Thursday, February 26, 2009

All about Money

# Document Fees - Detailed commercial & technical specification of each
tender is available in Tender Document, which most government departments
sell for a small fee. Tender Document Fees is the fee towards buying the Tender
Document. The reason towards making Tender Document paid are many;
- To ensure that only Serious Bidders bid
- To recover the cost of making Tender Document
- To recover the cost of Tender Advertisement
- To recover the cost of efforts involved in tendering process
Please Visit http://www.tendertiger.com to view 1 Million Tenders
# EMD or Earnest Money Deposit - To ensure that a Bidder does not submit a
Dummy Bid or back out at time of tender opening, Government Department
collects a small refundable fee from each bidder, which is called EMD. EMD is
always in form of a Demand Draft & cheques or cash are strictly not
allowed. EMD is returned when all Bids are opened & tender is awarded. In case
Tender is cancelled, the EMD is returned. Most of the time the EMD is not
credited into Government Bank but is kept with Buyers in as it is form. After
Tender opening the same is returned.
Some Government departments however deposit the EMD into their Bank and
enjoy the Interest. Some departments which are not cash rich even go to the
extent of using bidders money and poor bidder actually have to bribe
accountants to get their EMD back.
After Bid is opened, if a Bidders refuses to take the contract, than his EMD is
forfeited. EMD is generally less than 5% of the Tender Value.
Please Visit http://www.tendertiger.com to view 1 Million Tenders
# Bank Guarantee or BG - In High Value tenders the EMD can be as high
as Crores of rupees. In such Tenders Bidders will not want to make a DD of
the same and give it to Government because there will be huge interest loss till
the time EMD is not returned. Hence in all such Tenders instead ofEMD, Bank
Guarantee is also allowed.
In case of Bank Guarantee, the Bank Issues a letter to Government a sort of
undertaking that if Bidder Defaults, Bank will pay amount equivalent to Bank
Guarantee amount. The Government purpose is solved, because if Bidder
defaults, it will get the Money from Bank. In most of the cases, BG is allowed
from only Nationalised Bank i.e. BOB, SBI, etc. Some Buyers also allowed Private
Banks like ICICI, Citibank, etc.
To get a Bank Guarantee, the Bidder has to do the following
Option 1: Make an Fixed Deposit (FD) of amount equivalent to Bank Guarantee
amount in the Bank & Bank in lieu of FD gives the Bank Guarantee. This way
Bidders get Interest on his FD & on paying a small fee (up to 1-2%) he can get a
Bank Guarantee. If bank gives 9% interest on FD & he is giving bank 1% interest
on BG, Bidder get a net net 8% interest. If Bidder had given an EMD, he would
have lost this 8% interest.

Option 2: Bidder can pledge collateral's like House, Offices, Machinery's, Raw
Materials, etc. instead of Cash and still get a Bank Guarantee. Bank on the basis
of valuation of his Collateral can issue Bank Guarantee.
For e.g. if a company has a turnover of 10 Cr, than Bank can issue it a Bank
Guarantee of 1 Cr, if company makes FD of just 20 Lakh, because a company
which is making 10 Cr turnover can anytime pay Rs.1 Cr to bank, if it defaults.
Please Visit http://www.tendertiger.com to view 1 Million Tenders
Security Deposit - Once it is decided that a Tender is awarded to a Bidder, he
has to deposit a Security Deposit with the Buyers such that if he does not
complete the task as per the work order, the Buyer can recover the loss
by forfeitting his Security Deposit.
e.g. If a Bidders gets Rs.10 Cr contract to construct a Bridge withing 12 months ,
than he has to deposit a Security deposit of 10% i.e. 1 Cr with Buyers. Now if he
does not complete the bridge on time or leaves it incomplete, the Government
can forfeit his 1 Cr as penalty.
Security Deposit can be in form of EMD, Bank Guarantee, National Saving
certificates, Cash, etc. Only when the Winning Bidders makes the Security
Deposit, he gets his EMD Back.