Background
Payments in the construction industry work in a different way to the more traditional payment structure, with payments staggered over time as work is completed, reductions in the amount paid held back for various reasons, and a portion of the final amount held back for a period of 12-24 months depending on the terms agreed, to cover any defects. The sub-contractor will usually submit an “Application for Payment” to the Quantity Surveyor who will then review this and make any adjustments accordingly for any works not completed and apply any discounts or retentions applicable. The Sub-contractor will then submit an invoice for the agreed amount. The Purchase Order needs to be created showing all of the deductions, the invoice logged, and then the payment is issued to the sub-contractor. The nature of the payments, being drawn out over time against an agreed overall amount, results in the need for a payment certificate to be issued with each payment which notes in detail exactly what is being paid out in this period, what has been paid out in the previous period, as well as the total paid out overall, plus any deductions which have been made and any retentions (amount held back for the defects period) which have been held. There is often CIS Tax deducted from the payment as well. This information goes out in what is known as a Sub-Contractor Payment Certificate.
Raising a Sub-Contractor PO
1. Go to Purchasing
2. Select Create New Purchase Order
3. Enter the Purchase Order details in the top section as normal
4. Click Add Line
5. For it to appear on the Sub-Contractor Payment Certificate, one of the specified line types must be added to the PO. The lines of the Payment Certificate are set up to be
a. External Sub-Contract Labour
b. External Sub-Contract Materials
c. Main Contractor Discount (MCD)
d. Retention Labour
e. Retention Materials (separated from labour on the PO as they sit in different nominals in accounts)
f. Training Contribution
6. In the current version, all calculations are manual, and should be keyed on the PO as per offline calculations
7. Deductions should be keyed with a negative quantity value
8. The full contract value should be keyed on the initial purchase order
Example PO below:
Viewing Payment Certificates
1. Go to Purchasing
2. Search for and existing PO using View PO or Search for an existing MR/PO
3. On the view PO screen, choose the Payment Cert tab
Here you will see a list of any payment certificates which have previously been raised against the chosen PO.
Creating a Payment Certificate
If you have the permission Can create payment certificates you will also see a Create New Cert button on this page. To create a payment certificate:
1. Click Create New Cert
2. Set the Cert Date, and what VAT Rate should apply
3. Key in the value that will be paid to the Sub-Contractor on This Certificate
4. You will not be able to key a value against lines which are not on the PO, or have already been paid out in full, negative values should be keyed as such
5. If there is less value outstanding that what you require to pay out on this Certificate, you must go back and revise the PO
6. Click Raise Payment Cert
The Payment Certificate will now be generated.
Emailing the Payment Certificate
When you have created a Payment Certificate, you will be given the option to email this certificate.
1. From the To field, you can choose one of the default Supplier contacts, this field can also be left blank
2. If you want to send it to someone else, use the To Free Text field, to key any recipients email addresses, separated by “;”
3. Repeat steps 1 & 2 for anyone who should be cc’d into the email
4. The Subject is prepopulated but can be changed as required
5. Key the Body of the email
6. Hit Send
If you do not wish to send the Payment Certificate to anyone at this stage, you can select Cancel to return to the Payment Certificate screen
Viewing an individual Payment Certificate
From the Payment Cert tab, you can click the document icon next to a Cert line, to view the details of that individual Payment Cert.
1. Navigate to the correct PO
2. Choose the Payment Cert tab
3. Click on the document icon of the Certificate you wish to view
This screen will show you various pieces of information relating to the Certificate. There are also three buttons you can choose:
• Email the Certificate – see above
• View the Certificate – to view a pdf version of the Certificate
• Cancel the Certificate – to remove the certificate and its details from the system
Cancelling a Payment Certificate
If you have the permission Can create a payment certificate you will be able to Cancel a Certificate
1. Navigate to the correct PO
2. Choose the Payment Certs tab
3. Click the document icon of the Cert you wish to view
4. On the Payment Certificate screen click Cancel Certificate
5. On the pop up warning click OK. This will delete all details relating to this Cert from the system and return any paid out balance to the Value Outstanding for payment
Releasing Retention
When the job is complete, the retention on the contract should be released back to the Sub-Contractor. In order for this to appear as an option on the Payment Cert screen you need to revise the PO and add the retention as a positive value.
1. Navigate to the correct PO
2. Click Revise
3. You will see a warning telling you that this PO has Payments Certs raised against it, this is for information only but should be considered when revising any POs on which it appears
4. Click Add Line
5. Add a new Retention line using the same Line Type as was previously chosen to withhold the retention
6. Key the retention value using a positive value
7. Click Create New Revision
At this stage the PO should be approved again, allowing dual sign off on the retention release.
8. Go to the Payment Cert tab
9. You should now see a positive value available to pay out against retention
10. Key the value you are paying out on this Certificate, you will not be able to pay out more than what is specified on the PO, or more than any outstanding value
11. Click Raise Payment Certificate
You can now view the pdf version of the Payment Cert showing the retention release.