Progress Payment is a construction-finance concept used to fund development costs, draws, inspections, and project risk.
Progress payments have been a part of contract management for centuries, primarily emerging from the construction and manufacturing industries where long-term projects necessitated periodic funding. The concept ensures that contractors are fairly compensated for completed work without waiting until project completion.
Payments made at pre-determined intervals, regardless of the amount of work completed.
Payments made after specific project milestones are reached, as validated by an authority.
Payments based on the percentage of the project completed at a given time, often certified by an independent inspector.
A progress payment is an installment paid to a contractor as part of a larger contract. These payments are critical in managing cash flow and ensuring the financial health of both contractors and clients over the life of a project.
Contract Agreement
Both parties agree upon a contract that includes terms for progress payments, detailing the schedule and criteria.
Work Completion
The contractor completes a portion of work.
Inspection and Certification
An agreed authority (such as a project manager or an independent inspector) certifies the completed work.
Payment Processing
The client processes the payment based on the certification, keeping the contractor financially stable.
Progress payments are essential in managing large-scale, long-term projects because they:
Ensure the contractor has the necessary funds to continue the work.
Allow clients to monitor project progress and quality.
Distribute financial risk over the project’s lifespan.
| Aspect | Progress Payment | Retention Payment |
|———————|———————————–|——————————–|
| Timing | Periodically during project | End of project |
| Purpose | Ensure cash flow | Ensure project completion |
| Amount | Variable, based on work completed | Usually a fixed percentage |