Q. - Why is earnest money taken ?
Ans. - Earnest money –
The Tenderer / Contracts shall be required to deposit Earnest money with the tender for the due performance with the stipulation to keep the offer open till such date as specified in the tender. Earnest money should be either in cash, deposit receipts, pay orders, demand draft.
In railway contracts, earnest money is taken as a form of security from the bidder or contractor. The earnest money deposit (EMD) is a percentage of the total contract value that is deposited by the bidder with the railway authorities as a demonstration of their serious intent to execute the work as per the terms and conditions of the contract. The earnest money shall be 2% of estimated tender value. The earnest money shall be rounded to the nearest Rs. 10/- . Earnest money shall be applicable for all modes of tendering
The purpose of taking earnest money in railway contracts is to ensure that the bidder or contractor has a financial stake in the project and is committed to completing the work on time and to the required quality standards. By requiring a financial commitment upfront, the railway authorities can ensure that the bidder or contractor has the financial resources and capability to carry out the work.
In case the bidder or contractor fails to execute the work as per the terms and conditions of the contract, the earnest money is forfeited by the railway authorities. This acts as a deterrent against non-performance and helps to safeguard the interests of the railway authorities. If the bidder or contractor completes the work successfully, the earnest money is returned to them.
