Advance Payment Bonds in Singapore

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Advance Payment Bonds protect clients against losing down-payments due to contractors who fail to begin work, or become bankrupt/uncontactable.

If you’ve paid a down-payment for a project and are looking to protect your deposit, you’ve come to the right place. At Provide, we offer comprehensive & affordable Advance Payment Bonds. Our quick response times mean that you can have your bond requirements easily addressed, allowing you to focus on running your business.

What are Advance Payment Bonds?

In many construction-related projects, your contractor may ask for a down-payment to begin work. An Advance Payment Bond is an insurance policy that protects your down-payment in case your contractor defaults on the down-payment. This could happen if the contractor doesn’t begin work, goes bankrupt, or just disappears with your down-payment funds.

How do Advance Payment Bonds work?

Advance Payment Bonds will pay out their insured amount to the client who has paid a downpayment to the contractor, but the contractor (for whatever reason) is unable to start work. To better understand how this process works, we should first understand the 3 main parties that are involved in an Advance Payment Bond.

The 3 key parties in an Advance Payment Bond:
1. Principal (the contractor who is the party performing the physical works)
2. Beneficiary (the client who awards the contract)
3. Surety (the insurance company)

In the event that the contractor fails to start their work, the client can activate the Advance Payment Bond. Once the bond is activated, the insurer will pay the client the insured amount. The insurer will then seek to recover the claim amount which they paid to the client from the contractor.

When do you need an Advance Payment Bond? How much coverage should I have?

Advance Payment Bonds are only required if you have to make a down-payment to a contractor or supplier. Instead of simply trusting the contractor to hold up their end of the contract, it’s best to secure your down-payment with an insurance policy, backed by a reputable insurer. This way, you can rest assured that the deposit you’ve paid is safe and secure.

Typically, coverage amounts will equal the size of the down-payment that you intend to place with the contractor.

What other bonds are typically used alongside Advance Payment Bonds?

Usually, Advance Payment Bonds are combined with additional bond types to provide maximum protection to the client. Some of the most common bonds used include:

Project stage	Type of insurance bond required	Purpose of bond
Down-payment	Advance Payment Bond	Protects deposit money from being lost if the contractor is unable to start work or goes bust/missing
Physical works begin (e.g. construction, installation, etc.)	Performance Bond	Protects client from contractor not fulfilling their contractual obligations (e.g. providing sub-standard work)
Physical works end	Performance Bond
Post-completion	Maintenance Bond	Protects client from contractor not performing required repair works

When working on projects requiring manual labour, what other types of insurance are important?

Whenever physical work is involved, injuries and property damage are the most common causes for insurance claims. These injuries and property damage could either occur to your own company, or to third-parties.

It’s important to carry Workman Compensation (WICA) Insurance to protect your workers. This covers your company against liability from work-related injuries and sickness. MOM legally requires all employees who perform manual work, or for any employee who is paid less than SGD 2,600/month, to be covered by WICA insurance. If any of your workers are foreigners, MOM also requires each worker to have I) $15,000 worth of Foreign Worker Medical Insurance (FWMI Insurance), and II) a $5,000 Foreign Worker Security Bond.
It’s a good idea to have Contractor’s All Risk Insurance. A Contractor’s All Risk policy includes Public Liability Insurance, so that you are covered for property damage and injury liabilities to third-parties. This policy also includes comprehensive cover for potential damage to your client’s property, and coverage for damage to your own machinery & equipment.

Advance Payment Bonds vs Performance Bonds

	Advance Payment Bond	Performance Bond
Purpose	Protect client against contractor not starting work, going bankrupt, running away with down-payment money	Protect client against contractor failing to meet contract requirements (e.g. performing shoddy work, providing faulty designs, etc.)
Common use cases	· Construction projects · Installation projects · Upgrading projects · Servicing projects	· Construction projects · Installation projects · Upgrading projects · Servicing projects
Bond structure	Usually on-demand	Either on-demand or conditional

How much do Advance Payment Bonds cost in Singapore?

The premiums for Advance Payment Bonds can range between 1-3% of your down-payment amount. Premiums will vary across a wide range, depending on the financial profile of each applicant. The key factors that affect the bond premium include: financial profile of the client and the contractor, the type of project and level of risk involved, any previous bond claims, and the profiles of your company directors.

Since these factors can vary significantly, each Advance Payment Bond is underwritten individually by skilled experts. The quickest way to get a quote and have your bond issued is to send us an enquiry, so that we can begin working on your Advance Payment Bond application right away.

With Provide, you save up to 25% on your premiums. Our digital operating model creates lower overheads, and we pass every dollar saved back to our clients.