What Is a Bid Bond (Bid Security)? Guide for Indian Tenders

Jul 7

9 min read

Updated: Sep 24

Bid bond and bid security in India: how an insurance surety bond replaces cash EMD or a bank guarantee in government tenders

TL;DR

Bid security is the requirement. A bid bond is one way to meet it. Cash EMD and a bank guarantee are the other two ways.
EMD exemption removes your cash deposit, not your commitment. Many tenders still ask for a signed declaration instead. Miss it, and GeM rejects your bid with no warning.
An insurance surety bond is legally equal to a bank guarantee for bid security. This became official on 2 February 2022.
Cash EMD locks up your money for months. Three tenders at ₹2 crore EMD each means ₹6 crore stuck, even if you lose all three. A bid bond costs 0.5 to 3% in premium instead, and your money stays free.

Here's a scenario that plays out often enough to be a pattern, not an exception. A contractor in Tiruppur submitted a government tender on GeM. Everything looked fine, active registration, competitive price, clean paperwork. But their NSIC certificate had quietly expired three months earlier. GeM let them upload it anyway. The bid went through evaluation, and only then got rejected, for missing bid security. By that point, the window to fix it had already closed.

This happens more than people think. It happens whenever someone assumes an EMD exemption is the same thing as being fully covered on bid security. It isn't, and that gap is where bids get lost.

What Is Bid Security?

Bid security is what every tender asks for, in some form, to prove a bidder is serious. If you submit a bid and then walk away after winning, without signing the contract, the government or company running the tender loses time and money re-opening the process. Bid security protects them against that.

It isn't one specific thing. It's a requirement you can meet in three ways:

Cash, deposited upfront (this is what people usually mean by "EMD," or Earnest Money Deposit)
A bank guarantee
An insurance surety bond, what most people call a "bid bond"

So bid security is the umbrella term for the requirement. The three items above are the ways to actually fulfil it.

What Is a Bid Bond?

A bid bond is one of those three ways, specifically the one where an insurance company, not a bank, backs your bid. Instead of locking up cash or arranging a bank guarantee, you pay a small premium, usually 0.5 to 3% of the bid security amount, to an IRDAI-licensed insurer, and they guarantee your bid on your behalf.

If you win and then walk away without signing, the insurer pays the procuring entity and recovers that amount from you afterward. If you don't win, the bond just expires. No refund needed, because you never put down any cash to begin with.

How Bid Security and Bid Bonds Relate

Bid security is the requirement: prove you're serious. A bid bond is one specific way to meet it: let an insurer vouch for you instead of locking up your own cash. Cash EMD and a bank guarantee are the other two answers to the same requirement.

A bid bond isn't a different thing from bid security. It's one way of providing it.

For a full breakdown of all the ways bid security can be provided and how they differ by portal, see our guide to types of bid security in India.

How Bid Security Works in Government Tenders

Rule 170 of the General Financial Rules covers bid security for central government tenders. The amount is usually 2 to 5% of the estimated contract value, whatever the specific tender says.

Your bid security gets forfeited if:

You withdraw your bid before the validity period ends
You win but refuse to sign the contract
You win but don't submit performance security in time
Your bid contains false or fraudulent documents

These rules apply no matter which form of bid security you used, cash, bank guarantee, or bid bond. The instrument changes. The obligation doesn't.

Cash EMD vs a Bid Bond: What Actually Changes for You

Both protect the procuring entity the same way. For you, the contractor, they work completely differently.

Cash EMD means depositing the full amount before the bid closes. That money is stuck until you get it refunded, and refunds routinely take 90 to 180 days, according to axiTrust's own research on MSMEs. It earns nothing and you can't use it for anything else in the meantime.

A bid bond means paying a small premium, 0.5 to 3% of the amount, to an insurer instead. Your working capital stays free. The bond simply expires once the result is announced or the winner signs the contract. No refund process, because there was never any cash to give back.

