The management of payments to the Contractor and ensuring their proper handling is one of the most important procedures taking place in the context of contract administration, and this is because it is directly associated with the ultimate goal of public procurement which is to acquire products, services or works with the proper quality, at the agreed time and within the limits of the budget. The payment of the Contractor for the supply of products, provision of services or the construction of public works constitutes an obligation of the Contracting Authority, which arises from the terms of the contract each time. As the Contracting Authority is expecting from the Contractor to observe his contractual obligations with respect to the quality, quantity, and timely delivery, the same way the Contractor on his part expects from the Contracting Authority to respond to its contractual commitment for timely and exact payment for the products, services or works that were accepted.
Depending on the type and particularities of the contract (supply of products, provision of services, design/ construction of works, equipment maintenance) different payment methods and procedures are applied. For example, in the supply or service contracts it is customary to grant an advance payment following the signature of the contract and on condition that the Contractor produces an equal amount Advance Payment Guarantee with the balance amount paid in one or more interim payments and repaid with the final payment following the final acceptance of the entirety of the products or services provided. In work contracts the grant of advance payment is made following the issue of the start order by the Engineer and on condition that the Contractor produces an equal amount Advance Payment Guarantee. The interim payments by the Contracting Authority to the Contractor are made on a monthly basis following the submission of the Monthly Statements by the Contractor, their review by the Engineer and issue by the latter of the Interim Payment Certificates. Respectively, the Final Payment is made following the issue of the Defects Liability Certificate and following the submission by the Contractor of the Final Statement and the written Repayment Statement and issue by the Engineer of the Final Payment Certificate.
At any rate, the conditions and procedure for payments are described in the Special and General Conditions of the contract each time. Also, it is pointed out that, excluding the advance payment, all of the other payments are associated with respective deliveries/ acceptance (total or partial) of the supplies, services or works.
The Project Manager (or the Engineer) must necessarily understand and apply the proper procedures for reviewing the invoices (or the statements in the case of public works) issued by the Contractor, in order to ensure that the payments are made only if the performance of the Contractor is in accordance with the terms and conditions of the contract.
This is why it is recommended that, the application method of the payment procedures be a topic for discussion between the Contracting Authority and Contractor during the kick-off meeting that takes place with a view to explain/ clarify the relative terms of the contract (see subchapter 6.2).
The most important competency of the Contracting Authority and more specifically the Project Manager (or the Engineer) is the correct and thorough review of the invoices (or the Statements respectively) issued by the Contractor before the grant of approval to deposit the appropriate amount to the Contractor's Bank Account (or respectively, before the Payment Certificate is issued by the Engineer). Table 6-7 includes the items on which the Project Manager’s attention must be focused during the review, approval and payment of the invoices issued by the Contract for a supply or service contract, as well as instructions/ best practices so as to ensure that the invoices issued are consistent with the terms and conditions of the contract, respective to the result produced and handled in a timely manner without undue delays. Table 6-8 presents brief instructions for the issue of Certificates and the conduct of payments in the cases of public work contracts.
Table 6-7: Instructions/ Best Practices for the review and approval of the Contractor's
invoices and effecting payments in cases of supply and service contracts
|□||The Project Manager must check whether the invoices respond to the progress of Contractor's works and to the result produced. This presumes that the progress of the Contractor's work is measurable. The expenses incurred or invoices submitted are not in themselves reliable and adequate indices of progress in the contract scope and in no case should they be used as such.|
|□||It is recommended that a thorough control of the first invoice is conducted in close cooperation with the Contractor, with respect to the form and level of details of the information that it must provide in order to facilitate the review and approval of the subsequent invoices.|
|□||Any delays due to incorrect completion of the invoices by the Contractor may be limited by being included in the contract or by providing, during the kick-off meeting, detailed instructions regarding the correct completion of the invoices. These instructions may also include a sample of a completed invoice.|
|□||The Project Manager as well as the staff of the Economics Department or Economics Directorate in charge of the handling of payments must always check the numerical precision of the amounts written in the invoices (e.g., decimal points in numbers, numerical operations) in order to avoid paying the Contractor a larger amount than the one that should actually be paid based on the correct invoice.|
|□||The Project Manager must check that the Contractor has invoiced only the deliverables (products, services), which have been accepted by the Contracting Authority. Also, a check must be made to make sure that the invoice does not refer to deliverables, which have already been paid.|
|□||In cases where the invoicing is made based on the unit price (e.g., supply of products, charges for labour), the Project Manager must check that the unit prices written on the invoice do not differ from the ones that have been specified in the contract. He must also check whether the quantities written in the invoice are consistent with the ones finally measured/ accepted.|
|□||In cases where the payments of the Contractor are made in percentage instalments (% over the total value of the contract) the Project Manager must check that the amount written on the invoice actually corresponds to the percentage of the specific instalment as defined in the contract.|
