Progress payments provide a win-win situation for both businesses and contractors. Owners pay for every phase of the work done. They can track the progress of the project clearly, account for faults, and use improvement points from each stage to work more efficiently. On the other hand, contractors do not shoulder the costs of the entire project as they are paid regularly, having to pay their employees and suppliers. Cash flow is controlled and there is a systematic method of where the funds are allotted.
If you plan on filing a progress payment, the following steps may be useful for you:
- In the initial stages of drafting the contract, indicate the payment or billing method to be implemented. Both the payer and payee must understand the terms of payment and agree on progress payments rather than paying prior to the construction process or after project completion.
- Draft a timeline for the construction stages, complete with what constitutes a completed stage and a tentative due date for each stage. You must also clarify what materials will be needed, their characteristics, and their quantities to account for the costs of the goods and equipment that will be used.
- Select milestones for progress in percentages to a total of 100% for each stage. Depending on the state or territory there are recommendations to the progress milestones and corresponding stages. If you decide to create your own, it would be best for the company and the contractor to agree on them beforehand.
- Send progress payment invoices for each corresponding connection of milestone and progress percentage.
- Set up details for what constitutes as completion work to avoid disputes on payments.
- If there are changes in the scope of work (especially for large-scale projects and those requested by companies), you have to update the project details to accommodate the changes in the stages and the corresponding percentages of completion and billing.
- If the contract has been completed and such status has been agreed upon, then the final bill has to be delivered. This is a reminder in cases wherein most companies or businesses would often request for last minute changes or rectifications to the project to delay payment. With this, you may include in your contract how many revisions will be allowed and the rates for such revisions.
Unforeseeable events may warrant an extension of time, and these events may include delaying the commencement date, having more work added to the list, and force majeure. An extension of time usually signals a movement in the schedule and a consequential delay, which can also trigger a change order request.
A change order is an addition or omission to the original contract and its scope of work which either advances or delays the completion date. Change orders are usually generated by a project manager accompanied by the price of such changes (especially when there is new work to be done). Once the change order has been approved, it becomes part of the contract.
However, applications for extensions of time (as with change orders) must be made properly, concisely, and timely; otherwise, they will be denied.
Before processing progress payments and sending out invoices, you have to check if there are terms in the contract that provides for protocols to follow when an extension of time is needed and if so, what processes need to be followed to request for one. If there is a protocol stated, then you should follow what is stated in the contract. This usually comes in the form of a written notice, as discussed previously. If the contract, on the other hand, does not provide for extensions or is silent about them, then the parties have to negotiate the details on the extension. You may access and review your organisational policies and procedures regarding the process for application for extension of time. You may also consult and collaborate with relevant personnel who may have access to this.
Variations are the changes by addition, alteration or omission to scope of works, with such variations changing the costs or schedule of the project. In general, contracts provide procedures to follow when variations are needed. Variations may be identified through consultations and meetings with relevant personnel. Some of the reasons for variations include the following:
- An addition or omission from the scope of work
- Changes in the quality or quantity of materials needed for construction
- Changes in design
- Changes in working conditions
- Changes in the commencement or completion date and the schedule
If there are identified variations, these must be communicated with the contracting parties. Standard forms of contracts generally account for variation in its terms with methods of valuation included. There must be express clauses or terms in the contract where power to order variations are stated. Without such terms, then the contractor may legally reject the instructions to commence variations.
After checking if the terms for variation are present in the contract, you must submit a written notice of the work and price that must be approved first before starting the variations for the project. Negotiating the variations will require communicating with the contracting parties and presenting evidence of its necessity or inevitability. If the changes cause delay, a request for extension of time needs to be filed, approved, signed, and dated, as well.
Liquidated damages refer to the amount paid by the contractor when practical completion is not achieved at the completion date set in the contract. Liquidated damages in construction contracts are necessary to clarify real costs of delay including its consequences. It also outlines the liability for damages of both parties. Penalties are similar in the sense that they require payment. Penalties are imposed as financial payments when a breach of contract occurs. These can be very damaging as this can lessen profit and increase costs. A well drafted contract is one of the best ways to prevent this. To minimise liquidated damages and penalties it is crucial to:
- Set clear expectations with the roles and responsibilities of the parties involved. It is important that everyone understands what their rights are and what is expected of to perform.
- Ensure common understanding from all parties. Everyone involved needs to have a similar interpretation of the contract stipulations and the scope of the work required.
- Be open with any concerns as soon as they are raised.
Being able to communicate openly and clearly can greatly impact the success of any project and reduce any mishaps along the way.
Administering a contract starts upon the execution of the work. Performance of services will have to be confirmed as well as the receipt of goods and materials. These may be verified through receipts and inspections. Ideally, contracts are prepared with all parties in complete agreement and everyone understands their obligations; however, contractual disputes may still arise due to various reasons. These may include a change of interest, circumstance or unclear stipulations that lead to misunderstandings.
Fair Work Australia defines dispute resolution as the processes by which disputes are resolved and ended.
Dispute resolution can occur through:
- a negotiated outcome, where the parties concerned sort out the issues themselves,
- a mediated outcome, where the parties use the services of an independent mediator to help them agree, or
- an arbitrated or adjudicated outcome, where an independent arbitrator or court determines how the dispute is to be resolved and makes a binding decision or order to this effect.
The following are common dispute resolution methods:
Alternative dispute resolution
This is form of resolution allows parties to settle without going to court and includes:
- Mediation: This involves a mediator that can help both parties to identify their disconnect and find alternatives.
- Arbitration: This is a similar process with mediation, however the arbitrator involved will issue legally binding decision.
Litigation
This is a form of dispute resolution that involves the courts. Proceedings between the parties are in a civil court.
Different legislations and regulations apply depending on the kind of contract involved and state or territory that has jurisdiction on the contract.
A final certificate is issued by a contract administrator to show that the contract has been completely fulfilled. It signifies the agreement of the final contract sum and that any defects have been fixed. This also prevents any future disputes. Despite not being conclusive evidence of compliance, it is still important to secure a final certificate. Understanding the conditions required for receiving your final certificate is important as these may dictate when and how the contract will be considered fully completed. To verify the conditions for issuing a final certificate you may consult the contract stipulations agreed upon regarding final certificate issuance.
To assess the conditions for issuing a final certificate and confirm completion:
- Assess the scope of services– Are the services rendered enough and complete?
- Review the schedule of activities– Were the schedules met and adhered to?
- Review cost and payment terms– Are the cost and payment terms satisfied?
- Consult parties involved for clear understanding– Are all parties involved satisfied and agrees to issue final certificate?
If the agreed conditions have been met by the party, then a final certificate may be issued.
