Payment method for milestone payments in EPC projects

It mainly depends on the strategy of the owner or the EPC contractor, as different strategies affect the contractor’s quotes. Attached is the payment plan from the EPC tender documents for a 200,000-ton facility of a certain company: Contract Price, Measurement and Payment 16.1 Contract Price (3) Projects that can be priced based on the actual amount of work completed, with the contract price adjusted accordingly include: / . Scope of risks included in the contract price: / . Method for calculating risk fees: / . Methods for adjusting the contract price outside the risk range: (1) / ； (2) / ； (3) / ； 16.2 Advance Payment 16.2.1 Advance Payment: The percentage or amount of the advance payment is 10% of the contract price. Payment deadline for the advance payment: within 30 days after the contract is signed. 16.2.2 Advance Payment Guarantee: Provision regarding whether the contractor shall provide an advance payment guarantee: Yes. The form of the advance payment guarantee submitted by the contractor is: bank guarantee. Deadline and amount for the contractor to submit the advance payment guarantee: It must be provided within 1 week after the contract is signed, and the guarantee shall be refunded within 10 days after the advance payment is settled; the amount is 10% of the contract price. 16.2.3 Recovery and repayment of advance payments: The advance payment is recovered by deducting the corresponding proportion at the time of the first progress payment. 16.3 Payment for project progress 16.3.1 Payment schedule and proportion: Upon the signing and sealing of this contract, the employer shall make payments for project progress at the times and in the amounts specified below. 16.3.1.1 Principles for payment of design fees and Category II expenses: a) Within the second month after the contract comes into effect, the employer shall pay 20% of the engineering design fees and Category II expenses, and deduct the previously paid advance amount as a payment toward these fees. b). After the detailed design is completed and the employer receives all the detailed drawings, 80% of the contractor’s engineering design fees and Category II costs shall be paid within one month. Upon completion of the intermediate handover of the project and the preparation of the as-built drawings, 90% of such fees shall be paid. Within one month after the final settlement of the project costs, 95% of the total project cost shall be paid ； The remaining 5% shall be paid by the employer within one month after the submission of a quality guarantee bond. 16.3.1.2 Payment for equipment and materials: a) The employer shall, within 25 working days, pay the contractor 30% of the cost of the equipment and materials ordered (calculated based on the winning bid price), based on the prices of such equipment and materials as stated in the purchase contracts submitted by the contractor; the contractor shall attach the relevant pages of the purchase contracts along with the signed sections as proof for payment, and the advance payment already made will be deducted from this amount. b). 50% of the price of the ordered equipment and materials (calculated based on the winning bid price) shall be paid after the equipment (including spare parts) and materials arrive at the site and pass the inspection; 10% more shall be paid after the equipment and materials have been installed and approved; 95% of the total price of the equipment and materials (calculated based on the winning bid price) shall be paid within one month after the project settlement is completed ； The remaining 5% will be paid by the employer within one month after a quality guarantee bond is provided, provided that no quality issues arise. 16.3.1.3 Payment of construction costs: Upon receiving the contractor’s report on the work completed each month, the employer shall make a payment equal to 90% of the work done that month, deducting any advance payments that have already been made ； Within one month after the intermediate handover of the project, 90% of the total cost for construction work and installation shall be paid ； Within one month after the completion of the project settlement, 95% of the construction cost and installation costs shall be paid ； The remaining 5% will be paid by the employer within one month after a quality guarantee bond is provided, provided that no quality issues arise. 16.3.3 Progress Payment Request Form The progress payment request form includes: work volume, price confirmation, quality inspection approval form, etc. Format of the progress payment application submitted by the contractor to the supervisor: in the format approved by the supervisor. Number of progress payment application forms submitted by the contractor to the supervisor: 6 copies. 16.3.4 Review and Payment of Progress Payments (2) Method for calculating the penalty for the employer’s delayed payment of progress payments: / . 16.4 Quality Warranty Deposit 16.4.1 Method by which the contractor provides the quality warranty deposit: Quality warranty deposit bond. Maximum amount or percentage of quality guarantee to be provided by the contractor: 5% of the total settlement amount. Provision regarding the retention of the quality guarantee deposit: It shall be retained in full at the time of project completion and settlement. Additional provisions regarding the quality warranty deposit: / . 16.5 Project Settlement 16.5.1 Application for Project Settlement (1) The application form for project settlement submitted by the contractor includes: the cover page of the settlement statement, preparation instructions, summary tables, quantity list pricing sheets, calculations of quantities, relevant supporting documents (including construction blueprints, change orders, and on-site visas, etc.), as well as claims related to both parties. Number of copies of the project settlement application submitted by the contractor: six copies in total. 16.5.2 Review of project settlement: (1) The time limit for the supervisor to complete the verification of the project settlement application form and submit it to the employer is 90 days. (2) Time limit for the employer to review the project settlement application: 180 days. (3) Methods and procedures for reviewing the objections in the project settlement application form: Submit it to the construction management department of Sinopec Group for mediation. (4) The inspection fees for pressure vessels and pressure pipelines shall be settled based on the actual costs incurred. (5) The water and electricity used for the construction of this project (including losses) shall be metered by the contractor, who shall then pay the relevant fees to the employer according to the actual usage. The charges for water and electricity shall be in accordance with the latest regulations set by the Maoming branch. (6) The settlement of project costs must strictly comply with the various regulatory provisions set out in the \"Regulations on the Preparing (Settling) of Project Costs for Maoming Petrochemical Projects (JMMSH-B100204-43-059-2013-3-M3.10.011)\” and the \"Regulations on the Settlement of Project Payments for Maoming Petrochemical Projects (JMMSH-B100204-43-163-2014-2-M3.10.012)\”. 16.6 Final Settlement 16.6.1 Application for Final Settlement: (1) Number of copies and deadline for the contractor to submit the application: five copies, within 15 days after the issuance of the Defects Liability Period Completion Certificate. . 16.6.2 Final Settlement and Payment: The time limit for the Employer to approve the final settlement request is 42 days. Deadline for the employer to make payment: 56 days.