Working capital

Mobilisation Advance in EPC Contracts: Recovery, Guarantees and Cost

A mobilisation advance looks like free cash at the start of a project. This guide covers CPWD and central government rules on interest, recovery from RA bills and bank guarantee cover, the GST position, and a worked example of what the advance really costs.

1 October 20269 min read

A mobilisation advance is money a client pays an EPC (engineering, procurement and construction) contractor before work has been billed, to fund setting up the site. On Indian government contracts it is usually interest-bearing, secured by a bank guarantee and recovered from the contractor's running account bills, so it is a loan with conditions rather than free cash.

This guide is general information, not legal, tax or accounting advice: your contract and your advisers decide what applies to you.

What is a mobilisation advance in an EPC contract?

A mobilisation advance in an EPC contract is an advance payment from the client to the contractor for the costs of mobilising: site establishment, camps, initial plant and the first materials. The contractor repays it through deductions from later bills, usually with interest, and secures it with a bank guarantee until it is repaid.

The Department of Expenditure's Manual for Procurement of Works (June 2022) describes "an interest-bearing mobilisation advance to be paid to the contractor exclusively for the costs of mobilisation at 10 (ten) per cent of the contract price on the provision by the contractor of an unconditional BG" (Manual for Procurement of Works, para 6.5.3).

A mobilisation advance is not a secured advance on materials or a plant and machinery advance; both are separate advances with their own terms.

How much mobilisation advance is allowed on CPWD and central government works?

On CPWD works, the mobilisation advance is capped at 10% of the tendered value, paid in two or more instalments, at simple interest of 10% a year. The central government works manual sets the same 10% of contract price, suggesting two instalments of 5% each.

CPWD General Conditions of Contract 2019, Clause 10B:

Amount: not exceeding 10% of the tendered value, if requested in writing within one month of the order to commence work.
Instalments: two or more; each later one only after proof of satisfactory use.
Interest: simple interest at 10% a year, from the date of payment to the date of recovery, both days inclusive.
Bank guarantee: from a scheduled bank, 110% of the advance, kept renewed to cover 110% of the balance until recovery.
Recovery: starts after the first 10% of the gross value of work is executed and paid; the advance and interest are fully recovered by the time 80% of the gross contract value is executed and paid.

The Manual for Procurement of Works (para 6.5.3) sets the same 10%, in two instalments of 5% each, against an unconditional guarantee "progressively reduced by the amount repaid", with recovery terms left to the contract.

Sources: CPWD General Conditions of Contract 2019 (copy read: NIPER Hyderabad tender set); Manual for Procurement of Works, June 2022. A state government, a PSU or a private client can set different terms, so the contract governs.

Why is the mobilisation advance interest-bearing?

The mobilisation advance is interest-bearing because the Central Vigilance Commission (CVC) says it should be, so contractors draw it only when cash flow needs it. The CVC guidance says the advance "should be interest bearing so that contractor does not draw undue benefit" (Ref. UU/POL/19, 8 October 1997, as reproduced in a CVC guidelines booklet).

The same booklet records that the Commission "does not encourage interest free mobilization advance"; where one is given, recovery "should be time-based and not linked with progress of work", and the guarantee "should be at least 110% of the advance" so it covers interest as well as principal (Ref. 4CC-1-CTE-2, 10 April 2007).

How is a mobilisation advance recovered from RA bills?

A mobilisation advance is recovered by deducting a percentage from each running account bill (RA bill) once billing passes a threshold, until the advance and its interest are cleared. Under CPWD Clause 10B, recovery runs pro rata on the gross value billed between 10% and 80% of the contract value.

That band is 70% of the contract value, so on CPWD terms the recovery rate per bill is the advance divided by 70% of the contract value. With a 10% advance, that is 10 ÷ 70, or about 14.3% of the gross value of each bill in the band, before retention, taxes and other deductions.

During the recovery band, every RA bill pays out less than the work certified, so cash planned on the gross bill falls short every month.

What does a mobilisation advance really cost?

A mobilisation advance costs the interest on the outstanding balance plus the guarantee commission on 110% of it. Whether that is cheap depends on your own cost of funds.

Illustrative example (round numbers, not drawn from any client or benchmark):

Contract value: ₹200 crore, billed evenly at ₹10 crore a month over 20 months.
Mobilisation advance: 10%, so ₹20 crore, treated as fully outstanding from month 0 for simplicity (CPWD actually releases it in two or more instalments).
Interest: 10% a year, simple, on the outstanding balance (CPWD Clause 10B).
Bank guarantee: 110% of the outstanding balance; commission assumed at 1% a year as an illustration only. Ask your bank for your real rate.
Recovery: CPWD pattern, starting after ₹20 crore (10%) is billed and ending at ₹160 crore (80%).

