Advance payment guarantee

A general contractor signs an 80 million euro turnkey contract for a power plant in Kenya, with a 10% advance on signature. Those 8 million go to ordering turbines and transformers, and the employer pays them only against an advance payment guarantee: if the contractor does not finish, the bank repays whatever has not been covered by work done. When a surety issues it, it is an advance payment bond. The starting amount equals the advance, never the contract price. What sets this guarantee apart from other contract guarantees is the reduction clause: the advance is recovered by a deduction from each interim payment certificate, and the guaranteed amount falls by the same sum, on presentation of certified statements or of whatever document the guarantee specifies. A badly drafted clause reduces nothing. If it refers to certificates that the employer's engineer is slow to sign, the beneficiary keeps a right to call the full amount when half the advance has already been repaid. URDG 758 deals with this in article 13: a variation tied to an event takes effect only when the specified document is presented or, if the guarantee specifies none, when the event can be determined from the guarantor's own records. Banks almost always add an entry-into-force condition, actual receipt of the advance into a designated account, so as not to guarantee money that was never paid. In French public procurement the buyer may make payment of the advance conditional on an on-demand guarantee, which the parties may replace with a joint and several personal guarantee (article R. 2191-7 of the Public Procurement Code). Shipbuilding has its own variant, the refund guarantee, whose amount climbs with each installment instead of falling.