Payment clauses specify the quantum and timing of payments as well as any conditions that must be met before the acquiring entity is liable for payments under the contract. Generally, strict compliance with all obligations under the contract is required before the contractor is entitled to payment. If it is agreed that entitlements to payment arise prior to full completion of all work under the contract this needs to be clearly specified in the contract.

Straightforward contracts for the acquisition of standard goods and services are suited to one-off lump sum payments made on acceptance of the deliverables. Most common consumer contracts, such as the sale and purchase of goods, are concluded in this way.

In more complex contracts, flexible payment mechanisms may provide a better outcome for both the acquiring entity and the contractor, and may justify the cost of putting them in place and administering them. In long, large or complex contracts there can be many more unexpected, or variable, elements which may impact on delivery schedules and costs. Having a fixed price contract, payable only on completion of the contract, may not be appropriate for contracts that span several years or phases. The contractor's business requirements need to be balanced with the requirements of the contract and the acquiring entity.

The contract should ensure that there is a legal right not to pay the contractor or to vary payments in circumstances where the contractor has not met their obligations under the contract. This particularly applies where contract deliverables are late, the required quality of work has not been achieved or other specified requirements have not been met.

When drafting payment clauses, all elements relating to how payments will be made should be specified including:

•  when;

•  at what milestones and how much at each milestone;

•  conditions to be met prior to payment;

•  what type of invoice will be required; and

•  how long, after receiving a correctly rendered invoice, will the payment be made.

There are often standard clauses that cover these issues; however they will need to be tailored to each particular contract.

Straightforward contracts for the acquisition of standard goods and services are suited to one-off lump sum payments made on acceptance of the deliverables.