What makes a good application for payment?
By VOLOCO LLP, Sep 28 2019 02:49PM
Following on from our previous article looking at payment processes in Construction Contracts, we are now going to delve into the details a bit more, starting with the Application for Payment.
WHAT IS AN APPLICATION FOR PAYMENT?
An application for payment is an assessment of the works due to be completed up to the next payment due date. It is issued by the party that carried out the works to the party paying for the works. Generally, the application is issued a set number of days in advance of the payment due date.
Whether or not there is a requirement for an application for payment to be issued within the (sub)contract, it is a good idea to get into the habit of issuing them. As noted in the previous article, if the payer fails to issue their payment notice at the correct time, the application for payment will become the default payment notice and the sum detailed within becomes due on the final date for payment.
WHAT SHOULD BE INCLUDED?
The most important detail to be included within an application for payment is a calculation of how the amount due has been calculated. However, that is only a bare minimum. A good application for payment will include the following:
• A forecast final account figure; • The total amount due, with a detailed build up to this amount attached;
• The previously certified amount;
• The net amount due; and
• Previous application figures to show movement in the month.
It is also important to make sure the application is identified correctly. A good way to do this is by including a title of “Interim Application” with a sequential number at the end for ease of reference. Finally, including the Payment Due Date and the Final Date for Payment on the application ensures that the payer knows exactly what period of works the application refers to, and reminds them of when the payment is due to be made.
The build up to the amount due should be clear and easy to understand with no ambiguity. An easy way to achieve this is by separating the build up into different sections like:
• Contract/Measured Works;
• Materials On/Off site (with requisite vesting certificates is required); and
• Extension of Time / Loss & Expense / Acceleration.
Depending on the type of (sub)contract being used, the Contract/Measured Works section could be based on:
• An activity schedule;
• Milestone payments; or
• A measured schedule of works, like a bill of quantities.
If the contract is remeasurable, it is important to detail out the remeasurement completed for the application. See below example showing 2 items that have been remeasured already and 1 that has not.
When it comes to putting together the build up for variations, this should include at least budget figures for all changes and variations to the (sub)contract issued to the point of the application.
FORECAST FINAL ACCOUNT
Another aspect of interim applications that is really helpful is the forecast final account. The sooner you are able to start agreeing variations and remeasurements the better. It will allow you to have more certainty of the amount you are likely to be paid at the end of the project. That is why it is important to carry out any remeasurement as soon as you are able, and to try to include at least budget figures for all variations straight away.
Including a forecast final account within your interim application should help to reduce the amount of time spent trying to agree the final account after the works are completed, thereby enabling release of the final payment sooner.