How does progress billing work for subcontractors?

Progress billing means invoicing for the part of the contract you completed in each billing period instead of waiting for the end of the job. Each period you report the percent complete of every line on your schedule of values, subtract what you billed before, hold back retainage, and bill the difference. It is the standard way subcontractors are paid on commercial work.

The pieces

• Contract sum. Your price, plus or minus approved change orders.
• Schedule of values. The contract broken into lines, each with a dollar value. It is agreed with the general contractor before the first bill.
• Billing period. Usually a month, with a cutoff date such as the 20th or the 25th.
• Pay application. The form that shows, line by line, work completed to date, work billed before, and work billed this period.
• Retainage. A percentage, commonly 5 to 10 percent, held from each payment until the end.

One period, with numbers

A $200,000 contract with 10 percent retainage, at the end of month two:

• Work completed to date across all lines: $90,000
• Retainage held, 10 percent: $9,000
• Earned less retainage: $81,000
• Paid on the earlier application: $36,000
• Due this period: $45,000

Next month you repeat it with the new total to date. The form always works from the beginning of the job, which is why one wrong number carries into every later application until it is corrected.

The monthly rhythm

1. Before the cutoff, walk the job and set a percent complete for each line. Use quantities where you can: 600 of 1,000 feet installed is 60 percent.
2. Send a draft (often called a pencil copy) to the GC's project manager if they want one, and agree the percentages before the formal copy.
3. Submit the formal application by the cutoff, with whatever the contract requires: lien waivers, certified payroll, an updated insurance certificate.
4. The GC rolls your application into theirs and bills the owner.
5. You are paid after the GC is paid, typically 30 to 60 days after you submitted.

Miss the cutoff by one day and the bill usually waits for the next cycle. That is 30 more days of carrying payroll for work already done.

What can and cannot be billed

• Work in place. Always.
• Stored materials. Often, if the contract allows it and you can show invoices, insurance and where they are stored.
• Mobilization and submittals. Yes, if they have their own lines on the schedule of values.
• Change orders. Only once approved in writing. Pending changes do not go on the application, however sure you are.

Mistakes that delay payment

• Arithmetic errors. One wrong total and the application comes back.
• Overbilling. Claiming 80 percent when the GC's superintendent sees 60 damages trust for the rest of the job.
• Underbilling. Just as common and more expensive. If you round down every month, you are financing the project yourself.
• Missing backup. No waiver, no payment.
• Billing unapproved changes.

Lien waivers

Most GCs want a conditional waiver with each application (it takes effect when you are paid) and an unconditional waiver for the previous payment. Read which one you are signing. An unconditional waiver for money you have not received gives up rights for nothing.

Keep your own ledger

For every job, know at any moment: contract to date, billed to date, paid to date, retainage held, and what is left to bill. If those five numbers live only inside last month's application, a single mistake is hard to find.

Where ConstructStream fits

In ConstructStream a job's invoices bill from the job's own lines. Each new invoice knows what was billed before, holds the retainage percent, and shows what remains, and approved change orders join the lines that can be billed. The pay application prints from the same numbers, so the form and your ledger cannot disagree. Late invoices get a polite reminder under the project manager's name.