Basis and Methods of Payment

The basis of payment in a contract defines what a contractor will be paid for the service or good bought, and the duration of the contract. The method of payment stipulates how payment is to be made.

Table of Contents

• Basis of payment
• Method of payment
  • Single payment
  • Multiple payment
  • Progress payment
  • Advance payment
  • Holdbacks

Basis of payment

The following are the bases of payment that may be used. In descending order of preference, these are:

1. firm price;
2. firm price subject to economic price adjustment;
3. cost reimbursable with fixed time rate;
4. cost reimbursable with incentive fee;
5. cost reimbursable with fixed fee;
6. cost reimbursable with fee based on actual costs;
7. cost reimbursable with no fee.

The Basis of Payment should reflect the commodity, the duration of the contract, and how well the requirement was defined. Multiple bases of payment may be used in one contract.

Method of payment

There are a number of methods of payment. They are based on the value and term of a contract and could provide interim payments during the course of the contract.

Methods of payment include:

Single payment

When a single payment will be made upon completion of all work and deliveries (Payment on Delivery and Acceptance of Goods).

For more information, please see the PWGSC Supply Manual, Chapter 4.70.30.10 Types of Methods of Payment.

Multiple payment

When there are multiple deliveries and payments will be made on completion of each delivery.

For more information, please see the PWGSC Supply Manual, Chapter 4.70.30.10 Types of Methods of Payment.

Progress payment

In all cases, a payment cannot be made in the current fiscal year for a contract that will not start until the next fiscal year. The requirement that payment be made only for goods or services received in the same fiscal year may require modification of the method of payment for requirements whose period of delivery or service spans fiscal years. Specifically, it may be necessary to provide for multiple payments, at the appropriate point in the contract period.

For more information, please see the PWGSC Supply Manual, Chapter 4: Section 4.70.30.15 Progress Payments.

Advance payment

An advance payment is a payment made by or on behalf of the Crown under the terms of a contract before the performance of that part of the contract in respect of which the payment is made. Treasury Board guidelines specify that advance payments should be considered only in extraordinary circumstances.

For more information, please see the PWGSC Supply Manual, Chapter 4: Section 4.70.30.20 Advance Payments.

Holdbacks

Holdbacks are applied on contracts with progress payments and refer to an amount withheld under a contract pursuant to section 35 of the Financial Administration Act. Holdbacks are intended to ensure the performance of the contract and also to avoid overpayment in relation to progress of work.

For more information, please see the PWGSC Supply Manual, Chapter 4: Section 4.70.30.25 Holdbacks.