Advance payment bond

Advance payment bond
See also

The term advance payment bond called also advanced payment guarantee refers to building terminology and is made in order to prevent the employer from insolvency of the contractor against full repayment of the advance, the employer will normally require the contractor to provide an advance payment guarantee that will protect the employer if the contractor fails to fulfill his contractual obligations[1].

The guarantee should be issued by an entity and country approved by the employer and in a form annexed to the conditions laid down or in another form approved by the employer and the guarantee must be valid until the advance payment has been repaid. The amount of the advance payment guarantee should be equal to the advance payment[2]. To protect the employer against subsequent non-performance of the contract, the contractor is usually required to provide an advanced payment bond to repay the money transferred in this case to the employer[3].

The advance payment bond should consist of

The information required to fill the advanced payment bond are such as following[4]:

  • The amount of the advanced payment
  • Schedule of pre-financing instalments which are to be returned at initial dates
  • The date by which the employer must make an advance payment
  • The clause authorising the contractor to making an advance payment

Termination of the advance payment contract by the buyer

If the contract is terminated by the buyer[5]: In this situations, if this happens take place when the contractor has been effectively overpaid due to an advance payment before the advance payment has been fully repaid. In this case, when a bond is established, it should be made clear how such a bond is to be used in the event of termination of the contract where there is an existing claim for an advance payment.

Advance payment contract's guarantee

An advance payment guarantee is not a general guarantee for all contractual obligations of the contractor, but, for example, it can only be requested on the basis of a written statement that the contractor has not repaid the advance in accordance with the contract and stating the amount that the contractor has not repaid[6].


  1. Greenhalgh B (2016)
  2. IBP (2015)
  3. Ndekugri I, Rycroft M (2012)
  4. Ndekugri I, Rycroft M (2012)
  5. Greenhalgh B (2016)
  6. Baker E, Mellors B, Chalmers S, Lavers A (2013)


Author: Veniamin Terokhin