Milestones in Works Contracts
In old contracts, there used to be no provision of milestones. Later, it was included so that evaluation of the project can be made at different stages and timely action taken to accelerate the progress. Main idea was to complete the project in time.
Each contract has two parties and both the parties are bound by the provisions of the contract. Question is whether the provision of the milestones is helpful in its purpose?
A contractor needs financial resources to complete the project in time as such one must understand that it is very difficult to complete any project without financial resources. Another important aspect of contract is the "consideration" and no work can be taken up without profit as contractor is a business entity.
In a contract of buildings, generally a provision of 15% contractor's profit and overheads is kept in which half is contractor's profit and balance half is for contractor's profit.
A contractor is asked to deposit performance guarantee/security @5% of the contract value and 2.5 to 5% as deducted from each RA bill towards security deposit. Thus @ 7.5 to 10% of the contract amount remains with the employer. Theoretically, this is the amount of contractor's profit.
There is another provision of withholding some amount upto 5% of the contract value against the milestones. First milestone may be at about one fourth of the duration of the contract, similarly second milestone may be at about half of the period of contract and so on. This amount is withheld by the employer as such contractor's money from his own pocket gets blocked. Then the contractor approaches to the employer to release the withheld amount. During the period of the decision, generally the contractor either stops the work or slows down its progress.
The employer has his own difficulties. The case goes to higher authorities for relaxation of the conditions or for approval of the revision/extension of milestones. Higher authorities are also bound by the provisions of the contract as such many a times these are neither extended nor any relaxation is given and left on final decision of extension of time, resulting into stoppage of the work or determination of the work. Even if the case is justified, it takes few months to get the milestones revised/extended and in release of withheld amount during which the progress of the work suffers.
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In both the cases, the provision of milestones does not serve the purpose and is neither beneficial to employer nor to contractor.
In case, the contractor is not carrying out the work as per the required progress, the employer can always determine the work. At least, in genuine cases, contractor's money will not be blocked and the progress of work will not be affected in most of the cases. After all, better provisions of the contract are those which help in completion of most of the project in time.
Should we not stop keeping provisions of withholding money against the milestones for the benefit of the projects?
Dr K M Soni
Former ADG, CPWD
Professor in Department of Civil Engineering, PG I/C of Construction Technology & Management, SVNIT Surat, Safety Champion, Royal Academy of Engineering UK
9 个月Cash flow and work flow of the project should be going on parallel with a constant gap. Otherwise it results into claims and disputes. It needs to review the provision of milestone how can be useful for the same.
Freelance consultant
9 个月In a contract the milestones are fixed as a monitoring tool for project progress. The progress of a project depends on how both the parties to the contract are performing their part of obligation under the contract. Therefore the milestones need to be fixed for both employer and contractor.penalties/damages, compensations are to be fixed based on the milestones achieved by both the parties to the contract .This will help in resolution of dispute if any at every milestones stage and correction to be made by both the parties in their approach to achieve the milestone.
Civil Engineering Professional
9 个月Well done dear
Professor, Dean of IQAC and Dean of Students Welfare at NUCS- Hyderabad
9 个月The rights and obligations of both the parties entering into contract are clearly mentioned in the contract documents. The provision of Milestone is to maintain the progress of the project. Time bound decision making and proper cash flow management play very critical role for completing the project along with many other parameters like capable project personnel, site conditions etc.,. The cash flow management of the other projects also impact the project under consideration. The contract management is more of techno-managerial collaborative activity. Without understanding the nuances of this, just blaming others and the systems, will never help none of the stakeholders of the project. Some of the latest techniques like BIM (especially 4D & 5D), Lean construction, use of AR & VR will really help to complete the major complex projects with more ease and efficient manner, bring win-win opportunity to all the stakeholders of the project.