By the end of this chapter, you will be able to:
Mastering these skills ensures you can manage payments smoothly and professionally, which is essential for keeping building projects on track and successful.
Payment valuations form a crucial part of contract administration in building projects in Kenya, ensuring that contractors receive due payments as work progresses. Accurate preparation of payment certificates facilitates cash flow management and maintains transparency between clients, contractors, and consultants. This chapter covers the preparation of interim, penultimate, and final payment certificates, including the treatment of retention and the defect liability period.
Payment certificates document the value of work completed at specified stages and authorize payments to contractors. They protect the interests of all parties by providing a formal record of work progress and payments due, essential for effective project financial control.
Interim payment certificates authorize payment for work done up to a certain point before project completion, typically issued monthly or as per contract terms. They ensure contractors have regular cash flow to continue work without financial strain.
The value certified usually includes completed work, materials on site, and adjustments for variations or previous payments. Retention sums may also be deducted to ensure contractor performance.
Example 1: A contractor has completed 150m² of brickwork at Ksh 1,200/m². Materials worth Ksh 80,000 are on site. Previous payments total Ksh 100,000. The contract retention is 10%. Calculate the interim payment certificate amount.
Given:
Completed work = 150 m²
Rate = Ksh 1,200/m²
Materials on site = Ksh 80,000
Previous payments = Ksh 100,000
Retention = 10%
Calculate value of work done:
Value of work = Area × Rate$$150 \times 1,200 = 180,000 \text{ Ksh}$$
Add materials on site:$$180,000 + 80,000 = 260,000 \text{ Ksh}$$
Calculate retention:$$10\% \times 260,000 = 26,000 \text{ Ksh}$$
Calculate net payment:$$260,000 - 26,000 - 100,000 = 134,000 \text{ Ksh}$$
Answer: Ksh 134,000
Example 2: A contractor has completed 500m² of plastering at Ksh 500/m². Materials on site are Ksh 50,000. Previous interim payments total Ksh 200,000. Retention is 5%. Calculate the interim payment certificate amount.
Given:
Plastering area = 500 m²
Rate = Ksh 500/m²
Materials on site = Ksh 50,000
Previous payments = Ksh 200,000
Retention = 5%
Calculate value of work done:$$500 \times 500 = 250,000 \text{ Ksh}$$
Add materials on site:$$250,000 + 50,000 = 300,000 \text{ Ksh}$$
Calculate retention:$$5\% \times 300,000 = 15,000 \text{ Ksh}$$
Calculate net payment:$$300,000 - 15,000 - 200,000 = 85,000 \text{ Ksh}$$
Answer: Ksh 85,000
Example 3: A contractor completed 250m² of tiling at Ksh 1,000/m². Materials on site are Ksh 30,000. Previous payments are Ksh 150,000. Retention is 7.5%. Calculate the interim payment certificate amount.
Given:
Tiling area = 250 m²
Rate = Ksh 1,000/m²
Materials on site = Ksh 30,000
Previous payments = Ksh 150,000
Retention = 7.5%
Calculate value of work done:$$250 \times 1,000 = 250,000 \text{ Ksh}$$
Add materials on site:$$250,000 + 30,000 = 280,000 \text{ Ksh}$$
Calculate retention:$$7.5\% \times 280,000 = 21,000 \text{ Ksh}$$
Calculate net payment:$$280,000 - 21,000 - 150,000 = 109,000 \text{ Ksh}$$
Answer: Ksh 109,000
Example 4: The National Construction Authority (NCA) contracts a builder for 200m² of blockwork at Ksh 1,400/m². Materials on site are Ksh 60,000. Previous payments total Ksh 120,000. Retention is 10%. Calculate the interim payment certificate amount.
Given:
Completed work = 200 m²
Rate = Ksh 1,400/m²
Materials on site = Ksh 60,000
Previous payments = Ksh 120,000
Retention = 10%
Calculate value of work done:$$200 \times 1,400 = 280,000 \text{ Ksh}$$
Add materials on site:$$280,000 + 60,000 = 340,000 \text{ Ksh}$$
Calculate retention:$$10\% \times 340,000 = 34,000 \text{ Ksh}$$
Calculate net payment:$$340,000 - 34,000 - 120,000 = 186,000 \text{ Ksh}$$
Answer: Ksh 186,000
Example 4: The Ministry of Education contracts a school building for Ksh 20,000,000 with retention of 6%. Calculate total retention and amounts released at practical completion and after defect liability period.
