LOA, agreement and the security deposit
What the Letter of Acceptance asks for and by when, the security deposit (commonly 5% of the contract value in Karnataka works), cash versus bank guarantee, additional security for low bids, signing the agreement at the division, the work order, and the start of the completion clock.
In this module
The Letter of AcceptanceLOA (Letter of Acceptance)The letter telling you your bid has been accepted. From here you have a fixed number of days to pay the security deposit and sign the agreement.Read in the glossary → arrives, on paper or on the portal, and it is the first document in this course that is addressed to you as a contractor rather than a bidder. It is also the first with a deadline you can miss.
What the LOA says
That your bid at the stated rate is accepted; that you must furnish the {{security-deposit|security deposit}} in the stated form within 20 days of receiving the letter (the K/W documents' figure, with the agreement kept ready for your signature within 30 days of the award); and that you must then sign. Missing the deadline lets the department forfeit the EMD and offer the work to the next bidder or retender. Reply in writing acknowledging it, and start the deposit the same day.
The security deposit
Money held for the duration of the contract as security for performance. In the standard documents as amended it is 5% of the contract price, in one of these patterns:
- Within 20 days of the LOA, as cash, a banker's cheque or demand draft, a bank guarantee in the document's format, or specified small-savings instruments pledged to the department. The EMD is adjusted into it. This is the K/W-1 to K/W-4 rule for open tenders.
- Deducted from every running bill instead, in tenders reserved for SC, ST and Category-I/II(A) contractors (and, in a first-and-final bill, from that bill). Nothing to find before the agreement.
- Additional security for an unbalanced tender: where your item rates are far from the estimate, a guarantee for the difference on top of the 5% (K/W-4 clause 25.5).
The tender document states the pattern. It is refunded after the {{defect-liability-period|defect liability period}}, which means a five-percent slice of every rupee you earn sits with the department for a year or more after you finish. Price for it.
Cash or bank guarantee
| Cash / DD / deposit receipt | Bank guarantee | |
|---|---|---|
| Cost | Your working capital, idle for the contract plus DLP | Bank commission (roughly 1 to 2% a year) plus cash margin the bank demands |
| Accepted on | Every tender | Where the document allows; nearly all works above a few lakh |
| Format | Any accepted instrument | The department's exact format, from a scheduled bank, validity to cover the DLP plus a claim period |
| Release | Refunded on a request after DLP | Returned to the bank for cancellation after DLP |
A bank guaranteePerformance guarantee / bank guaranteeA bank's promise to pay the department if you fail to perform. Larger tenders accept it instead of cash for the security deposit.Read in the glossary → keeps cash working. It needs a banking relationship; a first-time contractor often cannot get one without full cash margin, in which case cash is simpler. Build the relationship on the first two works and switch.
Signing the agreement
At the division office, with the Executive Engineer (or the authority the tender names). You bring the deposit, the registration book (the work is entered in it), the engineer's appointment letter if the Code requires one for the class and value, stamp paper for the agreement as the office directs, and a copy of the bid. The agreement binds you to the tender document, the conditions of contract, the BOQ at your rates, the drawings and the corrigenda. Read it once more before signing; from here on, the document is the relationship.
The work order
Issued after the agreement, the work orderWork orderThe instruction to start work, issued after the agreement. The completion period usually counts from this date.Read in the glossary → instructs you to start. The completion period counts from its date (or from handing over the site, if the document says so). If the site is not available on the work order date, write immediately: an unrecorded delay at the start becomes your liquidated damages at the end.
Key takeaways
- The LOA sets a deadline, usually 15 to 20 days, to furnish the security deposit and sign; missing it forfeits the EMD.
- Security deposit: 5% of the contract price within 20 days of the LOA in an open tender (the EMD counts toward it); deducted from bills in a reserved tender; released after the DLP.
- A bank guarantee keeps cash free but needs a banking relationship; cash is simpler on the first works.
- The completion clock starts at the work order. Record site hindrances in writing from day one.
Check yourself
0 / 3- 1.When is the security deposit returned?
- 2.You cannot arrange the deposit within the LOA's 15 days. What is the likely consequence?
- 3.From what date does the completion period usually count?
Frequently asked
What is the security deposit percentage in Karnataka PWD contracts?
What is the difference between EMD and security deposit?
Can the security deposit be given as a bank guarantee?
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Written from the KTPP Act and Rules, the Karnataka Public Works Departmental Code 2014, KPWD bidding documents and office checklists, and checked against awarded tenders on this site. Figures change; the tender document and the registering office are the final word. Spotted an error? Tell us.