what s included in progress billings
the information included in progress billings is different from the typical invoicing practices of many companies some of the financial details might include progress billings include a technique called the schedule of values which outlines the different costs or values for each of the project s tasks a schedule of values is common in the construction industry whereby owners and contractors work together to determine how much will be spent on each phase of the project during the progress billings process a value is assigned to each phase as part of the schedule also the completion percentage can be established for each phase as progress is made on the overall project the schedule of values also helps to determine whether there were cost overruns or the project came under budget for example the schedule of values would show what was paid for each task as well as the initial estimate as a result it can be determined at what point in the construction phase did the project exceed the estimated project cost having a schedule of values included in the progress billings process helps contractors and owners develop a transparent process where all of the financial details are known upfront it also protects construction companies legally and financially by having the estimates in writing so that there are no surprises at the completion of the project in some projects a specific amount or percentage might be withheld by the owner until the completion of the project the retention amount or retainage can be 5 to 10 of the total project or for each progress value essentially the money is held in reserve in the event there are any issues during the project a retainage also helps protect the owner in case the project isn t completed the contract is followed properly or if there are any issues with the contractor and the subcontractors however the retainage amount can create cash flow issues for the construction company as a result both the owner and contractor must come up with an agreed upon retainage amount early in the process who uses progress billings progress billings are fairly common in a number of different industries including construction projects many roofers plumbers general contractors painters electricians and plumbers will use progress billings as part of their businesses the cost of raw materials labor and delays in construction are some reasons why the industry uses progress billings they are also used in aerospace and defense since these projects typically have tremendous budgets and can take years to complete as a result progress billing is a natural solution both the client and contractor should sign a document each time a payment is remitted special considerations factoring in cost changesit is common for a project s cost to change given the total dollars involved and the complexity of the project the building contract states how clients approve cost changes and typically a customer must initial or sign a document that indicates the specific changes however some cost overruns are unavoidable while others are due to a lack of planning some common cost overruns can include many contractors factor in a price allowance such as a small percentage that provides the ability to increase the price of the project owners should discuss with the contractor the extent of any price allowances example of progress billingsonce a client chooses the contractor the two will negotiate the terms of the contract this process includes establishing a payment schedule or frequency of payment according to certain milestones agreed upon by both parties once the work begins and the milestones are reached the contractor can then start submitting invoices to the client assume abc construction signs an agreement to build an office building for 1 6 million over a two year period and that abc s profit is 600 000 the total project costs and profit would be broken down as follows 