Phase	Months	Cumulative gross billed	Advance recovered per bill	Advance outstanding at end of phase
Before recovery	1 to 2	₹0 to ₹20 Cr	Nil	₹20 Cr
Recovery band	3 to 16	₹20 Cr to ₹160 Cr	₹20 Cr ÷ 14 bills = ₹1.43 Cr (14.3% of each ₹10 Cr bill)	₹0
After recovery	17 to 20	₹160 Cr to ₹200 Cr	Nil	₹0

The arithmetic, in crore-months of balance outstanding:

Months 1 and 2: ₹20 Cr × 2 = 40 crore-months.
Months 3 to 16: the balance steps down by ₹1.43 Cr after each bill, so the sum is ₹1.43 Cr × (14 + 13 + ... + 1) = ₹1.43 Cr × 105 = about 150 crore-months.
Total: 190 crore-months, or 15.8 crore-years.
Interest: 15.8 × 10% = about ₹1.58 crore.
Bank guarantee commission: 110% × 15.8 × 1% = about ₹0.17 crore.
Total cost: about ₹1.76 crore on ₹20 crore of advance, roughly 11% a year on the average balance.

On those assumptions, the advance pays only if your alternative funding costs more than about 11% a year, and more still if the bank holds margin money against the guarantee.

The cost moves with the billing cycle. Because CPWD recovery is linked to work executed and paid, a slow RA bill cycle keeps the advance, its interest and its guarantee running longer. Under time-based recovery the reverse happens: deductions continue on the calendar even when billing slips, squeezing working capital exactly when the project is behind.

Is GST payable on a mobilisation advance?

GST is generally treated as payable when the mobilisation advance is received, not when it is adjusted against later bills, under the time of supply rule in Section 13(2) of the CGST Act. Confirm with your tax adviser.

The Gujarat Authority for Advance Ruling, in Advance Ruling No. GUJ/GAAR/R/2022/06 dated 7 March 2022 (M/s SP Singla Construction Pvt. Ltd.), ruled that the time of supply on such advances "is the date of receipt of said advance" (ruling text, GST Council). A TaxGuru report states that the Gujarat Appellate Authority upheld this in January 2025. An advance ruling binds only the applicant and its jurisdictional officer. The cash consequence: part of the advance leaves as tax in the month it arrives.

How should a finance team track a mobilisation advance?

Track each mobilisation advance as its own liability per contract, reconciled to the recovery line on every RA bill.

A workable register holds, per contract: each instalment and its date, the recovery rule, the recovery actually deducted on each RA bill, interest accrued, the guarantee amount and expiry, and a named owner for renewal and reduction.

CPWD requires cover of 110% of the balance, not of the original advance, so a guarantee left at its original amount carries commission on cover the contract no longer needs. Billing delays hold up recovery as well as cash; see where working capital gets stuck in RA bills and how they lengthen the cash conversion cycle.

Where Crestline fits

Crestline is process intelligence software for EPC and construction companies. Crestline reads the event log an ERP already writes, read-only, from SAP, Oracle, Tally, Zoho or spreadsheets, rebuilds the real path each RA bill takes through certification and payment, and prices each delay in rupees, naming the step, the owner and the next move. Because advance recovery comes off RA bills, Crestline showing where the RA bill cycle waits also shows why an advance stays outstanding. Crestline is live in 15 days from the read-only connection being approved. The process mining approach Crestline uses explains how the cases are rebuilt.

What Crestline does not do: Crestline is not an ERP or accounting software and replaces nothing, does not write back to your systems, does not post accounting entries, and does not give legal or tax advice.

To see your own RA bill cycle mapped on your data, book a Crestline demo.

Key takeaways

A mobilisation advance is a conditional loan from the client: on CPWD works up to 10% of the tendered value, at 10% simple interest, against a 110% bank guarantee.
CPWD recovers it pro rata from RA bills billed between 10% and 80% of contract value, about 14.3% of each bill's gross value for a 10% advance.
In the illustrative ₹200 crore example, a ₹20 crore advance costs about ₹1.76 crore in interest and guarantee commission, roughly 11% a year on the average balance.
GST is generally treated as due on receipt of the advance; confirm with your tax adviser.
Step the guarantee down as the balance falls, with a named owner.

FAQ

What is the interest rate on mobilisation advance in CPWD contracts?

Under CPWD General Conditions of Contract 2019, Clause 10B, the mobilisation advance bears simple interest at 10% a year, calculated from the date of payment to the date of recovery, both days inclusive, on the outstanding amount.

How much bank guarantee is needed for a mobilisation advance?

CPWD requires a bank guarantee from a scheduled bank for 110% of the advance, kept renewed to cover 110% of the balance until full recovery.

When does mobilisation advance recovery start?

Under CPWD Clause 10B, recovery from the contractor's bills starts after the first 10% of the gross value of the work is executed and paid, and the full advance and interest must be recovered by the time 80% of the gross contract value is executed and paid.

Sources

Working capital