How to Structure RECD Payment Milestones Around Project Deliverables

Most RECD purchase orders in India still follow a two-line payment term: a percentage advance with the order, and the balance “against delivery” or “before dispatch.” It is simple, it is familiar, and it quietly hands almost all of your leverage to the vendor before the device has been installed on your engine, tested at load or documented for compliance.

A better approach is to treat payment as a series of handshakes. Each time the vendor delivers something you can verify, a drawing, a tested unit, an installed device, a signed commissioning report, you release a defined share of the contract value. The vendor gets predictable cash flow, and you never pay for work that has not yet been proven.

This guide shows how to build that structure for an RECD retrofit, which milestones to use, what evidence should trigger each one, how to handle advances, guarantees and retention, and how to keep the arrangement fair to suppliers, particularly MSME vendors who rely on timely payment.

The One Principle Behind Good Milestones: Pay Against Evidence

A payment milestone should never be triggered by an activity (“installation work started”) or a promise (“unit ready for dispatch”). It should be triggered by a document or event that both parties can point to and agree has happened. Examples include an approved drawing with a revision number, a signed Factory Acceptance Test report, a delivery challan countersigned at your gate, or a commissioning certificate signed by both sides.

When you write milestones this way, three things improve at once. Disputes become rare because the trigger is objective. Your finance team can process invoices without chasing the project team for opinions. And the vendor knows exactly what they must produce to get paid, which tends to speed up the project.

Why “Advance Plus Balance on Delivery” Falls Short for RECDs

An RECD is not a boxed product that either works or does not out of the carton. Its value to you depends on four things that happen after delivery:

1. Correct installation on your specific exhaust line, with proper supports and bellows
2. Acceptable backpressure on your engine at real load
3. Complete documentation that matches the certified model, for your compliance file
4. Operator training and a clear maintenance regime

If 100 percent of the price is paid by the time the unit reaches your gate, the vendor’s commercial motivation to complete these steps quickly depends entirely on goodwill. Most reputable suppliers will still complete them, but delays, missing documents and slow responses to punch-list items are common precisely because nothing is left to pay. For background on what a complete project looks like, read our step-by-step RECD installation guide.

The Building Blocks: Milestones You Can Choose From

Not every project needs every milestone. A single 125 kVA retrofit in a housing society needs a lighter structure than six sets in a data centre. Below is the full menu. Pick the ones that match your project’s size and risk.

1. Advance With Purchase Order

What it pays for: Vendor’s commitment, engineering effort and material procurement.

Evidence: Signed order acceptance from the vendor, plus a bank guarantee for the advance amount on larger orders.

Watch out for: Large advances on standard products. If the vendor manufactures to stock, the justification for a big advance is weaker. For custom-sized units, particularly large kVA sets, a modest advance is reasonable.

2. Approval of Drawings and Technical Data

What it pays for: Site survey, exhaust layout design, support design and data sheets.

Evidence: General arrangement drawing and data sheet marked “Approved” or “Approved with comments” by your engineer, with a revision number.

Watch out for: Approving drawings in a hurry to release payment. Once approved, changes become variations. Our guide on positioning an RECD along a long exhaust run and the article on reviewing bends and reducers help you check layouts before signing.

3. Successful Factory Acceptance Test

What it pays for: Manufacture of a unit that matches the order and the certified model.

Evidence: FAT report signed by your representative or nominated inspector, with any non-conformities closed or formally accepted.

Watch out for: Merging this with dispatch. FAT and dispatch are different events. If you pay “on readiness for dispatch,” make sure readiness is defined as a passed FAT. Our article on Factory Acceptance vs Site Acceptance Tests for RECD projects explains what a proper FAT covers.

4. Delivery to Site

What it pays for: The physical device, transport and transit insurance.

Evidence: Delivery challan or lorry receipt countersigned at site, plus a receipt inspection note confirming no visible damage.

Watch out for: Accepting delivery without opening crates. A note that says “received in sealed packing, subject to inspection” protects you if damage is found later.

5. Mechanical Completion of Installation

What it pays for: Exhaust modification, supports, bellows, sensor connections and insulation.

