Category: Contracts & management
Prepared by Eng. Ahmed Fathy, Projects Manager ·
Definition
An advance payment is an amount the owner pays the contractor at the start to fund mobilisation and materials, recovered in instalments from later payments.
Why it matters on a project
It eases financing at the start, when costs are high and payments have not begun.
Measurement and pricing
Set in the contract as a percentage of its value and recovered as a percentage of each payment.
Worked example
A 10% advance on a 2,000,000 SAR contract = 200,000 SAR, recovered for example by deducting 10% from each payment until repaid.
Common mistake
Spending the advance on another project, then running short when recovery starts.
Frequently asked questions
When is the advance paid?
After the contract is signed and its stated conditions are met.
Is the advance profit for the contractor?
No. It is a loan repaid in full from the payments.
Related terms
- Cash flowThe timing of money coming in and going out over the project.
- Payment application (IPC)A periodic payment request based on approved progress and executed quantities.
- Performance bondSecurity the contractor gives the owner against failure to perform.
- RetentionA percentage withheld from each payment and released after handover or the defects period.
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