Feature	Cash EMD	Bid Bond (Insurance Surety Bond)
What it is	Cash you deposit	A guarantee from a licensed insurer
Impact on your capital	Fully locked until refunded	Small premium only, rest stays free
Getting your money back	Refund takes 90-180 days	Nothing to refund, it just expires
If you default	Government keeps your deposit	Insurer pays, then recovers from you
How you qualify	No check needed, it's just cash	Based on your financial health and track record
Legal basis	GFR Rule 170(i)	GFR Rule 170(i), amended 2 Feb 2022

The Ministry of Finance made this official on 2 February 2022, putting bid bonds on equal legal footing with bank guarantees. A 2024 government circular went further and made accepting bid bonds mandatory for central government departments, not optional.

For a full cost comparison across all three options, see our surety bond vs bank guarantee comparison.

Here's why this adds up fast: a contractor bidding on three tenders at once, ₹2 crore EMD each, has ₹6 crore stuck for months, win or lose. Do the same three bids with bid bonds instead, and total premium is ₹6-18 lakh. The ₹6 crore stays free the whole time.

If you're wondering whether your MSME registration exempts you from paying cash EMD, and where that exemption quietly falls short, we cover that in full in our guide to EMD exemption for MSMEs in government tenders.

Before you submit any GeM tender claiming an EMD exemption, check these:

Does this specific tender accept your exemption category?
Is your certificate still valid, not just active but not expired?
Does the tender need a signed declaration in place of cash EMD?
Did you upload that declaration as its own separate document?
Did you upload your exemption certificate with a clear file name?
Did the portal confirm both uploads before you closed the session?

The One Document That Causes Most Silent Rejections

Even when you don't have to pay cash EMD, many tenders still want a Bid Security Declaration. It's a signed promise that you'll sign the contract if you win, and that you'll submit performance security on time. You upload it separately from everything else.

GeM won't remind you if it's missing. It just accepts your bid, sends it to evaluation, and the evaluator rejects it for not submitting a bid security document.

This declaration matters as much as cash would. If you sign it and then back out during the bid validity period, you can be barred from future tenders with that same buyer. You've swapped a cash risk for a legal one, and it's just as real.

How a Bid Bond Actually Gets Issued

The rules are settled. IRDAI allowed Indian insurers to issue bid bonds starting April 1, 2022. The government made them legally equal to bank guarantees a month before that, on 2 February 2022. By September 2024, accepting them became mandatory for every central government department. For the full timeline, see our IRDAI surety bond guidelines tracker.

Getting one takes five steps:

The tender is published, and it states the bid security amount and what forms it'll accept
You apply: send your financial statements (2-3 years), company documents, past project list, and the tender itself to an insurer. Insurers currently offering this include Bajaj Allianz General Insurance, SBI General Insurance, and New India Assurance.
The insurer reviews your finances and track record, no collateral needed
They issue the bond, you pay the premium, and it goes in with your bid
If you don't win, it expires. If you win, it's discharged once you sign and submit performance security. If you default, the insurer pays and then recovers from you.

What matters to the insurer is whether you can deliver the work, not whether you have assets to pledge. That means an MSME who can't get a bank guarantee because they don't have enough fixed deposits might still qualify for a bid bond based on their track record.

axiTrust connects contractors, insurers, and procuring entities through this whole process, including digital bond verification. axiTrust doesn't issue bonds itself, the insurer makes that call.

For the full application walkthrough, see our guide on how to apply for an insurance surety bond in India. To check if you qualify, see our eligibility guide.

Where Bid Bonds Actually Get Accepted

More than 120 government bodies now accept bid bonds. Since September 2024, it's mandatory for central government departments. If one refuses a valid, properly licensed bond, you can push back in writing, citing the February 2022 order, first to the procurement officer, then to their finance head if needed.

The three portals contractors deal with most don't work the same way. Assuming they do is how bids get rejected.

