What is a Progress Payment?

Contractors fund construction work up front, but owners and lenders won’t release cash until they can verify progress. A progress payment closes that gap. It’s a partial payment for construction work completed to date. The contractor bills it at set points during a project rather than as one lump sum at the end. The amount usually tracks the percentage of work finished, billed at milestones like 25%, 50%, and 75% completion, or when a specific scope wraps up. Some contracts release these payments on a monthly schedule instead.

How Progress Payments Work in Construction

A progress payment is a scheduled partial payment made as a project moves forward and reaches predetermined milestones. The owner, lender, and contractor agree on these checkpoints ahead of time, and the contract spells them out.

Most progress payments are based on the percentage of work completed. A payment might trigger at 25%, 50%, and 75% completion, or when a defined scope finishes. For example, a payment could release when the below-grade waterproofing is done or when the building is dried in.

Other contracts set progress payments on a fixed cadence. Instead of tracking completion percentages, they release funds monthly or bimonthly. This approach is sometimes called progress billing, and the agreed sequence of payments is the progress payment schedule.

Progress payments exist because construction ties up cash for months. A contractor can’t wait until a project finishes to recover a year of labor and material costs. An owner also won’t release the full contract value before the building exists.

Progress payments split that risk. The contractor gets paid as work gets done, and the owner pays only for what’s actually in place.

Common Types of Construction Pricing

How a contract prices work shapes when and how progress payments appear. Four models dominate construction, and each handles progress payments differently. For a deeper breakdown, see our guide to the four common construction contract types.

• Time and materials (T&M): The time and material pricing model bills actual labor and material costs and needs close tracking. Owners often add a not-to-exceed cap.
• Lump-sum pricing: The contractor sets one fixed price, billed at the end or split into progress payments. It gives cost certainty but little visibility into margin.
• Cost-plus pricing: Covers actual costs plus an agreed profit and usually pays on milestones. Owners often cap it to limit exposure.
• Unit pricing: Sets a price per unit of work, billed per completed unit and often monthly. Common in public works, though inflation can shift unit costs.

Progress payments show up differently in each model. Under time and materials, the contractor bills completed labor and materials each period. A not-to-exceed clause often caps the owner’s exposure when scope is unclear.

Cost-plus works similarly and usually pays on milestones. It can carry more risk for owners and lenders, which is why many contracts cap it.

Lump-sum contracts may bill the full price at the end or break it into progress payments, with less visibility into the contractor’s margin. Unit pricing bills per completed unit and stays transparent, though scope changes or inflation can move the unit cost over a long job.

The pricing model also changes how much a bill gets disputed. Time and materials and cost-plus billing invite the most back-and-forth, because the owner pays against documented costs that have to be verified line by line. Lump-sum and unit pricing tend to bill cleaner, since the amount owed follows a fixed price or a countable quantity of completed work.

How Progress Payments Get Approved and Paid

Progress payments get approved through a documented billing cycle. Payment is released against verified percent complete, not against invoice receipt alone.

The process starts with the schedule of values, a line-item breakdown of the contract that assigns a dollar value to each scope of work. Every line rolls up to the total contract amount, so each progress payment maps to specific work rather than a lump figure. Each billing period, the contractor submits a pay application against that schedule and reports the percentage complete on each line.

The American Institute of Architects publishes the standard forms most projects use, G702 and G703. G702 is the application and certificate for payment, and G703 is the continuation sheet that itemizes each line. Together they let the contractor apply for payment and the architect certify the amount due.

Before money moves, the owner, lender, or a third-party inspector verifies the percentage of work claimed. This step confirms the reported progress matches the field, and it anchors any sound construction billing process.

Verification is where a payment slows down or speeds up. On most projects, an owner’s representative or a third-party inspector visits the site, then compares the claimed percentages against the work in place. If the field doesn’t match the pay application, the reviewer adjusts the amount or sends it back before anything gets certified.

Certification is the formal sign-off that the billed work is real. The architect or owner’s representative certifies the pay application, which tells the lender the amount is due. On many deals, that certified pay application is the document the lender relies on to approve the draw.

