Procurement and payment methodologies in a contract

Procurement involves the preparation and use of a number of standard documents forms such as requisitions, purchase orders, and subcontractors.

The principle of procurement are

1. Purchasing
2. Expediting and receiving
3. Inspections
4. Shipping
5. Subcontractors

Cash discounts:
Cash discounts are in the nature of a premium given in exchange for payment of an invoice before it becomes due, and the buyer is entitled to the discount only when payment is made with in the time specified.

Title of purchasers:
1. Cash sale
2. On-approval sale
3. Sale or return
4. Delivery by vendor
5. Shipment by common carrier

Periodic Payments
Construction contracts typically provide that partial payments of the contract amount shall be made to the prime contractor as the work progresses. Payments to the contractor at monthly intervals is the more usual contract provision. The pay request may be prepared by the contractor, the architect-engineer, or the owner. The general conditions or supplementary conditions of the contract normally stipulate which party is to have the responsibility and authority for compiling these requests. Such periodic payments made by the owner to the prime contractor or subject to the retainage provisions contained in the construction contract.

Project cost breakdowns:
The break down, which is actually a schedule of costs of the various components of the structure, including all work done by sub contractors, is prepared in sufficient detail so that the architect- engineer or owner can readily check the contractor’s pay requests.

Payment requests for lump-sum contracts:
Usually prepared by the contractor, it includes all sub contracted work as well as that done by the contractor’s own forces. For each work classification that it does itself, the contractor estimate the percentage completed and in place. From invoices submitted by the subcontractors, suitable percentage figures are entered for all subcontracted work.

Payment requests for unit-price contracts:
Payment requests under unit-price contracts are actual quantities of each bid item completed to date. The determination of quantities accomplished in the field is done in several different
ways, depending on the nature of the particular bid item. On unit- price contracts, the owner or architect-engineer often pay request and sends it to the contractor for checking and approval before payment is made.

Final payment:
In building construction, the process typically commences when the contractor having achieved substantial completion, requests the preliminary inspection. The owner or its authorized representative, in company with general contractor and sub contractor personal, inspect the work, list of deficiencies to be completed are corrected is prepared and the engineer issues a certificate of substantial completion. After the deficiencies have been remedied, a final inspection is held and the contractor presents its application for final payment.

Payment to subcontractor
The general contractor must check each monthly pay request from a sub contractor to ensure that it is a fair measure of work actually performed. The prime contractor does not wish to allow its subcontractors to be overpaid any more than the owner wants to over pay the general contractor.

Payments to material suppliers:
Payments by the contractor to its material suppliers are made in accordance with the terms applicable purchase order or usual commercial terms. For materials is not normally dependent on any disbursement made by the owner to the general contractor, but it is due and payable in full 30days after invoice date, receipt of materials, end of the month in which delivery was made.