Portal	Accepts Bid Bonds?	EMD Exemption?	Watch Out For
GeM	Yes, for eligible categories	Yes, Udyam and NSIC	Silent rejection from an expired certificate or missing declaration
CPPP	Depends on the tender	Depends on the tender	Wrong format, or a digital signature mismatch
NHAI	Yes, standard format	Not applicable	Wrong bond type for what the tender asks

GeM: accepts bid bonds for eligible categories. Most silent rejections happen here, because the portal accepts bad uploads without flagging them.
CPPP: still mostly runs on bank guarantees. Some tenders now accept bid bonds, but not all. Always check the specific bid document.
NHAI: the biggest adopter by far. By July 2025, twelve insurers had issued about 1,600 bid bonds and 207 performance bonds for NHAI, worth ₹10,369 crore combined. See our NHAI guide for exact formats.

Two Types of Bid Bonds: Conditional vs Unconditional

A bid bond can be conditional or unconditional, and using the wrong one gets your bid rejected even if the bond itself is perfectly valid.

A conditional bond means the insurer checks the claim before paying, cheaper, and it protects you if someone tries to invoke it unfairly. An unconditional bond pays out immediately on demand, like a bank guarantee.

The rules don't say which one to use, each buyer decides for themselves. If the tender doesn't specify, go conditional, it's usually cheaper and safer. If it specifically asks for unconditional, use that, and double-check the validity period and exact wording before you buy it.

More detail, including price differences, in our conditional vs unconditional guide.

What a Bid Bond Actually Costs

Premium runs 0.5 to 3% of the bond amount. It depends on your financial health, project history, the type and size of the bond, and how the insurer sees your risk. Contractors with strong financials and a clean record usually land at the low end.

Option	What You Need Upfront	Real Cost	Working Capital Effect
Cash EMD	100% of the amount	Whatever that money could've earned instead	Fully stuck until refunded
Bank Guarantee	80-105% as cash margin, plus fees	8-10% a year	Partly stuck, eats into your credit limit
Bid Bond	Just the premium, 0.5-3%	0.5-3%, nothing more	None, no impact at all

Source: 8-10% BG cost figure from axiTrust's MSME research.

In numbers: on a ₹20 lakh bid security requirement, cash EMD locks up ₹20 lakh for up to 180 days. A bank guarantee needs ₹16-21 lakh in margin plus fees. A bid bond costs ₹10,000-60,000 in premium, and the rest of your money stays free.

Full cost breakdown in our surety bond cost guide.

After the Bid: What Happens Next

A bid bond only covers you from submission to signing the contract. Once you sign and submit performance security, the bid bond's job is done.

From there, a performance bond takes over, usually 5-10% of the contract value, and it too can be a bid bond-style insurance instrument. See our guide to all four bond types across the full project, and our claim invocation guide for what happens if one gets invoked.

An EMD exemption doesn't make bidding risk-free, it just swaps a cash risk for a legal one through the declaration. A bid bond solves a different problem entirely, it frees up the capital that's otherwise stuck across every tender you bid on. Roughly ₹60,000 crore in these bonds have been issued in India so far, according to axiTrust's own research. The option is real and it's legal. The only question is whether your next bid uses it, or whether your money is still sitting in a government account waiting to come back.

FAQs

Is a bid guarantee the same as a bid bond?

Not exactly. Bid security is the umbrella term for the requirement. A bid bond is one specific way to meet it, alongside cash EMD and a bank guarantee.

What is a 5% bid bond?

It means the bid security amount is set at 5% of the contract value, the top of the usual 2-5% range under GFR Rule 170.

What is the purpose of a bid bond?

It proves to the buyer that you're serious, and it protects them financially if you win and then back out.

Are bid bonds refundable?

No, and that's the point. Cash EMD is refundable because it's a deposit. A bid bond isn't a deposit at all, so there's nothing to refund. You pay the premium once, and the bond just expires when the tender is decided.