On a financed project, the pay application feeds a draw request, and the construction loan draw process adds its own documentation gate. A complete draw package usually includes the following:

• A draw request form
• The schedule of values
• Percent completes for each line item
• Lien waivers
• Vendor invoices
• Certificates of insurance
• Inspection reports

Payment can’t move until these documents are attached, verified, and approved. Only then does the disbursement release. That’s why progress payments track verified completion, not a submitted invoice on its own.

Disbursement is the final step, when the approved funds actually move. On a cash deal, the owner pays the contractor directly. On a financed deal, the lender funds the draw, often to the borrower or straight to the contractor and key subs.

Want to see this without the manual back-and-forth? Talk to our team about your draw and pay-application workflow.

How Retainage Affects Progress Payments

Retainage reduces every progress payment. It’s a portion of each payment, typically 5–10%, that the owner or lender withholds and releases near project completion as a performance guarantee.

According to ConsensusDocs, the prevailing range is 5–10% of the contract amount or progress payment. Many states set statutory caps on how much can be held. The limit varies by state and by whether a project is public or private.

Federal fixed-price construction works differently. Under the Federal Acquisition Regulation, full payment is the default when progress is satisfactory. If progress isn’t satisfactory, the contracting officer may retain a maximum of 10% until the contractor gets back on track.

So the federal 10% is a ceiling for unsatisfactory work, not a mandatory withhold on every payment. For a fuller breakdown, see how retainage works in construction.

Retainage exists to protect against unfinished or defective work. The withheld amount gives the owner a financial incentive for the contractor to complete the punch list and close out the project. It’s usually released after substantial completion, once the remaining items are signed off.

Challenges of Financing Progress Payments

Progress payments can be hard to finance because they’re subject to disputes, like when there’s no clear documentation that the work was completed to satisfaction. Many lending agreements require specific timelines or completion percentages, and the lender has to confirm the project meets them before releasing funds. Disputes delay payment, and subcontractors may pause work until they’re paid, which throws schedules off track.

Slow payment carries a real cost. According to Rabbet’s 2024 Construction Payments Report, slow payments accounted for 14% of total construction costs in 2024, roughly $280 billion. The same report found 82% of contractors faced payment delays longer than 30 days that year.

Every verification delay feeds that total. Idle crews, financing charges, and rework don’t wait for paperwork, so a stalled pay application turns into real money fast. The root cause is usually documentation, not disagreement over the work itself.

When percent completes, lien waivers, and inspection reports arrive incomplete or late, the reviewer can’t confirm the numbers and the payment waits. Clean, complete pay applications are the fastest way through the cycle.

How Built Helps

Most delay in progress payments comes from scattered documentation. The schedule of values, pay applications, lien waivers, and inspection reports each live in a different place. When a reviewer has to chase a missing file, approval stalls and the payment waits.

Built is an AI-native real estate and construction finance platform that connects owners, lenders, general contractors, and borrowers across the full project lifecycle. It keeps the budget, draw and pay-application documentation, verification, and payment in one connected system. When the documents and the verified percentages sit together, progress payments move on schedule instead of stalling in review.

The pay application, certified percentages, and supporting waivers move through one review path. Approvers see the full picture without rebuilding it from email threads.

The speed difference is measurable. Texas Partners Bank cut draw turnaround from 7–10 days to less than 2 days after moving its draw workflow onto Built.

See how Built keeps progress payments moving before your next billing cycle. Request a demo.

Progress Payment FAQs

How much should a progress payment be?

A progress payment usually equals the value of work completed since the last billing period, minus retainage. On most projects, that means billing the percentage of each line item finished, then subtracting a 5–10% retainage hold. The exact amount depends on the schedule of values and the contract terms both sides agreed to.

What is an example of a progress payment?

Say a contract is worth $1 million and the project reaches 25% completion in the first quarter. The contractor bills $250,000 for that work, and the owner releases it minus retainage. A payment could also trigger at a defined milestone, like when the exterior is dried in, rather than at a set percentage.

What is the difference between a progress payment and a draw request?

A progress payment is the payment a contractor earns for completed work. A draw request is how that payment gets funded on a construction loan, when the borrower asks the lender to release money from the loan. So the progress payment is the amount owed, and the draw request is the funding mechanism the lender approves after verifying progress.

How often are progress payments made?

Most progress payments are made monthly, billed for work completed during the prior period. Some contracts use a bimonthly cadence or tie payments to completion milestones instead of a calendar. The payment schedule is set in the contract before work begins.