In order to minimise or pre-empt frivolous bids, each bidder must submit a bid security along with the bid. Any bid which is not accompanied by the bid security is rejected. The model RFQ issued by the Government of India prescribes an amount equivalent to about one per cent of the estimated project cost as the bid security.

Forfeiture of Bid Security

The National Highway Authority of India (NHAI) invited bids for developing a stretch of road in West Bengal and Orissa on a Design, Build, Finance, Operate and Transfer basis under a PPP framework. After the competitive bid process, NHAI selected M/s Patel Engineering Ltd as the successful bidder for implementing the project. On receipt of the Letter of Award, M/s Patel Engineering Ltd expressed its inability to do the project on the ground that its bid was, on closer examination, not commercially viable. NHAI forfeited the bid security and even barred the petitioner from bidding for future projects for a period of one year and eventually awarded the contract to the next highest bidder.

Consequence of Non-submission of Bid Security in the Prescribed Manner

In Poddar Steel v. Ganesh Engineering (AIR 1579 1991 SCR (2) 696), the Diesel Locomotive Works, Indian Railways, invited tenders for the disposal of ferrous scrap. One of the conditions mentioned in the tender notice was that the earnest money should be deposited by cash or by demand draft drawn on the State Bank of India. One of the applicants submitted a cheque of the Union Bank of India drawn on its own branch. The bid so submitted was accepted by the tender accepting Authority which was questioned before the High Court of Kerala. In this case the Supreme Court, while overruling the decision given by the Kerala High Court, observed as follows;

"It is true that in submitting its tender accompanied by a cheque of the Union Bank of India and not of the State Bank of India, the condition in the tender notice was not obeyed literally, but the question is as to whether the said non-compliance deprived the tender accepting Authority to accept the bid. As a matter of general proposition it cannot be held that an Authority inviting tenders is bound to give effect to every term mentioned in the notice in meticulous detail, and is not entitled to waive even a technical irregularity of little or no significance. The requirements in a tender notice can be classified into two categories -- those which lay down the essential conditions of eligibility and the others which are merely ancillary or subsidiary with the main object to be achieved by the condition. In the first case the Authority issuing the tender may be required to enforce them rigidly. In the other cases it must be open to the Authority to deviate from and not to insist upon the strict literal compliance of the condition in appropriate cases."

The court in this case took a view that the manner in which the applicant furnished the bid security is sufficient for the purpose of achieving the object of the condition and it is not correct to hold that the tender accepting Authority had no Authority to waive the technical literal compliance of clause 6 of the tender document.