Government provides a big relief to MSMEs for COVID-19 period; fulfils promise announced in Union Budget 2023-24

95% of bid or performance security forfeited for failure to execute contracts to be refunded; No interest shall be paid on such refunded amount

Relief provided in all contracts for procurement of Goods and Services, entered into by Ministry/ Department/ CPSE etc. with MSMEs

The Ministry of Finance today provided a major relief to Micro, Small and Medium Enterprises (MSMEs) for COVID-19 period.  In an order issued by the Department of Expenditure (https://doe.gov.in/sites/default/files/Vivad%20Se%20Vishwas%20I%20-%20Relief%20for%20MSMEs.pdf), Ministries have been asked to refund performance security/ bid security and liquidated damages forfeited/ deducted during the COVID-19 pandemic.  The order has been issued as a follow-up to the “Vivad se Vishwas-I” scheme announced in the Budget Speech 2023-24 by the Union Finance Minister.  In Para 66 of the Budget Speech, she had announced that

“In cases of failure by MSMEs to execute contracts during the COVID period, 95 per cent of the forfeited amount relating to bid or performance security will be returned to them by Government and Government undertakings. This will provide relief to MSMEs”.

COVID-19 pandemic, one of the biggest crises in the human history, had a devastating impact on the economy.  It had a huge adverse impact on the MSMEs too. A number of MSMEs had highlighted the difficulties being faced by them in the last 2 years due to COVID-19 pandemic. To provide relief to the MSMEs, Government has in the last 2 years, announced many benefits for them.  As a follow up to the relief measures announced earlier, the Ministry of Finance decided to give following additional benefits to MSMEs:

1. 95% of the performance security forfeited from such firms shall be refunded.
2. 95% of the Bid security (Earnest Money Deposit), if any, forfeited from MSME firms in tenders opened between 19.02.2020 and 31.03.2022 shall be refunded.
3. 95% of the Liquidated Damages (LD) deducted from such firms shall also be refunded. LD so refunded shall not exceed 95% of the performance security stipulated in the contract.
4. In case any firm has been debarred only due to default in execution of such contracts, such debarment shall also be revoked, by issuing an appropriate order by the procuring entity.

However, in case a firm has been ignored for placement of any contract due to debarment in the interim period (i.e. date of debarment and the date of revocation under this order), no claim shall be entertained.

5. No interest shall be paid on such refunded amount.

As per the Office Memorandum issued by the Department of Expenditure to Secretaries of all the Ministries/ Departments of Government of India and Chief Secretaries of all States and Administrators of Union Territories,  relief will be  provided in all contracts for procurement of Goods and Services, entered into by any Ministry/ Department/ attached or subordinate office/ autonomous body/ Central Public Sector Enterprise (CPSE)/ Public Sector Financial Institution etc. with MSMEs, which meet the following criteria:

1. The contractor/ supplier should be registered as a Medium, Small or Micro Enterprise with Ministry of MSME, as on 31.03.2022.
2. The original delivery period/ completion period was between 19.02.2020 and 31.03.2022.

The grant of relief will be monitored through Government e-Marketplace (GeM).  MSME Vendors will be able to register on GeM portal and enter details of the applicable contracts.  The list of the procuring entities will also be available on the portal.  The portal will notify the nodal officers of each procuring entity to verify the claim of the MSME vendor.  After due diligence, the nodal officer will refund the due amount and update the portal with the amount, date and transaction details of the payment.  The portal will also provide reports to track pendency with each procuring entity. 

The date of commencement of the process of applications for relief through GeM will be notified separately.

Refund of Forfeited Securities for MSMEs during COVID period, claims to be processed via GeM portal. Order directs refund of a substantial portion of bid and performance securities and liquidated damages withheld from MSMEs for contract defaults during the COVID-19 period, conditioned on MSME registration and original contract completion within the pandemic window. Refunds will bear no interest, liquidated damages refunds are limited by the contract's performance security, and debarments for such defaults must be revoked. Implementation and monitoring are to be conducted through the Government e-Marketplace with nodal officers verifying and processing claims.