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.

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.

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.

Many APB's are issued on an On-Demand Wording, this means that the Company Advancing the money can make an instant claim on the bond for non performance/delivery of the items specified in the contract for which the money was intended. 

This question is hard to answer as there are so many variables, but it can be from 1% to 15% of the Bond amount using a fixed rate. Our experienced team can give you an instant indication over the phone for any tenders enabling you to price these competitively and quickly.

Employers often require an Advance Payment Bond when significant funds are released early such as for materials or fabrication before the main contract work starts. It provides assurance that the advanced money is protected against contractor default.