Additional performance security is a second deposit a department takes from you when your winning quote sits far enough below its own estimate to look unsafe. It is charged on top of ordinary performance security, it is usually sized off the gap between your price and a threshold price rather than off contract value, and under the Rajasthan rule it comes back only after the whole work is satisfactorily finished. Quote 20 per cent below a Rs 1 crore estimate in Rajasthan and the extra deposit works out at Rs 2.5 Lakh (indicative, worked from the rule below) — money frozen for the length of the job.

Rs 2.5 Lakh, on a job you won by being Rs 20 Lakh cheaper than the estimate. That is the arithmetic most contractors meet only after the award letter, when the division office asks for a demand draft nobody budgeted for.

The instrument has a name, a formula and a refund condition, and all three are written into rules you can read before you quote. What catches owners out is that it is not sized as a percentage of the contract, the way earnest money and performance security are. It is sized off how far below the estimate you went — so the deposit grows faster than the discount that triggered it.

What additional performance security is for

Departments have a standing problem with very low bids. A contractor who quotes well under cost either walks away after taking a mobilisation payment, or stays and starves the job of material and labour until it stalls. Either way the department re-tenders at a higher price, a year late.

Ordinary performance security sized at three to ten per cent of contract value does not solve that, because on a deeply discounted bid the contract value itself is low. So some states add a second deposit calibrated to the discount: the deeper you cut, the more cash you leave with the department.

It is a different instrument from the two you already know. Earnest money is paid by everyone who bids and secures the bid. Security deposit and performance security are paid by the winner and secure the work. Additional performance security is paid only by a winner whose price looked too good.

The Rajasthan formula, worked

Rule 75A of the Rajasthan Transparency in Public Procurement Rules, 2013, inserted by gazette notification dated 22 October 2021, is the clearest written version of the mechanism in Indian procurement. Its validity was challenged by a group of contractors and upheld by a Division Bench of the Rajasthan High Court at Jodhpur on 3 November 2025, in M/s Madhusudan Construction Company vs State of Rajasthan, following an earlier Division Bench ruling of 21 July 2025. The rule stands, so the arithmetic matters.

Three definitions do the work:

  • An unbalanced bid is any bid below more than fifteen per cent of the estimated bid value.
  • The unbalanced bid amount is eighty-five per cent of the estimated bid value, minus the amount you quoted.
  • The deposit is fifty per cent of that unbalanced bid amount, payable in a lump sum before the agreement is executed.

Read the second definition again, because it is where the cost hides. The deposit takes half of the part of your discount that falls past the fifteen per cent line, rather than half of the whole discount. The first fifteen per cent is free; past that line the department keeps half of every further rupee you cut.

On a Rs 1 crore estimated bid value, that produces this:

Your quote Discount below estimate Unbalanced bid amount Deposit payable
Rs 86 Lakh 14% Nil — not an unbalanced bid Nil
Rs 84 Lakh 16% Rs 1 Lakh Rs 50,000
Rs 80 Lakh 20% Rs 5 Lakh Rs 2.5 Lakh
Rs 75 Lakh 25% Rs 10 Lakh Rs 5 Lakh
Rs 70 Lakh 30% Rs 15 Lakh Rs 7.5 Lakh

Worked from the definitions in Rule 75A on an assumed Rs 1 crore estimate; figures are illustrative, and your own estimated bid value and clause decide the real numbers.

Notice what happens between the 14 per cent row and the 25 per cent row. Eleven points of extra discount costs you Rs 11 Lakh of revenue and a further Rs 5 Lakh of frozen cash. The rule also accepts the deposit through e-Grass, demand draft, banker’s cheque, government securities or a bank guarantee, including an electronic bank guarantee, so there is at least a choice between parting with cash and parting with limit.

One carve-out exists, and it is narrow: an unbalanced bid on an IT and e-governance project costing twenty crore rupees or more, approved as a high-tech project by the state e-governance mission team, does not attract the deposit. Nothing in civil works escapes it.

