Most standard conditions of contract contain specific provisions for interim payments and require payment of interest to the contractor if the employer fails to pay on time. The timing of these interim payments as the work proceeds is of importance to both employer and contractor. A contractor has to lay out large sums of money to get work started, especially on overseas jobs; hence the earlier he can receive substantial payments the less he has to borrow from his reserves or the bank.
On the other hand the earlier the employer has to pay out money, the more interest he will have to pay on his borrowings to fund the project. Also, he cannot pay out too large a sum or he may not recover his payment should the contractor get into financial difficulty and be unable to complete the work. The same result can follow if he pays out too little, and forces a contractor who is not in a strong financial position into further financial difficulties (see also subsection (e) below).
In the UK the Housing Grants, Construction and Regeneration Act 1996 set out terms which must be included in construction contracts (see Section 1.6).
These include a requirement for a clear system of payments by instalments, notice of the payment due and a date for payment, and notice of any money withheld. Where a contract does not contain the requirements of the 1996 Act, The Scheme for Construction Contracts Regulations 1998 applies, setting out details of the payment provisions required by the 1996 Act. Most engineering standard forms used by employers already contained terms largely complying with the 1996 Act.