Payment

Question 1

What are the 3 payment types? explain the 3 types

Answer 1

Advance payment; not allowed in uk
Interim payment;
Final payment

Question 2

What is an interim valuation?

Answer 2

An interim valuation is when the total cost of that period is valued and a financial sum is provided to the contractor from the client.

An interim valuation gives the Contractor an opportunity to view how that period was valued in the PM’s point of view

Question 3

What is a bond?

Answer 3

A bond allows the client/contractor (in this scenario the client) to directly gain a financial amount back when the other party becomes insolvent. The bondsmen must provide the financial amount back to those who receive the bond.

Question 4

When is a Contractor entitled to periodic payments?

Answer 4

Contractors are entitle to periodic payments unless projects has duration of less than 45 days

Question 5

What if no amount or interval has been agreed?

Answer 5

Part II of The Scheme determines the amount and interval

Question 6

What is an interim certificate?

Answer 6

Interim certificates provide a mechanism for the client to make payments to the contractor before the works are complete.

Question 7

State the key dates in order to provide a interim payment certificate and interim payment.

Also how many days before the interim payment is a witholding notice required?

Answer 7

1. Contractor/QS calculates payment 7 days before the interim certificate
2. 5 days payment notice by CA after the due interim certificate
3. 14 days to make the payment for the interim payment
4. 5 days before the interim payment to provide a withholding notice.
5. An interim certificate period is 1 month long

Question 8

What is included in the Interim Valuation Payment ?

Answer 8

1) Measured works;
2) Preliminaries;
3) Value of variations;
4) Materials on site Cl.4.16.2;
5) Off-site materials and goods – Cl.4.17;
6) Fluctuations – Cl.4.21;
7) Retention – Cl.4.18;
8) Claims – Cl.23.

Question 9

Name the different types of Certificates in JCT and NEC

Answer 9

JCT
Interim Certificate
Final Certificate
Practical Completion 
Non-Completion
Completion of making good

NEC
Completion Certificate
Defect Certificate
Payment Certificates

Question 10

How is the payment calculated in NEC?

Answer 10

The PM assess the amount on each assessment date and provides an interim payment certificate within 1 week of the assessment date.

Question 11

When are the assessment dates in NEC?

Answer 11

The first assessment interval is decided by PM

The assessment dates occur at the end of each assessment interval until 4 weeks after the Superverisor issues the Defects Certificate and on the Completion date.

Question 12

What is the payment procedure in NEC?

Answer 12

7 days before the certificate is the PM assessment

21 days to provide payment for the PM certificates

Question 13

How do the main option clauses affect the amount of payment?

Answer 13

The rules for calculating amounts due for both interim and final payments vary according to the main options used

Question 14

What is the payments for in Option C of NEC?

Answer 14

1. Interim amounts – defined cost plus fee

2. Final amount – tendered price as the activity schedule plus or minus the contractor’s share

Question 15

Does the Contract need to submit a payment application?

Answer 15

NEC
No, the PM must calculate the payment even if the Contractor does not provide a payment application

JCT
Contractor must provide a payment application 7 days before the interim certification date.

Question 16

How is the assessment of payment judged in Option A in comparison to Option C?

Answer 16

Option A
assessment of the amount due is a straightforward matter of deciding which activities have been completed.

Option C
payments are based on costs paid or incurred, the assessment process can be time consuming and complex.

If costs are saved, the financial sum is appropriately split in proportion

Question 17

Is retention included in the payment?

Answer 17

applies only when secondary option X16 is incorporated

Question 18

Summarise Clause 51.1 NEC

Answer 18

1. Subsequent payments are changes in amounts due from certificate to certificate
2. If the change is a reduction the contractor pays the
   employer
3. The project manager is required to certify payment
   within 1 wk of each assessment date
4. The first payment is the whole amount certified (subject to any retention)

Question 19

What works do not attract retention?

