Basics

Bank guarantees in tenders — EMD, security deposit and performance BG explained

When and how to use a bank guarantee instead of tying up cash — for EMD, security deposit, and after you win.

6 min read · Free guide from Bidrove

What a bank guarantee is

  • A Bank Guarantee (BG) is your bank's written promise to pay the buyer a fixed amount if you fail to meet your obligation. It lets you commit money without parking cash in the deposit.
  • The three you'll meet in tenders: EMD BG (in place of the earnest-money deposit), Security Deposit BG, and Performance BG (after you win).

How to get one

  • Your bank issues it against margin money (often 10–25% held as fixed deposit) plus collateral or a limit sanctioned to your firm.
  • The bank charges a commission — a small percentage per quarter of the guaranteed amount — plus stamp duty.
  • Turnaround is usually a few working days, so start well before the tender closes.

Getting the format right

  • Most tenders give an exact BG proforma — use that wording; a BG in the wrong format can be rejected.
  • The validity period must cover the tender validity plus the claim period stated in the tender (build in a buffer).
  • Some tenders require the BG from a scheduled/nationalised bank, or ask for it to be confirmed by SFMS. Check the clause.

Performance guarantee after you win

  • On award you'll usually submit a Performance BG (commonly 3–10% of the contract value) that stays valid through the contract and warranty period.
  • It's released after successful completion — keep track of the expiry so you can get it cancelled and your margin money back.

Practical tips

  • MSEs often get an EMD exemption, so you may not need an EMD BG at all — check first (see the EMD exemption guide).
  • Note every BG's expiry; ask the bank for cancellation once the obligation ends so your limit and margin free up.
  • Never let a BG lapse while the obligation is live — the buyer can invoke it, and a lapse can be treated as default.

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