PRT: supplement - contractor financing: example
Milestone contract for equipment worth £20M. Work begins July 1989.
|Milestone Date||Payment Conditions||Planned|
|Payment £M||Value of|
|Work Done £M||%|
|This period||To date||This period||To date||This period||To date|
|9/89||Manufacturing drawings 15%||3||3||1.5||1.5||200||200|
|1/90||Sub-order placement 10%||2||5||3.5||5||57||100|
|5/90||Start of assembly 15%||3||8||4.5||9.5||67||84|
|11/90||Certificate of ownership of bulk of equipment 40%||8||16||5.5||15||145||106|
|4/91||Equipment delivery 15%||3||19||5||20||60||95|
|6/91||Documentation submission 5%||1||20||20||100|
Most milestones in this example are less than six months apart but, in other cases, they may be even more frequent, allowing the company to choose whichever dates enable it to satisfy FA81\S115(3). It will not necessarily be the case that the test must be applied at each and every expected milestone date under the actual contract. For instance, if in this example the value of work done at September 1989 were £5m (actual payments only 60% of value of work done), the contract would not fail. The first test would not need to be applied until the six- month point, by which time a further payment would be expected (bringing actual payments to 100% of the value of work done).
Even though the payments in the periods to January and May 1990 and April 1991 individually are less than 75% of the value of the further work done in those periods (col. 5), the test in FA81\S115(3) is still satisfied because the cumulative payments up to those dates exceed 75% of the value of work done to those dates (col. 6).