The Parties need to agree on a schedule of payments specifying the amount to be paid, the event that will entitle the Contractor to claim that payment, and the documentation that the Contractor is obliged to present to obtain payment. In the absence of specific agreement, Chapter 6 applies without modification by reference to this Appendix 2.

1. FREQUENCY OF MILESTONES

It is up to the Parties to specify the frequency of milestones; the Parties may specify a large number of milestones, each associated with a minor sum, or a single milestone in an Invoice Period. Under this Contract, an Invoice Period is defined as a month, and an invoice is rendered once in an Invoice Period for all milestones achieved during the preceding Invoice Period. The Parties are at liberty to define longer or shorter Invoice Periods.

2. AMOUNT OF MILESTONE

It is suggested that this be a specified amount, rather than an amount calculated by reference to e.g. actual cost of an item. If milestone payment amounts are floating, the Parties will need to specify a milestone toward the end of the milestone schedule that reconciles the agreed Contract amount and the amounts paid.

The currencies in which payment is to be made should also be specified here (for multi-currency contracts). If payments made in a certain currency (e.g. construction costs denominated and paid in a volatile currency) are to be escalated, this too can be dealt with here.

3. EVENT

Milestone events fall into two broad categories:

• Percent complete; or

• Specific event.

The specific events again fall into broad categories:

• Construction events, e.g. first concrete, cable pull complete or enclosure complete;

• Plant shipping events, e.g. item loaded on vessel cleared for export, item delivered to the Site; [Page99:]

• Document delivery events, e.g. detail Design delivered; or

• Other events.

If the invoice amount is specified by reference to the percentage completed, it is likely that the determination will be made at the end of a month and the invoice amount calculated by reference to the incremental percentage completed, each percentage point being equivalent to a money amount.

Milestones defined as events may occur at any time during the month; still, as stated, invoicing under this form of contract occurs only once a month, for all events achieved during the previous month.

4. DOCUMENTATION REQUIRED

The documentation required primarily depends on the way the event is defined.

For events defined by reference to the percentage completed, the Parties will need to agree on a procedure that yields agreement as to the percentage completed. This may be done by a third party, for example the Dispute Board or another neutral third party.

For milestones specified by reference to events, the documentation required will depend on the nature of the event and on the source of financing. For example, export-credit agency financing may be released on the basis of the value of exports, so that the earliest event that permits invoicing is the loading of the goods on the vessel; the corresponding documentation is the (on-board) bill of lading.

5. ADVANCE PAYMENT AND RETENTION

If the advance payment is openly defined as a percentage of the Contract Price, then the amortization of the down payment must be specifically addressed in the calculation of the invoice amounts; otherwise, the milestone payment amounts can be specified accordingly.

In either case, security should be posted for the down payment (amortized pro rata), and the unamortized portion of the down payment needs to be taken into account in calculating the termination payment (if any).

Similarly, this Contract does not specify a retention; however, it is always possible for the Parties to scale the milestone payments such that an amount remains outstanding up to the end of the construction period, and is paid against the milestone “completion”. It is up to the Parties to specify payments post completion (e.g. retention held against warranty claims), though it is suggested that this be accomplished through a warranty bond if required at all.