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Financial

Progress Payment

In Plain English

A payment made by the owner to the contractor each billing cycle for work completed so far.

Definition

A progress payment is an installment payment made by an owner to a contractor during construction in exchange for a payment application representing work completed to date. Construction contracts specify the billing cycle, payment period (commonly 30 days from billing), and retention amount withheld from each payment. Timely progress payments are essential for contractor cash flow and subcontractor solvency.

Why It Matters in Bidding

Progress payments are the cash that keeps a construction project moving, so the contract terms governing them, the billing cycle, the payment period, and retention, are negotiated risks an estimator and project manager must understand before signing. Slow or short progress payments cascade down the chain, threatening subcontractor solvency and forcing contractors to finance the owner's project out of their own working capital.

Example

The subcontract specified progress payments within 30 days of each approved pay application, with 10 percent retention held, which the framing sub factored into its cash-flow plan before mobilizing its crews.

Related Terms

Payment ApplicationRetentionCash FlowProgress Billing

Frequently Asked Questions

Progress billing is the contractor's act of invoicing for work completed in a period; the progress payment is the money the owner actually pays in response to that approved billing. One is the request, the other is the disbursement, and the gap between them is the payment period that drives contractor cash flow.
Retention, commonly 5 to 10 percent, is held back from each progress payment as security that the contractor will finish the work and correct deficiencies. It is generally released after substantial completion or closeout. Because it accumulates over the job, retention is often a contractor's thinnest cash margin and a frequent point of negotiation.
Late payments strain the entire chain: contractors may invoke prompt-payment statutes, charge interest, suspend work, or file mechanic's liens, while subcontractors and suppliers who went unpaid can do the same. Because most subs are paid only after the contractor is paid, a single late owner payment can threaten several firms' solvency.

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