The Evils of Milestone Payments
Hi, there. Anthony from Contractors Debt Recovery and we’re talking today about milestone payments. That is when you are to be paid a fixed amount at a certain milestone in the project. My first advice to you is avoid these like plague. Avoid them. Avoid them. They sound fantastic cause you think jeez, you know, I’ll just throw some extra resources and I can get to that milestone in a week and bang I got a whole pile of money.
So you go and splash up on resources to get the job done and get to the milestone quickly and then what happens, no money. Why? Because you’re arguing, your client saying no you never reach the milestone. Then you get to an argument as to what do we mean by the milestone, how is it defined. It’s usually not defined properly. So now you can’t even agree on what the milestone was, let alone get paid for it.
So the problem with milestone payment it’s very easy not to pay you simply on the allegation that you haven’t reached the milestone. They’re usually never defined properly. So these things are just terrible. Now you’re just stuck. You haven’t reached milestone one but they want to go to milestone two. So they won’t pay you for that either. I had these in cases so you need to avoid them.
So how do we avoid them? The first is in the contract defined each milestone and very, very carefully. Detail exactly what must be done for that milestone to be given the big tick. Refer to a plan, refer to the site, refer to it in detail so no one can be in any disagreement as to what constitute that milestone. When you reach a milestone pull your client in and say now we’re going to inspect.
I’m going to be claiming for reaching this milestone. Let’s come and inspect the site and agreed that I’ve reached it and document that inspection. At least, even if your client doesn’t agree, at least out of that meeting you get at least what has to be done in order for him to agree that you’ve reached the milestone. So that’s the second thing. Get the work inspected of each milestone.
And finally if you getting into an argument on this and you’re bleeding cash, use security of payment to claim your money. Under Security Payment Act you can make a payment claim every month regardless of what the contract says, regardless if it’s milestone payment. You can start to get cash flow every month by claiming every month under the act. So don’t be shy about using that technique.
So just to summarize avoid milestone contract arrangement if you can. If you must have them define each milestone in detail correctly. Have your client and yourself inspect the work when you reach each milestone. And finally if you can’t agree or it’s going to become a dispute you can use the Security of Payment Act to make a payment claim under the act every month if you need to regardless of what the contract says. All right that should put you in a far better position. I’ll see you next time.