Answer 19

a) Fluctuations valued from using traditional method
b) Loss and/or expenses claims
c) Cost of opening up works (if found to be meet spec)
d) Statutory fees
e) Insurance payments by the contractor

Question 20

When is one half of the retention released and when is other half of the retention released?

Answer 20

1st half

a) Issue of Practical completion certificate;
b) Issue of Sectional completion certificate – limited to section
c) Partial possession – limited to part Cl. 2.33;
d) Final payment to nominated subcontractors

2nd half
Other one-half release at the issue of Certificate of Making Good

Question 21

What is the difference between a retention and retention bond?

Answer 21

Retention
Retention is a percentage of the amount certified as due to the contractor on an interim certificate that is retained by the client.

Retention Bond
The client agrees to pay the amounts which would otherwise have been held as retention, but instead a bond is provided to secure the amount that would have been retained. As with retention, the value of the bond will usually reduce after practical completion has been certified.

Question 22

What is the purpose of a bond?

Answer 22

Bonds protect the client if the Contractor becomes insolvent. For example, if the contractor becomes insolvent, the bonds are directly paid back to the client by the bondsmen.

Question 23

What are fluctuations? and where is it found in JCT? How many fluctuations are there?

Answer 23

Fluctuations reimburses the contractor for changes in
input prices. Fluctuations are mostly effective when it is a long-term project such as 2-10+ years.

If the fluctuations method has not been mentioned, option A is the default fluctuation method.

Question 24

Main items need to be considered in interim valuations?

Answer 24

1) Measured works;
2) Preliminaries;
3) Value of variations;
4) Materials on site Cl.4.16.2;
5) Off-site materials and goods – Cl.4.17;
6) Fluctuations – Cl.4.21;
7) Retention – Cl.4.18;
8) Claims – Cl.23

Question 25

Explain Option 3

Answer 25

Option C is a target cost contract with an activity schedule

Option C (pain and gain share option) is a main clause option which allows the Contractor and Client to collaborate.

The out-turn financial risks and cost savings are shared within an agreed proportion.

Question 26

What is a certificate?

Answer 26

An exercise of the judgement, of the engineer, architect, or surveyor in relation to some matter provided for by the terms of the contract

Question 27

How is the majority of the payment details and structure decided in NEC?

Name the clauses

Answer 27

Much of the detail is found in the core clauses applicable to particular main options

Clause 11

Clause 53 – the contractor’s share
Clause 54 – the activity schedule
Clause 55 – the bill of quantities
Depend upon which main option was utilised

Question 28

When is interest due on payment?

Answer 28

Interest is due on late certification, under-certification or late payment (Clause 51.2 and 51.3)

Question 29

How many days is 1 period of an interim certificate? NEC

Answer 29

1 month (28 days)

Question 30

What is the difference between a performance bond and payment bond?

Answer 30

A type of contract surety bond which guarantees that a principal will fulfill their contractual obligations under a project.

A type of contract surety bond which guarantees that a contractor or subcontractor will pay their subcontractors, material suppliers or laborers for the work and materials provided

Question 31

What is a payment mechanism? State the popular payment mechanisms

Answer 31

Lump Sum

Fixed Price

Question 32

A fifteen storey block of flats, Victoria Tower, has been allowed to deteriorate ever since a disastrous fire last century. New County Heritage is prepared to fund
substantial restoration and has commissioned a detailed survey and report on the fabric of the building. A contractor will be required to carry out clearance and
opening-up to allow investigation work.

a) Critically examine which form of contract and payment mechanism you will
recommend for this project including responsibilities of the contractor for safety.

Answer 32

JCT Repair and Maintenance contract as a detailed survey and report is ONLY required. Contractor is only entitled to periodic payment if the project lasts longer than 45 days.

Lump sum or Fixed Price.

Responsibilities of the contractor for safety.

With lump sum, the contractor holds the risk as the project sum has been agreed before the contract.