Construction Projects typically involve many different trades in order to reach completion. Therefore, it can be just as a daunting a task to submit for payment to a client along the way. Owners’ of the construction projects rely on the project architect, Lender and at times, a third party Inspection Company to make certain that payment is applied correctly and within reason. Once the progress billing definition is truly understood, you will smoothly pass through the steps of preparing as well as submitting everything that is needed to complete a construction project.
Start with a Good Schedule of Values
- A schedule of values is a list that each dollar amount is assigned to within each area of work that will be completed on a construction project. Construction projects are broken out by each scope of work and are typically separated according to the Construction Specifications Institute Divisions (CSI). Therefore, it is best to separate a project’s Schedule of Values into basic CSI divisions. Examples of these divisions are General Conditions, Site work, Concrete, Steel, etc. Once the areas of the scope are defined, then a corresponding value is assigned to each one so that a percentage complete can be established for each item as progress is made on the project.
Establish the Rate of Construction Retainage
- A construction contract will typically require that “Retainage/Holdback” be withheld from each application for payment in order to provide the Owner or Lender protection from the Contractor due to not completing the entire project. 5% or 10% may be withheld from each payment to the Contractor and the funds that are held in reserve until the project punch list is completed at the end of the project. Each progress billing must take this retainage/holdback amount into account on each line item of the schedule of values and ultimately on the bottom line of the application.
Establish the Frequency of Progress Payments
- A progress billing is exactly that, a billing that progresses towards completion a percentage at a time. It is necessary to establish the frequency that each application shall be submitted. A progress billing must specify the current period percentage of completion and the cumulative total – this must be done for both the individual items and the total as well.
Establish the Percentage of Completion
- Vendors will submit their invoices for payment to a Contractor for the amount of work that they have completed over the period. A contractor must confirm that the work has actually been completed according to this percentage and then must include the corresponding amount within the progress billing to the Owner or Lender.
Submit it Right and Get PAID
- Progress billings are often rejected by an Owner or Lender because of incorrect completion percentages, incorrect math, or applications that are submitted tardy. In order to achieve profitable progress billing revenue recognition, effect processing is important. Make sure to review vendor invoices and percentage completions with field supervision in order to avoid over/under billings and submit your progress billings report on time!
Premier generates the standard billing applications. The format of this report is user defined. You can choose to format the layout, the number of decimals, whether or not dollar signs are incorporated, apply a default % for retainage/holdback etc.
There are 3 steps required for progress billing:
- Add & Configure the Progress Billing Report
- Add the Progress Billing Lines
- Run the Progress Billing Application
Sample Progress Billing