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Advance Payment vs Financial Soundness

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Re: Advance Payment vs Financial Soundness

Post  RSM on Mon Jan 25, 2010 5:16 pm

Hi Everbody,

This sounds interesting. By the way HAPPY NEW YEAR TO EVERYONE WHO IS A MEMBER OR VIEWER OF THIS FORUM

In trying to understand whether payment of advance payment is mandatory before a contractor can proceed with the work I visited the SBDs for work prepared by PPRA. The wording provided in the General Conditions of Contract is as follows:

54.1 The Employer shall make advance payment to the Contractor of the amounts stated in the SCC by the date stated in the SCC, against provision by the Contractor of an Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer in amounts and currencies equal to the advance payment. The Guarantee shall remain effective until the advance payment has been repaid, but the amount of the Guarantee shall be progressively reduced by the amounts repaid by the Contractor. Interest will not be charged on the advance payment.

Corresponding wording in the Special Conditions of Contract is as follows.

The amount of advance payment shall be …………. per cent of the contract sum payable by ……………………… [insert date].

With this provision, and the contractor having provided the necessary bank guarantees, isn't he entitled to payment of advance payment by the set date? AND Should"nt non payment by the Client be construed as being in breach of contract

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ADVANCE PAYMENT VS FINANCIAL SOUNDNESS

Post  GadielCM on Fri Jan 22, 2010 2:12 pm

I advise the Athourity to publish on any SUPPLEMENT/JOURNAL issued by the Authority (PPRA) the Mathias's last submission so as other procurement practioners should use the clause of advance payment as commented by Galibona. Big up Mathias for your good understanding of the SBD's as a Supplier/SP.

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ADVANCE PAYMENT VS FINANCIAL SOUNDNESS

Post  Mathias Galibona on Thu Jan 21, 2010 9:25 pm

Gaitan; what you have said regarding the procedure one has to undergo inorder to get the Advance Payment guarantee is OK, but the issue raised was "the contractor failing to commence the works because the Employer has not paid the Advance Payment to the Contractor despite being furnished with the required bank guarantee".

If the Contractor made an estimate of, and included in its tender, the expenses that will be incurred in order to commence the works (refer ITT Sub-Clause 42.2: Advance Payment), then the contractor has a right not to commence works if the Advance Payment is not paid.

But if he didn't make an estimate of expenses that will be icurred inorder to commence works and included them in its tender, then the delay of being paid the Advance Payment has nothing to do with the commencement of the works.

I highly recommend the Contractors to read the whole tender documents during preparing their tender before submission so that they can submit a tender which is responsive. Also they should prepare a cashflow so that they can manage to see if they will be able to commence the works without an advance payment or delay in payment of the advance payment.

RJM please advise your colleague.

Mathias Galibona

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Advance Payment vs Financial Soundness

Post  Gaitan on Wed Jan 20, 2010 8:54 pm

To my understanding advance payment goes hand in hand with bank performance guarantee, when it comes to the time of signing a contract it is where a contractor is obliged to process requirements for bank performance guarantee so as to secure advance payment.

This process requires a contractor to deposit amount of money nearly the same to the advance payment that he/she will get. Here what is required in case a client wish to use the clause ion a contract should make sure that they have enough fund prior to the beginning of the contract.

Alternatively the money deposited to the bank for bank performance guarantee should be left to the contractor for him to start the work and payment to be made through certificate after completion of a certain stage of the work.

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ADVANCE PAYMENT VS FINANCIAL SOUNDNESS

Post  GadielCM on Wed Jan 20, 2010 2:30 pm

Mathias your right because at all in evaluation we dont consider the contractor to have the capacity to provide the advance payment but it is the terms and conditions within the contract after evaluation in aspect of post qualification has been done.

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ADVANCE PAYMENT VS FINANCIAL SOUNDNESS

Post  Mathias Galibona on Tue Jan 19, 2010 10:17 pm

Dear RJM

As a matter of fact, it is true that normally bidders are requested to submit informations such as bank statements, profit and loss, turnover, evidence of working capital (access to lines of credit and availability of other financial resources). But you did not say whether this contractor indicated in his tender that the Advance payment is part of his lines of credit.

If it wasn't indicated, then he was liquid without the advance payment in terms of working capital and credit facilities.

Therefore, the contract stipulates the Start Date as the latest date when the Contractor shall commence execution of the works. The contract doesn't say that the contractor shall commence execution of works after being paid advance payment.

Therefore, the method used to acertain the soundness of the firm is important in the essence that only those Contractors who are serious with the Contracts & Contract Documentations are being awarded the works. And the evaluation team must go through the Qualification of the bidders regarding the evidence of adequacy of working capital WITHOUT INCLUDING THE ADVANCE PAYMENT.

And from that point you can establish the liquidity of the bidder who will not claim for advance payment inorder to commence the works.

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Advance Payment vs Financial Soundness

Post  RJM on Fri Jan 15, 2010 6:58 pm

We all know that the essence of assess financial soundness of the firm prior awarding the contract is satisfy ourselves that the firm to be awarded has financial capability to execute the contract. As a matter of procedures we normal requesting bidders to submit information such as bank statements, loss and profit, turnover, evidence of credit facilities etc. In the evaluation process especially Post-qualification [Due Diligence] firm fail to meet criteria set forth in the solicitation documents regarding financial soundness denied award of the contract. On the other hand, advance payment is the loan given to the firm without interest awarded contract to cater for mobilizing.

Recently, friend of mine informed that they have awarded the contract to the contractor and they have already conducted site handover as mark for commencement of the project but the contractor has not started works even temporary works citing that he will start works when advance payment paid as stipulated in the contract. It is six months have elapsed now but nothing is going on. Friend of mine informed that during evaluation stage it was revealed that the contractor was liquid in terms of working capital and credit facilities BUT yet to start works waiting for advance payment. Now, he was concerning on the essence of rigorous procedures of ascertaining financial soundness of the firm, if the firm cannot use its financial resources until it paid the advance payment take into account that advance payment is loan without interest?

PLEASE YOUR OPINION IS VITAL.


Last edited by RJM on Mon Jan 25, 2010 2:08 pm; edited 2 times in total

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