Last edited 28 Feb 2018

Interim certificates in construction contracts

Interim certificates provide a mechanism for the client to make payments to the contractor before the works are complete. The Housing Grants, Construction and Regeneration Act, states that a party to a construction contract in excess of 45 days is entitled to interim or stage payments.

Interim payments can be agreed in advance and paid at particular milestones, but they are more commonly, regular payments, the value of which is based on the value of work that has been completed (this is the actual value of the work completed, taking into account variations, etc.).

The amount of these payments is entered onto an interim certificate (generally valued by the cost consultant, perhaps having taken advice from the lead designer) and the client must honour the certificate within the period stipulated by the contract.

If the client intends to pay a different amount from that shown on the interim certificate, then they must give notice to the contractor of the amount they intend to pay and the basis for its calculation (pay less notice - see Housing Grants, Construction and Regeneration Act for more information).

The value of interim certificates is the value of the work completed, less any amounts already paid, less retention. Half of this retention will be released on certification of practical completion and the other half upon issue of the certificate of making good defects.

Interim certificates should make clear the amount of retention and a statement should also be prepared showing retention for nominated sub-contractors if there are any. The contract may require that retention is kept in a separate bank account and that this is certified. In this case, the client will generally keep any interest paid on the account.

There may be particular provision to include the value of particularly costly materials that the contractor has not yet delivered to site. This allows the contractor to order items in good time, without incurring unnecessary long-term expense, but does put the client at some risk if the contractor becomes insolvent.

On design and build projects, the amounts certified as payable may be based on a contract sum analysis.

The contract conditions provide that the contract administrator must issue an interim certificate within five [calendar] days of the due date whether or not the contractor has issued an interim [payment] application. This five [calendar] day period is set by statute in the Housing Grants, Construction Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009. Being set by statute, the time period cannot be changed.

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What if an interim contract shows a negative value?