How To Negotiate An Advance Payment Bond

In international construction projects, it is rather standard that the Contractor starts the mobilisation/procurement just after an advance payment has been paid by the Employer.

The Advance Payment Bond is the guarantee which is issued upon instructions of the Contractor in favour of the Employer for an amount equal to the advance payment received -which is generally between 5% and 10% of the contract value (despite it can reach an amount between 10% and 20% for technological or power producing plants).

A. How it works

The mechanism is rather simple but it is essential to understand it so that it can be pretty clear what and how to negotiate an Advance Payment Bond.

The advance payment paid by the Employer is generally paid back by the Contract by way of deductions that the Employer will make on each interim payment.