Earnest Money in CPWD Tenders – A Complete, Practical Guide
Understand what EMD really does in CPWD tenders, where it sits in the Works Manual, and how it balances risk between Employer and contractor.
Earnest Money (EMD) is a small, upfront deposit paid by a bidder as a good-faith security that they won’t back out of their bid or refuse to sign the contract if they’re selected. In CPWD tenders, it protects the Employer from frivolous or speculative bids and is governed by CPWD Works Manual 2022 – Chapter 5.1 [Earnest Money, Receipt, Opening and Acceptance of Tenders].
1. What exactly is “Earnest Money”? 💰
In simple language:
Earnest Money is a temporary security deposit paid at the time of bidding, to prove that the bidder is serious and will stand by the tender they have submitted.
At CPWD, Earnest Money is not meant to fund the work. It is a behaviour security – it exists purely to keep bidders disciplined during the tender process.
If the bidder behaves properly (doesn’t withdraw, signs the agreement, furnishes Performance Guarantee, etc.), the Earnest Money is refunded or adjusted later. If they misbehave, it can be forfeited.
Think of it as the Employer saying:
“If you want me to spend time and money evaluating your bid, you must also put some skin in the game.”
How CPWD defines Earnest Money
The CPWD Works Manual 2022 treats Earnest Money as the amount paid by a bidder, in the prescribed form, as security against the bidder:
- backing out from the tender before its acceptance, or
- refusing to execute the work after it has been awarded.
These ideas are captured in Chapter 5.1 (Earnest Money, Receipt, Opening and Acceptance of Tenders) of the Manual.
How much Earnest Money are we talking about?
The Manual also prescribes rates of Earnest Money for works, broadly on the lines of a small percentage of the estimated cost, with a different formula once the estimate crosses a threshold (such as ₹10 crore). Always check the latest edition/SOP for the exact numbers for your tender.
| Illustrative estimated cost of work | Typical EMD level (CPWD-style) |
|---|---|
| Up to ~₹10 crore | Small percentage of estimated cost (e.g. around 2%) |
| Above ~₹10 crore | Fixed base amount + % of amount beyond the threshold |
Always read your specific NIT and the latest CPWD Works Manual / SOP for the current rate, mode of deposit and refund rules.
2. Why do we take Earnest Money at all? (Purpose & risk balance)
From CPWD’s and the Employer’s perspective, Earnest Money serves several key purposes. Together, they protect the tender process from becoming a “free, no-consequence lottery” for bidders.
From the Employer / CPWD side
-
Filters out non-serious bidders.
Casual or speculative bidders are less likely to risk losing money, so the tender sees fewer “just trying my luck” bids. -
Discourages withdrawal during bid validity.
Once tenders are opened, the department invests time in evaluation, negotiation, approvals, vigilance checks, etc. EMD discourages bidders from walking away mid-process. -
Protects against refusal to sign agreement.
If the L1 bidder refuses to sign the agreement or furnish Performance Guarantee, Earnest Money gives the Employer an immediate monetary remedy without going to court first. -
Promotes fairness & discipline in competition.
Since everyone has to lodge EMD, the playing field is more equitable and disciplined. No one gets a “free option” to bid.
Bidders could submit speculative rates, then quietly walk away if they regret their pricing – leaving CPWD to restart the process and lose time.
The bidder has a real monetary incentive to honour their bid, sign the agreement and furnish performance security – otherwise forfeiture is on the table.
From the contractor’s side
For the contractor, the Earnest Money is the cost of participating in the tender market:
- It ties up short-term funds that could otherwise be used for running projects or working capital.
- But it also signals credibility – effectively saying: “We’re serious enough about this job to risk losing the EMD if we back out.”
A well-designed EMD level therefore has to balance:
- Employer protection (enough money at stake to deter bad behaviour), and
- Bidder participation (not so high that it excludes genuine contractors with limited cash).
Next steps: connect EMD with real projects
Once you’re clear on Earnest Money, the next skill is linking tenders with realistic quantities, pricing and site-level roles.
Where Earnest Money sits in CPWD – and how it behaves in a live tender
This part connects the index of Chapter 5.1 with the real-life EMD lifecycle – from NIT to refund.
3. Where does Earnest Money sit in the CPWD Works Manual 2022?
In the Index of Chapter 5 – Contract Management, Earnest Money is treated as a core building block of tendering. It appears right at the start of Chapter 5 as its own cluster.
