Annex 2: advance and interim payments
Advance payments
1. Advance payments to contractors (i.e. payments made before equivalent value is received in return) should be exceptional, and should only be considered if a good value for money case can be made for them (e.g. a price discount commensurate with the value of the funds in question) and if all reasonable steps have been taken to protect public funds. As a minimum an appropriate risk analysis and proportionate due diligence should be undertaken before agreeing to any advance payment and consideration should be given to the requirement of a performance bond. EU procurement rules which protect the right of all potential suppliers to compete on equal terms must be complied with - it would not be acceptable, for example, to offer advance payments to the successful contractor to secure a further price advantage. Any advance payment arrangement would require the prior approval of the relevant central finance and procurement function(s).
2. The following are excluded from the scope of these guidelines:
- service and maintenance contracts requiring payments at the point the contract commences provided a service is already available and can be called on from the date of payment;
- grants or grants in aid to sponsored bodies or pre-funding of other public sector bodies, including voluntary and community bodies, subject to the proviso that no payments should be made in advance of need;
- minor services such as training courses, conference bookings or magazine subscriptions.
Interim payments
3. Interim payments are made at a prescribed stage or at intervals during the progress of a project. Interim payments may have an element of prepayment and so public sector organisations should consider them carefully before agreeing to them. However, if they are genuinely linked to work completed or physical progress satisfactorily achieved, preferably as defined under a contract, they may represent acceptable value for public funds. The following points should considered before agreeing to interim payment arrangements:
- whether the contractor’s reduced need for working capital should be reflected in reduced prices;
- contracts might describe interim payments as payments on account towards the total price rather than a final payment for the part of the work done - this will make them subject to review and recoverable if necessary; and
- interim payments should be related to value received and delivery of tangible outputs, including transfer of ownership of assets, rather than simply the passage of time.
Page reviewed: July 2021