Advance Payment Bond
An advance payment bond secures a project owner's repayment of an advance payment made if the contractor fails to perform its contractual obligations.
Concept
An advance payment bond secures a project owner who makes an advance payment to a contractor before or during performance of a works or supply contract, guaranteeing repayment of that advance if the contractor fails to fully perform its contractual obligations.
Scope of Application
Advance payment bonds are used particularly in plant engineering, shipbuilding, and large construction projects, where contractors depend on pre-financing from the project owner to begin performance.
How It Works
If the contractor fails to perform, the project owner can reclaim the advance payment made — net of contractually compliant work already performed — from the guarantor (bank or surety insurer), without first having to pursue the contractor itself, provided a solidary (direct) guarantee was agreed.