What is Security Deposit?
A security deposit is money a buyer holds from a contractor, often deducted from bills, to cover defects or non-performance until the contract ends.
What is a security deposit?
A security deposit is an amount the buyer keeps from the contractor as protection against poor work, defects or breach of contract. It is common in works contracts, where it is often collected by deducting a percentage from each running bill until the set total is reached.
Some organisations use the term for the whole performance security. Others treat it as a separate retention alongside a Performance Bank Guarantee. The meaning depends on the tender.
How it works
- The tender states the amount or percentage and how it is collected
- It may be collected upfront, by deduction from bills, or both
- Some buyers allow it to be replaced by a bank guarantee or fixed deposit
- It is usually refunded after the defect liability or maintenance period, once the buyer confirms there are no pending claims
Tips for bidders
Factor deductions into your cash flow. Holding back part of each bill affects your working capital through the contract.
Keep records of completion and defect rectification, so the refund is not delayed. Note whether interest is payable; many tenders state that no interest is paid on security deposits.
Common questions
Common questions about Security Deposit in government tenders.
EMD is paid with the bid and secures the offer. A security deposit is collected after award and secures the contract.
Sometimes. Some buyers use the terms interchangeably, while others take both. Read the security clauses of the tender.
Usually after the defect liability or warranty period ends, and after the buyer checks there are no dues against the contractor.
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