The Ministry of Power has directed the state governments and the governments of union territories (UT) to relax performance security, earnest money deposits requirements for power project bids. It has also asked the states and UTs to refrain from demanding additional security deposits for abnormally low bids.

The ministry has sent a directive to reduce the performance security from the existing 5-10% to 3% of the value of the contract for all existing contracts. The direction is in line with the notification of the Ministry issued in November 2020.

After receiving requests from developers to reduce the quantum of security deposits in government contracts, the Ministry of Finance had decided to reduce the performance security.

However, the relaxation would not be applicable for contracts under dispute where court proceedings have already started or are completed. As per the notification, all tenders and contracts concluded by December 31, 2021, would also have the provision of the reduced performance guarantee.

The reduction in performance security will continue for the entire duration of the contract, and there would be no increase even beyond December 31, 2021.

The government had received requests for a reduction in performance security in the wake of the Covid-19 pandemic, which led to an acute financial crunch affecting the timely execution of projects.

The Ministry of Finance has also said that the micro, small, and medium enterprises (MSMEs) should be exempt from bid security or earnest money deposit. As an alternative, MSME bidders have to sign the ‘Bid security Declaration’ accepting that if they withdraw or modify their bids during the period of validity they will be suspended for the time specified in the tender documents.

The ministry has also directed not to have additional security deposit and bank guarantee clauses in the case of abnormally low bids.

The relaxation would be applicable for the procurement of goods, works, consultancy, and non-consultancy services.

Mercom had previously reported that developers were of the view that the costs of participating in large-scale solar tenders had reduced their ability to bid for other projects. These costs, coupled with delays and extensions of tenders, had tied up millions in the form of bank guarantees.

Mercom’s premium event Mercom India Solar Summit, to be held virtually on April 8 and 9, has an exclusive session on ‘Tenders and Auctions – From Pipeline to PPAs, How We Get There.’ You can click here to register for the event.