new tab)". Courts are a slow route, though. A completion certificate and a dated release request on file usually work sooner.

DD, FDR, BG, e-BG or surety bond: which form should you use?

The central manuals accept insurance surety bonds, account payee demand drafts, bank guarantees including e-bank guarantees, and online payment for both bid and performance security, with banker's cheques also listed for bid security. Fixed deposit receipts still appear in many tenders. Corporate guarantees and indemnity bonds are not accepted for either.

Insurance surety bonds were added to GFR Rules 170 and 171 by a Department of Expenditure OM of 2 February 2022, and e-bank guarantees by an OM of 5 August 2022. The Goods Manual describes the surety bond as a three-party arrangement in which the insurer pays if the principal does not, and says that, unlike a bank guarantee, it "does not require a deposit of a collateral amount". The Works Manual also lets buyers allow contractors to replace existing bank guarantees with surety bonds or e-BGs in running contracts, as long as the new security arrives before the old one is released.

Your choice depends on what is scarce. A firm with idle cash may prefer an FDR that keeps earning. A firm with tight bank limits may find a surety bond worth the premium, where the buyer accepts it. A firm bidding often may prefer e-BGs, because the manual notes how easily they can be verified, which removes one cause of delay at bid opening.

Illustrative example: one works contract, from bid to final release

A Bhopal contractor bids for Rs 2.4 crore of drainage and boundary wall works at a central institute. Here is how the security moves over two years.

1. Bid: EMD of Rs 4,80,000 (2 percent, rounded to the nearest thousand) is paid online.
2. Award: the contractor wins. The tender says the EMD forms part of the security deposit, so it is not refunded.
3. Within 21 days: a performance security of 5 percent, Rs 12,00,000, is furnished as an e-BG valid to 60 days beyond the defect liability period.
4. Months 1 to 10: each running bill loses 5 percent to retention, toward a contract limit of Rs 12,00,000 that includes the EMD. At Rs 6,00,000, the contractor replaces the cash retention with a bank guarantee.
5. Month 11: the taking-over certificate is issued and half the retention is released.
6. Month 23 plus 60 days: the 12-month defect liability period has ended, so the other half of the retention and the e-BG are due for release.

How to plan cash and bank limits across the contract

These securities overlap. Retention builds up while the PBG is live, and a slow EMD refund on another tender can sit on top of both. Contractors who plan only for the EMD often find the real cost around month six.

• Price the cost of security into the bid: guarantee commission or surety premium for the full validity, plus the interest cost of cash held back.
• Ask in pre-bid queries whether surety bonds and e-BGs are accepted, and whether retention can be replaced by a guarantee.
• Track the expiry and claim period of every guarantee. The manuals tell buyers to review each month the guarantees expiring in the next three months; run the same review on your side.
• Expect the buyer to keep the original guarantee while it is extended. The manuals say a guarantee should never be handed to the contractor for extension, so ask your bank to send the amendment directly.
• File completion and taking-over certificates as soon as they are issued, because they start the release clocks.

Some buyers ask for extra security when a bid is far below the estimate; see additional performance security. For guarantee formats, claim periods and invocation, see our performance bank guarantee guide. MSE registration does not reduce any of these: the Ministry of MSME's FAQ on the procurement Order (opens in a new tab) says the Policy gives no exemption from security deposit or PBG. Its EMD exemption is covered in EMD exemption for MSMEs.

How AI tools help track security clauses, and what finance decides

Security terms are scattered: EMD in the NIT, performance security in the conditions of contract, retention in the special conditions and release in the defect liability clause. TenderGenie Document Intelligence pulls requirements and clauses from the full tender pack, each with a reference to its source page, so finance sees every security term before pricing.

In TenderGenie, obligation mapping in Risk & Compliance shows which clauses create obligations, linked to the source clause, and risk flags carry an impact and a recommended action for the reviewer to accept, change or reject.

People decide the rest: which instrument to use, how much security cost to build into the price, whether the release terms are acceptable, and whether the contract is worth the capital it ties up. Those questions belong in a proper bid/no-bid decision.

Questions and answers