As name suggests, it is a payment for the part works or on account payment to the contractor to facilitate his cash flow in order to avoid bankruptcy. For example, if a contractor awarded for a 200 million worth of project and there
is no allowance for interim payment application till completion of project, there will be no cash inflow to the contractor. It make some trouble for the smoothness of his business. To explain the application process, the following sample is attached above, but according to different projects application template will be varied.
In traditional method of construction, Client, Consultant & Contractor are main stakeholders of any project. According to industry technical terms, Client may be known as employer or owner whereas Consultant is known as Engineer. In Quantity Surveying terms, preparation of interim payment application is known as valuation.
sum is defined as amount accepted in letter of acceptance (By Contractor) of acceptance for execution and completion of the works and the remedying of any defects. In simple words, this is sum agreed at contract awarded time. It can be increased or decreased after the real execution. (Scope changes/Variation).
of valuation means the date that payment application considered so far. In other words, all the value of works done up to that date are claimed in that payment application. Progress bill number reflects serial number of the application. These applications can be sent every month or after completion of certain value of work, etc. That depends on different project and contracts.
Value of the work done is calculated by multiplication of completed quantities and agreed rate for one unit of work. (Refer BOQ Sample). Material on site (MOS) refers as the value of material not installed at site now, but it can be used for very near future. Contractor can apply for part value of that materials by submitting invoices to engineer. After the execution of work by using same materials, the value given for material on site will be deducted for contractor’s amount.
Price escalation means allowance agreed for the price escalation for major materials (Reinforcement, Cement, etc.).If it is allowed contractor will not suffer for any price escalation, but once again it is different to one contract to another.
Variations can be defined as changes to the original contract. It shall be additions or omissions depends on the changes. Other additions allow to cover any additional costs which are not covered in heading mentioned above. Subtotal 1 is the addition of the highlighted items.
Foreign component& Bank charges are the costs incurred by employer on behalf of contractor. It should be deducted from contractor’s account. Sub-total 2 is calculated by Sub-total 1 minus foreign component and Bank charges.
Retention is the value of sum retained by employer for any future defects on the work done by contractor. It is calculated by a certain percentage of work done for interim payment application. Maximum amount of retention is decided on the contract sum. Generally it is 5% or 7.5% of the contract sum. Value of material on site should be excluded for the calculation of retention.
Advance recovery is calculated by a certain percentage of work done so far till to cover the advance given to the contractor. Amount previously certified is the total amount of money certified before this application is made. Other
deductions cover any other additional cost which should be deducted from contractor’s account. Total deductions is addition of retention, advance recovery, previous certified payments & other deductions.
Then finally gross amount is calculated by the difference between sub-total 2 and total deductions. This will be amount given to the contractor as payment for particular application. But all these to be justified by proper back-ups.
Otherwise contractor will not be paid the amount as he applied. There is chance for difference between contractor’s applied amount and engineer’s certified amount.