What is the purpose of Clause 14.2 Advance Payment in FIDIC contracts?

This clause serves to address the provision of an interest-free advance payment to the Contractor for mobilization and design, subject to certain conditions.

How does the Contractor initiate the process of receiving an advance payment?

The Contractor initiates the process by submitting a guarantee in accordance with Sub-Clause 14.2. The total advance payment and other details are specified in the Appendix to Tender.

What documents are required for the issuance of the first Interim Payment Certificate under Clause 14.2?

The Engineer issues the first Interim Payment Certificate after receiving a Statement (under Sub-Clause 14.3) and after the Employer receives the Performance Security and a guarantee equal to the advance payment.

How is the advance payment repaid by the Contractor?

The advance payment is repaid through percentage deductions in Payment Certificates. The deductions commence under specific conditions and are made at an amortization rate until the advance payment is fully repaid.

What is the significance of the guarantee in Clause 14.2?

The guarantee ensures the repayment of the advance payment and must be issued by an approved entity within an approved jurisdiction. It is a crucial aspect of the financial security mechanism in FIDIC contracts.

Can the Contractor reduce the amount of the guarantee as they repay the advance payment?

Yes, the Contractor can progressively reduce the amount of the guarantee by the amount repaid, as indicated in the Payment Certificates.

What happens if the advance payment has not been repaid by the expiry date specified in the guarantee?

If the terms of the guarantee specify an expiry date, and the advance payment has not been repaid 28 days prior to that date, the Contractor is required to extend the validity of the guarantee until the advance payment is fully repaid.

Under what circumstances does the entire outstanding balance become due and payable by the Contractor?

The whole outstanding balance becomes due and payable by the Contractor 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 specific clauses like Clause 15, Clause 16, or Clause 19.

What are the consequences of default in repaying the advance payment?

Default consequences may include the immediate repayment of the outstanding balance, triggered by events such as the Taking-Over Certificate, termination, or completion of the project.

How does Clause 14.2 contribute to the overall risk management in FIDIC contracts?

Clause 14.2 provides a mechanism for financial support to the Contractor at the project's outset, contributing to risk management by ensuring adequate funds for mobilization and design activities.

Decoding Clause 14.2: Navigating Advance Payments in FIDIC Contracts – Myths vs. Reality

By wisdomwaveshub.com / November 17, 2023

Clause 14.2 of the FIDIC Yellow Book 1999 addresses the provision of an advance payment by the Employer to the Contractor.

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