Unlike in retail or the service industries where it's normal to pay once in exchange for a product or service rendered, in construction it's much more difficult because the project isn't truly finished for weeks and sometimes months. Instead, it's common to pay for tasks completed - otherwise known as percentage complete. While it's still common to pay based on a time-oriented schedule such as weekly or monthly, work is pre-set in chunks to match the timeline. Often an amount is prepaid up front to give the contractor money to cover materials, and then again and again at intervals of completion - that could be every 20% or 25%; whatever the contractor and owner have agreed upon.

It's also common for the initial agreed-upon amount to change throughout the project as change orders are introduced. Change orders come about as decisions are made to deviate from the original plan. That may happen when there is a materials shortage or even when it is deemed not possible to build a specific element of a project. For example, there may be factors previously unseen such as ground pollution or whatnot. Another, much more common situation is the owner deciding on changes. Upon seeing the progress that may decide they would prefer a different layout, or higher quality materials, or something purely decorative. What ever their decision, the change order is an official document that documents the new requirements and sets the new price.

Prime and first-tier contractors can bill owners for a progress payment through a document called a payment application. The payment application contains a schedule of values that lists, line by line, each task to be completed. Progress payments provide a great way for owners and contractors to review projects each step of the way, before they have been completed, offering the opportunity to resolve disputes before they bcome a real issue. At the same time, subcontractors appreciate progress payment because they foster cash flow for labor and supplies eliminating the need to take on potentially costly debt. Additionally, in the case that payment is not forthcoming, subcontractors can simply stop working.

In conclusion, while payment applications can be onerous and time consuming, there are many inherent benefits.

This sample resource is provided to you free by SINC BUSINESS CORPORATION to help with your compliance efforts and includes no warranty as to its suitability for any particular task. It is only our opinion based on our experience and should not be considered legal advice.