Administration of Construction Contract Interim Payments Based on Earned-Value Reduction Techniques

Abstract

Progress payment valuations and certifications represent a core construction contract administration function. If not attended to by the concerned contract administrators in accordance with prescribed provisions and in good faith, this vital function could end up being the seed for disputes to arise between contractors and owners. There are many reasons why work considered to have been accomplished by contractors ends up being denied certification by the contract engineer, thereby leading to the deferral of receipt, if not partial or full denial, of payment to the contractor. The aim of this paper is to address the conditions that could trigger potential withholding or setting off by the engineer of amounts that are otherwise viewed as due by the contractor. The adopted methodology includes (1) identifying of well-researched earned-value reduction methods, (2) investigating a suitable approach for incorporating them into the process of interim-payment certification, and (3) providing a proposed framework under which the application of such warranted earned-value reductions can be exercised in a fair and transparent manner. The research findings revealed several reasons that can be regarded as justifying the effectuating of reductions by the engineer, including quality of executed work, potential rework caused by the violation of the planned work execution sequence, and the inability to transfer the performed work to internal schedule’s customers.