Interim Valuation | Bid Bond

Interim valuation and bid bond is very important things of construction project, In this article we will discuss about Reason for interim valuation, retention money, mobilization advance, advance payment bond, bid bond, bid bond in construction, performance bond, bid Security and bid bond vs performance bond, etc...

Reason for interim valuation

For any construction project if contractor receive from the client after completion the project, is an unreasonable to contractor’s cash flow (finance). The contractor have to borrow money large sum of amounts for the entire project.

If the contractor borrowed money from bank or credit he shall pay interest for that amount, That interest will recovered by the contractor with his profit margin. It would be a loss for him.

If that regulation is in the conditions of contract the bidder bid that price inclusive that interest cost also. Then the cost of tender sum is high.

That is badly affected to the client.

From that reasons according to the ICTAD conditions of the contract allow pay for the contractor interim part payment in regular or specified intervals. Interim statement allowed to pay for the current work done. Now the contractor receiving adequate money for the running smoothly to that project. Contractor’s cash flow is smoothly running without effects to the construction. That is the reason to pay interim valuation from time to time.

The stage payments or interim payment account are prepared usually on a monthly basis by the contractor’s QS. The client’s QS until recently it had been common practice in the construction industry for the contractor not release money to domestic sub contractors until the contractor received payment, a system referred to say pay when paid.

This practice case may problems & dis practice particularly between contractors & domestic sub contractors are not informed when the contractor receive payments contractor could with hold payments for work no longer. (1996 World Construction Association)

In 1996 the housing construction & registration act pay when paid allowances enforceable. The construction act contains following provisions for all construction contracts;


Payments by the installments by all contractors over 45days duration.

· The contractor is to be informed when payment is due as well as the amount.

· The contract is to be informed in the event of the client is with holding payments.

· The contractor has the right to withdraw from the site if not pay within special period.

· When preparing an interim valuation following items may included if appropriately.

1. Preliminaries as indicated in the BOQ. 
2. Work carried out by nominated sub contractors. 
3. Measured work as in BOQ
4. Material supplied by nominated suppliers
5. Material on site.
6. Material off site
7. Fluctuations
8. Approved loss & expense claims
9. Money provisions

Retention money

Most standard forms of contracts include the provision of interim payments to be hold with client as incentive to complete the work.

This percentage usually 10% deducted from interim valuation maximum of 5% of the contract sum. When half of release back to the contractor & the percentage reduce by half.

The final percentage is paid on the settlement of the final account. The client has no obligations to invest the retention money but may be required to keep it an identified bank account.

Retention also deducted from payments due to nominated sub contractors. Provisional sum, extra work, fluctuations, claims are not included for deduction of retention.

For each every interim payment retained 10% of cost from agreed valuation. The contractor completion 90% of total valuation, then contractor request from consultant to issue a practical completion certificate for the above work.

The consultant recheck within the specified documents & listed defects work & pricing the total valuation. If that amount not exceeding 5% of limit of retention. Then contractor release 50% of total retention money. ( According to the satisfaction work done that defect listed work by the consultant, ) 

Last payment to the final payment consultant release 50% of maximum limit retention money. Finally the final bill summarized add balance 50% amount to the contractor payment.

Mobilization advance/ Advance payment

When successfully contractor selecting, bid bond & performance bond submitted to the client, as per the conditions of contracts in ICTAD, the consultancy QS released the mobilization advance.

It is 20%-25% from the contract sum. When taking the mobilization advance, the contractor issued the advance security bond as a bank guarantee to the client. This advance should recover before the final bill with some percentage before exceeding 90% of work done of the contract sum. From provisional sum, variations mobilization advance can’t recover.

Advance payment bond/ Mobilization guarantee/ Advance payment security

Typically on a construction project an advanced payment bond will be required by the client if the contractor requests advance payment to help them meet significant start up or procurement costs that may have to be incurred before construction begins. For example where the contractor has had to purchase high-value plant, equipment or materials specifically for the project.

The bond will protect the client in the event that the contractor fails to fulfill its contractual obligations, for example if the contractor becomes insolvent.

An advance payment bond will normally be an on-demand bond, meaning that the bondsman pays the amount of money set out in the bond immediately on demand, without any preconditions having to be met. This is as opposed to a conditional bond (or default bond) where the bondsman is only liable if it has been established that there has been a breach of contract.

Advance payment bonds must be very carefully drafted to set out the circumstances for payment and to make clear that they are on-demand bonds.

Performance bond/ Performance Security

A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion by the contractor.

The quality, working according to the specifications are the things those the client request from the contractor. It is 5% from contract sum. Post contract stage, maintenance period also included to the validity of performance bond. If there is defects higher than the retention then deduact from performance bond also.

Bid Bond in Construction/ Bid Security

bid bond construction

A bid bond is important to show proof of guarantee to the project owner that you can comply with the bid contract and also that you can accomplish the job as laid out in the contract.

A bid bond is a guarantee that you provide to the project owner stating that you have the capability to take on and implement the project once you are selected during the bidding process.

Normally, project owners do not know if a contractor is financially stable or has the necessary resources to take on a project.

However, because of a bid bond, they will be more comfortable to award a project to a contractor knowing that if the project fails, they can collect compensation from the surety bond. 10% from contract sum. Allowable duration is 91 days. Recovered after 91days as per consultant instructions.

Bid Bond vs Performance Bond

bid bond vs performance bond

bid bond construction

bid bond

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