On a complex construction project involving millions of dollars of work, it is not reasonable to expect the constructor to finance the effort to completion. Consequently, construction contracts typically call for the project owner to make periodic progress payments to the contractor. The manner in which these payments are calculated or structured is a matter of contractual consent between the parties.
There is no single method of calculating progress payments, but the most common formula is the percentage of completion applied to the total contract price, less retainage which is held by the project owner until final acceptance of the project. On simpler projects, progress payments are frequently tied to achievement of certain milestones in the work.
In a recent case, the parties structured progress payments under a fixed-price subcontract in a most unusual way. The subcontract called for payment of stipulated amounts on set calendar dates, apparently unrelated to the actual work in place. When the prime contractor felt the sub was not making adequate progress, a payment dispute was the inevitable result.
What is the best and fairest way to structure progress payments? How much retainage is appropriate? Is the “front loading” of progress payments permissible under some circumstances?
As always, I welcome all comments below.
In next Monday's issue of Construction Claims Advisor:
- Teaming Relationship Did Not Violate Anti-Assignment Act
- Contractor Liable to Sub for Owner’s Rejection of Compliant Work
- Terminated T&M Contractor Failed to Prove Lost Profit
Bruce Jervis, Esq., Senior Editor
Construction Claims Advisor