What is a Payment Certificate in Construction?

A Payment Certificate is a document produced by a contractor that contains financial information relating to a payment to a subcontractor for ongoing or completed project work.

Although not a legal document, the Payment Certificate drives payment from the contractor to the subcontractor and can be issued either as an Interim Payment Certificate, showing the project's financial details up to that point in time or a final Payment Certificate, when the works are completed.

What is the Purpose of a Payment Certificate?

A Payment Certificate is a record of the key financial information relating to a subcontractor’s work on a project and tracks this information as the subcontractor makes applications for payment during the lifecycle of the work.

Unlike other key documents in the Application for Payment process, like the Payment Notice and Pay Less Notice, the Payment Certificate is not mandated in construction law but is widely used across the industry to facilitate and record demands for payment made via applications and the values subsequently certified and communicated via the Payment and Pay Less Notices.

The certificate tracks key information like the total value of the work and what has been paid against this total so far in the project’s lifecycle, along with other details on discounts, VAT and CIS and retention. This provides an accurate financial snapshot of the project following each application and what is due to the subcontractor.

It also provides both parties with a clear record of what has been certified at that point, what is due to be paid and how that figure was calculated.

Payment Certificate in Construction

The Payment Certificate itself can come in a range of different formats and contain various types of financial data related to a project, but as an example, below is a certificate created using the information produced on Payment Certificates by the WebContractor platform, with an explanation of each.

Example Payment Certificate:

Contractor & Subcontractor Details

The contractor and subcontractor's company details (name, address, contact details etc.). This will also include their tax information, including VAT and CIS status, registration numbers (if applicable), and internal identification codes.

Project Details

Details of the project’s name, the internal identification reference and subcontractor work package type.

Subcontractor Order Details

This section helps to identify and track the details of the subcontract order and includes the subcontract order number, the value (which is the total value of this work) and the date it was issued.

Payment Certificate Details

In this section are the key details of this certificate and the Application for Payment that the subcontractor has submitted to generate it. These details, along with a Payment or Pay Less Notice, link the two processes together, making future reference and tracking easier for the contractor and subcontractor.

This section also includes the status of the application and certificate (is it approved, rejected or under review), the reference numbers for the related application for payment and the certificate, the date the certificate was produced and the valuation period end date that it covers.

Application for Payment Details

The Application for Payment details section provides a summary of what has been applied for by the subcontractor and any adjustments or additions made by the contractor.

The Application Contract to Date shows those cumulative details for this application, with the Previous Application Contract to Date showing those same cumulative details for the previous application, and the Amount this Application showing the movement in those values between this application and the previous application, that provides the basis for payment on this Payment Certificate.

Payment Details

Each application submitted against the project and a subsequent Payment or Pay Less Notice will generate a fresh Payment Certificate with updated details as more work is certified and payments are made to the subcontractor.

The Payment Details section shows this progression towards the total value and what has been certified and paid up to and including the current certificate.

• Measured Work gives the value of work certified by the contractor in this certificate
• Previously Certified gives the total of certified work from previously issued certificates
• This Payment gives the total gross payment due on this certificate

There are also additional fields to include other costs, like Day Works, Sundries and Materials on Site. This gives the value for any materials on site costs to be added to the payment. The approach to materials on site varies from contractor to contractor, but this field allows their inclusion if needed.

Finally, there is a Gross Certified field, which gives the total value of all the certified costs to be included in the payment before considering discount, retention and tax.

The last section of Payment Details now provides the details of any Main Contractor Discount (MCD) to be applied, retention to be released back from the contractor to the subcontractor, any contra-charges and CIS tax or levy to be deducted, and VAT to be added.

Finally, in this section, the certificate gives the date that this payment is due to be made to the subcontractor.

VAT Analysis

The VAT Analysis section gives details of the VAT rules and rates applied in this certificate. This includes the treatment type (Normal VAT treatment or Reverse Charge VAT), along with details of the percentage rate applied and the totals involved.

CIS Summary

Like the VAT section, the CIS summary provides details of any Construction Industry Scheme (CIS) tax and the rate applied in this certificate. This also includes details of the labour and materials split and the total paid (if any).

Approvals

In the final part of the certificate, the names and contact details of the people approving the details in this certificate are provided. This will often be the QS managing the project and valuing and certifying the work done by the subcontractor, as well as (but not always) a more senior member of the team who is approving their work.

Payment Certificates in summary

The Payment Certificate above provides detailed and comprehensive information on the application, project and work package, how payment has been calculated, the deductions made, and when the subcontractor will receive the cash. The format and data will often differ from contractor to contractor but should always include the core financial information detailing the total value, the previously certified amounts and what has been certified on the current certificate and is due for payment.