Payment & Financial Management

Subcontractor Payment & Financial Management

Overview

The Subcontractor Payment & Financial Management process ensures that all subcontractor payments are processed accurately, on time, and in full compliance with contractual terms. This structured approach reduces financial risk, enhances transparency, and maintains strong relationships with subcontractors while ensuring that BEC Arabia adheres to financial controls, KSA regulations, and industry best practices.

This process is designed to:

• Ensure payments are released only for completed and approved work

• Establish clear milestone-based payment schedules

• Implement proper invoice verification and approval workflows

• Apply financial risk management strategies such as retention and performance guarantees

• Provide a structured dispute resolution process for subcontractor payment conflicts

The process involves multiple stakeholders, including:

• Finance Team – Oversees payment processing, invoicing, and financial compliance

• Procurement Team – Ensures contracts contain clear payment terms and milestones

• Project Management Team – Approves work completion before invoice submission

• QA/QC Team – Confirms that the subcontractor's work meets quality standards before payment

• Legal & Contracts Team – Handles financial disputes, non-payment claims, and contractual compliance

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Step-by-Step Subcontractor Payment Process

1. Establishing Payment Terms in Contracts

Before any payment is processed, the subcontractor contract must include:

• Payment Schedule – Specifies milestone-based, progress-based, or lump sum payments

• Retention Clause – Defines percentage of payment withheld until project completion

• Advance Payment Terms – Specifies conditions for upfront payments and bank guarantees

• Liquidated Damages Clause – Defines penalties for subcontractor delays affecting project timelines

• Final Settlement Process – Outlines steps for payment release upon contract closeout

All contract terms must be approved by Procurement, Finance, and Legal before the subcontractor begins work.

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2. Invoice Submission and Verification

Once a subcontractor completes a payment milestone, they submit an invoice for review. The invoice must include:

• Invoice number and date

• Breakdown of completed work and associated cost

• Relevant purchase order or contract reference

• Supporting documents such as approved work certificates, QA/QC sign-offs, and material receipts

The Project Team reviews the invoice to verify the scope and completion status before forwarding it to Finance.

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3. Payment Approval Workflow

Subcontractor invoices follow a structured approval process before payment is released.

Approval Stage	Responsible Party	Review Focus	Timeline
Initial Invoice Review	Project Team	Confirms work is completed and documented	3 Days
QA/QC Approval	QA/QC Team	Ensures work meets quality standards	2 Days
Financial Verification	Finance Team	Checks for contract compliance and deductions	3 Days
Final Authorization	CFO or Finance Director	Approves fund release	2 Days

Once all approvals are secured, Finance releases the payment according to contract terms.

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4. Retention & Advance Payment Management

To protect BEC Arabia’s financial interests, retention and advance payment policies are enforced.

Retention Policy:

• Typically 5 to 10 percent of each payment is retained until project completion

• Retention is released after final acceptance of work and defect liability period clearance

• Subcontractors can request an early release of retention if they provide a bank guarantee

Advance Payment Policy:

• Advance payments are only issued upon receiving a bank guarantee of equivalent value

• The advance payment is deducted progressively from subsequent invoices

• If subcontractors fail to meet contractual obligations, the advance payment guarantee is used to recover funds

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5. Financial Risk Management in Subcontractor Payments

To minimize financial risks, BEC Arabia applies strict financial controls:

Risk Type	Mitigation Strategy
Overbilling or fraudulent invoices	Require supporting documents for every payment request
Subcontractor delays causing financial disputes	Enforce liquidated damages clauses in contracts
Subcontractor financial instability	Require performance guarantees and advance payment bonds
Foreign subcontractor payment risks	Apply strict tax compliance and banking verification

All subcontractor payments must follow financial risk assessment protocols to prevent losses.

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6. Dispute Resolution for Payment Conflicts

If a subcontractor disputes a payment amount or experiences delays in processing, a structured resolution process is followed.

Dispute Type	Resolution Process
Disagreement on work completion status	Conduct joint site inspection and re-evaluate
Invoice rejection due to missing documents	Notify subcontractor to submit corrected invoice
Subcontractor claims delay in payment processing	Finance investigates approval bottlenecks and expedites payment
Dispute over deductions or penalties	Legal and Contracts team reviews and issues final decision

Subcontractors must submit a formal dispute notice if they disagree with deductions or payment terms.

📌 Template: Subcontractor Payment Dispute Form

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7. Final Payment & Contract Closeout

When a subcontractor completes all contractual obligations, final payment processing occurs.

Final Payment Requirements:

• Clearance of any outstanding non-compliance or penalties

• Approval of final work inspection reports

• Submission of as-built drawings, warranties, and handover documents

• Final invoice approval from Finance and Project Teams

Once all requirements are met, Finance releases the final payment, including any retained amounts.

📌 Template: Final Payment Approval Form

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Special Cases & Financial Scenarios

Scenario: Subcontractor Requests an Early Retention Release

Issue: A subcontractor requests early release of retention before project closeout. Solution: The subcontractor must provide a bank guarantee covering the retention amount before Finance can approve an early release.

Scenario: Subcontractor Payment Delays Due to Missing Documentation

Issue: A subcontractor’s payment is delayed because the invoice is missing required approvals. Solution: The subcontractor must resubmit the invoice with all necessary approvals before Finance can process payment.

Scenario: Subcontractor Payment Blocked Due to Poor Performance

Issue: The subcontractor has outstanding non-compliance issues, delaying the final payment. Solution: The subcontractor must resolve all pending compliance issues and obtain clearance from QA/QC before the final payment is approved.

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Documentation & SharePoint Storage

All payment-related documents must be stored in the Finance SharePoint Folder for tracking and audit purposes.

Key Documents Stored in SharePoint

Document	Purpose	Access Link
Subcontractor Payment Schedule	Defines all contractually agreed payment terms	Open Folder
Approved Invoices	Records all processed subcontractor invoices	Open Folder
Retention Release Approvals	Tracks all retention payments and early release requests	Open Folder
Payment Dispute Reports	Logs all payment-related conflicts and resolutions	Open Folder
Final Payment Clearance Documents	Confirms subcontractor closeout and financial settlement	Open Folder

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Final Notes & Key Takeaways

• Subcontractor payments must strictly follow contract payment schedules and approval workflows

• Retention and advance payments are controlled through financial risk management policies

• Invoices must be submitted with supporting documents to avoid payment delays

• Dispute resolution follows a structured process to ensure fairness

• All payment records must be stored in SharePoint for tracking and audit purposes

For any subcontractor payment-related inquiries, contact [email protected] or the Procurement and Contracts Team.