The refund condition is stricter than you expect

Rule 75A returns the deposit “after satisfactory completion of the entire work”. Not against running bills, not at the halfway mark, not on substantial completion. And the same sub-rule provides that it is forfeited where the work is not completed within the stipulated period.

That second limb deserves a hard look before you sharpen a pencil. On the 25 per cent row above, a delay that the department chooses not to condone can cost you the whole Rs 5 Lakh on top of whatever liquidated damages the contract already carries. A thin bid and a tight programme are a bad pair.

Maharashtra’s version bites at one per cent, before award

The Rajasthan rule is generous by comparison. In a Water Resources Department tender examined by the Bombay High Court at Nagpur in M/s R.K. Sancheti, Engineers and Contractors vs State of Maharashtra, decided 6 September 2018, the deposit clause sat at Clause 7.2 and applied to any offer more than one per cent below the tender cost.

The bigger difference is timing. There the instrument — a demand draft, bank guarantee or fixed deposit receipt — had to be scanned into Envelope No. 2 along with the financial bid. The clause stated that where it was not submitted with that envelope, the offer was to be treated as non-responsive and could not be considered. The petitioner had declared the condition inapplicable to his bid, and that is exactly what happened to it.

So in one state the deposit is a post-award cash problem, and in another it is a pre-award disqualification. Both are called additional performance security. The only way to know which you are facing is the tender document in front of you.

What it does to your working capital

Treat the deposit as the real price of the discount. On that Rs 80 Lakh quote, you have already given up Rs 20 Lakh of revenue against the estimate. You then hand over Rs 2.5 Lakh that earns you nothing for the duration, while the ordinary performance security and any retention cut from each running bill are being withheld in parallel.

Price that frozen cash at what it actually costs you. If your working capital runs at 12 to 14 per cent a year (indicative, and worse if the money is coming off a cash credit limit), Rs 2.5 Lakh held for an eighteen-month job is roughly Rs 45,000 to Rs 53,000 of carrying cost you never billed anyone for. Add it to the bid, or stay above the threshold.

There is a sequencing point too. The Rajasthan deposit falls due before the agreement is executed, which is before your first running bill and usually before mobilisation. It lands in the same fortnight as your L1 formalities and your plant mobilisation, which is the tightest cash week of the whole job.

Before you quote below the estimate

Four things to settle while the tender is still open, not after you win it.

Find the clause and its trigger. Search the tender document for “additional performance security”, “unbalanced bid” and “APSD” — departments use all three. Note the percentage at which it starts, because one per cent and fifteen per cent are different worlds.

Check whether it is a bid document or an award document. If the clause puts the instrument inside an envelope, it is a qualification condition and a missing draft loses the bid outright.

Work the number at your intended quote, not at a round one. The formula is linear past the threshold, so a one-point deeper cut on a Rs 1 crore estimate costs a further Rs 50,000 of deposit every time.

Then ask whether the discount is real. Low quotes usually come from a rate structure that has not been tested item by item, or from assuming an idle machine is free. It is not free: it still carries EMI, insurance and an operator.

If the honest answer is that you are bidding thin to keep a fleet moving, the deposit is the department telling you the same thing your own costing should have. Live government work is listed and updated on the tenders and opportunities desk, and a job you can price at a sane margin beats a job you win and cannot finish.

The bottom line

Additional performance security works as the department’s price for the risk that your number was too good to be true, not as a penalty for winning, and it is written into the rules in enough detail that you can calculate it before you quote. The Rajasthan formula gives you fifteen per cent of headroom and then takes half of every rupee you cut past it, holds the money until the entire work is finished, and forfeits it if you run late. Another state may demand the same instrument at one per cent and reject your bid without it.

Work the number into your rate analysis at the quoting stage, check your bid capacity with the deposit included, and browse current construction tenders and work opportunities for jobs where the estimate leaves you room to bid without triggering it at all.

Rates, schemes, specifications and prices change — confirm current terms with the OEM, dealer, bank or insurer before deciding. Rules, thresholds and tender clauses vary between departments and states and are amended from time to time; read the tender document and the applicable procurement rules, and take professional advice before acting on any figure here.