Rlys exempts suppliers from EMD payment

 

 

 

IN A bid to provide support to domestic trade and industry that is deeply affected due to COVID19 pandemic, Indian Railways has exempted suppliers from payment of earnest money deposit (EMD). Going a step further, Railways has also decided to keep rate of performance security frozen for a year ahead. The decision stands to benefit the suppliers as same would ensure more money in their hands providing them the much-needed cushion to tide over liquidity crisis induced due to the outbreak of pandemic. For the business also these two measures are part of easing of the norms of business on part of Central Government, the biggest spender in the country as of date.

 

As of date, Railway tenders have clause of collecting EMD of 1 per cent for contracts upto Rs 1 crore value of cost of work and for above Rs 1crore besides 2 per cent, another 1/2 per cent of the excess cost but with maximum limit of Rs 1 crore. The concessions to suppliers would remain applicable till December 31, 2021, with Central Government keen to prop up the industry and supply chain that has taken severe beating during the lockdown as payment system was disrupted. The order issued by Anurag Grover, Deputy Director, Railway Stores (G), Railway Board, during last week of November also directed filed units to limit security deposit to just 3 per cent of the value of the contract. Maximum goods are procured through the Stores as per the extant policy of Railway Board and hence benefits would wide spread to the traders.

 

Over 95 per cent of supply of materials to division and production units is routed through Stores wing and individual department does have liberty to get their requirements to minor purchase through Imprest. The new directives of EMD waiver and fixed security deposit would be applicable to contract of Goods, Consultancy, Works, non-Consulting Services, etc., the circular has stated further. Railways decision follows communication from Expenditure Procurement Policy Division of Finance Department, Central Government wherein it advised all Government Department to waive off Earnest Money Deposit (EMD) and limit rate of Security Deposit so that the suppliers can get more elbow room to operate in the present tough times. As of today, the Security Deposit is in place to ensure that if problem arises with quality of goods same can be used to compensate loss to exchequer. However, in some contracts the said deposit used to be in range of 5 to 10 per cent and same is now scaled and fixed at maximum 3 per cent of contract value providing respite to suppliers and increases competition.

 

The circular of Finance Department mentioned about financial crunch among commercial entities and contractors who are finding it difficult to arrange for spare deposits to qualify for the tenders. This factor the Department of Finance noted has impacted supply chain since the payment crisis results in delay of supplies and ultimately affects the organisation’s interest. The Government is in receipt of many representations due to slowdown in economy due to the pandemic, there is acute financial crunch among many commercial entities and contractors, which in turn is affecting timely execution of the contracts. Further with many small suppliers not having deep pockets resulting in many big players monopolising the supply line and after taking the stock of the situation it was decided to suspend EMD for a year. As to exemption from submission of Security Deposit, it is clarified that Micro and Small Enterprises (MSEs), and firms register with concerned Ministries/Department are exempted under Rule 170 of General Financial Rules (GFRs) 2017. But keeping in mind future risks, it is suggested that a bid security declaration is taken from suppliers that in case they withdraw or modify bids during the validity period then they could face suspension.

 

This provision currently exists in Manual for Procurement of Works 2019 and Manual for Procurement of Consultancy & other Services 2017.3. Department of Finance circular also frowned upon practice to seek Bid Security alias EMD from contractors though relaxation was provided in General Financial Rules (GFRs) 2017.4. So it has suggested to do away with practice of EMD and keeping Bid Security Declaration in bid documents. But keeping in mid compelling circumstance, a liberty is provided to Government organisations to seek bid security but only with approval of the next higher authority to the authority competent to finalise the particular tender or the Secretary of the M i n i s t r y / D e p a r t m e n t , whichever is lower.