Payment Milestones

Definition:
Pre-agreed stages within an EPC contract that trigger payments based on completed project deliverables.

Key Components:

• Defined Milestones: Payments tied to specific project phases (e.g., design completion, equipment procurement).
• Approval Process: Owner verification before payment release.
• Retainage Provisions: A percentage of payment is withheld until final acceptance.

Use Cases/Industries:

• Infrastructure Construction: Payments released after foundation, structural, and finishing phases.
• Oil Refinery Development: Milestones based on engineering, procurement, and mechanical completion.
• Renewable Energy Projects: Payments triggered by turbine installation and grid interconnection.

Advantages:

• Aligns Cash Flow with Progress: Ensures funds are allocated based on work completed.
• Reduces Financial Risk: Prevents overpayment before deliverables are achieved.

Challenges:

• Potential Delays: Disputes over milestone completion may slow payments.
• Cash Flow Struggles: Contractors must finance ongoing work between milestones.

Related Terms:
Progress Payments, Contractual Disbursements, Retainage Structure

Example:
A solar farm developer structures payment milestones based on panel installation, electrical work completion, and system commissioning.