Keeping the Money Flowing: Payment Terms in Your EPC Contract
A well-defined payment schedule is the lifeblood of any successful EPC (Engineering, Procurement, and Construction) project. Here’s how to ensure your contract keeps the money flowing smoothly.
- Upfront Investment?
- Down Payment: Clearly state if a down payment is required before work begins. This helps ensure the contractor has the initial resources to get started.
- Cash Flow Considerations:
- Cash Flow Options: Specify whether the payment terms are cash-positive (contractor receives regular payments) or cash-neutral (payments are tied to milestones).
- Holding Onto Your Funds?
- Retention Explained: If you’re planning to withhold a portion of the payment as a retention amount, clearly outline when it will be released (typically upon project acceptance).
- Building Trust (Especially Overseas):
- Security Measures: For export projects, discuss the type of security required. This might be an irrevocable letter of credit, buyer credit, or export credit insurance, which protects the contractor if payment isn’t received.
- Paper Trail Matters:
- Invoicing and Payment Procedures: Outline the invoicing process and any accompanying documentation needed for timely payment. This promotes transparency and avoids delays.
By addressing these key payment terms upfront in your EPC contract, you can avoid confusion, maintain a healthy cash flow for both parties, and ensure a successful project completion. Remember, clear communication about finances is essential for building trust and project success.
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