|□||In cases where the payments of the Contractor are associated with the acceptance of specific deliverables, the Project Manager must check that the specific deliverables have been approved by the Project Steering Committee and that the invoice issued by the Contractor corresponds to these deliverables as set forth in the contract.|
|□||In cases where the payments of the Contractor are associated with the approval of interim progress reports, the Project Manager must check, apart from the respective report, whether all of the deliverables that should have been submitted up to the time of submission of every interim report have been approved.|
|□||In cases of Fee-based Contracts, the Project Manager must certify the labour charges, that is, approve the Timesheets, by checking that the stated man-time indeed corresponds to the actual time worked, that the people for which the timesheets are submitted are indeed the ones stated for the implementation of the specific activities/ tasks and that the (sum) total of the certified time up to that moment does not exceed the man-time set forth in the contract (for more information related with the review and approval of the Timesheets see Chapter 7, section 22.214.171.124).|
|□||In cases of Fee-based Contracts or/ and cases of Global Price Contracts where payments are linked to the measurement of the work carried out after such work has been completed, the Project Manager must check that the amount written on the interim payment invoices corresponds to the man-time provided and certified or the work carried out and certified, multiplied by the respective rate offered. In these cases, it should be checked that when making each interim payment an amount proportional to the advance payment shall be deducted from the amount due to the Contractor, the Advance Payment Guarantee being reduced by the same amount.|
|□||In cases of contracts where specific categories of the Contractor's expenses are covered/ paid by the Contracting Authority following the approval of the Expense Form and production of the respective receipts/ invoices, there must be a very careful audit conducted of the expenses stated in order to ensure that these have not been incurred prematurely in relation to the planning of the respective activities, that they have been incurred within the duration of the contract, that are related with the progress of the project and that the (sum) total of the approved expenses for the specific category up to that moment does not exceed the amount set forth in the contract (for more details related with the review of the Expense Forms and their approval, see Chapter 7, section 126.96.36.199).|
APPROVAL OF INVOICES
|□||The invoice is approved and forwarded for payment by the Project Manager.|
|□||In a case where the Project Manager deems that the payment required by the Contractor exceeds the one that corresponds to the Project progress, he may require explanations or clarifications from the Contractor before he proceeds with the approval of the invoice.|
IMPLEMENTATION OF PAYMENTS
|□||All payments shall be implemented following the approval of the respective invoice of the Contractor by the Contracting Authority. In cases where the contract provides for the payment of advance payment, the Contractor must be required to produce an equal amount Advance Payment Guarantee against it. (the Advance Payment Guarantee must be drafted in accordance with the relevant template attached as Appendix to the Tender Documents).|
|□||The payments shall be made to the Contractor's Bank Account, which shall be notified to the Contracting Authority upon the start of the contract using the respective form given in the attached Annex of the standard Tender Documents.|
|□||The staff of the Financial Department or Directorate in charge of making the payments must return a copy of the invoice paid to the Project Manager, in order to enter it into the contract record. Keeping a payment record either manually or using a personal computer (PC), makes it easier for the Project Manager to monitor the payments (expenses or fees) due to the Contractor in relation to what is provisioned in the contract.|
|□||Cultivating a climate of cooperation between the Project Manager and the Financial Department or Directorate in charge of handling the payments is one of the most important parameters to ensure timely payments.|
|□||In cases of supply contracts or service contracts, the period of time between the time of commencement of the Contractor’s right to remuneration, as such right is specified in the respective article of the Special Conditions, and the date on which the account of the Contracting Authority is debited, shall not exceed 45 calendar days (unless otherwise specified in the contract). Despite that, payments must not be made prematurely without justification (always within the period specified in the contract) unless there is a term in the contract in accordance with which the Contracting Authority shall gain a certain benefit in return from the Contractor (e.g., free transportation and delivery, discount due to early payment, etc.)|
|□||The payment of the final balance is subject to the execution by the Contractor of all his obligations based on the contract and the approval/ acceptance of the entirety of the products or services.|
|□||The total of payments to the Contractor must not exceed the contract value.|
|□||The Contracting Authority may withhold payments of the Contractor in cases where this is deemed necessary to protect its interests as long as such withholdings are stated expressly in the contract. Certain of these cases are mentioned suggestively:|
|▪||There is material breach of the terms of the contract by the Contractor;|
|▪||Errors or omissions in the invoices;|
|▪||Expenses not supported by the appropriate receipts;|
|▪||To compensate for/ restore any excess with previous payments made in the context of the same contract;|
|▪||The performance of the Contractor is deemed as non compliant or non acceptable;|
|□||The Contracting Authority may, by its written notice to the Contractor, suspend in whole or in part, the payments owed to him according to the contract, as long as any of the following events occurs and persists:|
|▪||The Contractor defaults in the execution of the contract.|
|▪||Any other condition for which the Contractor is responsible and which, in the opinion of the Contracting Authority, interferes, or threatens to interfere, with the successful completion of the Project or the Contract|
Table 6-8: Instructions for issuing Certificates and implement payments in cases of public work contracts
