Overview of RA in Construction

RA in construction stands for Running Account, which refers to a type of payment arrangement in the construction industry. It is commonly associated with progressive billing, where the contractor submits regular invoices throughout the course of a project, based on the work completed at various stages. This helps ensure continuous cash flow for the contractor while the client can verify that work is progressing as planned.

The Running Account (RA) Bill is typically used for large-scale projects where the work is divided into phases or milestones. As the contractor completes each phase, they are entitled to submit an RA bill for the corresponding portion of the work. These bills are reviewed and certified by the project manager or the quantity surveyor, and once approved, the client releases payments for the work done up to that point.

Key Components of RA in Construction

1. Interim Payment:

   • RA is primarily used for interim payments, which are payments made to the contractor in stages based on the progress of the work. The payments are usually calculated according to the percentage of work completed or specific milestones achieved.

2. Progress-Based Billing:

   • RA Bills are tied to the completion of milestones or certain phases of construction. For instance, once a specific stage of construction like foundation work, superstructure, or roofing is completed, the contractor can submit an RA bill for that portion of the work.

3. Payment Certifications:

   • The RA bill needs to be reviewed and certified by the client’s representative (usually a quantity surveyor or project manager). The certification confirms that the reported work has indeed been completed satisfactorily, and the payment can be released.

4. Retentions:

   • In most cases, retentions are applied to the RA bill. A certain percentage (often 5%-10%) of each RA payment is withheld until the project is completed. This ensures that the contractor fulfills all obligations and maintains the quality of work.

5. Adjustments for Variations:

   • If there are any variations (changes to the scope of work) in the contract, they are usually adjusted in the RA bills. The contractor must provide supporting documentation for any additional work, and the quantities and costs are recalculated.

6. Final Account:

   • Once the project is complete, the final RA bill is prepared, which includes all the interim payments made during the project, along with adjustments for variations, retentions, and final settlements.

Importance of RA in Construction

1. Cash Flow Management:

   • RA payments help maintain cash flow for contractors throughout the project. This allows them to pay workers, suppliers, and cover other costs without waiting until project completion.

2. Flexibility for Both Parties:

   • For clients, RA offers a way to pay in installments as the work progresses, which provides assurance that payments are aligned with the completion of the project. For contractors, it ensures they are compensated regularly, reducing the financial strain during long-term projects.

3. Transparency:

   • The RA system ensures financial transparency in a project. Both the contractor and client have clear records of work completed, payments made, and the amounts still outstanding, minimizing the possibility of disputes over payments.

4. Quality Assurance:

   • By linking payments to the completion of milestones, the RA system helps ensure that work is completed to the agreed-upon quality standards before further payments are made.

How to Prepare RA Bills

1. Documentation:

   • Contractors must provide detailed documentation of the work completed to date. This includes quantities of work completed, material used, labor employed, and any relevant drawings or site photographs.

2. Verification:

   • The quantity surveyor or project manager will verify the quantities and work completed. This often involves a site inspection and measurement of the work done.

3. Submission:

   • Once the work is verified, the contractor submits the RA bill for the portion of work completed. The bill will include calculated costs, taxes, and other related charges.

4. Certification:

   • After verifying the work, the project manager or quantity surveyor will certify the RA bill, indicating the amount due for payment.

5. Payment Release:

   • After certification, the client releases the payment to the contractor, usually subject to retention amounts or other adjustments as per the contract terms.

Conclusion

The Running Account (RA) system is an essential part of managing construction finances. It ensures that contractors are paid progressively as they complete work, while clients can track the progress of the project and ensure that payments align with the work completed. By following a structured process of submitting and certifying RA bills, both parties can effectively manage project cash flow, reduce financial risks, and ensure timely completion of the project.

Sun Jan 26, 2025