Infrastructure projects live or die on cash timing, not profit. A ₹10 crore contract can starve a ₹2 crore balance sheet if milestones slip, retention is withheld, or claims pile up unpaid.
Most SME contractors and plant/equipment suppliers focus on contract margin but not on when cash actually arrives — and the gap between invoice and payment can run 120–180 days on large projects. This playbook walks you through the mechanics: how to structure milestone billing to match your cost cycle, how retention clauses work and why the standard 5–10% is often recoverable, what claims language protects you, and how to forecast and free the cash trapped between mobilisation and final settlement.
Advisory
Most contracts tie payment to certified physical progress — e.g., 40% of contract value when foundation is complete. But your cost curve rarely matches. Excavation and site prep may consume 60% of the first three months' cash before the milestone is certified and invoiced. Negotiate milestone definitions that front-load bills closer to early cost peaks: e.g., mobilisation advance (typically 5–10% under FIDIC), material stocking (15–20% before first physical activity begins), and staged payment for preliminary works. A worked example: ₹50 lakh contract, months 1–3 cost ₹35 lakh in equipment and labour; without front-loaded milestones, you fund that gap out of working capital. With a mobilisation advance of ₹7 lakh plus a material stocking claim, you recover ₹20 lakh upfront, reducing your carry from ₹28 lakh to ₹8 lakh.
Standard retention clauses (5–10% of each milestone invoice, held until defects liability period ends — typically 12 months post-completion) lock up significant cash. On a ₹100 crore project, 5% retention = ₹5 crore tied up for 18–24 months. But retention is negotiable and partially recoverable. Many contracts allow release at 50% if you post a bank guarantee for the balance (cheaper than holding cash); others release retention progressively as defects are cured. Clause 14.3 of FIDIC conditions (standard on large projects) allows you to request advance release if you show a defects-free record during the first half of the liability period. Equally, most contracts allow interest on delayed retention — check the agreement for rates (commonly 1–2% per annum above bank MCLR). If retention is held beyond the contractual end of defects liability, you have a claim for interest under most standard forms; track this in your claims log and quantify it quarterly.
A claim (for time, cost or both) only becomes payment-due if properly documented and certified. Most contracts require claims to be submitted within 28 days of the event triggering the claim (delay, design change, site obstruction, variation order). If you miss the window, the claim is time-barred under most FIDIC contracts. Your claim must include: actual cost evidence (invoices, timesheets, bills of material), a causal link (e.g., 'design change X required material Y, costing ₹Z'), and quantified time impact if applicable. The engineer/contract administrator then has 42 days to certify it; only then does payment become due. A common trap: submitting a ₹50 lakh claim in month 6 without contemporaneous support; 18 months later, auditors or the employer dispute the cost breakdown, and payment is held pending a forensic review. Keep a live claims register from day one: date of event, date of submission, supporting documents attached, certification date,
Frequently asked questions
Milestone claims are invoices tied to certified physical progress stages. Retention is a percentage (typically 5–10%) withheld from each invoice until the defects liability period (usually 12 months post-completion) ends.
Negotiate front-loaded milestones including mobilisation advance (5–10%), material stocking (15–20% pre-activity), and staged preliminary works payments to align invoice timing with your actual cost curve.
Yes. Standard 5–10% retention is often recoverable through defects liability clauses and final settlement. Document defects carefully and submit recovery claims before the liability period expires to free trapped capital.