Progress payments provide benefits to everyone up and down the payment chain. Again – look to the contract for guidance on timing. It may be on a monthly basis, or when a certain percentage of the work is completed. Subcontractors or prime contractors using progress billing should submit their application to the hiring party according to the contract timeline. The contract should give you guidance on what type of pay application is acceptable.
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Levelset provides a free pay application template download that has the same information fields as other standardized pay apps. Both allow for progress billing, or you can create your own. Two of the most common standardized payment applications for subcontractors are the AIA G702 and ConsensusDocs 710.
The scope of work in the contract is the basis for the schedule of values. The SOV contains a line-item list of all of the work you will complete on the job, and the value of each item. A payment application is a type of construction document that prime contractors and first-tier subcontractors use to request payment from the hiring party.įilling out a pay application correctly will generally require a clear schedule of values, or SOV.
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How to bill for progress paymentsĬontractors or subcontractors can request a progress payment using a payment application, which should be defined in the contract requirements. The key to understanding progress payments is remembering that the portion of work completed to date is used to determine how much to bill.
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Some of these contract structures can be combined with progress payments, such as lump sum or cost plus contracts. The subcontractor may need to show documentation that proves the amount of work complete. This is straight forward, except when there are disagreements about how many units are complete. Under a unit price contract, the price for a unit of work is set ahead of time (say $100 per linear foot), and that amount is multiplied by the number of units complete.
The owner or GC will likely require back-up documentation so they can verify expenses. In these contracts, the subcontractor adds a percentage or set fee to the contract cost of the project for overhead or other expenses. Cost plus contractsĬost plus contracts work like T&M, in that they use the actual construction costs as the basis for the total contract price. On a larger project, lump sum contracts may call for progress billing to give the owner more control over the work as it progresses, and provide ongoing payments to the subcontractor doing the work. They are very easy to prepare and usually there isn’t much back-up documentation required. On a small project, a subcontractor may bill with a simple invoice at the end of the project. This type of contract is generally used when the total costs for the project can be easily estimated. On lump sum contracts, the contract price is a set amount. It is important to keep good records of costs, as owners or general contractors may want to review them to make sure they are getting what they are paying for. Invoice amounts are a simple math equation (labor hours x labor rate + materials costs x mark-up percentage). Usually an hourly billing rate is agreed upon, and there is a set mark-up for the materials. Time and material contracts (T&M) are based on the actual hours worked and the materials purchased for the job during the time you are billing for. There are several different construction contract pricing structures. when the job is 30% complete, 60% complete, and 100% complete). Typically, payments are made on a monthly schedule, but they may also be sent at certain percentages of completion (e.g. Instead of waiting until the end of the job to bill, with progress billing it is possible to bill incrementally as the job goes along. Simply put, progress payments are based on the percentage of the work that is complete.
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