Interim Payments

Interim payments are the practical mechanism through which suppliers receive funds during the performance of a public contract, rather than waiting until all work is complete. They are particularly important for service contracts measured in months or years, and for works contracts where upfront capital expenditure and ongoing labour costs must be financed before the contract delivers its final output.

What are Interim Payments?

Interim payments are payments made at regular intervals or on the occurrence of defined contractual triggers during the life of the contract, in advance of the final account settlement that closes the financial relationship between buyer and supplier. There are two main approaches:

Time-based interim payments are made at fixed intervals, typically monthly or quarterly, based on the value of services delivered or works completed in that period. The supplier submits an interim application or invoice at the end of each period, the buyer verifies it, and payment is made within the contractual and statutory payment period required by Directive 2011/7/EU.

Stage-based interim payments (sometimes called milestone payments) are triggered by the completion of defined stages or deliverables rather than by the passage of time. These are more common in IT and construction projects where discrete outputs can be clearly identified and verified before payment.

Most public contracts include both a time-based element (for ongoing service costs) and stage-based elements (for specific deliverables). The payment schedule is set out in the contract and typically forms part of the pricing schedule submitted by the supplier in their tender.

For works contracts, standard European forms such as FIDIC and NEC use interim application and certification processes, where the contractor submits an application for payment, the engineer or contract manager certifies the amount due, and the employer pays within the stipulated period.

Why it matters for bidders

Cash flow is one of the primary financial risks on a long public contract. A supplier that has committed to mobilisation costs, staffing, and capital but receives no payment for six months is exposed to significant working capital pressure. When structuring your bid, the payment schedule is as important to model as the headline price.

Key considerations include:

• the frequency of interim applications and whether the schedule aligns with your own supplier payment obligations,
• the verification and acceptance process: delays in buyer sign-off translate directly into delayed payment and, ultimately, late payment interest entitlements,
• retention: some contracts withhold a percentage of each interim payment (retention) until practical completion, creating a funding gap that must be financed,
• advance payments or mobilisation payments: some buyers offer a mobilisation advance, repaid over the contract, to reduce the working capital burden at the start.

Example

A Czech government agency awards a four-year facilities management contract. The payment schedule provides for monthly interim payments based on services delivered, with the supplier submitting an invoice on the last working day of each month. The agency has thirty days to pay under the contract (consistent with Directive 2011/7/EU). The supplier also receives a EUR 50,000 mobilisation payment at contract commencement, deducted at EUR 5,000 per month over the first ten months.

Frequently Asked Questions

Can a buyer withhold an interim payment if they are dissatisfied with performance?

Buyers can apply contractual deductions (such as service credits) against interim payments, but only where the contract expressly provides for this and the deduction is calculated in accordance with the agreed regime. Withholding payment entirely without contractual basis risks triggering late payment interest obligations and may itself be a breach.

What is retention, and how does it affect interim payments?

Retention is a percentage (typically 3-10%) withheld from each interim payment as security for the supplier's performance. Retention is released partly at practical completion and partly at the end of a defects liability period. For large contracts, retention can represent a significant working capital cost that must be priced into the bid.

How do interim payments relate to the final account?

Interim payments are on-account settlements: they represent the buyer's best assessment of what is due at each point in time. The final account reconciles all interim payments against the total amount actually due, takes account of variations, claims, and deductions, and produces the net sum owing to or from the supplier at contract close.