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Lecture 4: Interim Payments

Mohd Sani Mohd Emran

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 INTERIM PAYMENTS
Introduction
Methods of payments to contractor normally determined by
size of jobs:
a. Small jobs - Contractor will be paid on completion (1
payment)
b. Big jobs - Contractor is to be paid in installments (many
payments until whole contract sum is settled)

Interim Payments
- All payments made to the contractor other than the final
payment. These payments are made during and after the
contract period until the issuance of final payment.

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During Construction
- The contractor is entitled to interim payments at
regular interval in accordance with a proper
evaluation of the workdone and materials supplied.

After Completion
- The interim certificates are not subjected to
monthly interval.
- There should not be any large amount
outstanding to the contractor.

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After Completion (Cont'd)
- Payments like retention sum (where applicable),
final evaluation of variations, settlement of account
for loss and expense and NSC's and NS's
accounts.

Relevant contractual Provisions regarding interim

payments in PWD Form 203A (Rev. 2010)
a. b.
c. d.
e. f.
g.
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The above clauses explain the procedure to be
adhered to in the payment process which include:
a) The timing of payments to the contractor
b) The amount to be paid to the contractor
c) The right of set-off b the employer
d) The enforcement of payment
e) The procedure and conditions precedent

What are the requirements to be fulfilled by the

contractor for the issuance of the FIRST interim
certificate according to PWD 203A?

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Procedure of Certification

Progress Claim Submitted

By contractor

Valuation Prepared By
SO

Certification By SO

Payment Made By
Employer

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Contractor's Application
- The submission of payment application by the
contractor is not mandatory under the contract.
The SO has to make valuation for interim payment
even though the contractor does not submit his
claim.
- However, contractor normally submits his claim
for workdone and materials on site to help speed
up the valuation process. The claim is in the form
of BQ or Summary of Tender.
- SO/Consultant to check and approve the
application also certify in writing that works in
accordance as per contract.
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Contractor's Application (Cont'd)
- For administratives purposes, it's good to agree
on the specific date of each month for the
submission of the application.
- The application shows the estimated value of
work done by the contractor and should be
presented in an approved format.
- The contractor should include everything that he
thinks he is entitled to be paid in his application
since the claim is going to be evaluated.

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Valuation
- Refer Clause ? and ?.
- The SO has to make interim valuations in order to
arrive at the amount due in interim certificates.
- The evaluation is for the work properly executed
and materials delivered on site.
- The evaluation is to be carried out at least once a
month.
- In practice SO and the contractor have to agree
on specific dates to carry out valuation work.
- The evaluation should be as accurate as is
reasonably possible (is subject to possibility
Arbitration) DQS 389
Valuation (Cont'd)
- A new evaluation of the work done provides an
opportunity to adjust or modify previous
evaluations of earlier certificates.
- No interim certificate is final and conclusive and
its subject to adjustment in subsequent interim
certificates and final certificates.
- The value of work executed consists of
Preliminaries, permanent work done by the
contractor and unfixed material on site.

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Preliminaries
- This section consists of those items that do not
form part of the permanent works but are essential
to be provided for the successful completion of the
job.
- The employer and the contractor should agree on
the method of paying for the preliminaries items at
the beginning of the contract.
- Valuation is only made on the items that are
priced and carried out by the contractor.
- Each item can be broken down and categorised
as initial cost, progressive cost and completion
cost.
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Preliminaries (Cont'd)
Initial Cost
- A lump sum to be paid in the first interim payment

Progressive Cost
- A continuing cost to be spread throughout the
execution of the work and either related to time or
to the expenditure on the work

Completion Cost
- A lump sum to be paid upon completion

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Preliminaries (Cont'd)

Examples for calculation of payment for

Preliminaries

- Student to show their works (Calculation) as

requested during previous session.

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Value Of The Permanent Works Executed

- Only the value of work properly executed by the

contractor in accordance with the contract must be
included in the certificate
- Refer Clause 28.4

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Value Of The Permanent Works Executed (Cont'd)

a) Valuation based on Contractor's work executed

The valuation calculates the estimated value of
work executed by reference to:
i) - Detailed quantities and rates for every items in
the BQ
ii) - Cost of elements or work sections (Can use
summary of element format)
iii) - Contract sum (Only suitable for small projects
and to be done by experienced staff only)

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Value Of The Permanent Works Executed (Cont'd)

b) Valuation based on stage of completion

- An alternative method of valuing the work
executed by the contractor.
- Interim payment to be made on the basis of
percentage completion of the various components
of the project. (Example as below)
1) Foundation and Ground Floor - 15%
2) Frame, Staircase and Upper Floor - 20%
3) Walls, doors and windows - 15%

