MODE OF PAYMENT TO THE CONTRACTOR

INTRODUCTION

A payment is the trade of value from one party (such as a person or a company) to another
for goods, or services, or to fulfill a legal obligation.

All payment to the 'Contractor' for the completion of entire scope of work(, including
variations) is known as contract payment. The engineer is the person named in the Contract Data
(or any other competent person appointed by the employer and notified to Contractor) who is
responsible for administrating and supervising the execution of the work. Such person may be
Engineer, Architect or any other technical person. In the absence of such a appointment the
employer himself. Employer is the party named in the Contract Data who employs the
Contractor to carry out the works. Measurement Book play a vital role because the payment to be
given to the contractors work or material supply are made on the basis of measurement entered in
the measurement book.

The detailed measurements are being taken by overseer and enters in the Measurement Book
when the work or material supply is sufficiently progressed or completed. After entering the
detailed measurements on obstruct of quantities is prepared and cost is calculated according to
the rates mentioned in the agreement. The payment for small works is made to the contractor by
one payments and number of payments are made by running account bills during the progress of
the work. When the work or supply is completed by contractor, then in such case, the payment to
the contractor can be made finally by one payment

For each payment, 10%is deducted from the contractor ad a security deposit in case if the
contractor is not deposited the full amount of the security deposit.

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DIFFERENT MODES OF PAYMENT TO THE CONTRACT

INTERIM PAYMENT

A partial payment given to the contractor monthly for work in progress under the terms of
contract is called as interim payment. Note that interim payment is not be considered as final
acceptance of the lower work unto that level. Powers are given to the engineer to hold the interim
payment under special circumstances.

Interim payment is an amount disbursed to contractor on running account payment advance

payment, secured advance payment, etc.

PWD form No. 47 is used for making interim payment

Necessity or purpose of interim payment

THE INTERIM PAYMENT ARE NECESSARY DIE TO FOLLOWING REASONS :-

In case of large project, the contractor has to invest large amount for a longer duration and this is
not suitable or possible to the contractor.

rogress of project work may affect due to lack of funds with the contractor. In such case, the
interim payment is made to the contractor so as to continue the progress of project without any
break. The interim payment also indicate the approximate value of work done by contractor.

If the bills are paid to the contractor at interval, there will be the check over the progress of the
project work. Hence the progress of the work must be in proportion to the duration of the project.

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ADVANCE PAYMENT

Advance payment isn't usually paid to the contractor, however beneath special case or beneath
special circumstances, advance payment is issued to the contractor on the certificate of the
assistant engineer WHO is that the to blame of the project work. the worth of labor done mustn't
be but the advance payment projected to be created to the contractor. A contractor might request
associate degree advance payment to assist them meet vital set out or procural prices which will
ought to be incurred before construction begins.

An, advance payment, generally named as deposit, or ex gratis payment, is once a part of a
written agreement add is paid before of the exchange, i.e. before any work has been done or
product provided. Advance payments ar generally recorded as paid expenses by the remunerator
and recorded as assets on the record.

Payments in advance on annual maintenance contracts to guarantee service on an on call basis

may be made only when it is required by the contractor's standard maintenance agreement and
the contractor will not negotiate a contract without this term or condition included.

Payments in advance on contracts may be made when a cost savings to the Commonwealth can
be realized through the advance payment or a contractor's standard operating procedure requires
receipt of an advance payment. Advance payment provisions must be stated in the contract
terms.

Advance payments cannot be made for services to be performed in a contingent year without
written approval from the Secretary of the Budget.

To obtain Office of the Budget, Office of Comptroller Operations approval for advance
payments or advance payments for services to be performed in a contingent year, complete and
submit the Advance Payment Request Form.

SECURED ADVANCE

An advance payment made to the contractor on the basis of the security of materials
brought by the contractor to the site of work under construction is called as secured payment.

Authority to make the secured advance is in the hand of Divisional Engineer unto the
amount exceeding 75% the value of the materials brought to the site by contractor. The clause
should be explicitly written in the Contract. The intention is to help the contractor to ease out
cash flow without waiting for the materials to convert to the bill, which is generally a longer
process. Amount of secured advance is adjusted in the next running account bill within
proportion to that of actual consumption of the materials Secured.

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PETTY ADVANCE PAYMENT

A small amount given in advance to the engineer in the charge in case of emergency needs is
called as petty payment.

The engineer in charge can utilize the petty advance for purchasing the materials in small
quantity and which is not more costly. In such case, there is no need of any quotation and
approval by competent authority.

MOBILIZATION ADVANCE PAYMENT

The amount of money given to the contractor for the purpose of establishment is called
mobilization advance payment. Contractor use this advance payment for establishment on the
site in the initial stage.

