Interim payment applications in construction: cumulative quantities, index linkage, retention, variations and VAT
An interim payment application is how a contractor gets paid for work already done, without waiting for the end of the project. In most contracts it is built as a cumulative account: all the quantities since the start of the work, times the unit rates in the contract, less what has already been approved. Index-linkage differences are added to that, retention and the recovery of the advance payment are deducted, and VAT is added at the end. I have experience in preparing these accounts and in checking them, at a main contractor, in a tender department and with site supervisors.
A cumulative interim payment application: why every account starts from day one
In a cumulative account every item shows the quantity done from the start of the project to the end of the period, not only what was done this month. The reason is practical: if a quantity was measured wrongly in an earlier account, it corrects itself in the next one, with no separate credit note. The amount to pay is the difference between the cumulative amount of the current account and the cumulative amount approved in the previous one.
On site it is also called an interim account, a periodic account or a monthly account. The last account is the final account, which closes all the quantities, all the variations and all the deductions. Every account comes with measurement sheets or a quantity calculation file that shows where each quantity came from. How such a file is built is on the page quantity calculation file.
A worked example: three items, one account
As an illustration, account no. 3 in a project with only three items. The prices are in shekels, excluding VAT, and they show the method; they are not market prices.
| Item | Unit | Contract quantity | Cumulative quantity | Unit price | Cumulative amount |
|---|---|---|---|---|---|
| Concrete in walls | m³ | 120 | 80 | 1,500 | 120,000 |
| Concrete slabs, 20 cm thick | m² | 900 | 450 | 400 | 180,000 |
| Blockwork walls, 20 cm | m² | 600 | 150 | 220 | 33,000 |
| Cumulative total | 333,000 |
Say the cumulative amount approved in account no. 2 was 210,000. The amount for the period is then 123,000. From there the chain is always the same:
| Step | Calculation | Amount |
|---|---|---|
| Amount for the period | 333,000 less 210,000 | 123,000 |
| Index-linkage differences | index rise of 2%: 123,000 times 0.02 | +2,460 |
| Retention | 5% of the period amount | −6,150 |
| Recovery of the advance payment | 10% of the period amount, until the advance is repaid | −12,300 |
| Amount excluding VAT | 107,010 | |
| VAT 18% | 107,010 times 0.18 | +19,261.80 |
| Payable | 126,271.80 |
In the example, retention and the advance recovery are calculated on the period amount; some contracts calculate them on the cumulative amount, and some replace retention with a bank guarantee. The rates themselves, 5% and 10%, are only an example, and they are set in the contract. Index linkage updates contract amounts by the change in a price index, in Israeli building contracts usually the construction inputs index; how the differences are calculated is on the page index linkage and VAT.
What the site supervisor checks before approving
- Measurement sheets for every item: a calculation you can follow, based on the latest drawings and on the methods of measurement in the contract.
- Supporting documents: the site diary, delivery notes, laboratory tests for concrete and for waterproofing.
- Cumulative quantity against contract quantity: an item that goes past the contract quantity gets a question. In a measured (remeasurement) contract that can be fine, but it needs an explanation.
- Lump-sum items: paid by percentage complete or by milestones set in advance.
- Variations: only a variation approved in writing goes into the payment.
A supervisor may approve a lower quantity and move the difference to the next account. Because the method is cumulative, this is not a loss but a deferral, and once the measurement is proven, the quantity comes back.
Two more terms are worth knowing. A milestone is a stage defined in the contract, such as completion of the structural frame or completion of plaster, at which a fixed percentage of the sum is paid; it is common in lump-sum contracts, it makes checking simpler, and it needs a precise definition of what counts as completion. A reservation is a contractor's letter stating that he does not accept a cut or a deferral of an item, so that the right is not lost when the next account is approved. In practice, whoever comes with orderly measurement sheets, photos and dates gets approval faster and with fewer arguments, even when the amounts are large.
Variations in interim payment applications: a separate chapter
Work that was not in the contract appears in the account in a separate chapter of variations, each with a number, a description, a unit, a quantity and a price. A variation that has not been approved yet is listed as a variation in progress with an amount of zero, so that it does not disappear between accounts. From the client's side, when a variation is justified is explained on the page construction variations; from the contractor's side, how to document and price one is on the page submitting variation claims.
From my own project. In my final project in construction management I produced two cumulative accounts for the same project. The second one shows how a quantity corrected from the first account is absorbed into the cumulative total with no credit note. The same principle works today, on every project.
In an interim payment application, a quantity surveyor checks that the quantities submitted match what was actually built and the methods of measurement in the contract, before the linkage and the payment are calculated.
Frequently asked questions
What is the difference between an interim payment application and a final account?
The interim account is a payment on account for what has been done so far. The final account closes the project: final quantities, all the variations, all the deductions, and release of the retention according to the contract.
What is retention and when is it returned?
Retention is a percentage that the client holds back from each account as security for completion and quality. In most contracts it is released in the final account or against a defects-liability guarantee.
Who prepares the measurement sheets?
The contractor prepares them and the supervisor checks them. A quantity surveyor for construction projects can prepare them for either side, so that every quantity rests on a source.
Can you submit an account before the index has been published?
In most cases you submit according to the latest published index and correct it in the next account, if the contract allows it.
Have a project? Tell me briefly what the project is and what already exists. When the project is a good fit, I usually reply with focused questions and a written quote.
Contact me for a quote* Created with AI for marketing, for illustration only. Not reviewed by Yaakov Avital and not professional advice. Every project must be checked on its own by a professional quantity surveyor and an engineer.