Construction projects are generally long-term engagements that require a lot of capital. Therefore, different funding arrangements are required for contractors to control their cash flow. If contractors do not receive interim payments during the construction for what they have already constructed, they need higher capital to finish the contract. Then, the cost of money for the required capital will be reflected in the tender sum. Therefore, it is a usual practice to include a clause in any Condition of Contracts enabling interim payments to contractors. This will help to relieve the contractor of the burden of financing the whole of the work.
Any certificate of payment issued by the Engineer before the Final Payment Certificate is defined as an interim Payment.
It is how the contractors receive progress payments during the construction. Interim certificates are normally issued monthly. However, on very large contracts, a shorter period also may be specified.
An interim valuation involves a re-valuation of the whole work up to the time of measurement. It is not the valuation of work done since the last payment was issued. When preparing an interim valuation, it should be treated as a mini final account, because it largely reflects all the elements which appear in a final account.
Another important matter is an interim valuation needs the same scrutiny as final accounts. It must be a genuine valuation of work done up to the time of measurement. If the valuation is lower, it creates unreasonable financial problems for a contractor. Similarly, a high valuation makes a risk to the employer of paying added amounts without having any benefit.
Anyhow, an interim certificate is not definite about anything. It says nothing about the quality of materials or workmanship. Also, it does not indicate satisfaction with the work done to date. Anything included in an interim certificate may be changed, if necessary, with a later certificate. It is only the final certificate that is ever conclusive. Therefore, the only commitment covered from an interim certificate is an obligation on the employer to make a payment within the stated time in Condition of Contract. Failure to pay within the stipulated time is a breach of contract.
Almost any standard form of contract mentions an entitlement on the part of the contractor to receive interim payments. These payments assist in the contractor’s cash flow. However, the actual determination of the contractor’s entitlement is made when preparing the final certificate. Therefore, interim payments are sums paid on account of whatever the contractor might ultimately be entitled to receive from the Employer.
Most standard forms make the issue of a certificate a condition precedent to the contractor’s right to payment.
CIDA (ICTAD)/ SBD / 01 – in Sri Lanka
As per the CIDA (ICTAD)/ SBD / 01, (Clause 42.1), the Contractor can submit to the Engineer monthly statements of the estimated value of work done less the cumulative value certified previously. Interim valuations are always carried out on a cumulative basis; the quantity surveyor will value the whole of the work executed up to the valuation date and then sums previously certified will be deducted.
(Clause 42.2), The Engineer has to check the statement, certify the amount to be paid to the contractor and submit it to the Employer within 21 days of receipt of the bill. The amount certified after appropriate deductions must be greater than the minimum amount for interim payment certificate as stated in the Contract Data.
After adjusting for deductions for advance payments (Clause 51.3) and retention (Clause 48.1), the Employer has to pay the Contractor within 14 days of receipt of the bill, (Clause 43.1).
The Engineer can make any corrections or modifications to any previous payment certificate in light of the latter information (Clause 42.6).
The Interim Bill may contain;
1. The Value of the permanent works executed up to last measurement date for any item in the B.O.Q, including for contractor’s equipment, temporary works, nominated subcontractors’ / nominated suppliers’ works, and the like, (Clause 42.4),
2. The value of work executed under variations, (Clause 42.5),
3. The 80 percent invoice value of materials delivered by the Contractor onto the site for incorporation in the permanent works but not yet incorporated in such works, (Clause 42.5),
4. Adjustments for price variations, (Clause 47.1),
5. Value of compensation events, (Clause 42.5),
Note: The Practical Completion Bill also can be considered as an Interim payment.