Evidence: Installation completion certificate signed by your site engineer, confirming the pre-start checklist.

Watch out for: Paying installation in full when site works are only partly complete. For multi-set projects, release installation payments set by set.

6. Commissioning and Site Acceptance

What it pays for: Proof that the RECD works safely on your engine at load.

Evidence: Signed SAT report with backpressure and temperature readings within agreed limits, and no open Grade A punch items.

Watch out for: Tests run only at no load. Define load steps in the SAT protocol so the trigger is meaningful.

7. Handover of Compliance and O&M Documents

What it pays for: The paperwork you need for regulators, auditors and future maintenance.

Evidence: Documented handover including certification copies relevant to the installed model, test certificate, as-built drawing, O&M manual, warranty certificate and training record.

Watch out for: Making this milestone dependent on a regulator’s action. More on that below. For what these documents should contain, see how to read an RECD test certificate.

8. End of Retention or Defect Liability Period

What it pays for: Trouble-free performance through the initial operating period.

Evidence: Expiry of the agreed period with no unresolved warranty claims, or replacement of the retention by a bank guarantee.

Watch out for: Retention periods that are longer than the warranty itself. The two should align.

Three Model Payment Schedules

The percentages below are illustrative starting points for negotiation, not industry rules. Adjust them to your project size, the vendor’s track record and your own procurement policy.

Milestone	Schedule A: Single standard retrofit	Schedule B: Multi-set or large kVA project	Schedule C: Critical facility
Advance with PO	20–30%	10–20% against advance bank guarantee	10% against advance bank guarantee
Drawing approval	Merged with advance	5–10%	10%
FAT passed	Merged with delivery	10–20%	15%
Delivery to site	40–50%	25–30% (per set)	20%
Installation complete	Merged with commissioning	10–15% (per set)	10%
Commissioning / SAT signed	20–30%	10–15% (per set)	15%
Document handover	Merged with commissioning	5%	10%
Retention	Optional, 5%	5–10% or performance bank guarantee	10% or performance bank guarantee

Schedule A suits a housing society, a small office or a shop with one DG set and a standard device. Keep it simple, three or four payments, so the vendor’s administration cost does not get passed back to you. Our RECD purchase planning guide for RWAs discusses how committees can approve such schedules quickly.

Schedule B suits factories, malls and campuses with several DG sets. Per-set payments matter because installation and commissioning of each set may happen weeks apart. See our articles on coordinating DG retrofits across mall tenants and distributed backup generators on university campuses.

Schedule C suits hospitals, data centres and pharma plants where the cost of a poor installation is high. It shifts more value towards proven performance and complete documentation.

Advances and Bank Guarantees

Vendors ask for advances for good reasons: they buy stainless steel, filter substrates and instrumentation before they can build your unit. Refusing any advance often leads to a higher quoted price or a lower priority in the vendor’s production queue. The question is how to protect the advance.

• Advance Bank Guarantee (ABG): For larger orders, ask for a bank guarantee equal to the advance, valid until delivery plus a buffer. If the vendor fails to deliver, you can invoke it.
• Corporate guarantee or undertaking: For small orders, a bank guarantee may cost more than it is worth. A written undertaking to refund the advance on non-delivery, signed by an authorised signatory, is a reasonable substitute.
• Proportional adjustment: State that the advance is adjusted proportionally against each invoice, rather than all at once against the first one. This keeps your exposure balanced throughout.

Retention Money vs Performance Bank Guarantee

Retention means holding back a percentage of the price until the end of an agreed period. A Performance Bank Guarantee (PBG) means the vendor gets paid in full but provides a bank guarantee you can claim against if they fail to honour warranty obligations.

Factor	Retention	Performance bank guarantee
Buyer’s cash position	Keeps money with buyer	Buyer pays in full
Vendor’s cash position	Money locked up	Vendor receives full payment, pays bank charges
Ease of claim	Very easy; simply withhold	Requires formal invocation
Administrative effort	Low	Moderate; validity must be tracked
Typical use	Small and medium orders	Larger orders and institutional buyers

Many buyers offer vendors a choice: accept retention, or replace it with a PBG of equal value and receive full payment. This flexibility usually earns goodwill without increasing your risk.

