An advance payment bond is a particular form of performance bond, invariably written as an 'on demand' instrument. See Practice Notes: Performance bonds—construction projects and On demand performance bonds—construction projects. This Practice Note examines: • the nature of advance payment bonds • why they are used in the construction industry, and • the key features in the wording of the advance payment bond Why are advance payment bonds used? The typical payment procedure, under any building contract, provides that the contractor will be paid in instalments, as each stage of the works is carried out following inspection, quantification and certification by the contract administrator. In short, payment is in arrears, in respect of work already carried out. There will be circumstances in which an advance payment will be made to the contractor, for example to facilitate the contractor’s mobilisation procedures, or to assist the contractor to place orders for the long term manufacture and delivery of steel or other materials. Whenever an advance payment is made to a contractor, the employer is exposed to the risk of loss