Payment

The bid specification may define the schedule on which payments will be made to the contractor. On lump-sum contracts, payments are normally linked to the submission and approval by the client of agreed deliverables and the achievement of performance targets or project milestones. On relatively short time-based contracts, invoices are normally submitted immediately on completion of the work, in the case of assignments of less than one month's duration, or at regular intervals in arrears, eg on the last working day of each calendar month.

Advance payment

Contractors may regard an advance payment as necessary on contracts where the initial costs of setting up the project and starting work are likely to be substantial - for example, work undertaken in remote locations or overseas. The precise amount of an advance will depend on the contractual arrangements to be agreed during negotiations and need not be defined in the bid, which might seek only to posit a requirement for an advance payment and place it on the agenda for negotiation.

Clients are often reluctant to agree the need for an advance payment. When they do they will generally require the contractor to provide an advance payment security or guarantee, which will have to be arranged through a bank or an export credit guarantee scheme. Overseas clients may stipulate that guarantees have to be obtained through a nominated bank in their country. The effect of the guarantee can be to tie up a large amount of a contractor's working capital or substantially increase its indebtedness to banks, while the time and effort needed to organize a guarantee and obtain the advance payment on time may offset any benefits. Moreover, an advance payment may not in itself be adequate to secure a positive cash flow at the start of a contract, and the contractor may still need either to commit the firm's own resources or to increase its borrowings. These practical difficulties are often compounded by delays in the reduction or release of guarantees by clients.