Progress Payment
Periodic payments made to a contractor during construction based on the percentage of work completed. Allows contractors to cover labor and materials as work progresses rather than waiting for full payment at project completion.
Progress payments are periodic payments made to a contractor during construction based on the percentage of work completed. They are the standard payment structure on multi-week and multi-month projects because lump-sum payment at completion is impractical for larger work.
How Progress Payments Work
The contract establishes either a payment schedule (monthly, for example) or milestone-based payments (at specific project stages). The contractor submits a payment application showing the percentage of work completed for each portion of the scope. The owner reviews and approves, then disburses the payment minus any retainage. The cycle continues until final completion.
Retainage
Most progress payment structures include retainage — a percentage of each payment (commonly 5 to 10 percent) held back until final completion. The retained funds are released at the end, after final inspection, punch-list completion, and sometimes warranty inception. Retainage gives the owner financial leverage to ensure the project finishes properly, not just substantially.
Documentation for Each Payment
Progress payment applications typically include: a schedule of values showing percentage complete for each line, lien waivers from subcontractors and suppliers covering work billed to date, invoices for materials delivered to site, and photos documenting completed work. Good documentation speeds approval and reduces disputes over what was actually completed in each pay period.
Frequently asked questions
Typically as a percentage of total contract price matched to the percentage of work completed, often submitted on a monthly schedule. An owner and contractor agree to a payment schedule or milestones at contract signing, and progress payments are disbursed as milestones are reached. Retainage is sometimes withheld from each payment.
Retainage is a percentage of each progress payment held back until project completion. Common retainage percentages are 5 to 10 percent. The held-back funds are released at final completion and inspection. Retainage gives the owner leverage to ensure punch-list items and warranty obligations are addressed.
The owner, typically with input from the architect, project manager, or independent inspector depending on the project. The contractor submits a payment application with supporting documentation (lien waivers, sub invoices, completed-work percentages). The owner reviews and approves before releasing funds.
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