Interim payments under the BGB: the value of the work performed
Under section 632a(1) of the BGB (Bürgerliches Gesetzbuch, the German Civil Code), the contractor can demand Abschlagszahlungen (interim payments), but only up to the value of what has been performed. The interim payment is measured "in the amount of the value of the work performed by the contractor and owed under the contract" (unofficial translation, as are all quotations in this article). The contractor must evidence the work by a "statement" that allows a quick and reliable assessment.
Where the work does not conform to the contract, the client may withhold. The client can "refuse payment of an appropriate part of the interim payment". Until acceptance, the burden of proving conformity with the contract remains with the contractor. That matters for the budget: an interim payment is not an acknowledgement of the work, and a justified retention belongs not in the "paid" line but in a line of its own until the defect has been remedied.
Materials and components can also trigger interim payments. This applies to necessary materials or components that have been delivered or specially manufactured, if the Besteller (the client, in the wording of the BGB) obtains ownership of them or corresponding security is provided. Under section 632a(2) BGB, this security can be provided by a guarantee from a credit institution or credit insurer. For the client this means that advance payments for materials are only justifiable against ownership or security, and both should be checked before payment.
Interim payments under the VOB/B: 21 days
If the VOB/B (the standard conditions for construction contracts, Part B) has been agreed, a fixed period for payment to fall due applies. Under section 16(1) no. 1 VOB/B, interim payments are to be made "on application at the shortest possible intervals or at the agreed times", "in the amount of the value of the work evidenced in each case as conforming to the contract, including the stated amount of VAT attributable to it". Under no. 3, claims to interim payments "fall due within 21 days of receipt of the statement".
The 21 days are also the client's checking window. Within this period, the statement must be checked, the quantities reconciled with progress on site and the cost forecast updated. A client who delegates the check to site supervision should set out in the contract by when the result is to be presented, so that a decision on retentions is still possible. The main features of the VOB contract are covered in the article on the construction contract under VOB/B.
Plan gross. The VOB/B expressly names VAT as part of the interim payment. A client entitled to deduct input tax should nevertheless plan cash flow gross, because the refund arrives later.
Payment plan by construction stages or by measurement
The client can choose what interim payments are based on. The VOB/B allows interim payments on application or at agreed times. In practice, two models stand side by side.
| Model | Basis | Advantage for the budget | Risk |
|---|---|---|---|
| Interim payments by measurement | Quantities evidenced for each item | Accurate reflection of the value of the work | Checking effort with every invoice |
| Payment plan by construction stages | Fixed instalments on reaching defined stages | Predictable cash flow | Instalments can run ahead of the value of the work |
A payment plan by stages only protects the client if the instalments follow the value. If early instalments exceed the value of the work performed, the client is pre-financing the contractor. In an insolvency or a termination, this lead is the money the client is most likely to lose. The stages should therefore be described in a way that can be checked, and the instalments sized conservatively.
For the consumer, the law limits interim payments. Under a Verbraucherbauvertrag (consumer construction contract), the total of the interim payments may not exceed 90 per cent of the agreed total remuneration, and with the first interim payment the consumer must be given security of 5 per cent of the total remuneration for timely completion without material defects (section 650m BGB). The details are covered in the article The private client: consumer construction contract, developer contract and budget.
Variations in interim payments: the 80 per cent rule
Disputed variations can cost money even before agreement is reached. If the client has ordered a change under section 650b(2) BGB and the parties have not agreed on the amount of the additional remuneration, the contractor can, when calculating interim payments, set "80 per cent of an additional remuneration stated in an offer" under section 650b(1) sentence 2 (section 650c(3) BGB), as long as no court decision to the contrary is made. The additional remuneration calculated under subsections 1 and 2 then only falls due after acceptance. If the client pays too much, the overpayment must be returned with interest.
For the budget, this means: a disputed variation shows up first in cash flow and only later in the final account. The cost forecast therefore carries it at its probable amount, and cash flow planning at 80 per cent of the offer. The procedure for ordering changes and the remuneration are covered in the article Ordering changes under section 650b BGB without losing the budget.
Fictitious example. For an ordered change, a contractor offers additional remuneration of EUR 50,000; the client considers EUR 30,000 appropriate, and no agreement is reached. The contractor can include 80 per cent of EUR 50,000, that is EUR 40,000, in the interim payment. If it later turns out that EUR 30,000 is owed, EUR 10,000 must be repaid with interest. Until then, the EUR 40,000 has gone out.
The builder's security: a cost line for the commercial client
The contractor can demand from the client security for the agreed remuneration not yet paid (section 650f(1) BGB). This includes ancillary claims, "which are to be set at 10 per cent of the remuneration claim to be secured". The security also extends to remuneration agreed in additional orders.
Not every client is affected. Under section 650f(6), the provision does not apply if the client is a legal person under public law or a special fund under public law (over whose assets insolvency proceedings are inadmissible), nor if the client is a consumer and the contract is a consumer construction contract under section 650i or a Bauträgervertrag (developer contract).
Those mainly affected are therefore private commercial clients. For them, the builder's security is a budget question: if the security is provided through a bank, it incurs costs and draws on the credit line. Both belong as a line of their own in the total budget, not in the building costs.
Fictitious example of the amount. If the agreed remuneration not yet paid is EUR 800,000, ancillary claims are set at 10 per cent, that is EUR 80,000; the volume to be secured is EUR 880,000. If an additional order of EUR 100,000 is added, it grows by EUR 110,000 to EUR 990,000.
The client's security
Beyond the cases governed by statute, the client only obtains security if the contract provides for it. The statutory rules on retention for defects (section 632a BGB) and the security under a consumer construction contract (section 650m BGB) apply without any agreement. Performance and defects security in the commercial sphere, by contrast, is a matter for agreement; its amount and form should be expressly set out in the contract. The VOB/B contains its own provisions on this, the details of which are not covered here.
For the budget: a security retention reduces the cash flow burden, not the costs. It is paid out according to the contractual conditions, and until then the budget must carry it as a liability.
The final invoice: acceptance and 30 days
The final payment only falls due once two conditions are met (section 650g(4) BGB): the client has accepted the work, or acceptance is not required, and the contractor has issued "a final invoice capable of verification". It is capable of verification if it contains "a clear list of the work performed" and can be followed by the client.
The 30-day period is a trap for the client who does not react. The final invoice is deemed capable of verification if the client has not raised reasoned objections to its verifiability within 30 days of receipt. A client who leaves the final invoice lying loses the objection that it cannot be verified. The effects of acceptance are covered in the article on handover and its effects.
The payment plan as part of the award decision
The payment plan belongs in the tender documents, not in the conversation after the contract is awarded. The points to settle are: the basis of interim payments (measurement or stages), the content of the statement, the checking periods for site supervision, the handling of advance payments for materials, security on both sides and the form of the final invoice. These decisions belong in the award described in the parent article Tendering without losing the budget.
This article reflects the state of the rules and of published case law on the date of checking and is intended for professional guidance. It does not replace legal advice or an examination of the individual case.