Performance Security & Contract Execution — After Winning a Government Tender
Winning is just the beginning. This guide covers everything after the LOA: Performance Security, contract signing, mobilisation advance, running bills, retention money, and successful project completion.
📅 Updated: 20 August 2026 · Author: Tender84 CPIO Intelligence
The Letter of Acceptance (LOA) — also called Work Order — is the formal document awarding you the contract. It is issued to the successful bidder after evaluation is complete. The LOA marks the beginning of the contractual relationship.
Step 2: Submit Performance Security
Performance Security is a guarantee you'll complete the contract satisfactorily. Key facts:
Amount: Typically 5-10% of the contract value
Deadline: Usually within 15-30 days of LOA issuance
Forms accepted: Bank Guarantee (BG) from a scheduled bank, Fixed Deposit Receipt (FDR), or Demand Draft
Validity: Must be valid for the entire contract period + defect liability period (typically 60-90 days beyond completion)
Refund: Returned after successful project completion + defect liability period
⚠️ EMD is not Performance Security: Your EMD is refunded after award. Performance Security is a FRESH guarantee you must submit separately. Some departments adjust EMD against Performance Security — check the NIT.
Step 3: Sign the Contract / Agreement
After submitting Performance Security, you sign the formal contract agreement. This includes:
General Conditions of Contract (GCC)
Special Conditions of Contract (SCC)
Technical specifications & drawings
BOQ with agreed rates
Work completion timeline with milestones
Penalty clauses for delays
Mobilisation Advance
Many contracts offer a Mobilisation Advance (10-20% of contract value) to help you mobilise resources, equipment, and manpower at project start. It is recovered through deductions from subsequent running bills.
Running Bills — How You Get Paid
Government contracts use a running bill system:
Submit monthly running bills for work completed — measured and certified by the department's engineer
Retention Money deduction: 5-10% is retained from each bill as security against defects
Mobilisation Advance recovery: If taken, deducted proportionally from each bill
Income Tax (TDS): Deducted at source as per Income Tax Act
GST: Added to your bill as applicable
Payment timeline: Typically 30-60 days after bill certification
Retention Money
Retention Money (5-10% of each bill) is held by the department as security against defects. It is released in two stages:
50% on project completion: After taking-over certificate is issued
50% after defect liability period: Typically 6-12 months after completion
Price Variation Clause
Many contracts include a Price Variation Clause that allows adjustment of contract rates based on changes in material, labour, or fuel costs. This protects both parties from extreme market fluctuations. Check if your contract has this clause — it can significantly impact your profitability.
Force Majeure & Extension of Time
If extraordinary events (natural disasters, pandemics, government orders) prevent contract performance, the Force Majeure clause allows deadline extensions without penalty. Apply for extension formally with supporting evidence — do NOT assume automatic extension.
Performance Security Forfeiture
🚫 Performance Security is forfeited if you: abandon the project, fail to meet critical milestones repeatedly, or have the contract terminated for default. This is a serious financial loss — 5-10% of contract value.