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Advance Payment Notes

The document discusses advance payment provisions in FIDIC Red Book construction contracts. It outlines that the employer can provide an interest-free loan as an advance payment when the contractor submits a guarantee. The engineer will then issue an interim payment certificate for the first installment after receiving performance security from the contractor and an advance payment guarantee from a bank. The contractor must ensure the guarantee remains valid until repayment, and repayment will occur through deductions from interim certificates over the course of the project, with full repayment required before certain milestones.

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Avinaash Veeramah
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499 views

Advance Payment Notes

The document discusses advance payment provisions in FIDIC Red Book construction contracts. It outlines that the employer can provide an interest-free loan as an advance payment when the contractor submits a guarantee. The engineer will then issue an interim payment certificate for the first installment after receiving performance security from the contractor and an advance payment guarantee from a bank. The contractor must ensure the guarantee remains valid until repayment, and repayment will occur through deductions from interim certificates over the course of the project, with full repayment required before certain milestones.

Uploaded by

Avinaash Veeramah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ADVANCE PAYMENT TO CONTRACTOR

SUB-CLAUSE 14.2 OF FIDIC RED BOOK – ADVANCE PAYMENT

 The Employer shall make an advance payment, as an interest-free loan for mobilization, when the
Contractor submits a guarantee in accordance with this Sub-Clause.
Unless and until the Employer receives this guarantee or if the total advance payment is not stated
in the Contract Data, this Sub-Clause shall not apply.
 The Engineer shall issue an Interim Payment Certificate for the first installment after receiving a
Statement (as per Sub-Clause 14.3 – Application for Interim Payment Certificates) and after the
Employer receives:
(i) a Performance Security (as per Sub-Clause 4.2 – Performance Security) and
(ii) a guarantee in amounts and currencies equal to the advance payment.

This guarantee (technically termed as an Advance Payment Guarantee) shall be issued by an entity
and from within a country approved by the Employer.

An APG refers to an instrument issued by a financial institution (normally a bank) to the Contractor
to secure upfront payments between the Contractor and the Employer. In this case, the Bank
undertakes the responsibility of fulfilling contractual obligations of the Contractor to the
Employer in the event that the Contractor fails to deliver his obligations.

 The Contractor shall ensure that the APG is valid and enforceable until the advance payment has
been repaid but its amount may be progressively reduced by the amount repaid by the Contractor
as indicated in the Payment Certificates.

If the terms of the APG specify its expiry date and the Advance Payment has not been repaid by
the date 28 days prior to the expiry date, the Contractor shall extend the validity of this guarantee
until the Advance Payment has been repaid.

 Unless stated otherwise, the Advance Payment shall be repaid through percentage deductions
from the interim payment certificates determined by the Engineer (as per Sub-Clause 14.6 – Issue
of Interim Payment Certificates), as follows:
(i) Deductions shall commence in the next Interim Payment Certificate following
that in which the total of all certified interim payments (excluding Advance
Payment and deductions/repayments of Retention Money) exceeds 30 % of the
Accepted Contract Amount less Provisional Sums.
(ii) Deductions shall be made at the amortization rate stated in the Contract Data of
the amount of each Interim Payment Certificate (excluding Advance Payment and
deductions/repayment of Retention Money) in the currencies and proportions of
the advance payment until such time as the Advance Payment has been repaid:
provided that the Advance Payment shall be completely repaid prior to the time
when 80 % of the Accepted Contract Amount less Provisional Sums has been
certified for payment.
 If the Advance Payment has not been repaid:
(i) Prior to the issue of the Taking-Over certificate for the Works
(ii) Prior to termination under Clause 15 (Termination by the Employer), Clause 16
(Suspension and Termination by Contractor) or Clause 19 (Force Majeure), the
whole of the balance outstanding shall immediately become due and payable by
the Contractor to the Employer.

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