|□||The Engineer must determine the form of the Statements (Interim & Final) that the Contractor is required to submit in order to facilitate the auditing and drafting of the respective Payment Certificates.|
|□||In cases of public work contracts with approximate quantities, the Engineer must check that the unit prices written in the Statements do not differ from those defined based on the contract. Also, he/she must check whether the quantities written are consistent with the ones finally measured.|
|□||In cases of public work contracts with fixed price, without quantities, the Engineer must check that the amount that the Contractor states in the Statements as the value of Permanent Works that were executed corresponds to the percentage of completion of every component of the project defined in the Analysis of Contract Value.|
|□||The Engineer must, within 35 days (unless otherwise specified in the contract) from the receipt of the Monthly Statement, deliver to the Contracting Authority the Interim Payment Certificate by stating the amount the he/she considers as due and payable to the Contractor taking into account the amount of deduction provisioned in the contract (and until the amount deducted reaches the Deducted Amount Limit5 [ One half of the Deduction Amount is certified by the Engineer for payment to the Contractor upon the issue of the Acceptance Certificate for the entire project and the other half upon the expiration of the Defects Liability Period. ] which is mentioned in the contract), the amounts that have become due and payable by the Contractor to the Contracting Authority and the amount for the repayment of the advance payment (starting from the moment when the certified value exceeds 30% of the Net Contract Amount).|
|□||The Engineer must not certify any amount for payment until the Performance Guarantee is submitted by the Contractor and approved by the Contracting Authority.|
|□||The Engineer may, through any Interim Payment Certificate, correct or modify any previous certificate issued by him.|
|□||In a case where the Engineer, during the review of the Preliminary draft of the Final Statement disagrees or cannot verify any part thereof, he must instruct the Contractor to provide additional information or to make changes in the preliminary draft statement in order to achieve accord. In a case where no accord is achieved, the Engineer must issue an Interim Payment Certificate for the parts of the Final Statement Preliminary Draft for which there is no disagreement.|
|□||The Engineer must, within 84 days (unless otherwise specified in the contract) from the receipt of the Final Statement and the written Repayment Statement, issue the Final Payment Certificate.|
|□||The amount due the Contractor based on any Interim Payment Certificate issued by the Engineer must be paid by the Contracting Authority within 28 days from the delivery of this certificate to the Contracting Authority, or in the case of the Final Payment Certificate, within 56 days from delivery (unless otherwise specified in the contract).|
The prompt payment of the amounts due to the Contractor is an important factor for the completion of the contract within the budget, as following the expiration of the deadlines provisioned in the contract for the implementation of payments, the Contractor may claim payment of interests. In the following paragraphs there is a presentation of the procedures to implement delayed payments in the cases of supply or service contracts and in the case of public work contracts, as well as the conditions under which the Contractor is entitled to claim payment of interests.
Supply or service contracts
In a case where any part of the invoiced amount is questioned by the Project Manager, the countdown toward the expiration of the deadline of 45 days stops (or of any period defined in the contract) and the Contractor is notified that this part of the invoice is not acceptable, either because the said amount is not payable, or because the relevant deliverables or relevant report cannot be approved and the Contracting Authority deems necessary to conduct further inspections. In such cases, the Contracting Authority must not withhold without due reason any non questioned part of the invoiced amount, but it may require clarifications, modifications or additional information, which must be provided by the Contractor within 30 days from the relevant request (unless otherwise set forth in the contract). The countdown toward the expiration of the deadline shall expire on the date on which the Contracting Authority shall receive a correctly stated invoice.
Within two months (unless otherwise specified in the contract) from the expiration of the above deadline for payment of the delayed payment, the Contractor may claim interest over the delayed payment with the default rate set forth by the Minister of Finance by his decree based on the "Uniform Public Default Rate Law of 2006"
Public work contracts
For every amount included in a Payment Certificate that the Contracting Authority fails to pay to the Contractor within the deadlines specified in the contract (e.g., 28 days for the Interim Payment Certificates and 56 days for the Final Payment Certificate), the Contracting Authority is required to pay the Contractor default interest, with the interest rate defined each time by the Minister of Finance or other competent administrative agent.
The obligation of the Contracting Authority for payment of interests is limited only to the case of failure to pay certified amounts and presumes the existence of liability.
The Contractor is entitled to claim the payment of interests when the following conditions are met:
|●||non inclusion in a Payment Certificate of the value of the executed work due to omission to measure the entire quantity of the work executed, or|
|●||non inclusion in Payment Certificate of the value of executed work due to delay in the determination of the proper unit price, or|
|●||non inclusion in Payment Certificate of an amount against claims of the Contractor which is finally decided to be paid to the Contractor and which at an earlier time had been rejected by the Engineer.|
The proper starting time for the interest calculation period is the earlier day on which the principal amount could become payable, considering a reasonable period to review the claim of the Contractor and the time determined in the Contract for the certification of the amount by the Engineer and payment of the certificate by the Contracting Authority. It is pointed out that the submission of claim/ notification by the Contractor and his compliance with the service of any other notices constitutes a prerequisite for the start of the interest calculation period.