Given:
Contract sum = Ksh 20,000,000
Retention = 6%
Calculate total retention:$$6\% \times 20,000,000 = 1,200,000 \text{ Ksh}$$
Retention released at practical completion:$$\frac{1,200,000}{2} = 600,000 \text{ Ksh}$$
Retention released after defect liability period:$$600,000 \text{ Ksh}$$
Answer:
Total retention = Ksh 1,200,000
First release = Ksh 600,000
Second release = Ksh 600,000
The penultimate payment certificate is prepared near the end of the contract, certifying almost all work except for retention and incomplete minor works. It signals that the bulk of work is complete and prepares for final account settlement.
It deducts retention monies and any outstanding claims or variations. The certificate confirms the sum payable before the final payment after defects liability.
Example 1: A contract sum is Ksh 10,000,000. Works completed total Ksh 9,600,000. Retention is 7.5%. Calculate the penultimate payment certificate amount.
Given:
Contract sum = Ksh 10,000,000
Completed work = Ksh 9,600,000
Retention = 7.5%
Calculate retention:$$7.5\% \times 9,600,000 = 720,000 \text{ Ksh}$$
Calculate penultimate payment:$$9,600,000 - 720,000 = 8,880,000 \text{ Ksh}$$
Answer: Ksh 8,880,000
Example 2: A contractor has completed work valued at Ksh 18,000,000. Retention is 10%. Calculate the penultimate payment certificate amount.
Given:
Work completed = Ksh 18,000,000
Retention = 10%
Calculate retention:$$10\% \times 18,000,000 = 1,800,000 \text{ Ksh}$$
Calculate penultimate payment:$$18,000,000 - 1,800,000 = 16,200,000 \text{ Ksh}$$
Answer: Ksh 16,200,000
Example 3: Work completed is Ksh 14,500,000 with a retention of 5%. Calculate the penultimate payment certificate amount.
Given:
Work completed = Ksh 14,500,000
Retention = 5%
Calculate retention:$$5\% \times 14,500,000 = 725,000 \text{ Ksh}$$
Calculate penultimate payment:$$14,500,000 - 725,000 = 13,775,000 \text{ Ksh}$$
Answer: Ksh 13,775,000
Example 4: The Kenya Urban Roads Authority (KURA) contract sum is Ksh 22,000,000. Works completed total Ksh 21,000,000. Retention is 5%. Calculate the penultimate payment certificate amount.
Given:
Contract sum = Ksh 22,000,000
Completed work = Ksh 21,000,000
Retention = 5%
Calculate retention:$$5\% \times 21,000,000 = 1,050,000 \text{ Ksh}$$
Calculate penultimate payment:$$21,000,000 - 1,050,000 = 19,950,000 \text{ Ksh}$$
Answer: Ksh 19,950,000
A contractor has completed 200m² of concrete flooring at Ksh 1,500/m². Materials on site are Ksh 100,000. Previous payments total Ksh 250,000. Retention is 8%. Calculate the interim payment certificate amount. (10 marks)
The contract sum is Ksh 8,000,000. The value of completed work is Ksh 7,200,000. Retention is 7%. Calculate the penultimate payment certificate amount. (8 marks)
A contractor completed 350m² of wall plastering at Ksh 400/m². Materials on site are Ksh 40,000. Previous payments total Ksh 120,000. Retention is 10%. Calculate the interim payment certificate amount. (10 marks)
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Create a free accountThis chapter focused on the preparation of payment valuations in building works, starting with the explanation of payment certificates. It detailed the interim payment certificate, which authorizes partial payments during the progress of construction, ensuring contractors receive funds for completed work stages. The penultimate payment certificate was discussed as the document issued just before the final payment, accounting for work completed less retention. The chapter then covered the final payment certificate, which confirms the completion of the contract and authorizes the final payment. Retention was explained as a percentage of payment held back to ensure contractor performance and remedy of defects. Finally, the defect liability period was described as the timeframe during which the contractor is responsible for repairing any faults, with retention released only after this period ends. Together, these topics provide a comprehensive understanding of payment processes and financial control in building projects.
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