Progress Payment
A periodic payment from the owner to the contractor for work completed during a billing period, based on the schedule of values.
Definition
A progress payment is a periodic payment from the owner to the contractor for work completed during a billing period — typically monthly. The payment amount is calculated by determining the percentage complete of each line in the schedule of values, multiplying by the line value, summing the totals, and deducting retainage and prior payments.
Progress payments keep the contractor’s cash flowing during construction. Without them, the contractor would have to finance the entire project until final completion, which is impossible on most jobs of any size.
How progress payment is used in estimating
In the estimating-to-project-controls handoff, the schedule of values becomes the basis for progress payments. The estimator (or project manager) breaks the contract sum into line items that map to discrete work activities, and each month the team measures or estimates percentage complete for each line. The resulting payment application is submitted to the owner, reviewed by the architect, and certified for payment.
Progress payment timing is critical to contractor profitability. Most contracts require payment within 30 days of an approved application, but actual payment cycles often run 45 to 60 days from work performed. Combined with retainage withholding, this means contractors are typically financing 1 to 2 months of payroll and material at any time. Loading the schedule of values heavily on early activities (front-end loading) is a common but risky practice for managing cash flow on long jobs.
How progress payments are calculated
For each line in the schedule of values, agree the percentage complete with the architect, multiply by the line value to get the earned amount, sum all earned amounts to get total earned to date, deduct retainage at the contract rate, deduct prior payments, and the result is this month’s progress payment. Stored materials properly secured and insured can be billed even before installation, subject to contract terms.
Frequently asked questions
Q.How often are progress payments made?
Monthly is standard on most commercial construction. Some projects pay biweekly or based on milestone completion. The frequency is set in the contract.
Q.What is front-end loading?
Front-end loading is the practice of loading more value into early schedule-of-values line items so the contractor receives more cash early in the job. Owners and architects scrutinize the schedule of values to prevent excessive front-end loading.
Q.Can stored materials be billed in a progress payment?
Often yes, subject to contract terms. The materials must usually be stored on site or in a bonded warehouse, properly insured, and identifiable as project property. Long-lead equipment is the most common stored-materials line.
Q.When is retainage deducted from progress payments?
Each month. The contractor invoices for the earned amount, the contract retainage rate is applied as a deduction, and the net amount is paid. Retainage is held until release per the contract terms.
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