Understanding Terms and Conditions for Invoice Example for Procurement

Terms and conditions for invoice example for Procurement

hello and welcome to costa engineering professional i am ahmad adil and in this video i'll talk about the most important 15 commercial terms in contracts starting right now [Music] in contracts or agreements there will be many clauses terms and conditions that you need to understand and pay attention to and starting with the term number one which is the contract type there are many types of contracts that can be used especially in contracting but the most commonly used type of contracts is fixed price contracts and by the way the lump sum contract and the remeasured contract both of them are fixed price contracts but in the lump sum contract the contract value is fixed however in the remeasured contract the rate of the items in the contract is fixed and the quantity is to be remeasured after doing the works to come up with the final contract value so you need to make sure what type of contract are you using for this project or work package and there are five lectures talking about contract types in our procurement management course and you can find the link in the description down below the second term to pay attention to is contract price because despite the contract is lump sum or remeasured there will be a contract price not only in the lump sum contracts but in their measured contracts too you will need some tentative quantities in the beginning to establish the contract price so how much is the value of the works or how much is the contract price is a very important part of the commercial terms the third term we want to talk about is insurances what are the insurances required for this project usually the works involves manpower which means that in most of the cases you will need workmanship compensation insurance or if the scope of work includes design then you will need professional indemnity insurance or for main contracts you will need car insurance and car stands for contractor all risk so you have to make sure that the contract is covering all the insurances required for the project the fourth commercial term that we want to cover is the terms of payment which means how and when the money is going to be paid as per the contract and the terms of payment are agreed as part of contract finalization and they are of equal importance as the contract price itself and some examples of terms of payment can be the advance payment percentage the advanced payment security progress payments material onsite payment submission time certification time cdc or pdc and i have explained all of that in one video here on the channel this video is called terms of payment explained for construction industry the fifth term is advanced payment security advance payment is paid upon signing the contract before starting the works so what is the guarantee of this amount that is paid against nothing no works has been done yet and still the money is paid so you have to keep the advance payment form of security in the contract it can be a security check or bank guarantee but very important money is paid against something either work done or form of security so we have to check this term in the contract the term number six is recovery of advance payment in case there is advanced payment in the contract how this advanced payment is going to be recovered usually the same percentage of the advanced payment is deducted from the total work done in each payment certificate and i have explained that in details in one video here on the channel this video is called how to prepare payment application for a complete project and that is an example with numbers so it is very useful the term number seven is the performance security known also as the performance bond and this is a guarantee of performance so having a performance bond as per the contract will guarantee that the performing party will adhere to his obligations which means that you will have a guarantee that the subcontractor that you are hiring will perform his duties and will execute all the required works in ance with the terms and conditions agreed in the contract and if he didn't do that you have a guarantee with you and you can punish him if he didn't perform the performance bond can be in the form of a security check or a bank guarantee and i talked about it in more details here on the channel in the payment terms explained video the term number eight is duration and the contract duration is the time required to complete and hand over the works so when you award some works you cannot wait forever until these works are completed so we must agree the duration required for the works and keep it in the contract and in case the subcontractor didn't finish the works on time it means he's in breach of his contract obligations and we'll see how to deal with that later on in this video the duration that you put in the contract can just be the total duration of the project and you can mention that the detailed program of work should be submitted after signing the contract within a specific period of time or you can have the detailed program as a part of the contract even before signing the turn number nine is the commencement date and this is the date of starting or commencing the works because you have agreed the duration in the contract but when it starts from this duration starts from what from signing the contract or from a specific date or maybe upon receiving a notice to commence doesn't matter from what exactly but what matters is the point of time where the project starts and from that point of time the duration starts counting so the duration of the project is measured from the commencement date to monitor the project and the progress and the delays and these things so commencement date is a very important term in the contract the term number 10 is progress payments so we have talked about the advanced payment that will be paid in the beginning of the project but the payments that will be made during the execution depending on the progress of work these are the progress payments and in the contract you should agree the time of payment weekly bi-weekly monthly or milestones and how long is the certification time which means from the date the payment application is submitted what is the time you need to certify the payment and issue the payment certificate the term number 11 is the retention and the retention is an amount that is deducted from the monthly payments to guarantee the completed or the executed works and usually it is a 10 of the value of the total work done and this takes us to the term number 12 which is release of retention the 10 retained amount is usually released partially half of it will be released upon completion of works and the second half will be released after 12 months which is the defects liability period so during this period the contractor is responsible to repair any defects that appear in the works that he has executed the term number 13 is tax and if there are any applicable tax in your country you need to make it very clear in the contract whether the contract price includes or excludes these tax so that no confusion happens in the future while executing the contract the term number 14 is the delay penalty and this is a penalty that will be applied in case of delay or not adherence to the project duration that we have talked about previously and an example of how it is applied can be let's assume the duration is 10 months and the delay penalty is 2.5 percent per week which means in case of 4 weeks delay 10 will be deducted from the contract value 4 into 2.5 percent that's 10 and usually there is a cap of the delay penalty in most cases ten percent which means if the delay is five weeks instead of four weeks in our example the deduction will still be ten percent because the delay penalty is kept at ten percent the term number fifteen is dispute resolution mechanism and it is very important to mention in the contract how disputes will be resolved no one wishes for disputes to happen but still you don't know the future so the mechanism to resolve disputes should be agreed upon in the contract and it will be either court of justice or one of the alternative dispute resolution mechanisms that i'll talk about in detail here on the channel in the future this video here is the one that i talked about where i explain everything you need to know about payment terms and conditions and thank you so much for watching and if you have enjoyed this video make sure to like the video and subscribe to the channel to not miss any videos in the future and i always appreciate your valuable support and see you in the next video