Contract Payments

It is very important for the contactor to perform the contract satisfactorily, similarly it is important for the procuring entity to make payments to the contractor, timely and according to the contract requirements.

Payments should not be made unless the invoice or the free note is accurate and also submitted in accordance with the provisions of the contract. Failure to pay the contractors n time by procuring entities in the past, has led to pending bills accumulating to unacceptable amounts and thus giving public procurement a bad name. It has been said that this is one of the reasons why bidders in the public procurement quote high prices to cover for the payment delays which they will always anticipate.

Payment Terms

Processing of payment of goods starts after their receipt in store, verification that they meet specifications and signing of the delivery note. The standard terms of payment are 30days from date of payment. The procuring entity is obliged by law to pay interest on overdue amount unless the contract provides otherwise.

Payments for services is also due to 30 days from date of payment invoice after the user has confirmed that services meet the service level agreement which forms part of the service contract.

In major contracts for works (projects) it is normal to pay the contractor sums of money on account as the contract proceeds in order to ease its cash flow. Works may take some considerable time to complete provision normally made for progress payments on milestone achievements.

Contracts for works provide in appropriate cases for mobilization advances, advances on contractors equipment and materials, regular progress payments paid after full compliance with contractors obligations under the contract. Payment terms are powerful incentives to the contractor, procuring entities should therefore use payment terms which reflect real progress on the project and the attempt to
tie the payments to useable milestones in the project. This might include; the delivery of raw materials to the contractors factory/site the manufacturers of key sub-contractors delivery of materials to site, completion of sections of the work etc.

Procuring entities should avoid committing themselves to making payments on particular debts regardless of the progress achieved by those debts. Payments are the most powerful tools available to any procuring entity. It is essential that payments are not made before they are due e.g. before the work has been completed. However it is equally important that payments are made when due under the contract because failure to make payments on time for whatever reason may lead to suspension of performance claims for damages and even to the contractor‘s failure.

Ineffective Contract Management May Bring About:
1. Decisions are not taken at the proper time, thus allowing potential risks to appear.
2. The contractor executes the project based on the understanding that he has formulated himself regarding the contract requirements without realizing the actual goals and results expected from the execution of the project.
3. Project is implemented at slow rate.
4. Opportunities to improve value for money are lost.
5. Products services and works are delivered or accepted without meeting the works are delivered or accepted without meeting the acceptable criteria that arise during the execution of the contract is not conducted timely and effectively which usually leads to
tension between the procuring entity and the contractor.

The communication between the contracting authority and the contractor is limited, increasing the possibility of misunderstanding, mispresentation and drawing of incorrect conclusions.

Contract Close Out.
An accounting officer of the procuring entity shall close out a procurement contract immediately after completion. A close out shall involve:
1. The head of procurement function shall issue a certificate to the contractor confirming delivery and acceptance of goods, works and services where the contract is not complex and specialized.
2. Where the contract is complex, and specialized the technical department will issue a certificate to the procuring offer of procuring entity confirming the quality and quantity of such goods, works and services.
3. Further guidelines for the receipt of goods, works and services are prescribed.

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