Question

Assertion (A): Earnest money deposit usually 1% to 2% of the total estimated cost of the work.

Reasoning (R): Earnest money deposit prevents unnecessary and unhealthy competition.
1. Both (A) and (R) are true
2. Both (A) and (R) are false
3. (A) is true and (R) is false
4. (A) is false and (R) is true

Answer 1

Correct Answer - Option 1 : Both (A) and (R) are true

Explanation:

Earnest Money:

Earnest money is an assurance or guarantee in the form of cash on the part of the contractor to keep open the offer for consideration and to confirm his intentions to take up the work accepted in his favor for execution as per the terms and conditions in the tender.

• Generally, for works up to 5 lakhs, 0.5 - 2% of the cost of the project subject to a maximum of Rs 10000 is kept as earnest money
• for works worth more than 5 lakh, 2% of the estimated cost subjected to Rs 20000 is kept as earnest money
• It is given by all the bidders during the submission of tender.
• The earnest money of the last three bidders is refunded within a week of opening the tender
• Earnest money of the 2nd and 3rd highest bidder get it back within 15 days.

Security Deposit:

It is the amount of money which shall be deposited by the contractor whose contract has been accepted in order to render himself liable to the department to pay the compensation amounting to the part or whole of his security deposit if the work is not carried out according to the specification, time limit, and condition of the contract.