Mega-Desalination: Payment Schedules and Project Financing

A payment schedule (PS) for a purchase order or a contractor is a predetermined plan outlining the conditions, timing, and amount of payments for procured goods or the contractor's services. PS is a standard way in procurement to mitigate the consequences of "Force Majeure" events and an early warning system.

Conventional project management (PM) does not go further than declaring that the payment schedule is an agreement between two parties - the buyer and the seller.

It is definitely not for the following reasons. Payment schedules should be available at the bidding time (long before the buyer meets the seller) as they are to be summed up to create the schedule of the project financing. (It sets the timeline for borrowing money). Skipping this point skyrockets the project's risk of failure.

Here we may leverage the fact that PS is substantially less volatile than the price of goods or services and, hence, is subject to predicting with much greater accuracy. Subsequent purchase terms and conditions (T&C) negotiation may slightly change PS.

Purchase order PS

This type of PS is rooted in the Generic Manufacturing Schedule (GMS) discussed previously and the Cancellation Charges Curve (CCC). it shows accrued manufacturing expenses over time. CCC is dimensionless, which makes it generic. At any time CCC allows quick calculation of charges for the purchase order cancellation. The CCC sample for an order with a high weight of raw materials is shown below. Both GMS and CCC are used for the PS selection.

To make it simpler, Crenger.com classifies the PS types on lead time and the product type - stocked, manufactured, or engineered. Compared to the latter, the former is to a greater degree associated with the complexity of manufacturing, and, hence, adds greater uncertainty to the order completion. As follows from the picture below, All time-type combinations are covered by a finite number of progress payment schemes differed by a number of milestones and their weights as given below.

1. Downpayment (0...15%)

2. Engineering and drawings approval (0...15%)

3. Materials and components receipt (0...60%)

4. Testing and inspection approval (0...15%)

5. Balance payment after compliance certification (5...100%)

Similar to purchase orders, each payment scheme is mapped to some domain of application. It makes matching orders and schemes trivial.

Contractor PS

This type differs substantially from the previous one as the contractor's activities are transparent to the project stakeholders thanks to the Contractor Interface Management (CIM) framework developed by crenger.com. So the risk component in the PS objective is immeasurably less.

The contractor PS is handled similarly: GMS and CCC are substituted for excerpts from the project schedule and budget. Building PS is boiled down to the milestones selection from the project schedule. The PS sample for the project civil works is given below (the duration of work is about 20 months, the work order issue is 2024-07-30 ).

Civil engineering and construction

10% payment after plant/site earthworks guidelines and grading drawing (civil design specification) pay not before 2024-09-28

50% payment 60 days after plant/SWRO/foundations and concrete works (civil construction) pay not before 2025-09-11

40% balance payment 60 days after plant/SWRO/cable trays and conduits (civil construction) pay not before 2026-03-08

Project Cancellation Charges

If PS and CCC are always discussed together, should the project financing schedule be paired with the project CCC and how? The conventional PM does not offer any practical answer. It is not of low significance: in November of 2023, the Australian Government canceled 50 high-risk infrastructure projects totaling AU$7 billion.

The crenger.com's answer is trivial: the project CCC is a sum of all purchase/work order CCCs, known as the project S-curve. The sample of auto-generated S-curve is given below.

Reprinted from crenger.com