The construction sector often faces significant liquidity pressures, particularly among small and medium-sized enterprises, due to lengthy project timelines, fluctuations in raw material prices, and a shortage of skilled labor.
To facilitate financing for construction companies, construction certifications allow them to invoice for work completed at each phase of the project, enabling them to receive regular payments without jeopardizing their financial stability.
1. Progress Reports: What Are They?
Construction progress certificates are documents issued by the Project Management Office that acknowledge a liquid debt as consideration for the work units completed during the reference period.
They allow for the valuation of the work completed in each phase of the process and enable the invoicing of the portion of the budget that has been executed, resulting in the corresponding partial payment.
This payment allows companies to stock up on materials, pay payroll, or make any other payments necessary to continue the project.
Construction certifications are based on the budget agreed upon by the parties. Any modifications must be made through justified variances.
A work certification is important because it serves the following functions:
2. What should a work certification include?
All of the information listed below must appear clearly and prominently on the progress payment certificate:
- Certification details: The certification must have an identification number for reference, a date of issuance, and must specify the period during which the work was performed.
- Contractor and client information: Tax ID number (CIF/NIF), business name, and registered office address.
- Project information: Details of the work performed, including:
- – Start and completion dates
- – Location of the project (municipality and province)
- – Breakdown of each line item, clearly detailing the taxable base amount and applicable taxes
- – You must indicate the percentage of the project completed to report on its progress, specifying the total amount certified in previous certifications.
- – The project file number.
- – Any deviations must be justified and evaluated.
3. Types of Certifications
Depending on the number of certifications to be issued, a distinction can be made between partial completion certifications and a single certification.
Partial completion certificates
This type of certification is the most common and involves partial invoicing of the project, carried out through ordinary certifications.
Once the final certification is completed and the warranty period has elapsed, the contract may be settled through the settlement certification, also known as the supplementary final certification.
Ordinary certifications are payments on account, since the construction contract is indivisible and is considered complete only when executed in its entirety. Payments linked to these partial certifications are subject to adjustments and variations that may arise in the final measurement.
Ordinary certifications are based on measurements of the work units completed during the specified period. Once these measurements are taken, the construction manager will draft the initial cost estimate. The work performed will be valued at the prices listed in the project’s appendix or unit price schedule, taking into account any deductions for defects in the work and lump-sum items (units of work with arbitrarily set prices).
Among the partial progress payments, considering billing deadlines, the most advantageous are periodic payments, typically monthly, since, unlike phase-based certifications, delays in the execution of the work will reduce the likelihood of causing potential cash flow problems or disruptions to the proper progress of the project. However, periodic certifications require greater oversight and speed in their preparation.
Final Project Certification
The final project certification is prepared once the project is completed.
It requires a notarized document signed by the project manager, as well as approval by the relevant professional association.
With this certification, the project is considered complete, and the building may then be used for its intended purpose.
This is why this certification carries implicit significance and is one of the most important documents for the project.
Single Certification
It entails full payment for the construction project once it is completed.
It is processed in the same manner as the final project certification, as described under the section on partial completion certifications.
Progress Payment
These are payments on account for preparatory work related to the project’s execution, which may be included in the partial completion certifications.
In the public sector, the contractor may receive these payments on account up to a maximum of 75% of the value of the stockpiled materials, subject to express authorization from the competent authority.
4. Who Approves the Completion of the Work
The Project Management Office will approve each certification through the signature of the architect, quantity surveyor, and/or engineer, as applicable, as well as the final project completion certificate—a document certifying that the work for which a building permit was requested has been completed.
5. How to finance them
Once the certification has been validated by the relevant technical experts, the contractor may issue an invoice, on which VAT corresponding to the work included therein will be charged, allowing the contractor to obtain liquidity without having to wait for the project’s completion.
Regardless of how the work is certified and any delays that may arise in payment, invoice advances allow the contractor to obtain immediate liquidity without having to wait for receivables to become due.
Workcapital facilitates the advance payment of invoices issued to both public and private entities. You can use this simple solution to alleviate any cash flow pressures you may face due to extended payment terms.
6. More Information
For further information on project certifications, please refer to the following legislation:
Royal Decree 1098/2001, of October 12, approving the General Regulations of the Law on Public Administration Contracts
https://www.boe.es/buscar/pdf/2001/BOE-A-2001-19995-consolidado.pdf
Law 9/2017, of November 8, on Public Sector Contracts, transposing Directives 2014/23/EU and 2014/24/EU of the European Parliament and of the Council, dated February 26, 2014, into Spanish law
https://www.boe.es/buscar/pdf/2017/BOE-A-2017-12902-consolidado.pdf
Law 38/1999, of November 5, on Building Regulations
https://www.boe.es/buscar/pdf/1999/BOE-A-1999-21567-consolidado.pdf
7. Construction Certification Form
Source: Valencian Regional Government
https://workcapital.es/wp-content/uploads/Modelo-Certificacion-Ordinaria-GVA.pdf
8. Final Construction Certification Form
Source: COAM – Official College of Architects of Madrid
https://workcapital.es/wp-content/uploads/Modelo-Certificado-Final-obra-COAM.pdf
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