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Methods of Payment of Contracts - 113413

Under different types of construction contracts, the method of payment varies depending on factors like the contract terms and project specifics. Common payment methods include: rates only (hourly/daily rates), rates and re-measurement (unit rates with final price after measuring completed work), lump sum (fixed price for entire project paid in installments), and cost reimbursement (contractor reimbursed for costs plus fee in installments). The best payment method depends on the project circumstances and balances risks between the client and contractor.

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77 views2 pages

Methods of Payment of Contracts - 113413

Under different types of construction contracts, the method of payment varies depending on factors like the contract terms and project specifics. Common payment methods include: rates only (hourly/daily rates), rates and re-measurement (unit rates with final price after measuring completed work), lump sum (fixed price for entire project paid in installments), and cost reimbursement (contractor reimbursed for costs plus fee in installments). The best payment method depends on the project circumstances and balances risks between the client and contractor.

Uploaded by

Sedrick Ndofor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Method of payment under different types of contracts

The method of payment under different types of contracts varies depending on the type of contract
and the specific terms agreed upon by the parties. However, there are some general principles that
apply to most contracts.

General principles

 Payment is typically due upon completion of the contract. This means that the buyer does
not have to pay the seller until the seller has fulfilled all of their obligations under the
contract.
 Payment can be made in a variety of ways, such as cash, check, wire transfer, or credit
card. The specific method of payment should be agreed upon by the parties before the
contract is signed.
 If the buyer fails to make payment, the seller may have the right to sue the buyer for breach
of contract.

The following are the methods of payment for the different types of contracts you mentioned:

Rates only contracts

Under a rates only contract, the contractor is paid at an agreed-upon hourly or daily rate for the
time spent on the project. This type of contract is typically used for projects with a well-defined
scope of work and where the contractor is able to accurately estimate the time required to
complete the project.

Rates and prices for re-measurement contracts

Under a rates and prices for re-measurement contract, the contractor is paid at agreed-upon unit
rates for the work completed. The unit rates are typically agreed upon upfront, but the total
contract price is not finalized until the project is complete and the quantity of work completed
has been re-measured. This type of contract is typically used for projects where the scope of
work is not well-defined or where there is a risk of changes to the scope of work during the
project.

Lump sum contracts

Under a lump sum contract, the contractor is paid a fixed price for the entire project. This is the
most common type of construction contract, and it is typically used for projects with a

well-defined scope of work. Payment is typically made in installments, with a down payment
paid upfront and the balance paid upon completion of the project.

Cost reimbursement contracts

Under a cost reimbursement contract, the contractor is reimbursed for all costs incurred in
completing the project, plus a predetermined fee. This type of contract is typically used for
complex projects with a high degree of uncertainty. Payment is typically made in installments,
with the contractor submitting invoices on a regular basis.

Target contracts

Under a target contract, the contractor is paid a target price for the project, plus a bonus or
penalty depending on their performance against the target price and completion date. This type
of contract offers a balance of risk and reward for both the client and the contractor.

Payment under design, build and operate contracts

Under a design, build and operate contract, the contractor is paid for the design, construction,
and operation of the project. This type of contract is typically used for complex projects where
the client wants to reduce risk and simplify the procurement process. Payment is typically made
in installments, with the contractor submitting invoices on a regular basis.

Advantages and disadvantages

Each method of payment has its own advantages and disadvantages. The following table
summarizes the key pros and cons of each method:

Method of payment Advantages Disadvantages


Rates only contracts Simple to administer Risky for the client
Rates and prices for More flexible than rates only More complex to administer
re-measurement contracts contracts

Lump sum contracts Offer certainty of price for the Risky for the contractor
for the client client

Cost reimbursement contracts Least risky for the contractor Risky for the client
Target contracts Offer a balance of risk and Complex to administer
reward for both the client and
the contractor
Payment under design, build and Offer a single point of Complex and may not be
operate contracts responsibility for the client suitable for all projects

The best method of payment for a particular contract will depend on the specific circumstances of
the project. It is important to carefully consider the type of contract, the size and complexity of
the project, and the preferences of the owner and contractor when choosing a method of payment.

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