Under the index of Chapter 5, you’ll typically see the following sub-headings:
- 5.1 Earnest Money, Receipt, Opening and Acceptance of Tenders
- 5.1.1 Necessity for Earnest Money
- 5.1.2 Rates of Earnest Money
- 5.1.3 Mode of Deposit
- 5.1.4 Refund of Earnest Money
- 5.1.5 Earnest Money in work/supply orders after quotations
- 5.1.6 Justification of tenders
- 5.1.7 Forfeiture of Earnest Money
- 5.1.8 – 5.1.12 Negotiation, acceptance, boards, etc.
Plus, the definition of Earnest Money appears in the “Definitions” section at the start of the Manual.
So, in CPWD contracts, if you talk about Earnest Money, you’re really standing on:
- Chapter 5.1 – operational rules,
- Definitions – conceptual meaning, and
- Cross-links to GFR, public procurement policy and GCC provisions referenced in NITs.
When you give an opinion or write a note on EMD in a CPWD tender, it’s good practice to cite “CPWD Works Manual 2022, Chapter 5.1 and relevant Definitions” as your starting anchor.
4. How does Earnest Money play out in a typical CPWD tender? 🔁
Now let’s walk through the usual life-cycle of EMD in a CPWD tender – from NIT to refund. If you trace these steps on one real tender, Chapter 5.1 starts to feel like a live process chart rather than dry text.
The Notice Inviting Tender (NIT) clearly states:
- Whether Earnest Money is applicable,
- The exact amount of EMD,
- The form / mode of deposit (mostly online payments via e-tender portal; sometimes bank guarantee/FDR if allowed), and
- Categories exempted as per Government/Manual directions (e.g., certain registered MSMEs, if notified in the NIT).
To submit the bid, the bidder must:
- Pay the EMD in the prescribed mode; and
- Upload proof or rely on automatic linkage from the e-portal, exactly as per NIT instructions.
👉 Without valid Earnest Money, the bid is typically treated as non-responsive (unless exempted and proof of exemption is provided).
At technical/financial bid opening, the Engineer-in-Charge / Tender Opening Committee verifies that:
- EMD is paid in full, in the correct form; and
- Any claimed exemption is supported by documentary proof.
If there is any serious doubt or non-compliance, the bid can be liable for rejection as per Chapter 5.1 and NIT terms.
During evaluation:
- All bidders’ EMD remains “locked” with the department until tenders are finalised; and
- The Letter of Acceptance (LoA) is issued.
The Employer is protected: if the L1 bidder walks away at this stage (for example by refusing to honour the bid), the logic of 5.1.7 – Forfeiture of Earnest Money kicks in conceptually.
Once the tender is accepted:
- The successful bidder must furnish the Performance Guarantee (PG) as per GCC/Manual; and
- Sign the agreement within the specified time.
Depending on current CPWD practice and the specific NIT/GCC:
- EMD may be released after PG is submitted; or
- Adjusted into the Security Deposit / first R.A. bill, if that is expressly provided in the contract conditions.
For all unsuccessful bidders:
- EMD is refunded after issue of LoA / acceptance of tender;
- No interest is payable; and
- In e-tendering, refunds are often processed automatically via the portal into the same bank account used for payment.
That’s the heart of 5.1.4 – Refund of Earnest Money in operational terms, even though the detailed wording sits inside the Manual and related e-tender SOPs.
How much Earnest Money, how to deposit it, and when it comes back
This part breaks down CPWD’s approach to EMD rates, modes of deposit, and refund logic for both successful and unsuccessful bidders.
5. How much is the Earnest Money? (Rates & amount)
The exact rate or amount of Earnest Money is:
- Prescribed through the CPWD Works Manual / MoF instructions, and
- Finally frozen in the NIT for each tender.
In practice, CPWD follows the policy guidance and then hard-wires it into the tender notice. That’s why two works with different estimated costs can have very different EMD figures.
Common practice (high level, not quoting specific numbers):
It’s usually a small percentage of the estimated cost of the work – large enough to matter, but not so large that genuine contractors are blocked.
For very small-value works, EMD may be:
- Waived, or
- Replaced with simplified conditions, as per GFR/public procurement policies adopted in the NIT.
Key takeaway for practitioners:
👉 Always check the NIT first – if there is any conflict between your memory and the NIT,
the NIT wins for that tender.
May be waived or kept minimal, especially where paperwork costs would outweigh the risk.
Small % of the estimate – enough to keep bidders serious but not a barrier for capable contractors.
Exact slabs and caps come from the latest CPWD Works Manual / MoF orders – don’t rely on old rules-of-thumb.
6. How can Earnest Money be deposited? (Mode of deposit) 🧾
Section 5.1.3 – Mode of Deposit recognises that EMD is not a one-size-fits-all arrangement; its mode has evolved with e-procurement.
