Many contracts in Kenya pay part of the contract sum — commonly 10% to 30% — before any work is done. This "advance" or "mobilisation" payment lets the contractor buy materials, move plant to site and pay initial labour. In return, the employer wants security that if the contractor takes the money and does not deliver, the advance can be recovered. That security is the advance payment guarantee (APG), also called an advance payment bond.

What is an advance payment guarantee?

An APG is an undertaking from a surety — an insurer or bank — to the employer that the advance will be repaid if the contractor fails to meet its obligations. Its value equals the advance paid. Unlike a performance bond, an APG is designed to reduce over time: as the advance is recovered through deductions from interim payment certificates, the guarantee value steps down, and it is released once the advance has been fully recouped.

How it works

  1. The contract provides for an advance payment against an APG of equal value.
  2. The contractor arranges the APG through OPIB and it is issued in favour of the employer.
  3. The employer releases the advance.
  4. As work is certified, the employer deducts an agreed percentage from each payment to recover the advance, and the APG value reduces in step.
  5. Once the advance is fully recovered, the APG is released.
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Make sure the reduction mechanism in the guarantee matches the recovery schedule in the contract. If it does not step down, you can end up paying for cover on money you have already repaid.

APG vs performance bond

They do different jobs. A performance bond covers non-performance of the whole contract and is usually fixed at around 10% of the contract sum. An APG only secures repayment of the advance — it starts at 100% of the advance and reduces to zero. On contracts that pay an advance, you normally need both.

Why take the advance at all?

Without an advance, you fund mobilisation from working capital or short-term borrowing, which is expensive and slow. An APG lets you access the client's money for the cost of the guarantee alone, so cash flow is not the thing that stops you starting.

What OPIB does for you

  • Places the APG with an IRA-licensed insurer and negotiates the rate.
  • Aligns the reduction schedule with your interim payment terms.
  • Keeps the guarantee value stepping down so you are not over-charged.
  • Manages expiry, extension and release, and pairs it with your performance bond.