Advance Payments

Question 1

What is an advance payment?

Answer 1

A payment to the contractor, sent in advance - before the contractor has completed the related works

Question 2

What is the purpose of an advanced payment?

Answer 2

Allows the contractor to get ahead of their cashflow - useful when projected cashflow exceeds the contractors available cashflow, likely at the start of a project with large setup/preliminary costs.

Question 3

What should you advise a client should get if they want to use an advance payement?

Answer 3

An advance payment bond

Question 4

Is it always good advice to sugest use of an advance payment?

Answer 4

No, an advance payment can be risky and the acomaning bond will come at a primium. Advance payment can be necessery but should used as the exception not the rule.

Question 5

How do you know if and when an advance payment will be due?

What clause?

Answer 5

In the contract partiuclars - JCT D&B 4.6 within section 4 Payment

Question 6

If a material has a long lead time what might you use to assist the contractors cashflow?

Answer 6

An Advance payment accompanied by an advanced payment bond to limit risk.

Question 7

Can you name some reasons not to use an advance payment?

Answer 7

1. May reduce the incentive of the contractor
2. Bad for the employer’s cashflow
3. Concerns over why the contractor can’t fund the expenditure – insolvency worries

Question 8

When should the project team first be awear of the potential need of an advance payment

Answer 8

Before the contract is signed - if requested after it could be a sign of bad planning or could spark insolvancy fears…