Advance Payment

When a contractor lacks the working capital to start work on your federal contract, you might need to arrange payment before anything's been delivered. That's an advance payment—money transferred upfront, before work is performed or goods arrive. It's exceptional in Canadian procurement, requiring specific approvals and security measures, but it serves an important purpose for small businesses and Indigenous contractors who otherwise couldn't take on government work.

How It Works

According to the Guide to Advance Payments, these payments are made "by or on behalf of Her Majesty before the work, delivery of the goods, or rendering of the service has been completed." The key distinction? They're issued only in exceptional circumstances and won't exceed the expected value of what you'll actually receive in that fiscal year.

Here's how the approval process works. The contracting authority under subsection 8(1) of the Government Contracts Regulations can authorize advance payments—but only if they're explicitly provided for in the contract itself. If your contract requires Treasury Board approval, then the advance payment does too. You'll need to document everything properly to allow certification under section 34(1)(a)(ii) of the Financial Administration Act. The Supply Manual emphasizes that this isn't casual—proper contracts or agreements must be in place before money changes hands.

In practice, advance payments differ from progress payments, which happen after the contractor hits specific milestones or completes portions of work. The Supply Manual's Chapter 11 on Contract Management notes that CRA considers advance payments to be progress payments for tax purposes, but procurement-wise, they're distinct animals. You're also dealing with different regulations than accountable advances, which fall under the Accountable Advances Regulations and serve different purposes entirely.

Key Considerations

• Security requirements are non-negotiable. You'll typically need guarantees protecting the Crown's interests—banks don't hand out advances without collateral, and neither does the government.

• Treasury Board oversight kicks in fast. The Directive on Payments (subsection 4.1.1) and sections 34 and 38 of the Financial Administration Act govern this territory. Miss a step in the approval chain, and you're looking at serious compliance issues.

• Fiscal year limits matter. You can't advance more than what you expect to receive back in goods or services within that fiscal year. This keeps advances from becoming unauthorized loans.

• Documentation standards are higher than normal. Your contract file needs to justify why this contractor genuinely needs the advance and why the Crown's interests are protected. "They asked for it" won't cut it during an audit.

Related Terms

Progress Payments, Holdback, Letter of Credit, Contract Security

Sources

• Guide to Advance Payments - Treasury Board of Canada Secretariat

• Government of Canada Supply Manual - Public Services and Procurement Canada

• Directive on Payments - Glossary - Treasury Board of Canada Secretariat

If you're considering an advance payment, start the conversation with your financial and legal teams early. The approvals take time, and the documentation requirements are substantial enough that you'll want everything lined up before the contractor expects money to flow.