In this case, it requires the approval by the competent authority.

Mobilization advance is paid before commencement of work, if not full, part as per installment
mentioned in the Contract. If a time is mentioned in the Contract for release of advance payment,
it should be adhered to.

It may be given in one or more installments as per contract conditions. In case proof is
required to be submitted by the contractor for utilization of such advance for bonafide use of
work, it should be asked for. Mobilization advances are 5% to 20% of the contract value
depending upon the specific requirement of cash quantum for the contractor at the beginning of
the project to start the works.

Mobilization advances of Bank Guarantees or Corporate Guarantees by the contractor for an

equivalent amount.

ON ACCOUNT PAYMENT

The payment made on running account to the contractor for the works done by him or
supplies by him which is measured and recorded in measurement book is called as on account
payment.

This type of payment is made when only a part of the complete work or supply have been
done and the work or supply is in progress. 10% amount is kept as deposit, out of which 5%
amount is to be refunded st the end of the maintenance period. Note that percentage of amount
may vary or change.

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FIRST AND FINAL PAYMENT

A single payment made to a contractor for work done duly measured and recorded is called as
first and final payment.

This type of payment is applicable generally to small work. Progress of work cannot be checked
as payment is made in full settlement of claim after completion of work.

Payment is made in the bill form No. 24 after work completion certificate is issued from in
charge engineering.

RETENTION MONEY

Some amount to be hold from the security deposit of contractor by the Engineer in charge when
there is any claim for the payment arises out of or under the contract against the contractor is
called as retention money.

This amount is hold up till the finalization or adjustment of any claim is settled.

REDUCED RATE PAYMENT

The payment which may grant by the Engineer with the reduced rate when contractor
completes an item or work not as per the specifications, drawings given in contracts terms and
conditions is called as reduced rate payment.

The work or an item which is not done as per specifications, drawings given in the prescribed
terms of conditions of contract by the contractor, then in such case the Engineer may pay the
amount with reduced rate making the remark ad the work is structurally sound.

FINAL PAYMENT

The payment to be made within three month from the date of issue of certificate of final
completion is called as final payment.

After completion of works done by the contractor in all respects, the Engineer prepare the final
amount of work accurately after deducting all the previous payment made to the contractor.

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E-PAYMENT

An electronic payment (e-payment), in short, may be merely outlined as paying for product or
services on the net. It includes all monetary operations mistreatment electronic devices, like
computers, smartphones or tablets. E-payments go together with varied ways, like credit or
charge account credit payments or bank transfers. Note that one amongst the foremost
fashionable and customary on-line payment ways today ar credit cards. on-line payments ar
created instantly, therefore it’s convenient and saves numerous time. it's vital, particularly these
days once each side of our lives happens at a quick pace. In general, e-payments ar thought of a
quick and secure different to ancient payment ways, like bank transfers, checks, etc. acceptive
electronic payments comes with numerous advantages for contractors. Moreover, electronic
payments ar extremely effective for international transactions. it's usually cheaper, easier and
quicker than alternative payment ways. As a bourgeois, you don’t ought to worry regarding
currency conversion or High Commission.

1.Banking cards: Cards ar among the foremost wide used payment ways and are available with
numerous options and advantages like security of payments, convenience, etc. the most
advantage of debit/credit or paid banking cards is that they will be accustomed create alternative
styles of digital payments. a number of the foremost putative and well-known card payment
systems ar Visa, Repay and MasterCard, among others. Banking cards are often used for on-line
purchases, in digital payment apps, PoS machines, on-line transactions, etc.

2. AEPS: distended as Aadhaar Enabled Payment System, AEPS, are often used for all banking
transactions. All transactions ar dispensed through a banking correspondent supported Aadhaar
verification. there's no ought to physically visit a branch, give debit or credit cards, or maybe
create a signature on a document. This service will solely be availed if your Aadhaar variety is
registered with the bank wherever you hold AN account.

3. UPI: UPI could be a variety of practical payment system through that any client holding any
checking account will send and receive cash through a UPI -based app. The service permits a
user to link over one checking account on a UPI app on their smartphone to seamlessly initiate
fund transfers and create collect requests on a 24/7 basis and on all twelve months a year. the
most advantage of UPI is that it permits users to transfer cash while not a checking account or
IFSC code. All you would like could be a Virtual Payment Address (VPA). There ar several UPI
apps within the market and it's on the market on each automaton and iOS platforms. To use the
service one ought to have a legitimate checking account and a registered mobile variety, that is
joined to a similar checking account. Through this, a client will send and receive cash and create
balance enquiries.

