Basis of Payment Terms

When you respond to a federal solicitation, you're not just proposing what you'll deliver—you're proposing how you'll get paid. The basis of payment is the contractual mechanism that determines whether Canada pays you a firm fixed price, reimburses your costs, compensates you for time and materials, or uses another model entirely. It shapes your cash flow, defines who bears the risk if things go sideways, and ultimately affects your profit margin on the contract.

How It Works

According to Supply Manual Section 4.70, the basis of payment section in a solicitation must correspond exactly to the pricing structure you submit in your bid. If the RFP calls for a firm price, that's what you quote. Time-and-materials? You provide hourly rates and material costs. The contracting officer's choice isn't arbitrary—Section 3.130 requires them to select a payment model based on how well-defined the requirement is and how risk should be allocated between you and the Crown.

Here's the thing: firm price works beautifully when everyone knows exactly what's needed. PSPC can define the deliverables precisely, you can estimate costs accurately, and you assume the risk if your estimate is wrong. But when a department like DND needs complex professional services where scope might evolve? Time-and-materials or cost-reimbursable models shift more risk to Canada, because they're paying for actual effort rather than a predetermined amount. Most federal contracts use standard SACC clauses—C0200T for firm price, C0205T for firm unit price, C0801T for time-and-materials, C0802T for cost-reimbursable. These clauses spell out calculation methods, what's payable, and any holdback provisions.

Payment timing matters as much as payment type. Unless your contract specifies otherwise, the Treasury Board Directive on Payments requires departments to pay within 30 days of receiving a valid invoice or receiving the goods or services, whichever comes later. Miss that deadline and they owe you interest. In practice, invoicing schedules vary—monthly for ongoing services, milestone-based for project work, or progress payments on construction. Holdbacks are another consideration, particularly in construction contracts where Canada might retain 10% of each payment until final acceptance. The percentage and release conditions must be explicit in your contract, as outlined in Appendix F of the Directive on Payments.

Key Considerations

• Risk follows the payment model. Firm price puts cost overrun risk on you; cost-reimbursable shifts it to Canada. Choose wisely when you have options, and price accordingly when you don't.

• Holdbacks affect your cash flow significantly. If 10% of every invoice is held back until project completion on an 18-month contract, that's working capital you need to finance. Factor this into your financial capacity planning.

• Invoice validity requirements are strict. The 30-day clock doesn't start until you submit a valid invoice with all required information and supporting documentation. Missing elements? The clock resets.

• Payment terms in your subcontracts should align with what you're receiving. If Canada pays you on milestones but you've promised your subs net-15, you're creating a cash flow problem for yourself.

Related Terms

Pricing Structure, Standard Acquisition Clauses and Conditions (SACC), Milestone Payments, Cost-Reimbursable Contract

Sources

• Supply Manual - Section 4.70: Basis of Payment

• Supply Manual - Section 3.130: Determining the Basis of Payment

• Treasury Board Directive on Payments

Read the payment clauses as carefully as the statement of work. They determine when money actually hits your account, not just how much you've theoretically earned.