Project managment

Handling interim payments

Under the ICE conditions, regular payments based on the quantity of work done during the previous month, must be made by the employer to the contractor at monthly intervals. The amount of work done is measured by the engineer under the contract, and valued in accordance with the terms of the contract. The engineer then issues a certificate of payment showing the amount which the employer must pay to the contractor. Occasionally other intervals for payment may be agreed to suit accounting periods, for example, payments at 4 weekly intervals. Sometimes it is agreed that two out of every 3 monthly payments are approximate valuations of work done; thus only the quarterly payments are based on a detailed measurement of work done.
While the ICE conditions and other standard forms have long had such payment terms, many bespoke forms, such as those for sub-contracts, have different terms for payment. The Housing Grants Construction and Regeneration Act 1996 (see Section 1.6) now requires that all UK construction contracts contain terms allowing regular payment and means of assessing the amount due.
The Act also outlawed pay-when-paid clauses.
The ICE conditions require certification by the engineer within 25 days of the contractor submitting his account with payment made within 28 days. If payment is late the contractor can charge interest on the overdue payment at 2 per cent per annum above bank rate for each day late.
These are onerous requirements. During the period of 28 days, the resident engineer has to check the contractor’s account, amend it as necessary and forward it to the engineer whose contracts department may need to check it. The engineer then issues his certificate and sends it to the employer. If the employer is a government, local government or other statutory authority it may need more than one person to authorize payment, and the account then has to be passed to the paying department of the authority. The stipulation of  28 days represents 20 working days which may seem unreasonably short. A longer period may sometimes be appropriate. Few, if any, contractors pay their suppliers’ accounts in 28 days.

Under FIDIC conditions for international work the engineer has 28 days within which to issue a certificate for interim payment, and the employer a further 28 days within which to make payment.
As a consequence of the short time period for payment under ICE conditions, the resident engineer must try to agree quantities, or the value of work done, with the contractor before he draws up his account. The contractor will need to be warned that if he submits quantities or items for payment which have not been prior agreed, there will be no time for the resident engineer to hold discussions on them; he will substitute his own measurement or amount payable in lieu.
The contractor should be required to submit at least two copies of his interim account in a standard form which is set out in the specification to the contract (see Section 13.7). The account should be in a form agreed beforehand, having three quantities columns showing ‘Paid last certificate’, ‘Addition this certificate’ and ‘Total to date’. The account will no doubt comprise computer printouts which need checking to ensure bill rates are as tendered and the charges are arithmetically correct. Where the resident engineer does not agree with items charged he should mark both copies before sending one copy to the engineer. Subsequently the engineer may notify the resident engineer of any further amendments made by him (or his contracts department), which must be entered on the resident engineer’s copy, and he must send a letter to the contractor notifying the detail of all amendments made to his account.
An important point the resident engineer should remember is to mark on all accounts the date of receipt.
It should be remembered that monthly payments are only interim in nature and can be adjusted for in a subsequent month if found to be wrong. Only the final account decides the amount due under the contract.

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