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Interim Payment vs. Milestone Payment

posted Sep 6, 2021, 7:55 AM by jeffery jim
I have shared a bit in a project management group about these two type of payments which quite common in our country. Of course to many QS, Interim Payment is the way to go for greater accuracy and provide fairness to main contractor in the light of PWD 203 types of contract. Hence, no issue will arise when talking about payment since it is paid based on recommendation and agreed during a joint measurement by all parties and supplemented with all sort of site documentation to establish the accurate of work done physically and financially.

Now, milestone payment is another type of payment where the quantum of payment is very much based on agreed stage of completed work sections or stages. This one is quite vague and can be loosely interpreted in certain type of industry. This kind of payment is quite suitable for waterfall type of planning and work sequence, not your typical building construction way of doing things where agility is key to move things concurrently (that also means, headache when trying to track back EOT and the CPM traces delay(s) caused by critical path at that very time).

Another good reason why milestone payment is introduced into certain project is due to simplicity of the project nature, or worst; the tactical planning involved in cashflow planning.

So it is rather hard to have an overview of the process unless you are tactically trained to sniff the contractual game. Simplicity of a project by using milestone payment will reduce the need of employing QS and project control department which for me is rather lame since any engineer can actually do quite accurate valuation based on work done on site since all dimension is measurable.

The tactical part is the game played by client or the main alliance of a development which try to take every single advantage for every single parcel within the development scheme to squeeze out and inflate their credit facility by stages instead of pro-rate. This reduces the pro-rate for interest for every month with unutilized or under utilized credit facility with certain low payment quantity. This means saving in million of dollar per month for projects worth billions around the world.

Now things does not stop there. The game can go into a much complicated and in a grand scheme where milestone payment ties the contractor or subcontractor to variation order details. In such heinous scheme, addition variation can only be discussed in final account if it surpasses 10% of variation for every milestone and omission variation is paid accordingly and remaining unclaimed monies shall be use for any addition variation order during final account.

I hope this particular entry can assist you in the future when deciding on a project during ITB. If it says milestone, be ready for a mild stroke if you forget to request for clarification for addenda in this particular issue.

For me, the best way to break down a project into milestones would be through projected WBS, at least Level 6 for project which worth more than a billion dollar and more than 20 parcels or Level 4 for a small 20 million dollar project. Always bring Technical Clarification Meeting mainly in oil & gas industry into an overtime by pushing them to agree on your milestones proposal based on your work program. Else, you will forfeit your chance to finalize what will be a proper contract document with only 4 dumb milestones for 20 million dollar project with half a million dollar discount for the client. Always win your credit facility earning to offset the discount you have given to the client.