Project managment

Payment of lump sums, method related items and any adjustment item

Unless there is some stipulation that a lump sum is to be paid in stages it only becomes payable when the whole of the work itemized under the lump sum is completed. However, fairness has to be applied when an item combines two operations and nothing is stipulated about staged payment. Occasionally a lump sum item reads: ‘Provide and set up engineer’s offices as specified and remove on completion’ so in theory the item is not payable until the end of the contract. At the tender negotiation stage, agreement should be reached as to how the sum is to be paid; but if the matter has been missed then it is up to the resident engineer to suggest how the item should be paid – perhaps 80 per cent on set-up; 20 per cent on removal, or some other proportion. Lump sums for such as insurance can be certified for payment as soon as the contractor produces evidence of insurance.
Payment of method-related items (see Section 15.10) will depend on whether any special conditions have been laid down about them for staged payment,  or if not, payment will be dependent on whether they are fixed or time-related.

Fixed sums would be paid as mentioned above for ordinary lump sums, but problems can arise if the item description is imprecise. Thus if the contractor has added some method-related item for ‘scaffolding’ or ‘site transport’ as a fixed sum, it has to be further defined to relate to some specific scaffolding or specific transport; otherwise it is too vague to identify and cannot be paid until substantial completion.
When method-related sums are time-related they are paid in monthly instalments, but the proportion paid will depend on when completion of the relevant task will be reached. Thus if an item is completed when substantial completion is achieved, and the programmed time for this is 18 months then,
1/18th payment is added at the end of each month. But if it then appears that substantial completion will not be reached until month 20, the total payment due at month 7 is 7/ 20ths. This is irrespective of whether the delay in completion is due to the contractor’s tardiness or to an authorized extension of the contract period. The reason for this approach is that method-related items are defined as covering ‘costs not to be considered as proportional to the quantities of the other items’. If an extension of the contract period has been granted, then any claim for extra payment on that account is a separate matter to be decided by the terms of the contract. The lump sum payable under a method-related item remains unaltered.
An adjustment item in the form of a lump sum (see Section 15.11) is paid in the same proportion as the total payment due under other items less retention, bears to the total contract sum, less the adjustment item. If a percentage adjustment has been quoted, this is applied to the total amount payable under bill items and variations. In both cases the retention money is deducted after adding in the adjustment item.

Tags

Related Articles

Close