The construction industry is basically an order-based industry and it is difficult to plan and prepare its production well in advance. In addition, a large amount of capital is required for starting construction works, especially large-scale public works.
Thus a prepayment system was introduced for a swift start and smooth execution of public works. Recently a midterm prepayment is sometimes added to the original prepayment for a better finance of the construction.
The procurement authority can expect a prompt start and smooth progress of the construction by providing its contractor with a substantial amount of capital for public works.
It can also reduce its procedural burden such as the inspections of the construction put-in-place to make corresponding partial payments.
The contractor is relieved from the task of securing capital resource for itself to start public works.
It can also start early negotiation with subcontractors and construction material suppliers to achieve advantageous terms.
It can benefit from easier and simpler procedures than those of acquiring loans from banks.
If the construction comes to an end unfinished because of the contractor’s fault, the procurement authority should be able to recover the corresponding amount of its prepayment to unfinished construction without lengthy legal procedure. Therefore, surety companies are registered under the law with strict conditions to operate necessary guarantee business, enabling the prepayment system to work smoothly.
If the construction is terminated midway and the value of the construction put-in-place is short of the amount of prepayment, EJCS promptly reimburses the procurement authority for the loss. The risk in the prepayment is therefore transferred to EJCS.
EJCS is, in other words, protecting public fund from undesirable damages.