RE: Performance Guarantees and Advance Payment Bonds4 Dec 2023 15:34
To get to this stage on any EPC type contract PFC have to put a "Performance Guarantees and Advance Payment Bonds" in place and have admitted in todays RNS that they are in difficulty in obtaining the required bonds,,,,,,,,Not a clever Move IMHO.......Its Pretty Desperate to put that out in public.........
The nature of an advanced payment is determined by the manner in which the contract is drafted. In most cases, the advance payment is simply an interest free loan since it is paid at a time when no value is received by the client in return. The loan is then repaid as the works are executed (or services are performed or goods are supplied), usually through deductions from the amount due at the relevant time. This type of regime is provided for in some of the standard form contracts including FIDIC (sub-clause 14.1) and the NEC (Option X14).
Advance payment regimes can vary significantly, with different consequences as to whether, and to what extent, the advance payment is recoverable and on what basis
However, nothing stops the parties from agreeing that the repayment of the advance payment will be subject to interest that runs from the date on which the advance payment is made until the date of repayment. This can act as a means of compensating the client for paying the amount upfront; or to deter late repayment - which, in this scenario, translates to the delayed performance of the milestones linked to repayment.
Should the contract be terminated before the advance payment has been repaid, and irrespective of the cause of termination, the unpaid balance of the advance payment would fall due. For the employer, this is the primary benefit of structuring the advance payment in this manner.
'Where the value of the advance payment is significant, it is usually secured against a bond of equivalent value which reduces commensurately with the repayment of the advance payment.'
The advance payment regime often does not specifically regulate how the amount is to be spent, affording the contractor some flexibility here. In other instances the advance payment might be made for a specific purpose........
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