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Should the payment terms appears as in sum off% in contract, or it might be shown as milestone payment, what is the better payment scheme for sub contractors.?
Normally, a part payment clause is inserted in contract against part completion of work in construction and other related projects with a predefined agreed milestone for measurement. For contract administration purpose, the milestone must indicate the percentage “%” completion of work and payment is made accordingly with some retention amount.
However, normally service contracts, normally a monthly payment plan is inserted
The amount of days & the conditions upon which the payment is to be made.
Agree with Mr. Nadeem,, From the legal prospective, and on accordance to Islamic law, it's essential to have a fixed and determined clarification on the payment(s) plus the Contract value. Whereas, it's by principle that both Parties may agree on the payment method and terms, thus such decisions are critical to be made due to the nature of each Project/scope. My advise, (i) I would address the Contract value as estimated contract value (negotiation wise, the subcontractor may be subjected to a particular penalty/deductions) PLUS (ii) I would make the payment cleared by numbers (not in percentage manner).
Should the payment terms appears as in sum off % in contract, or it might be shown as milestone payment, what is the better payment scheme for sub contractors.
In my field, normally it should show as milestone payment. Especially in contracts, a milestone payment has to be agreed upon via percentage wise like upon mobilization, delivery of materials, finished work stage wise as well as the commissioning and hand over.
Payment term: This depends on your old experience with the manufacturer and supplier you deal with. It is more important matter. If you trust this then, you sure to study the payable amount " How much?!". Mostly we go with%% TT transfer for the small amounts with trusted suppliers, as the best choice. Also, we can go with the other terms of payment, LOC, CAD, Partial %, for the big amount, after we trust the ability of supplier in providing the purchased items.
Payment terms shall be shown off in % and also related to his Performance. Like start of the work 15~30% payment will be given and rest will release based on Performance Guarantee Bond.