Running head: CM652 TOPIC 4 LEARNING INSIGHTS 1

LEARNING INSIGHTS TOPIC 4

ALDRIN L. MALABAD

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT

PROJECT CONTRACT MANAGEMENT-CM 652

DR. LUTZER E. REYES

CM652 TOPIC 4 LEARNING INSIGHTS 2

Payment Considerations to Contractor

 Payment consideration to contractors includes advanced payment, progress payments,

retentions and such other claims arising during the course of the construction. Payments

could also be in the form of services, assets and other considerations, as agreed by the

contracting parties.

 An advanced payment is called the down payment or the mobilization fee. For

government, it is given after the receipt of notice to proceed and upon submission of

surety bond. It is an initial fund or a sort of soft loan granted by the client as contractor’s

starting capital. However, this payment is optional because it will be recouped

immediately during progress billing. As a contractor, it is better not to collect advanced

payment in order to give an impression to clients that the company is financially stable.

 Progress payments are payments given for every accomplishment that the contractor

undertakes. Usually, it is an accomplishment milestone indicated under the contract either

monthly billing (time based) or percentage accomplishment (percentage based)

 Retention is the amount deducted for every billing as security during the one year

liability period. For government, it will be released after the one year liability period less

the defects incurred if there is any or it can be released upon the completion of the project

by substituting a surety bond based on the retention amount. For private, it will be

released based on the contract agreement signed by the contracting parties.

 Risks implications are misappropriation of advanced payments, errors in calculating

progress payments wherein billing accomplishment varies on the actual

accomplishments. Lack of supporting documents such as materials testing report and site
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inspection approvals. On the other hand, problems on clients lack of fund that causes the

delay of payments.

 Required documents before payment should be scrutinized to avoid future problems such

as overpayment or underpayment. For governments, post audit is very crucial as well as

in the private institutions. Payment should be made judiciously based on the scope

stipulated under the contract.