Contract Cash Phasing/Cash Flow

Contract cash phasing is the practice of setting out and monitoring the timing of money moving through a contract. It covers when the Crown expects to spend, when payments fall due, and how actual spending compares with what the contract planned. In Canadian federal contracting it sits within contract management and financial control.

The phrase "Contract Cash Phasing/Cash Flow" is the title of section 5.3.4 of the former Public Works and Government Services Canada Supply Manual. Cash flow itself has a plain accounting meaning in the Government of Canada's procurement glossary: a tracing, in successive steps, of items or aggregates of income or expenditure from their first recognition in the accounts to their final disposition or loss of identity.

What section 5.3.4 of the Supply Manual covers

The Supply Manual treats contract cash phasing as a control area, with related subsections that show what is being checked:

• Cash Flow Actual versus Contracted Cash Flow: a comparison of what has actually been spent or paid against the cash flow written into the contract.
• Cash Flow Actual versus DND Planned Cash Flow for Financial Forecast: a comparison specific to Department of National Defence contracts, where actual cash flow is measured against the department's planned cash flow for forecasting.
• Earned Value: a comparison of progress of work with planned work and associated cost.

The same structure appears in later editions of the manual, including the 2008 edition. The Government's procurement competency framework also lists monitoring and managing contract cash flow as a procurement-management activity.

Cash-flow requirements in approvals and payment terms

Cash flow shows up at several points in the federal procurement process. CanadaBuys instructs contracting personnel preparing a contract request to document the total cost, the payment schedule and cash-flow projections, including a detailed schedule of cash flow.

Treasury Board material on contract payments states that, where applicable, contract terms should identify when interim and progress payments are due, and it refers to a required cash-flow expenditure forecast. The Treasury Board guidance is the policy anchor for that expectation.

CanadaBuys guidance on method of payment adds detail for specific payment types:

• Advance or progress payments require an assessment of financing costs based on realistic estimates of work progress and delivery timelines.
• Milestone payments are disbursed when predetermined milestones are achieved, and payments must align with the fiscal year in which the goods or services are received.
• Milestone payments are particularly relevant to contracts that need a significant initial investment or run for a prolonged period.

How cash flow differs from discounted cash flow

Contract cash flow should not be confused with discounted cash flow. Discounted cash flow is a financial-analysis method that converts cash flows occurring at different times to present value, as described in the Treasury Board policy suite. Contract cash phasing is not that calculation. It is about the schedule of expenditures and payments on a specific contract and how closely actual results follow that schedule.

What it means for a supplier bidding on Canadian public contracts

Suppliers should expect payment timing to be part of the contract file. Depending on the solicitation, a bid team may need to provide or manage information on payment timing, expenditure forecasts, delivery or milestone dates and progress-payment requirements. Realistic work-progress and delivery estimates matter because buyers use them to assess financing costs on advance or progress payments.

Milestone-based pricing should be built around dates that fit the Crown's fiscal year, since payments must align with the year in which goods or services are received. On Department of National Defence work, the client's planned cash flow is a reference point against which actual cash flow is compared. The sources do not set a single mandatory cash-phasing form or clause for every procurement, so read each solicitation and contract for its own payment and reporting terms.