4. Mobile Wallets: A mobile pocketbook could be a variety of virtual pocketbook service that
may be employed by downloading AN app. The digital or mobile pocketbook stores checking
account or debit/credit card data or checking account data in AN encoded format to permit
secure payments. This eliminated the necessity to use credit/debit cards or bear in mind the CVV
or 4-digit pin. several banks within the country have launched e-wallet services and aside from

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banks, there also are several non-public players. a number of the mobile pocketbook apps within
the market ar Paytm, Mobikwik, Free charge, etc. Some mobile wallets might charge an exact
dealing fee for the services offered.

5. web Banking: web banking refers to the method of completing banking transactions on-line.
These might embrace several services like transferring funds, gap a replacement mounted or
continual deposit, closing AN account, etc. web banking is additionally spoken as e-banking or
virtual banking. web banking is sometimes accustomed create on-line fund transfers via NEFT,
RTGS or IMPS. Banks supply clients every kind of banking services through their web site and a
customer will log into his/her account by employing a username and countersign. in contrast to
visiting a physical bank, there ar to time restrictions for web banking services and that they are
often availed at any time and on all twelve months during a year. there's a large scope for web
banking services.

6. Mobile Banking: Mobile banking is spoken the method of completing monetary

transactions/banking transactions through a smartphone. The scope of mobile banking is just
increasing with the introduction of the many mobile wallets, digital payment apps and other
services just like the UPI. several banks have their own apps and customers will transfer a
similar to hold out banking transactions at the clicking of a button. Mobile banking could be a
wide term used for the in depth vary or umbrella of services that may be availed beneath this.

Benefits of Digital Payments:-

 Faster, easier, more convenient

 Economical and less transaction fee
 Waivers, discounts and cashbacks
 Digital record of transactions
 One stop solution for paying bills
 Helps keep black money under control

Progress Payments:-

Purchasing agencies may, through a contract, authorize payments to contractors at various

stages during the contract (such as down payment, completion of design, delivery, at increments
of completion of installation, acceptance) for construction of $50,000 or less or for unique or
specialized supplies or services or for supplies or services which have a lengthy production
schedule.

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Installment Payments:-

Purchasing agencies may, through a contract, authorize payment to the contractor on an

installment payment basis after acceptance of supplies, services, or construction (this does not
prohibit a down payment).

Lease Payments

Purchasing agencies may, through a contract, pay a contractor on a regular time-specified

basis as it uses supplies or construction.

Design and Construction Services Exceeding $50,000

a. Agencies are required to pay contractors and design professionals for public works
contracts exceeding $50,000 strictly in accordance with the contract. If the contract does not
contain a term governing time for payment, the contract or design professional can make
application for payment for progress payments. Revised: April 15, 2013 Pt I Ch 18 – Pg 2 of 4
Payment, less applicable retainage, must be made within 45 calendar days of the date the
application for payment is received. If a payment is not made when due, interest computed at
the rate determined by the Secretary of Revenue on overdue taxes or the refund of taxes, shall
be payable. No interest is payable if payment is made on or before the 15th day after the
required payment date.

b. Contractors and subcontractors are required to pay subcontractors by the due dates
established in the subcontract or within 14 days after the contractor or subcontractor receives a
progress payment unless payment is withheld for a good faith claim. If any progress payment is
not made to a subcontractor by the due date established in the contract or within the 14 day
period, the contractor is required to pay interests computed in the same way as interest is
computed against the Commonwealth. The contractor has a similar 14-day grace period.

c. The payee must be notified of the deficiency item within the same period specified in the
contract or 15 calendar days of the date that the application for payment is received. If it is
determined that the amount was withheld in bad faith, the payee is also entitled to an interest
penalty in the amount of one percent per month and attorneys' fees.

d. Contracts may include a provision for the retainage of a portion of the amount due the
contractor to ensure the proper performance of the contract, except that the sums withheld
cannot, for public works contracts exceeding $50,000, be more than:

(1) For DGS, six percent of the total estimates until 50 percent of the contract is completed
and three percent of the contract amount after the contract is satisfactorily completed.

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(2) For other public bodies, 10 percent of the amount due the contractor until 50 percent of the
contract is completed and five percent of the completed work based on monthly progress
payment requests, after the contract is 50 percent completed. When the contract is 50 percent
completed, one-half of the amount retained shall be returned to the contractor.

e. When a retainage provision is included in the contract, the architect or engineer must make
a final inspection within 30 days of the contractor's receipt. If the work is substantially
completed, the architect or engineer shall issue a certificate of completion and a final certificate
for payment and the agency shall make payment in full within 45 days, less one and one-half
times such amount as is required to complete any then remaining, uncompleted minor items.

