Method of payment under different types of contracts

The method of payment under different types of contracts varies depending on the type of contract and
the specific terms agreed upon by the parties. However, there are some general principles that apply to
most contracts.

General principles

 Payment is typically due upon completion of the contract. This means that the buyer does not
have to pay the seller until the seller has fulfilled all of their obligations under the contract.
 Payment can be made in a variety of ways, such as cash, check, wire transfer, or credit card. The
specific method of payment should be agreed upon by the parties before the contract is signed.
 If the buyer fails to make payment, the seller may have the right to sue the buyer for breach of
contract.

The following are the methods of payment for the different types of contracts you mentioned:

Rates only contracts

Under a rates only contract, the contractor is paid at an agreed-upon hourly or daily rate for the time
spent on the project. This type of contract is typically used for projects with a well-defined scope of
work and where the contractor is able to accurately estimate the time required to complete the project.

Rates and prices for re-measurement contracts

Under a rates and prices for re-measurement contract, the contractor is paid at agreed-upon unit rates
for the work completed. The unit rates are typically agreed upon upfront, but the total contract price is
not finalized until the project is complete and the quantity of work completed has been re-measured.
This type of contract is typically used for projects where the scope of work is not well-defined or
where there is a risk of changes to the scope of work during the project.

Lump sum contracts

Under a lump sum contract, the contractor is paid a fixed price for the entire project. This is the most
common type of construction contract, and it is typically used for projects with a

well-defined scope of work. Payment is typically made in installments, with a down payment paid
upfront and the balance paid upon completion of the project.

Cost reimbursement contracts

Under a cost reimbursement contract, the contractor is reimbursed for all costs incurred in
completing the project, plus a predetermined fee. This type of contract is typically used for complex
projects with a high degree of uncertainty. Payment is typically made in installments, with the
contractor submitting invoices on a regular basis.

Target contracts
Under a target contract, the contractor is paid a target price for the project, plus a bonus or penalty
depending on their performance against the target price and completion date. This type of contract
offers a balance of risk and reward for both the client and the contractor.

Payment under design, build and operate contracts

Under a design, build and operate contract, the contractor is paid for the design, construction, and
operation of the project. This type of contract is typically used for complex projects where the client
wants to reduce risk and simplify the procurement process. Payment is typically made in installments,
with the contractor submitting invoices on a regular basis.

Advantages and disadvantages

Each method of payment has its own advantages and disadvantages. The following table
summarizes the key pros and cons of each method:

Method of payment Advantages Disadvantages

Rates only contracts Simple to administer Risky for the client

Rates and prices for
re-measurement contracts
Lump sum contracts
Cost reimbursement
contracts
Target contracts
Payment under design,
build and operate
contracts
More flexible than rates
only contracts
Offer certainty of price for the
client
Least risky for the
contractor
Offer a balance of risk and
reward for both the client and
the contractor
Offer a single point of
responsibility for the client
More complex to
administer
Risky for the contractor
Risky for the client
Complex to administer
Complex and may not be
suitable for all projects
The best method of payment for a particular contract will depend on the specific circumstances of
the project. It is important to carefully consider the type of contract, the size and complexity of
the project, and the preferences of the owner and contractor when choosing a method of payment.