Progress billing and holdback: how to bill a construction project each period

The schedule of values comes first

On a lump-sum contract, the schedule of values breaks the contract price into lines the owner's representative can verify on site: general conditions, foundations, structure, envelope, mechanical, electrical, finishes. It is agreed before the first billing and does not change afterwards, except through approved change orders, which are added as new lines.

Two habits save a lot of arguments. First, make the lines match how progress is measured: a line “Mechanical” at $600,000 is hard to assess; “Plumbing rough-in”, “Plumbing finish” and “HVAC equipment” are easy. Second, resist front-loading. Inflating early lines to improve cash flow is quickly spotted by an experienced reviewer and damages trust for the rest of the job.

On a unit-price contract, the schedule of values is the bid form: each line has a unit, a quantity and a rate, and the value of work done is the quantity measured times the rate. On cost-plus work, the billing is the actual costs with their invoices, plus the fee.

The four columns every billing needs

Previously billed

The total of all earlier billings for the line. It must match the last approved billing exactly.

This period

The value of the work put in place during the period: to date minus previous.

Total to date

Scheduled value × percent complete, or quantity to date × rate.

Balance to finish

Scheduled value minus total to date.

Always compute “this period” from “to date”, never the reverse. You assess the percent complete of each line as of the period end; the amount for the period follows. Billing “this period” directly is how cumulative totals drift away from reality.

Worked example: billing no. 6 on a $2.4M contract

With a 10% holdback, used here only as an example rate, the holdback to date is $139,800, of which $37,800 is withheld this period. The amount due for the period, before taxes, is $378,000 − $37,800 = $340,200. Sales taxes are then applied according to the rules of the place of the work.

Holdback and retainage: the rules vary

Holdback protects the owner, and in many places the subcontractors and suppliers further down the chain, against unpaid work and liens. There is no single rule. Some jurisdictions set the rate and the release conditions by statute: Ontario's Construction Act, for example, requires a 10% holdback with release tied to the publication of a certificate of substantial performance and the lien periods. Elsewhere in Canada, the rate and the release are often set by the contract, with 10% a common figure. In the United States, retainage is usually 5% to 10%, and several states limit it on public projects.

• Read the contract first: the rate, whether it applies to general conditions and to change orders, and when it is released.
• Check the statute where the work is located: a law can override the contract, and some impose prompt payment deadlines.
• Track holdback separately for each subcontract, at the rate written in that subcontract, which may differ from the prime contract.
• Plan for the release: it often depends on substantial completion, a certificate, the expiry of lien or legal hypothec periods, and the paperwork the owner requires.

None of this is legal advice. When the amounts are significant, ask counsel familiar with construction law in the province or state of the project.

Progress billing is not earned value

The two use percentages complete, but they answer different questions. Progress billing values work at contract prices to get paid; earned value values work at budgeted cost to control cost. On a healthy job, the percentages per line are the same in both, and that consistency is a strong check: if you bill structure at 80% to the owner while your cost report measures it at 65%, one of the two is wrong.

A monthly routine that holds up

1. Walk the site with the superintendent near the period end and agree on the percent complete of each line.
2. Add the change orders approved during the period as new lines; leave pending changes out. See change order management.
3. Compute to date, then this period, then the holdback and the amount due.
4. Reconcile with the previous billing as approved by the owner, including any line they reduced.
5. Collect the subcontractors' billings for the same period and check that you are not paying them for more than you bill.
6. Record the payment received and the holdback outstanding, line by line, so the release can be claimed when it comes due.

Applying it in Teyvor

Teyvor works out the value of work done for each period according to the contract type: on a lump sum, it proposes each line's percentage from the progress in the schedule, which you adjust; at unit prices, it uses the quantities done; at cost plus, the actual costs and the fee. The holdback rate is set on the contract, approved change orders are added automatically, and the screen shows previous, this period and to date for every line. You issue the invoice in your accounting software, record it in Teyvor's register with the payments received, and the holdback still to collect stays visible until it is released.