The Advance Payment Guarantee Bond is a crucial financial instrument in Indonesian business transactions, particularly in construction, infrastructure, and large procurement projects. It is required when a project owner (beneficiary) needs to make advance payments to a contractor or supplier (principal) but wants security against the risk of non-performance or default. The document is issued by a bank under Indonesian banking regulations, particularly complying with Law No. 7 of 1992 on Banking (as amended) and Bank Indonesia regulations. It typically includes details of the guaranteed amount, validity period, conditions for calling the guarantee, and reduction mechanisms as the main contract progresses. This type of guarantee is especially common in government contracts and large-scale private projects where significant upfront payments are required for mobilization or procurement of materials.
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1. Parties: Identifies the three key parties: (1) The Bank as Guarantor, (2) The Contractor/Supplier as Principal, and (3) The Project Owner/Employer as Beneficiary
2. Background: References the main contract between Principal and Beneficiary, including contract number, date, and project details that necessitate this advance payment guarantee
3. Definitions: Defines key terms used in the guarantee bond, including 'Advance Payment', 'Guaranteed Sum', 'Expiry Date', and 'Underlying Contract'
4. Guarantee: Core section stating the bank's unconditional guarantee to repay the advance payment amount upon valid demand
5. Guarantee Amount: Specifies the exact amount of the advance payment being guaranteed, both in numbers and words
6. Validity Period: States the effective date and expiry date of the guarantee bond
7. Demand Requirements: Specifies the conditions and procedure for making a demand under the guarantee
8. Reduction Clause: Details how the guarantee amount reduces in proportion to the delivery of goods/services under the main contract
9. Governing Law and Jurisdiction: Specifies Indonesian law as governing law and designates jurisdiction for dispute resolution
10. Execution: Signature blocks for authorized representatives of the bank
1. Counter Guarantee: Include when the principal provides counter-security to the bank - details the security arrangement
2. Assignment: Include when assignment of the guarantee rights needs to be specifically prohibited or regulated
3. Force Majeure: Include when specific force majeure provisions are required beyond standard banking practice
4. Language: Include when the guarantee might be issued in dual languages (Indonesian and English)
5. Stamp Duty: Include when specific stamp duty requirements need to be highlighted
6. Bank's Maximum Liability: Include when additional clarity on the bank's maximum liability and any additional costs is needed
1. Form of Demand: Template for making a valid demand under the guarantee
2. Copy of Underlying Contract: Relevant excerpts or full copy of the main contract between Principal and Beneficiary
3. Payment Schedule: Schedule showing the planned reduction of the guarantee amount over time
4. Authorized Signatories: List of authorized signatories from the Beneficiary who can make valid demands
5. Bank's Special Conditions: Any special conditions or requirements specific to the issuing bank
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