2.8.5 What type of payment mechanism should be put in place?

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Timing of payment - Contracting authorities should be committed to paying their suppliers on time. Normal payment periods should be specified in the contract, i.e. within 45 days of the receipt of the goods or service or a correct invoice, whichever is the later.

An Earlier payment period can be used in return for some benefit, such as, free delivery of supplies, discounts associated with prompt payments etc. However it is important that payment is not made unduly early i.e. less than 45 days for no benefit.

Approach to Payment Contracting authorities should aim within a contract to hold back as much of the payment as possible towards the end of the contract to increase the negotiation power. A staged approach to payment is to be encouraged. This enables the contracting authority to negotiate the implementation of the various stages of the contract rather than on completion when it may be too late to alter any changes.  Contracting authorities should aim to ensure that the stages of payment represent a tangible, or at least measurable achievement (such as part delivery) while still ensuring that as much of the payment as possible is linked to the satisfactory completion of the project. For example: small staged payments could be made at a certain point in a large  construction process, such as when foundations are laid, 80% of the building is erected and on final completion; or based on interim progress reports or draft documents for a consultancy assignment. Contracting authorities need to withhold a “respectable” percentage of the overall contract costs to final satisfactory completion.

© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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