Key takeaways
- The Question: How does progress billing work on a construction project, and how can owners and contractors agree each payment claim quickly and fairly?
- The Answer: The contract sum is split into a schedule of values, and each period the contractor claims the value completed against each line, less earlier payments and retention. Claims are approved fastest when each line is small enough to check, measured where possible, and supported by dated site evidence that both sides review before the assessment.
- The YelloSKYE Angle: Construct IQ times drone flights, 360° walks and fixed-camera records to the claim cut-off, so the owner's team and the contractor check the same measured, dated record of installed work.
Progress billing is how most construction contracts are paid: the contractor invoices in stages, usually monthly, for the value of work completed in that period, and the owner pays after checking the claim. Depending on the country and contract, the same document is called a progress payment claim, a payment application, a pay application or an interim valuation, but the mechanics are the same.
Getting it right matters to both sides. The contractor needs cash to pay subcontractors and suppliers, and the owner needs to avoid paying for work that is not there. This guide explains how the billing cycle runs, how to build a schedule of values that can be verified, how percentage claims differ from measured ones, how retention works and how evidence from Construct IQ shortens the approval.
How a progress billing cycle runs
Payment terms and deadlines are set by the contract and, in many countries, by legislation on construction payments. In the US many projects use the AIA G702 and G703 forms; in the UK the Construction Act sets requirements for payment and pay less notices. Those are examples only: check the rules where your project is built. The sequence underneath is broadly similar everywhere.
- Cut-off. The claim covers work completed up to an agreed date each period.
- Claim. The contractor states the value complete against each line of the schedule of values, adds approved changes and eligible materials, and deducts retention and earlier payments.
- Assessment. The owner's representative, cost consultant or architect checks the claim against the site and the contract, and may adjust lines.
- Certificate or notice. The assessed amount is confirmed in writing, with reasons for any reduction.
- Payment. The owner pays within the contractual period, and the main contractor pays its subcontractors through the same chain.
Every link in that chain depends on the one below it. A subcontractor's overstated claim becomes part of the main contractor's claim, so weak checking at one level passes the error upwards.
The schedule of values: build it so it can be checked
The schedule of values divides the contract sum into lines with agreed values. It is drawn up at the start of the contract and usually cannot be changed without agreement, so its structure decides how hard every later claim will be to assess.
| Line item (illustrative) | Value | Measure of progress | How it can be checked |
|---|---|---|---|
| Bulk excavation and fill | 6% | Cubic metres moved | Drone survey volumes against the design surface |
| Foundations and ground slab | 9% | Bases and slab areas complete | Aerial capture, pour records |
| Frame, levels 1–6 | 18% | Floors complete | Drone capture by level, pour records |
| Facade, north and east elevations | 8% | Square metres installed | Aerial capture, elevation images |
| Mechanical first fix, levels 1–3 | 7% | Areas complete | 360° capture of each floor before ceilings close |
| Internal finishes, levels 1–3 | 6% | Rooms complete | 360° capture, inspection sign-off |
| Preliminaries | 12% | Time elapsed | Programme |
Values are shown as shares of the contract sum for illustration only.
Three principles make a schedule of values easier to verify:
- Split by location as well as by trade. "Mechanical installation" as one line invites argument; "mechanical first fix, levels 1 to 3" can be checked floor by floor.
- Choose a measure for each line at the start. Agree whether it will be claimed by quantity, by milestone or by percentage, and what counts as complete.
- Keep values balanced. If early lines are priced high, the contractor is paid ahead of the work. Front-loading and other reasons claimed progress drifts from the site are explained in our guide to percent complete.
Percentage claims versus measured quantities
There are four common ways to value a line in a claim. Most contracts mix them.
| Method | How the claim is valued | Works well for | Weakness |
|---|---|---|---|
| Percentage complete | The contractor states a percentage of each line | Lines with no natural unit, such as design or commissioning | Subjective, and hard to challenge without evidence |
| Measured quantities | Installed quantity multiplied by an agreed rate | Earthworks, concrete, facade, linear services | Requires reliable measurement at each cut-off |
| Milestones | Fixed sums paid when defined events are reached | Repetitive or clearly staged work | Disputes about whether a milestone is truly met |
| Cost-reimbursable | Actual cost plus an agreed fee | Uncertain scope, early works | Needs strong cost records and audit |
Measured quantities are the most objective because they can be repeated by anyone with the same data. For earthworks in particular, comparing successive drone surveys gives cut and fill volumes directly; YelloSKYE's volume measurements are within 1–3 per cent of traditional survey methods. Our earthwork volumetrics use case shows how this takes the argument out of quantity claims on groundworks.