The Mistake of Tying Payment to a Regulator

It is tempting to write “final payment on receipt of approval from the Pollution Control Board.” Avoid this. The timing of any regulatory action is outside the vendor’s control, and procedures vary by state. A vendor who has done everything right should not wait months for payment because of an administrative queue.

Instead, tie the milestone to what the vendor can control: delivery of complete, accurate documents in the form your authority requires, and reasonable support in responding to queries. If a document turns out to be wrong or incomplete, that is a valid reason to withhold payment. A slow office is not. For a sense of how these processes work, see how to get a pollution NOC for a DG set, what happens during a pollution control board inspection and state-wise pollution control norms.

A similar logic applies to subsidies. If you plan to claim a state subsidy, make sure your payment milestones produce the documents the scheme asks for, such as tax invoices, installation certificates and photographs. Our article on government subsidy for RECD installation covers the typical paperwork.

Handling Delays: Yours and the Vendor’s

When the Vendor Is Late

Liquidated damages (LD) clauses set a pre-agreed deduction for each week of delay, usually capped at a percentage of the contract value. LDs work best when they are linked to a specific milestone, for example delivery or commissioning, and when the start date is clear. Keep the cap realistic; an LD so high that no vendor will accept it leads to inflated quotes or no bids at all.

When the Site Is Not Ready

Buyer-side delays are equally common: the DG room is under renovation, the RWA has not approved scaffolding, or the facility is still being built. Without a clause covering this, the vendor’s delivery payment and installation payment can be stuck indefinitely. A fair approach includes:

• Payment of the delivery milestone if the vendor is ready to deliver and you ask them to hold the unit, against a “ready for dispatch” certificate and a passed FAT
• A storage period free of charge, followed by agreed storage charges
• Installation and commissioning milestones that remain linked to actual completion
• Warranty start based on commissioning, with an outer limit from the date of readiness

If you are buying ahead of a new building, our article on ordering an RECD before your new facility is ready walks through this scenario in detail. Our RECD installation timeline helps you set realistic dates in the first place.

Variations and Extra Work

Site surprises happen: a longer exhaust run than surveyed, a corroded section of pipe that must be replaced, an extra support from a wall that turns out to be hollow. Decide in advance how these are priced and paid.

• Include a schedule of unit rates in the offer for common extras, such as extra pipe length per metre, additional bends, extra supports and scaffolding per day
• Require written approval before any variation work starts
• Pay variations with the next milestone after the variation is complete, rather than as a separate stream

Our guide on reusing existing exhaust pipework in an RECD retrofit helps you anticipate which extras are likely on your site.

Paying MSME Vendors on Time

Many RECD manufacturers and installers in India are registered micro or small enterprises. The Micro, Small and Medium Enterprises Development Act sets time limits for paying registered micro and small suppliers, and delayed payment can attract interest. The government’s MSME Samadhaan portal allows suppliers to raise delayed payment cases. In addition, income tax rules have tightened the treatment of late payments to micro and small enterprises in recent years. Confirm the current position with your chartered accountant, especially if your vendor shares a Udyam registration certificate.

The practical lesson is that a milestone-based structure must also commit you to processing invoices promptly once a milestone is achieved. A clear trigger document makes that easier, because your accounts team does not have to wait for a subjective sign-off. If you buy through the Government e-Marketplace, the GeM portal has its own payment and inspection workflow that should be aligned with these milestones.

Seeing It From the Vendor’s Side

A milestone schedule that squeezes the vendor will not protect you; it will just be priced in. Reasonable vendors usually accept milestone payments if:

• The advance covers a fair share of their material cost
• Milestones are objective, so they are not at the mercy of a site engineer’s mood
• Delays caused by the buyer do not block payment indefinitely
• Retention is limited and released on time
• Payment is made within a stated number of days of a valid invoice

If two vendors quote the same price but one asks for full payment before dispatch and the other accepts a milestone schedule, the second offer is often better value. That willingness is also a signal about the vendor’s confidence in their own installation and support. Read why after-sales service matters more than price and how to choose CPCB-approved RECD vendors for more on evaluating suppliers.

