What is this advance payment guarantee for?
A developer will want this guarantee if it makes an advance payment to a contractor. So, it will require a guarantee from a bank or other financial institution as security against that payment.
A developer will usually require an Advance Payment Guarantee where, under the terms of a contract for the supply of equipment or services, the developer agrees to make an advance payment to meet the contractor’s mobilisation or other up-front costs. The amount of the advance payment is commonly somewhere between 10% and 20% of the Contract price.
What detailed terms does the advance payment guarantee contain?
Amount. The guarantee will specify the maximum amount of the guarantee, often being a percentage of the contract price which it relates to.
On demand. The guarantor will usually undertake to pay the amount guaranteed on demand – i.e. right away – when the beneficiary of the guarantee delivers a written demand , which will usually contain a pre-agreed statement – e.g. that the contractor’s employment under the contract has been terminated.
Reducing amount. Quite often the value of the guarantee reduces as the contract it relates to progresses and an agreed percentage of each payment application is deducted from the amount paid to the contractor, thereby reducing the guarantee by that amount. In effect each reduction amounts to a repayment of an equivalent amount of the advance.
Validity period. The guarantee will have an end date – a specified date after which the guarantee is no longer effective. Or when the value of the guarantee has been reduced to zero by the reductions mentioned above.
For more information on each of these sections, see our Explanatory Notes which you will receive when you download the document from our website.
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When I download the document, can I change it and/or use it more than once?
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