What is Progress Billing?
A progress billing, simply defined, is work done under contract which is billed in phases. Rather than submitting one invoice, either before a project begins or upon completion of a project, the contractor will submit a number of billings to the owner of the project over the course of work as various items are completed.
When should a Progress Bill be submitted?
As often as agreed upon between the sub-contractor and general and/or general contractor and owner. On a typical large commercial project, the owner along with the project architect, lender and sometimes a third party inspection company will set a payment application schedule which must be strictly followed by all parties submitting invoices in order for payment to be received timely. On smaller projects the progress billing cycle should be established in the contract that you sign with your customer.
Start with a Schedule of Values
A good schedule of values is essential for proper progress billing. The schedule of values should be submitted as part of the original project proposal. A schedule of values is a list with the dollar amount assigned to each area of work that will be completed on the project. On large projects the scope of work is often broken out according to the Construction Specifications Institute (CSI) Divisions. Examples of those divisions are General Conditions, Sitework, Utilities, Concrete, Steel, etc. Once you have defined the areas of the scope of work, a value is assigned to each one so that a percentage complete can be established for each item as progress is made on the project. In the United States the industry standard format for progress billing according to a schedule of values is per AIA forms G702 and G703.
Know the Rate of Retainage
Most construction contracts will require a retainage be withheld from each application for payment. This retention is established in order to protect the owner or lender from the contractor not completing the project. Typical retainage amounts are 5% or 10%. On larger commercial projects this amount will be set by the owner or lender and can be found in their submittal requirements. For smaller projects, this amount can be decided on between the owner and contractor in the original contract. The amount will be withheld from each payment to the contractor in a reserve until the punch list is complete and the project is finalized. Each progress billing must take this retainage into account on each line item and also at the bottom line of the application.
How Can I Avoid My Progress Billing Submittal Being Rejected?
Progress billings can be confusing. An improper progress billing can be (and often will be) rejected by the general contractor or by the owner or lender if they cannot understand your progress billing or if they find it to be incomplete or incorrect. If not rejected, they may still be held against you. Busy general contractors or owners don’t want to do your job for you. Even if they don’t outright reject your submittal, but decide to correct it, they may hold it against you when it comes to approving bids for future jobs. Reasons that a progress billing may be rejected include incorrect completion percentages, incorrect math or late submissions. Cash is KEY! If your submittal is rejected, you may have to wait until the next billing cycle to get paid! Be sure to review all vendor invoices and percentage completions to avoid over/under billings. Also be sure to double check all your math including math completed by billing software. And, always make sure to submit your billings timely! It is a best practice to submit your progress billings early so that project management has time to review your payment request.
What About Change Orders?
Approved contract Change Orders are listed separately, either on their own Continuation Sheet or at the end of the original Schedule of Values.
Attached are some documents for informational purposes. Sample AIA G702 and G703 forms as well as sample Arizona lien forms. For more information on progress billing contact us at 480-442-4032.
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