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The Advance Performance Guarantee is a crucial document in commercial transactions where advance payments are required before contract performance begins. It provides financial security to the paying party (beneficiary) by ensuring that a bank will repay the advance payment if the contractor/supplier fails to perform their obligations. This guarantee type is particularly common in Hong Kong's construction, manufacturing, and international trade sectors, where significant upfront payments are standard practice. The document must comply with Hong Kong banking regulations and contract law, typically including specific provisions for demand procedures, expiry conditions, and enforcement mechanisms. The guarantee amount usually corresponds to the advance payment amount and reduces progressively as the underlying contract is performed.

1. Parties: Identifies the Guarantor (usually a bank), the Principal (contractor/supplier), and the Beneficiary (employer/buyer)

2. Background: Details of the underlying contract being guaranteed and the context for providing the guarantee

3. Definitions: Key terms used in the guarantee including Contract Sum, Guaranteed Amount, Expiry Date, and Demand

4. Guarantee and Indemnity: Core provisions setting out the guarantee obligations and maximum guaranteed amount

5. Conditions for Payment: Specific circumstances under which the guarantee can be called upon and payment procedures

6. Form and Method of Demand: Requirements for making a valid demand under the guarantee, including notice requirements

7. Duration and Expiry: Term of the guarantee, expiry conditions, and any extension provisions

8. Reduction and Release: Circumstances and process for reducing the guarantee amount or releasing the guarantee

9. Assignment and Transfer: Restrictions on assignment or transfer of rights under the guarantee

10. Governing Law and Jurisdiction: Specification of Hong Kong law as governing law and jurisdiction for disputes