Advance Payment Bonds

An advanced payment bond, also known as an advance payment guarantee or advanced stage payment bond, is used when a bond beneficiary (housing associations/developers) agrees to make an advance payment to a principal (contractor).

This Advanced Payment Agreement protects the bond beneficiary whereby in the event the contractor fails to fulfil agreed contractual obligations, the payment amount will be repaid.

These bonds are highly beneficial for both parties as they allow the principal to free up cash flow whilst providing a level of protection and comfort to the bond beneficiary.

An advanced payment bond is a financial guarantee often used in construction contracts to ensure the contractor fulfils their contractual obligations when receiving advance payments. Issued by a surety company, the bond safeguards the project owner’s financial interests. 

If the contractor defaults, the project owner can file a bond claim, prompting an investigation by the surety company. The surety company will repay the advanced funds or ensure project completion using those funds. This mechanism enhances trust between parties by mitigating financial risks associated with advance payments.

Construction projects often require contractors to receive advance payments to cover initial expenditures. An advanced payment bond is useful for many reasons including:

• Risk Mitigation/Financial Security: Advanced payment bonds assure the project owner that the contractor will use the funds for their intended purpose and fulfil contractual obligations (i.e., purchasing materials). They also allow the principal (contractor) to free up cash flow.  

• Builds Trust: Particularly in cases where substantial upfront payments are imperative, they offer a layer of security and sustaining trust between the contracting parties throughout the project lifecycle.  

• Client Peace of Mind: Clients feel more comfortable knowing there are assurances protecting them in case funds are mismanaged. By having an advanced payment bond in place, your clients will have better peace of mind. 

• Contractual/Legal Compliance: In many large-scale contracts, the client may require an advanced payment bond as part of the contractual agreement to ensure they are repaid if the principal fails to fulfil their contractual obligations. 

CG Bonds Surety possess specialist technical knowledge in procuring advance payment bonds. We can provide the necessary expertise to help get yours in place.

There are many types of bonds out there applicable to construction projects; visit our surety bond services tab to find out the various bonds we deal with.  

To apply for an advanced payment bond, please reach out to us. Our client relationship team will request and require the following information:

• Completed & Signed Application Form
• Most Recent Audited Financial Accounts
• Latest Management Accounts (if available)
• Copy of Performance Bond Wording (if available)

Please note that the possibility of additional security will aid your application.

We are a reputable surety broker with specialised experience and expertise in the procurement of bonds within the construction industry.

The cost of an advanced payment bond varies based on a few factors. Here are key considerations influencing the cost:

• The stability of the applicant’s finances.
• The offering of supplementary collateral.
• The timeframe and detailed conditions of the bond.
• The unique characteristics of the project.

As the exact cost depends on these factors, we cannot provide a precise estimation here. However, we can provide immediate non-binding indications. We understand that these are particularly helpful to submit with tenders. 

At CG Bonds Surety, we proudly boast a Best Price Guarantee policy, underscoring our unwavering dedication to providing clients with the most favourable terms. 

This commitment comes to fruition through our distinctive technical expertise, setting us apart from alternative surety and insurance operators.

Utilising our specialised knowledge, we leverage exclusive underwriting partnerships to secure the best premiums for our clients.

Complete our new easy-to-fill-out online bond application form here.

The expiration of an advanced payment bond is contingent upon the terms specified in the bond agreement. Typically, these terms are outlined in the contract between the project owner and the contractor. The bond may expire upon the following conditions:

• Completion of the project
• Fulfilment of contractual obligations
• Within a specified timeframe after issuance

It’s crucial to refer to the terms and conditions of the specific bond in question to determine its expiration date and any conditions that might trigger an earlier termination. 

Additionally, the bond’s expiration date should align with the overall project timeline and payment schedule to ensure comprehensive coverage throughout the project’s duration.