Typical modes you’ll see in CPWD NITs:
- Online payment via e-tender portal
- Net banking, NEFT/RTGS, or payment gateway instruments, as enabled and described in the tender.
Bank instruments, where explicitly allowed:
- FDR / CDR, pledged in favour of the competent authority;
- Bank Guarantee, in the specified format (often with exact clause numbers and text given in the NIT).
The Manual and NIT instructions will usually say:
- In whose favour the EMD is to be drawn;
- The validity period (must at least cover tender validity);
- How scanned copies and originals are handled in e-tendering (upload vs physical submission deadlines, if any).
If the form is wrong – for example, BG not in the prescribed format, insufficient validity, wrong name, or unauthorised signatory – the tender can be treated as non-compliant.
7. Refund of Earnest Money – who gets what, and when? 💳
Section 5.1.4 – Refund of Earnest Money explains how and when EMD is returned. The logic is different for unsuccessful bidders and the successful bidder.
For bidders who are not selected:
- EMD is refunded after finalization of tender and issue of LoA.
- No interest is paid on EMD.
In practice:
- For online deposits, refund is processed via the same bank account / e-tender portal used for payment.
- For FDR/BG, release letters or cancellation instructions are issued to the bank.
Common patterns:
- Once the successful bidder furnishes Performance Guarantee (PG) and signs the agreement, the EMD is:
-
• Refunded (often directly), or
• Adjusted towards Security Deposit / recoveries, if the GCC/NIT says so.
Section 5.1.4 – Refund of Earnest Money interacts closely with:
- 5.2 – Performance Guarantee
- 5.5 – Security Deposit
So practically, you must always see how all three are treated together in the tender.
Keep going: connect EMD with pricing, tendering and contract price
These resources help you link CPWD-style EMD with rate analysis, tendering strategy and the contract price under FIDIC.
When you actually lose Earnest Money – and how it sits beside PG & Security Deposit
This part of the guide brings together forfeiture triggers, quotation-based EMD, and a side-by-side comparison of EMD, Performance Guarantee and Security Deposit.
8. Forfeiture of Earnest Money – when do you actually lose it? ⚠️
This is the part that hurts – and therefore needs to be crystal clear.
Under the spirit of Section 5.1.7 – Forfeiture of Earnest Money, EMD is typically liable to forfeiture when the bidder:
Example: Bid validity is 75 days; the bidder writes on Day 30 that they want to withdraw or change rates.
Bid validity breachExample: LoA is issued, but the bidder doesn’t come to sign the agreement despite reminders.
Post-LoA non-cooperationHere EMD works as a safety net if the Employer has to move to L2 or re-tender because PG was never furnished.
PG not submittedWhen false documentation leads to cancellation/blacklisting, forfeiture of EMD often goes hand-in-hand with debarment under CPWD rules.
Fraud / misrepresentationWhere the NIT/GCC provide for forfeiture as a consequence of such practices, EMD becomes a first-line monetary remedy.
Integrity violationsIf the Employer changes the tender conditions, cancels the tender, or makes performance impossible without the bidder’s fault, EMD should not be forfeited. In such cases, EMD is refunded.
No bidder fault ⇒ no forfeitureIn short: forfeiture is tied to bidder default or misconduct, not to Employer’s own decisions (like cancelling the tender for administrative reasons).
9. Special case – Earnest Money in work/supply orders based on quotations
Section 5.1.5 – Earnest Money Stipulation in Work/Supply Orders to be Awarded after Call of Quotations covers small-value works or supply items where:
- Instead of a full-fledged NIT + tender, the department calls quotations.
- Even here, for certain value thresholds, the Engineer-in-Charge may require EMD to maintain seriousness and fairness.
Typical approach in practice:
The NIT-equivalent (NIQ) clearly mentions:
- Whether EMD is required;
- The EMD amount for that quotation;
- The mode of deposit (online / instrument); and
- When it will be refunded/forfeited – often by cross-reference to the main EMD rules in Chapter 5.1.
This keeps quotation-based awards aligned with the broader CPWD procurement principles, even when the process is lighter than a standard e-tender.