Revised:-

April 15, 2013 Pt I Ch 18 – Pg 3 of 4 f. Final payment shall bear interest at the rate of six
percent per annum for contracts without provisions for retainage and at a rate of 10 percent per
annum for all contracts with provisions for retainage. Commonwealth Purchasing Card.
Commonwealth agencies may have the option of using the Commonwealth Purchasing Card to
pay for procurements. It cannot be used for payment of procurements from DGS statewide
requirements contracts unless the contract specifies that it is p-card accepted/enabled. The
Commonwealth's Purchasing Card is similar to a credit card in that there will be a small fee
which the contractor will be required to pay and the contractor will receive payment directly
from the card issuer rather than the Commonwealth. Any and all fees related to this type of
payment are the responsibility of the contractor.

In no case will the Commonwealth allow increases in prices to offset credit card fees paid by
the contractor or any other charges incurred by the contractor, unless specifically stated in the
terms of the contract or purchase order. Some contractors may not agree to payment through
the Purchasing Card. (Refer to Management Directive 310.23, Commonwealth Purchasing
Card Program). Payment through the Commonwealth Purchasing Card is a method of payment,
not a method of contract award. Procedural requirements for awards of contracts and orders
must still be followed. Prompt Payment Discounts. Prompt payment discounts will not be
considered in making an award. However, if prompt payment discounts are offered by any
bidder, the Commonwealth will take advantage of such offer. Interest. a. Services and
Supplies. If a Commonwealth agency does not make payment to qualified small business
concerns for the acquisition of supplies or services by the required payment date, it must pay
interest.

(1) Qualified Small Business Concern: An independently owned and operated for profit
concern employing 100 or fewer employees and not a subsidiary or affiliate of a
corporation otherwise not qualified.

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(2) Required Payment Date. The required payment date is:

(a) The date on which payment is due under the terms of the contract.

(b) Thirty calendar days after receipt of a proper invoice for the amount due if a specific
date is not established by contract.

(3) Interest: Interest is computed at the rate determined by the Secretary of Revenue for interest
payments on overdue taxes or the refund of taxes. No interest will be paid if payment is made
on or before the 15th day after the required payment date. Revised: April 15, 2013 Pt I Ch 18 –
Pg 4 of 4

(4) Eligibility: To be eligible for interest, qualified small business concerns must include the
following on the face of every invoice presented to the Commonwealth: "Name of vendor is a
qualified small business concern as defined in 4 Pa. Code § 2.32." Construction.
Commonwealth agencies are required to pay contractors and design professionals for public
works contracts exceeding $50,000 strictly in accordance with the contract.

Payment, less applicable retainage, must be made within 45 calendar days of the date the application
for payment is received.

payment is not made when due, If payinterest, computed at the rate determined by the
Secretary of Revenue on overdue taxes or the refund of taxes shall be payable. No interest
is payable if payment is made on or before the 15th day after the required payment date.

Unexpended Funds. Upon termination of a contract, the agency shall require and promptly
initiate action to recover any unexpended funds in the contractor's possession in
accordance with Management Directive 310.10, Collection Requests for Write-Off of
Delinquent Claims.

Reimbursing Contractors for Travel and Per Diem: When the Commonwealth finds it
appropriate to reimburse contractors for travel, lodging, and meals, a provision allowing
such reimbursement must be included in the contract. Reimbursement shall beat or be
below state rates found in the most current version of Commonwealth Management
Directive 230.10, Travel and Subsistence Allowances, and shall require the same
documentation as required of state employees. Transportation and hotel orders should not
be issued by agencies to contractors doing business with the Commonwealth. The
Commonwealth may accept higher rates normally paid by a contractor, if those rates were
approved by the firm's officials and published prior to entering into contract negotiations

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with the Commonwealth. A copy of the minutes or other official document justifying and
authorizing the rates shall accompany the contract.

CONCLUSION

 Once agreed upon, the buyer is obligated to pay the seller, contingent on whether or not
the goods or services were delivered as promised.
 Payment contracts can also cover loan terms, ensuring that both parties have an
understanding of what's expected of them. Clearly defining all expectations and terms is
imperative to avoid future complication
 We understands the different modes of payment used in the contracts in the civil
engineering or the construction.
 Understanding the procedures and also the competent authority who handles these kind of
work.
 A payment contract is essentially a buyer-seller agreement that protects both parties.

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Reference

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stabilizujących harmonogramy budowlane, Budownictwo i Inżynieria Środowiska 2: 2011, 563-
572Search in Google Scholar

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