Advance Payment Guarantee
A contractor who is awarded a contract may ask for advance payment in order to start the project. The project sponsor will, for this purpose, require an Advance Payment guarantee to the effect that the contractor will perform his contract and if he fails, he will refund to the project sponsor the amount so advanced.
The Advanced Payment Guarantees are issued where a customer receives an advance payment in respect of the work to be performed or goods to be supplied under a contract undertaken by him and the bank as guarantor, undertakes to repay the amount of the advance payment if the work covered thereby is not performed or the goods not supplied according to contract
If the contractor performs his contract his liability will continue to be reduced in that proportion. On submission of each bill by the contractor for payment and approval by the sponsors /tendering authority, the bank that had issued the guarantee will deduct the amount of advance payment adjusted by the sponsor/tendering authority from its outstanding liability under the Advance Payment Guarantee.