10. At-a-glance visual: Earnest Money vs Performance Guarantee vs Security Deposit 📊
Here’s a simple comparison you can turn into a slide or infographic. It shows where each of the three securities “lives” in the project timeline and what risk it actually covers.
| Feature | Earnest Money (EMD) | Performance Guarantee (PG) | Security Deposit (SD) |
|---|---|---|---|
| Stage | At bidding stage. | After LoA, before starting work. | During execution, from running bills and other recoveries. |
| Purpose | Ensure a serious bid and no withdrawal/refusal after acceptance. | Ensure faithful performance of the contract as awarded. | Cushion against defects, recoveries and minor defaults during and after execution. |
| Typical amount (qualitative) | Small % of estimated cost of work. | Higher % of tendered amount (as per GCC/NIT). | % of work value recovered from bills, up to a cap. |
| Tenure | Till award and furnishing of PG / signing of agreement. | Till completion & Defects Liability (or as specified). | Till contractual conditions for release are met (final bill, completion milestones, etc.). |
| Forfeiture trigger | Bid withdrawal, refusal to sign agreement or provide PG, fraud, etc. | Non-performance, termination for Contractor’s default, serious breach of contract. | Adjustments against recoveries, defects, damages and outstanding dues. |
| Refund | Post-award / on PG & agreement, or as per NIT/Manual. | After successful completion and expiry of DLP (or as specified). | After passing of final bill / completion milestones and clearance of dues. |
A useful mental model: EMD protects the tender stage, PG protects performance of the whole job, and SD protects the finishing quality and clean close-out.
Keep going: tie EMD, PG & SD into your pricing and FIDIC strategy
These articles and videos help you connect CPWD-style securities with detailed rate analysis and FIDIC contract price tools.
How EMD behaves on real CPWD projects – and what to check before you hit “Submit”
These scenarios and checklists translate Chapter 5.1 into day-to-day tender behaviour – for both contractors and CPWD engineers.
11. “What if” scenarios – how does this work on real projects? 🏗️
EMD disputes rarely come from the rules themselves – they come from edge cases on live projects. These scenarios show how the logic of Chapter 5.1 plays out on the ground.
Tenders are opened and L1 is identified. L1 then sends a letter asking to withdraw the bid due to a “calculation mistake”.
Result: EMD is liable to be forfeited. The Employer may:
- Consider L2 (with recorded justification), or
- Go for re-tendering.
Contract documents and NIT conditions should always be checked carefully before deciding.
Required EMD is ₹2,00,000. The bidder deposits ₹1,50,000. Everything else in the bid is technically fine.
What happens?
- If the NIT clearly states “bids without full EMD will be rejected”, the bid is non-responsive.
- The Engineer-in-Charge has very limited flexibility; any deviation can invite audit / vigilance issues.
Short EMD is not a small irregularity – it often goes straight to responsiveness.
Before acceptance, the department cancels the tender due to a change in scope, funding or policy. The bidders have done nothing wrong.
Outcome:
- All EMDs must be refunded.
- No forfeiture, because the risk event was on the Employer’s side.
“No bidder fault ⇒ no forfeiture” is a useful thumb rule where cancellation is purely administrative.
LoA is issued and PG is due within X days. The bidder delays by a week but ultimately submits PG and signs the agreement.
Handling (depending on GCC/NIT):
- EIC may impose penalties / compensation for delay, or
- Condone the delay with reasons recorded in writing.
Forfeiture of EMD is usually a last resort, reserved for non-submission or clear refusal – not minor delay. Always cross-check the exact contract wording.
Treat EMD as a behaviour contract: it responds to how bidders act during bid validity and post-LoA, not to every administrative twist and turn of the project.
12. Practical checklists ✅
One column is written for Contractors and the other for the CPWD tendering team.
A. For Contractors
Before you click “Submit” on the e-tender:
- Read the NIT clause on EMD carefully (amount, form, exemptions).
- Check the validity period of your FDR/BG if used.
- Verify that the name and designation in whose favour EMD is drawn are correct.
- Confirm that the portal shows successful online payment.
- Do not put conditions like “EMD will be paid later”.
- Do not assume old PG/EMD can be adjusted unless the NIT clearly allows it.
After submission:
- Avoid any email/letter that looks like withdrawal or revision during bid validity.
- Once LoA comes, prioritise PG and agreement signing – treat them as critical milestones.
B. For CPWD Engineers / Tendering Team
Before publishing and at bid opening:
-
Ensure the EMD clause in the NIT is consistent with:
• CPWD Works Manual 2022
• GFR/public procurement circulars
• GCC. - Check EMD status during bid opening and record it in the tender opening statement.
For refunds:
- Process unsuccessful bidders’ refunds promptly after LoA.
- Ensure no interest is paid unless a specific authority exists.
For forfeiture:
- Apply forfeiture only when clear contractual grounds exist.
- Record reasons in writing and link them to Manual/GCC clauses.
If both sides follow these checklists, EMD becomes a discipline tool – not a source of avoidable dispute or resentment.
Keep going: connect EMD scenarios with performance securities & advance payment
These articles and videos help you see how EMD sits alongside Performance Security, Advance Payment and the overall contract price strategy.