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Value Of The Permanent Works Executed (Cont'd)

- Interim payment to be made on the basis of

percentage completion of the various components
of the project. (Example as below) (Cont'd)
4) Roofing, Electrical wiring and plumbing - 15%
5) Finishes - 15%
6) Roads, Drains and sewerage works - 20%

TOTAL = 100%

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Value Of The Permanent Works Executed (Cont'd)
b) Valuation based on stage of completion (Cont'd)
- The detail breakdown of works and the
percentage of payment to each stage of work will
be decided by the employer as attached to the
tender document or as agreed by both parties
before signing the contract.
- The amount to be paid to the contractor for the
work executed is equal to the value of the
percentage of teh contract sum.
- some arrangements, materials on site are not
considered for payments.
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Value Of The Permanent Works Executed (Cont'd)
c) Percentage Adjustment
- Refer Clause 26.2 and 26.3
- Before signing the contract document, SO has to
check the contract document and make
adjustments or corrections to:
i) Unreasonable and inconsistent rates
ii) Arithmetical errors in the pricing by the
contractor.

Normal sources of errors? Student to discuss!

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Value Of The Permanent Works Executed (Cont'd)
c) Percentage Adjustment (Cont'd)
- Correction has to be made to avoid mistakes in
the computation of interim payments.
- The original contract sum in the Tender Form
must not be changed.
- SO has to calculate the percentage of the
difference between the tender sum and the
corrected tender amount

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Value Of The Permanent Works Executed (Cont'd)
c) Percentage Adjustment (Cont'd)

Formula of Caculation of Pecentage adjustment

A. TOTAL AMOUNT as tendered

B. TOTAL AMOUNT as corrected
C. ERROR = (A - B)
D. TOTAL for builders work =(B - Provisional Sum)

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Value Of The Permanent Works Executed (Cont'd)
c) Percentage Adjustment (Cont'd)
Examples of Caculation of Pecentage adjustment
(Cont'd)

E. PERCENTAGE ADDITION/OMISSION

E = C X 100
D
If Tender amount > Corrected amount = Addition
If Tender amount < Corrected amount = Omission

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Value Of The Permanent Works Executed (Cont'd)
c) Percentage Adjustment (Cont'd)
Examples of Caculation of Pecentage adjustment
A = RM 10,000,000.00
B = RM 10,100,000.00
Provisional Sum = RM 500,000.00

Calculate the percentage adjustment for the

above.
Addition or Omission?

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Value Of The Permanent Works Executed (Cont'd)
d) Variations
- This is a value of work which is not part of the
original scope of work but has been carried out by
the contractor as a result of the SO's instruction.
- Refer Clause 25.3
- The value of variation works must also be
included in the valuation of permanent work
executed by the contractor.
- Please refer VARIATIONS for further discussion
on this topic.

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Value Of The Permanent Works Executed (Cont'd)
e) Nominated Sub-contractors Works
- The methods of valuation of works done by
NSC's are similar to that for main contractor.
- Please refer NSC and NS for further discussion
on this topic.

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Materials On Site
a) Generally
- The contractor is entitled to payment for all
unfixed materials delivered to site but not yet
incorporated in the work. Refer Clause 20.0
- Materials bought to site for the work must not be
removed out of the site without SO's consent.
- Materials which has been paid belong to the
employer but the contractor is still responsible for
their safety.
- Materials not intended for the work must not be
brought to site and SO can instruct to remove
them. DQS 389
Materials On Site (Cont'd)
b) Prerequisite for payment
- Refer Clause 28.4
- Unfixed materials may be considered for payment
if they are:
a) Delivered to site or adjacent to site
b) Intended for incorporation for permanent works
c) Reasonbly, properly and not prematurely
brought to site
d) Adequately protected against weather and other
casualties

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Materials On Site (Cont'd)
b) Prerequisite for payment (Cont'd)
- The contractor also needs to obtain adequate title
to the goods which he can pass on to the employer
(rightful owner).
- The costs of the materials must have been paid
by the contractor to the supplier.

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Materials On Site (Cont'd)
c) Computation of valuation
- The materials are priced at invoice prices (actual
price paid by the contractor to supplier (price must
be reasonable a based on market price).
Example of material on site?

- The amount to be paid to the contractor is 90% of

the total value of materials. Refer clause 28.4
- Type and quality of materials must be in
accordance to contract (as per specs, drawings
and BQ).
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Materials On Site (Cont'd)
c) Computation of valuation (Cont'd)
- Only total value of materials available on site on
the date of valuation is considered for payment.
- Materials supplied by Nominated Suppliers (NS)
are to be paid in full. Refer clause 28.5

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 DQS 389

INTERIM PAYMENTS DONE!

Thank you.

Any Questions?

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