What Is Advance Payment Bond?
An Advance Payment Bond or ‘APB’ is a Surety product that protects the money being Advanced to a Contractor at the start of a project. The Bond will protect the Beneficiary for the full Advanced amount should the Contractor default on the agreement.
Do You need an APB?
Many construction projects require the purchase of materials in advance of a contract commencing and there is always a risk to the Employer in advancing money to a contractor who may not be well known to them to allow the purchase of goods to enable the contract to commence.
An Advance Payment Bond, also referred to as an Advance Payment Guarantee or Advanced Stage Payment Bond protects the payment amount being advanced in exchange for a bond underpinned by a suitable Guarantor to give peace of mind to both parties. While there is a cost to providing a Bond, it ultimately helps the Cash Flow of the Contractor while protecting the Employer. Often the APB will be a contractual obligation and a bond required in the tender stages of the construction project to protect the payment amount in case the contractor fails.
How Does an Advance Payment Bond Work?
Prior to any money being exchanged between the Contractor and Employer the Surety Provider will issue an APB in favour of the Employer for the Advanced amount. Once in receipt of the Bond the Employer will release the funds to the Contractor, boosting cash flow and enabling them to fabricate or order materials required to commence the project.
Advance Payment Bond v’s Performance Bond
Often in a contract both an APB along with a Performance Bond (PB) will be requested, while they may appear similar they operate in very differnent ways.
An APB will protect the Employer against goods or services yet to be supplied while a PB will provide compensation in the event of the Contractors failure to perform and complete his obligations under the Contract.
How Much Do Advance Payment Bonds Cost?
This question is hard to answer as there are so many variables, but it can be from 0.5% to 10% of the Bond amount using a fixed rate but some. Our experienced team can give you an instant indication over the phone for any tenders enabling you to price these competitively and quickly.
How Can Rayad Insure Danismanlik Ltd Sti Help?
Our specialist team will be able to talk you through the various options available including advice on suitable wording should one not be provided by the Employer. Often an APB will be purchased in tandem with a Performance Bond which will offer further protection to any Employer and enhance the trust and credibility of the Contractor.