PAYING THE BUILDER
Advance Payment (or Initial Deposit)
An ‘Advance Payment’ occurs when part of the agreed Contract Sum is paid on, or soon after, the signing of the Building Contract, and in advance of any construction works commencing on site, to assist the builder’s costs in meeting start up or procurement/deposit costs on long lead-in items.
Unless the builder is able to provide an ‘Advance Payment Bond’, which is unlikely, this is a financial risk the Employer must take.
Once the building works have commenced, it is also sometimes necessary for the Employer to make payments for materials and goods even though they remain ‘off-site’, for example, purpose made joinery which is in the process of manufacture, but remains in the builder’s joinery workshop.
Interim payments are made primarily to assist the Contractor's cash flow, and to relieve him of the burden of having to finance the works.
The basis on which the Interim Valuations will be calculated should be pre-defined in the Building Contract, and generally calculations will be based on either a ‘Percentage Completed’ basis, or 'Stage/Milestone’ Payments.
‘Percentage Completed’ basis
Interim Valuations are usually prepared by ourselves every three weeks. The detailed build-up of each Interim Valuation will include:
- a proportion of the Contractor's 'Preliminaries', including such items as Site Foreman, insurances, plant and tool hire costs, builder’s own vehicles and the like
- valuation of construction works completed on site,
- valuation of any Variation/Change Orders,
- adjustments of ‘Provisional Sums’ (i.e. work not clearly defined at Tender Stage),
- in certain circumstances, payment of deposits for 'off site' materials,
- the value of unfixed materials on site,
- a proportional deduction of the Initial Deposit
Valuations are based on an agreed schedule of ‘identified deliverables’ which should be detailed in the Building Contract and should NOT become payable on pre-defined dates, but on completion of agreed stages of the work.
Typical ‘work stages’ for a ‘new build’ are:
Stage 1: Clearing the land (including any demolition work); excavating and pouring the concrete foundations
Stage 2: Construction of the steel and/or reinforced concrete frame and ring beams, including 1st Floor and Roof construction
Stage 3: Construction of the internal and external brick walls, insulation and base coat render
Stage 4: Construction of the internal and external brick walls
Stage 5: External windows and doors and water/weather proofing
Stage 6: 1st FIX plumbing and heating
Stage 7: External render and internal plasterwork and floor and wall tiling
Stage 8: 2nd FIX plumbing and heating and installation of sanitary ware and built-in Kitchen and joinery
Stage 9: Painting and decorating
Stage 10: External paving and landscaping
It should also be clear that these ‘milestones’ must have been completed as a pre-condition of payment.
This is not a preferred method of Valuation as often the ‘milestones’ merge which can lead to disagreement regarding their respective values.