Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Clause No. 14
Sub-Clause No. 14.2

Contract Price and Payment

Advance Payment

Summary Advance payment is an interest free loan to the contractor. Advance payment is only paid on fulfillment of certain conditions as stipulated in the clause on receipt of a statement of an interim payment, advance guarantee and performance security. Advance guarantee shall remain valid until the advance payment has not been completely repaid. This repayment is done through proportional deduction in the contract price or as stipulated in the particular conditions of the contract. Advance payment is also linked with taking over certificate, termination of the contract and force majeure.

Content of the FIDIC Clause in Brief - To be paid by the Employer to the Contractor and amortized by repayments by the contractor or deduction in the interim payment by the Employer. -Interest free loan for mobilization and advance. -Against submission of guarantee including the details stated in the Particular Conditions. - The Employer shall pay the first installment after receiving (i) a Statement (under Sub-Clause 14.3 [Application for Interim Payments]) (ii) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security],and (iii) a guarantee in amounts and currencies equal to the advance payment. This guarantee shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. Unless and until the Employer receives this guarantee, this subclause shall not apply. - The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment has been repaid, but its amount may be progressively reduced by the amount repaid by the contractor. - If the terms of the guarantee specify its expiry date, and the advance payment has not been repaid by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the guarantee until the advance payment has been repaid. - The advance payment shall be repaid through proportional deductions in interim payments. Deductions shall be made at the amortization rate stated in the Particular Conditions (or, if not so stated, as stated in sub-paragraph (d) which states that if the Particular Conditions does not state the amortization rate for repayments, then it shall be calculated by dividing the total amount of the advance payment by the Contract Price stated in the Contract Agreement less Provisional Sums), which shall be applied to the amount otherwise due (excluding the advance payment and deductions and repayments of retention), until such time as the advance payment has been repaid. - If the advance payment has not been repaid prior to the issue of the Taking-Over Certificate for the Works or prior to termination under Clause 15 [Termination by Employer], Clause 16 [Suspension and Termination by Contractor] or Clause 19 [Force Majeure] (as the case may be), the whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer. Guidance for Advance Payment Guarantee Subject to subclause 14.2 the contractor is obliged to submit a guarantee, if an advance payment has been agreed. Unless the employer receives this guarantee, subclause 14.2 shall not apply. A model form for an advance payment guarantee is included in each FIDIC book (see annex E). The advance payment guarantee shall be maintained until full and complete reimbursement of the advance payment.
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Understanding Clauses in FIDIC Conditions of Contract for EPC/ Turnkey Projects First Edition 1999

Guidance for Repayment by Amortization of Advance Payment. The repayment of the advance payment will start when the certified interim payments exceed 10% of the accepted contract amount. The reimbursement rate shall be 25% of the amount of each payment certificate. The guidance for the preparation of the particular conditions states that these figures were calculated on the assumption that the total advance payment is less than 22% of the accepted contract amount. Any outstanding balance will immediately become due on the issue of the taking over certificate for the works or prior to termination under Clauses 15, 16 or 19 of FIDIC. Applied Clauses of the Advance Payment and Advance Payment Guarantee/ Bond for EPC Contracts (FIDIC or Mixed) (References to the clauses are removed) Advance Payment means the two initial payments of 5% of the contract price (together, 10% of the contract price) identified as such in Annex 3 (project milestones and project milestone payments) and payable in accordance with clause 14.2 of FIDIC. 1 st Installment Term The contractor may, not earlier than 3 business days following the later of (i) the date on which the notice to proceed is issued and (ii) the date on which the contractor submits the initial performance bond, parent company guarantee and the advance payment bond, issue an invoice to the employer in respect of the first installment of the advance payment and such invoice once properly issued, shall be payable by the employer within 30 business days of its receipt by the employer. 2nd Installment Term The contractor may, not earlier than 3 business days of the date when the employer confirms that all of the works specified in annex 15 (mobilization works required for advance payment) in relation to such second installment have been completed to its satisfaction, issue an invoice to the employer for the second installment of the advance payment and such invoice once properly issued, shall be payable by the employer within 30 business days of its receipt by the employer. Advance Payment Bond means the bond in the form set out in annex 6 (advance payment bond), issued by a bank or financial institution reasonably acceptable to the employer with a credit rating of no worse than [A+] (Standard and Poors) or [A1] (Moodys). Validity of Advance Payment Bond: The periods of cover to be maintained and maximum amounts available under the bonds shall be from the date of issue until the date falling two months after the date of issue of the last taking over certificate for the works, initially the equivalent of 10% of the contract price.

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