By Adv. Gaurav Kumar, Founder, Bid Nexa · Advocate, High Court of Jharkhand · General information, not legal advice for a specific case.
Under GFR 2017 Rule 171, a winning bidder gives performance security of 5% to 10% of the contract value, as the bid documents specify. It stays valid for 60 days beyond the completion of all contract obligations, including warranty. Instead of EMD, many tenders now accept a bid security declaration; withdrawing during bid validity can lead to suspension.
Performance security
The Finance Ministry's OM of 13 May 2020 restates Rule 171: performance security of 5% to 10% of contract value, as specified in the bid documents, valid for 60 days beyond completion of all obligations including warranty. It can be given as a bank guarantee, fixed deposit receipt or other forms the tender allows.
Bid security declaration
The OM of 12 November 2020 allows departments to accept a signed Bid Security Declaration in place of bid security. A bidder who withdraws or modifies a bid during the validity period may be suspended for the period the tender specifies.
Plan your cash
- Budget for performance security before you bid; it blocks working capital.
- Ask your bank about guarantee limits and margin money in advance.
- Track the release date and request release in writing once obligations end.
Release and disputes
Release needs proof that delivery, acceptance and warranty obligations are complete. Keep inspection and acceptance records for every stage. If a release is delayed, a documented written request usually works better than repeated calls.
Read the tender
The percentage, form and validity are set in each tender. Confirm in the tender document / NIT.
Frequently asked questions
How much is performance security in government contracts?
Under GFR 2017 Rule 171 it is 5% to 10% of the contract value, as specified in the bid documents. State rules and individual tenders can differ. Confirm in the tender document / NIT.
Is a bid security declaration better than EMD?
It saves cash, but it carries a real penalty: suspension from bidding if you withdraw or change your bid during validity. Only sign it if you are sure of your bid.
When is performance security returned?
It is generally released after all contract obligations, including warranty, are complete, as the contract states. Rule 171 keeps it valid for 60 days beyond that.
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