JCT payment terms set the interim valuation dates, the due dates, the notice deadlines and the final dates for payment. Together they determine when money leaves the client and when it reaches the people doing the work.
On an unfunded scheme they are a matter of working capital. Equally, on a funded one they have to align with the drawdown cycle, and where they do not, somebody is financing the gap.
The cycle in outline
A valuation date, at which the work is assessed. A due date shortly after. A payment notice from the paying party within a set period. A final date for payment, commonly a number of days after the due date.
Each of those is set in the contract particulars, and the periods are negotiable at tender. A client extending the final date for payment improves their cash position and worsens the contractor's, who will price it.
The statutory framework limits some of this, and the consequences of missing notice deadlines are severe. That is covered in payment notices, pay less notices and deadlines.
Aligning with a facility
A development facility has its own cycle: application, monitoring surveyor certificate, lender advance. That process takes time, and the time has to fit inside the contractual payment period.
Where it does not, the client is paying the contractor before the lender has advanced, funding the difference from equity every month. On a large scheme that working capital requirement is substantial and it is frequently discovered rather than planned.
The fix is to set the contract dates against the facility cycle at the outset. It costs nothing at tender stage and cannot be changed afterwards without agreement.
Retention and its cash effect
Retention withheld from each payment reduces the amount leaving the client and increases the contractor's working capital requirement. It is security rather than a saving, and it comes back.
For cash flow modelling that distinction matters. Retention held is a liability that crystallises at practical completion and at the end of the defects period, and both dates need to be in the forecast.
Where a retention bond is used instead, the cash effect disappears and the security changes character entirely, which is covered in retention, bonds and parent company guarantees.
Down the supply chain
Main contractors pass payment terms to subcontractors, and the terms they impose affect whether the supply chain can carry the work. Extended payment periods push financing cost onto parties least able to absorb it.
That is a commercial risk for the client as well as an ethical question. A subcontractor failure mid contract is disruptive and expensive regardless of where the contractual risk sits.
Asking about payment terms down the chain at tender stage is unusual and informative. Contractors who pay their supply chain promptly generally have better supply chains.
Materials, advance payments and vesting
Payment for materials off site, advance payments for long lead items, and payments against orders rather than against work in place all move money earlier in exchange for security arrangements.
Each requires the contract to permit it and requires vesting, insurance and usually a bond to protect the paying party. Without those, the money is advanced against goods the client does not own.
On a funded scheme the lender will test each of these, and an item certified without the protections is an exposure for both parties. The certification position is set out under what we do for the lender side.
The final account tail
The last payments are the ones that drag. The release of the first half of retention at practical completion, the settlement of the final account, and the release of the balance after the defects period.
Those dates fall well outside the construction programme and are routinely absent from cash flow forecasts, which stop at practical completion.
On a funded scheme the facility term has to extend far enough to cover them, and where it does not the borrower is refinancing a small balance at short notice. That pattern is described in hidden cost exposure.
What this means for you
Set the contract payment dates against the facility cycle before the contract is executed. It is a five minute conversation at the right time and an unfixable problem afterwards.
Then forecast cash to the release of the final retention rather than to practical completion. The last six months of a project are where cash flow forecasts are most often silent and most often wrong. Our approach sits under tendering and procurement.
Setting payment terms on a funded scheme?
Tell us the facility structure and the contract. We will align the cycles before they cause a problem.