IPC in construction: what an Interim Payment Certificate is and how it is worked out

IPC stands for Interim Payment Certificate. On a construction contract it is the document in which the engineer certifies how much the contractor is to be paid for the work done in a period, usually a month. The contractor asks for the money in a running bill; the IPC is the engineer’s answer, and it is what the employer actually pays against.

In Pakistan IPCs are standard on government and donor-funded work, which runs on the Pakistan Engineering Council’s standard documents built on FIDIC conditions, and common on larger private projects too. A contractor who understands exactly how an IPC is built gets paid faster, because a bill that already matches the certificate’s logic leaves the engineer little to argue about.

Running bill, IPC and invoice: three different papers

• The running bill (or interim statement) is the contractor’s claim: quantities done to date, at BOQ rates, with the deductions the contract allows.
• The IPC is the engineer’s certificate: the same calculation after checking measurements, rates and deductions, often with some items reduced or held.
• The invoice or sales tax invoice is the tax paper the contractor issues for the certified amount, so the employer can pay and withhold tax.

Who prepares and who certifies

The contractor prepares the statement: quantities measured to date against each BOQ item, approved variations, and the deductions the contract sets. The engineer, the consultant appointed by the employer, checks the measurements on site and against the measurement book, then certifies the amount he agrees is due. The employer pays on the certificate, not on the contractor’s bill.

Under FIDIC-based contracts, PEC’s among them, the engineer has a fixed time to certify once the statement is received, and the employer a fixed time to pay. On PEC’s 2023 standard documents an IPC is normally paid within 28 days, and late payment carries financing charges at KIBOR plus 3% a year. Your contract’s particular conditions decide the exact periods, so read them.

How the amount of an IPC is worked out

Every IPC is cumulative: it values everything done since the start, takes off everything already certified, and pays the difference. That is what stops errors compounding, provided the previous figures are carried forward exactly.

1. Value of work done to date: quantity measured to date × BOQ rate, item by item.
2. Plus approved variations valued to date.
3. Plus materials on site, where the contract allows a secured advance (PEC’s 2007 civil works form allows up to 75% of their value).
4. Plus price adjustment (escalation), where the contract has a formula for it.
5. Gross value to date.
6. Less retention money held to date, up to its limit.
7. Less mobilisation advance recovered to date.
8. Less recovery of secured advances on materials now built in.
9. Less the total of all previous IPCs.
10. Amount due on this IPC, before tax.

Tax on an IPC

When the employer pays, it withholds income tax under section 153(1)(c) of the Income Tax Ordinance. For tax year 2026-27 that is 7.5% for a company and 8% for an individual or firm on the Active Taxpayers List, doubled for anyone not on it. Provincial sales tax on construction services, and the share the payer withholds, depends on where the work is. The contract tax calculator works out the cheque for a given bill; confirm your own position with a tax adviser.

Why IPCs get reduced or delayed

• Quantities claimed that are not in the measurement book or not yet checked on site.
• Variations billed before the engineer has instructed or valued them.
• Previous IPC figures carried forward wrongly, so the cumulative totals do not reconcile.
• Retention or advance recovery worked out on the wrong base or past its limit.
• Missing test reports or approvals for work that needs them before it can be certified.

Keeping IPCs straight across several contracts

A contractor with five running contracts has five sets of cumulative quantities, five advances being recovered and five retention balances. Kept in separate spreadsheets, one wrong cell carries forward for months. In Smart Construction the BOQ is held as items, progress is recorded against them, and each bill carries the previous figures forward itself, with retention, advance recovery and tax worked out on the same rules every time. See construction billing software or book a demo.