Where a percentage is unavoidable, tie it to observable steps. "Ductwork installed and hung, not yet tested" is a step anyone can confirm from a 360° image; "60 per cent done" is not.
Retention
Retention is a share of each payment that the owner keeps back as security for completing the work and fixing defects. It is often between 5 and 10 per cent, sometimes reducing once a set value of work is done, with part released at completion and the balance at the end of the defects period. The rate, any cap and the release terms are set by the contract, and several countries regulate retention, for example by limiting it or requiring it to be held separately.
For the contractor, retention is cash earned but not received, and on a thin-margin job it can exceed the profit. Two practical points help both sides:
- Track retention by subcontract and by release date so that releases are claimed on time rather than forgotten.
- Record the condition of work at completion. A dated capture of each area at handover makes it much easier to agree which defects existed then and which appeared later, and so to release retention on schedule.
Materials, changes and the other items in a claim
Materials on and off site
Many contracts allow payment for materials delivered but not yet installed, and sometimes for materials stored off site. The owner normally needs proof of quantity, ownership and protection. A dated image of the stored materials, with delivery records, is the simplest support.
Approved and pending changes
Only changes that have been instructed and valued in line with the contract normally belong in the claim. Pending changes should be listed separately so that the owner can see the exposure without the claim being held up by them. Mixing them is one of the most common reasons a whole claim is delayed.
Overbilling and underbilling
Contractors track the gap between what has been billed and the value of work actually done, often in a work-in-progress schedule. Overbilling means cash has arrived ahead of the work; underbilling means work has been done but not yet paid for. Neither is wrong in itself, but persistent overbilling hides problems on a job until the money runs out, and persistent underbilling strains cash. Verified progress keeps the figures honest on both sides.
Verifying installed work before approval
The assessment is where most time is lost. Owners' teams traditionally walked the site at month end with drawings and a camera, then spent days querying the contractor. A structured verification routine is faster and fairer.
- Capture the site at the cut-off. Schedule a drone flight, 360° walk or both in the days before the cut-off, so the record shows the same moment the claim describes.
- Map each claim line to evidence. For every line, note where in the capture the claimed work can be seen or measured.
- Measure what can be measured. Volumes, areas and lengths from survey data rather than estimates.
- Check concealed work before it is covered. Services in slabs, waterproofing and insulation must be recorded before the next trade closes them, or the claim can only be taken on trust.
- Record each adjustment with its reason and the evidence used. The contractor can then respond line by line rather than to a lump-sum reduction.
- Share the same record with the contractor. When both parties review the same captures, most differences are resolved before the certificate is issued.
On projects using this approach, our contractor billing disputes use case reports 80 per cent fewer site visits needed for verification.
Common billing disputes and the evidence that settles them
| Dispute | Typical cause | Evidence that helps |
|---|---|---|
| Quantity claimed is too high | Estimates in place of measurement, double counting | Survey-measured quantities at each cut-off |
| Work claimed is not complete | Different understandings of "complete" | Agreed completion definitions, 360° capture of the area |
| Work completed but not paid | Claim reduced without explanation | Line-by-line reasons with dated images |
| Hidden work disputed later | No record before covering | Captures taken before ceilings, slabs or walls close |
| Materials on site rejected | No proof of quantity or protection | Dated images of stored materials and delivery records |
| Change valued differently | Instruction unclear, scope not recorded | Before and after captures of the changed area |
| Retention held too long | Disagreement about defects at completion | Handover captures of each area |
When a disagreement cannot be settled in the assessment, the same records become the core of the dispute file. Our guide to construction dispute documentation covers how to keep them so they hold up.
How evidence shortens approval
Faster approval is not achieved by checking less. It comes from checking in a way that both sides accept the first time. Three habits make the difference:
- Agree the evidence before the first claim. Capture cadence, viewpoints, measurement methods and completion definitions belong in the project's first month, not in the first argument.
- Use one record for both parties. If the contractor prepares its claim from the same captures the owner uses to assess it, most lines need no discussion.
- Keep it in one place. Construct IQ stores drone, 360° and fixed-camera captures in the DEX platform by date and location, with geo-referenced annotations so a query can point to the exact spot in question. Measurements and volumes are taken in the same place.
Checklist for a progress billing process
- Break the schedule of values down by location as well as trade, with a progress measure for each line.
- Write down what "complete" means for every line that will be claimed by percentage.
- Align the site capture date with the claim cut-off every period.
- Measure earthworks, structure and facade quantities from survey data.
- Record concealed work before it is covered.
- Keep pending changes outside the claim, listed separately.
- Give reasons and evidence for every adjustment in the assessment.
- Track retention by subcontract and release date, and capture each area at handover.