Mapping Each Milestone to Its Trigger Document

Attach a table like this to the purchase order. It removes almost every argument about whether a payment is due.

Milestone	Trigger document	Signed by	Invoice may be raised
Advance	Order acceptance and ABG (if applicable)	Vendor; bank	On submission
Drawing approval	GA drawing and data sheet stamped “Approved”	Buyer’s engineer	On approval
FAT	FAT report with no open critical items	Buyer or nominated inspector	On signed report
Delivery	Countersigned delivery challan and receipt inspection note	Site in-charge	On receipt
Installation	Installation completion certificate	Site engineer	On certificate
Commissioning	SAT report and commissioning certificate	Buyer and vendor	On certificate
Documents	Document transmittal with checklist	Buyer’s compliance lead	On acknowledgement
Retention release	No-claims confirmation at period end, or PBG	Buyer	At period end

Sample Payment Clause You Can Adapt

This sample is a starting point for discussion with your procurement and legal teams. It is not legal advice.

“Payment shall be made as follows: (a) [__]% of the contract value as advance against submission of order acceptance and an advance bank guarantee of equal value valid until delivery plus [__] days; (b) [__]% on approval of the general arrangement drawing and technical data sheet; (c) [__]% on successful Factory Acceptance Test evidenced by a report signed by the Purchaser or its nominee; (d) [__]% on delivery to site evidenced by a countersigned delivery challan and receipt inspection note; (e) [__]% on successful commissioning evidenced by a Site Acceptance Test report signed by both parties with all critical punch items closed; (f) [__]% on handover of all compliance, warranty and O&M documents listed in Annexure [__]. The advance shall be adjusted proportionally against each invoice. All undisputed invoices shall be paid within [__] days of receipt. Where the Supplier is ready to deliver but the Purchaser requests a delay, milestone (d) shall become payable against a ready-for-dispatch certificate following successful FAT.”

Pre-Order Checklist for Payment Terms

1. Is every payment linked to a document, not an activity?
2. Is the advance protected by a guarantee or undertaking proportionate to its size?
3. Is at least a meaningful share of the value linked to commissioning and documentation?
4. Are multi-set projects paid set by set?
5. Have you avoided linking any payment to a regulator’s or third party’s timeline?
6. Is there a fair clause for buyer-side delays?
7. Are variations priced in advance and paid with milestones?
8. Is retention aligned with the warranty period, with a PBG option?
9. Have you committed to a payment period after a valid invoice?
10. Does the warranty start date align with the commissioning milestone?

For cost benchmarking before you negotiate percentages, review RECD cost in India and, if you are still weighing options, the RECD versus new CPCB IV+ genset cost comparison.

Frequently Asked Questions

What is a reasonable advance for an RECD order?

It depends on order size and customisation. For standard units, a moderate advance is common; for large or custom units, vendors may ask for more because they buy material upfront. Protect larger advances with a bank guarantee.

Should I pay the balance before or after installation?

Keep a meaningful portion until after installation and a signed Site Acceptance Test. That is when you know the device works on your engine.

Can I hold payment until the Pollution Control Board approves?

It is better not to. Link the milestone to complete, correct documentation from the vendor instead, because approval timelines are outside the vendor’s control.

Is retention necessary for a small RECD order?

Not always. For a single small unit from an established vendor, a clear warranty and a commissioning-linked payment may be enough. Retention becomes more valuable on larger or multi-set projects.

How do I handle payment if I have several DG sets?

Release delivery, installation and commissioning payments per set. This avoids holding money for sets already completed and keeps the vendor motivated to finish the rest.

Summing Up

A well-structured payment schedule turns an RECD purchase from a leap of faith into a sequence of verified steps. Pay against evidence, keep a fair share for commissioning and documentation, protect advances proportionately, and commit to paying promptly once each step is proven. Done properly, it protects your compliance timeline and keeps good vendors happy to work with you.

Aceget works with milestone-based payment structures for retrofit projects of every size. Browse our Retrofit Emission Control Devices, check our certifications or contact our team to discuss a schedule that fits your project.