Typically, in a construction project, the client requires an upfront payment if the contractor requires an upfront payment to cover significant start-up or procurement costs that may need to be incurred prior to the start of construction. The nature of an advance payment is determined by the manner in which the contract is drawn up. In most cases, the initial payment is simply an interest-free loan because it is paid at a time when the customer receives no value in return. The loan is repaid when the work is done (or services are provided or goods are delivered), usually by deduction of the amount due at that time. This type of arrangement is provided for in some of the model contracts, including FIDIC (subsection 14.1) and NEC (option X14). Advance payments are generally made in two situations. They may be applied to an amount of money provided before a contractual due date, or they may be required prior to receipt of the requested goods or services. Often, the prepayment system does not specifically regulate how the amount is to be spent, which gives the entrepreneur some flexibility in this regard. In other cases, the advance payment can be made for a specific purpose, which informs the requirements for the payment of the deposit, as well as the progress steps associated with the repayment. Variant I (April 1984). If, due to the contractor`s financial strength, good track record and positive experience with cost variances, the Agency wishes to waive the countersignature requirement, please add the following sentence to paragraph (b) of the basic clause, if necessary: However, this contract does not require a countersignature on behalf of the government, unless the administrative body deems it necessary. Alternate II (May 2001).
If used in a repayment contract, replace points (c) and (e) and points (f)(1) and (f)(2) with points (c) and (e) and paragraphs (f)(1) and (2) of the basic clause: (c) use of funds. The Contractor may withdraw funds from the Special Account only to pay the eligible costs in accordance with clause ___ of this Agreement. Payment of all other types of expenditure must be approved in writing by the administrative body. e) Maximum payment. Estimated costs include, but are not limited to, all reimbursable costs (as estimated by the contract agent) associated with termination for the convenience of government. All payments withheld under this paragraph shall be used to reduce unprocessed advances. When the complete liquidation has taken place, the contract payments will be resumed. (f) interest. 1. The Contractor shall pay interest to the Government on unpaid daily advance payments up to the daily rate referred to in point 3 of paragraph (f) of this clause. Interest is calculated at the end of each calendar month for the actual number of days affected.
When calculating interest charges, the following should be taken into account: (i) Advance payments are considered to be an increase in the unliquidated balance at the time of the prepayment check. (ii) refunds made by the control of the contractor shall be deemed to constitute a reduction in the unliquidated balance from the date of receipt of the cheque by the governmental authority designated by the contracting authority. (iii) Liquidations by deduction of payments to the Contractor shall be considered as a reduction of the unliquidated balance from the moment the Contractor provides the Customer with complete and accurate data for the preparation of each certificate. Credits resulting from these deductions will be made after approval of the refund receipts by the payment agent on the basis of the applicable data officer`s certificate. (2) The interest costs resulting from the monthly calculation shall be deducted from any payment on the fixed fee due to the contractor. If accrued interest exceeds the payment due, any excess interest will be deferred and deducted from subsequent payments of the contract price or fixed fee. Interest deferrals are not compounded. Interest on advance payments will no longer accrue if (i) the contract is satisfactorily concluded or (ii) the contract is terminated for government reasons. The Contractor charges interest on advance payments to subcontractors in the manner described above and credits the interest to the Government. There is no need to charge interest on advance payments to non-profit teaching or research subcontractors for experimental, development or research work. Variant III (April 1984).
If the Agency considers that the liquidation should be expedited, the following sentence shall be indicated as the first sentence of subparagraph (e) of the basic clause with the corresponding percentage: in order to settle the nominal amount of an advance paid to the contractor, a deduction of ____ per cent shall be made from all payments made by the Government under the contracts concerned. Variant IV (April 1984). If the Agency makes interest-free advances to the Prime Contractor under the Contract, add the following rates as the initial rates in paragraph (f) of the clause: The Prime Contractor will not be charged interest on advance payments, with the exception of interest charged during a period of delay. The provisions of this paragraph relating to interest charges for advance payments shall not apply to the main contractor. Variant V (May 2001). If the requirement for a special account under paragraph 32.409-3(e) or (g) is eliminated, insert the clause below instead of the basic clause. If this alternative is used in combination with variant II, ignore the instructions in subparagraph (c), use of funds, in variant II; subparagraph (e), maximum payment, in Variant II, to be replaced by subparagraph (d); and paragraph (f), interest, in alternate II for paragraph (e) below and to amend the reference to paragraph (f) point (3) in the first sentence of paragraph (f) of paragraph II in point (e) (3). If this alternative is used in combination with variant III, insert the additional sentence of variant III as the first sentence of subparagraph (d) of that alternative. If this alternative is used in combination with variant IV, insert the additional sentences of variant IV as the starting sentences of paragraph (e) of that alternative. Advance payments without a special account (May 2001) a) Terms of payment. Advance payments shall be made under this contract (1) upon presentation of invoices or supporting documents duly certified by the Contractor and approval by the administrative body, _______ [insert name of body designated under agency procedures] or (2) under a letter of credit. The amount of the invoice or voucher submitted plus any previously approved advance payment cannot exceed ______.
If a letter of credit is used, the Contractor will only withdraw money if necessary for withdrawals authorized under this Contract and will report cash payments and balances in accordance with the requirements of the administrative authority. The Contractor shall apply to any advance payment to subcontractors on terms similar to those of this clause.b) use of funds. The Contractor may only use the advance payment funds to pay for properly transferable, eligible and reasonable costs for direct materials, direct work and indirect costs. The determination of whether costs are properly transferable, eligible and reasonable must be made in accordance with generally accepted accounting principles, subject to any applicable subsection of Part 31 of the Federal Acquisitions Regulations. (c) reimbursement to the State. The entrepreneur may at any time reimburse all or part of the funds advanced by the government. At the written request of the administrative authority, the Contractor shall reimburse the Government for any part of the unliquidated advances which, in the opinion of the administrative authority, exceeds the contractor`s current needs or the amount referred to in subparagraph (a) of this clause. d) Maximum payment. If the sum of all unprocessed advance payments, unpaid interest charges and other payments exceeds ____ per cent of the contract price, the Government will withhold the additional payments to the contractor. Upon conclusion or termination of the contract, the Government shall deduct from the amount due to the Contractor any unpaid advance payment and any interest charge payable. .