Modern Methods of Construction and Milestone Payments

Modular build often provides for milestone payments. It can make sense – the modular contractor can, for instance, incur up-front costs in developing a prototype product which the paying party does not want to pay for until it can see something tangible.

Parties should be very careful when drafting milestone payment provisions. It should be made clear what stage has to be reached for a payment to be triggered and how the parties will know when that stage has actually been reached.

In a recent case, one of the milestone payments was to be triggered at “sign-off of prototype room by Park Inn/Key Homes/Bennett in China”. However, there was no contractual provision as to what sign off meant which caused much debate. There was some discussion that the wording was so unclear that it did not provide an adequate mechanism for determining what payment became due under the contract and that as a result the payment provisions of the Scheme for Construction Contracts applied.

In the event the court felt it could determine what was meant and that in this case sign off did not require there to be a signed piece of paper. The moral however is that clear wording would have avoided the need to go to court in the first place.