Progress Payments in Construction: Process, Claims, Retention

Progress payments let contractors get paid in stages as construction work moves forward. Project owners don’t pay everything upfront; they release money only when specific work is done. This keeps cash flowing, protects both sides, and helps avoid disputes.

But to get progress payments right, you need clear rules, solid contracts, and the right systems throughout the construction process. Let me explain this to you.

What are Progress Payments in Construction?

Progress payments in construction are partial payments made for work that’s already completed. Instead of paying everything at the end, payments are made in stages as the project moves forward. This might be based on a finished milestone schedule or a percentage of the total job done.

The building contract sets the payment schedule from the start. It outlines what triggers each payment, when it should be made, and how much is due. Contractors usually submit a progress claim along with a payment application, a schedule of values (SOV), and supporting site records.

This structure works well for both sides. Contractors don’t need to carry the full cost while waiting for final payment. Project owners release funds only after verifying that the work meets expectations. It also gives project owners tighter control over financing payments, since funds are only released once progress is verified.

How Do Progress Payments Work in a Construction Contract?

Progress payments follow a repeatable process written into the contract. Contractors submit payment claims after hitting milestones, completing a percentage of work, or reaching a billing cycle. Once verified, payments are released (minus any retainage) until final completion and contract closeout.

1. The Contract Sets the Payment Structure

Progress payments start with the construction contract. It defines how often contractors can claim, what counts as progress, who approves payments, and how retention will be handled by project owners or funders. Every financial decision during the construction project ties back to this agreement.

Contractors, owners, and consultants should ensure the building contract outlines billing triggers, documentation formats, and approval responsibilities. If roles or progress measures aren’t clear, expect delays or a payment dispute later. Use contract clauses to avoid friction across the project team.

2. Payment Is Triggered by Verified Progress

Contractors can only submit a progress payment request after hitting an agreed billing trigger. These may be tied to completed milestones, a verified percentage of the contract scope, or time-based intervals. Triggers must be clearly defined so consultants and owners can verify claims quickly.

Typical payment trigger options include:

• Milestone-based: Work stages like base, frame, or services installed.
• Percentage-complete: Verified scope against the contract value.
• Time-based: Monthly billing periods with site logs or reports.

Superintendents or client-side project managers are often responsible for confirming that progress meets the contract-defined trigger. This alignment reduces payment errors and keeps construction cash flow stable.

3. Contractors Submit a Formal Payment Application

After reaching a billing trigger, the contractor prepares and submits a progress claim. This includes all documentation needed by consultants and superintendents to verify the value of work done. It’s the contractor’s responsibility to ensure the claim is clear, complete, and compliant.

Depending on the contract, this package may include:

• A completed payment application form (e.g. AIA G702, ConsensusDocs 710, or custom).
• An updated schedule of values showing each completed work item.
• Photos or site reports documenting physical progress.
• Approved change orders.
• Lien waivers or statutory declarations.
• Materials receipts or payroll records (for cost-plus or T&M contracts).
• Clear breakdown of retainage.

Incomplete claims create delays for owners and admin bottlenecks for consultants. Contractors should follow the claim format exactly and provide evidence aligned with the scope, which builds trust and speeds up approval.

4. The Owner or Superintendent Reviews the Claim

Once the claim is submitted, project owners or their construction contract administrators review the submission. This involves comparing claimed progress to actual site conditions and validating all supporting documents.

Superintendents or third-party consultants may conduct a progress inspection or issue progress certificates. In projects funded through a construction loan, lenders may also review progress before releasing payment to the contractor.

The reviewer typically checks:

• Does the claimed work match what’s visible on site?
• Are documents like change orders and lien waivers included and accurate?
• Have all required approvals been received?

Project owners should respond within the timeframes set in the contract or legislation. Clear documentation makes approvals easier and reduces the dispute risks. When both sides collaborate, this step runs smoothly.

5. Payment Is Approved, With Retainage Held Back

Once approved, the owner issues payment minus retainage. This holdback gives project owners financial protection while rewarding contractors for verified work. Retainage is usually 5 to 10% of the claim and is tracked throughout the job.

Example calculation:

• Progress claim: $100,000
• Retention (10%): $10,000
• Payment made: $90,000

Consultants or project accountants should keep a running tally of total retained funds. Contractors must factor this into their cash flow planning. Transparency on both sides reduces payment tension later in the construction project.

6. The Cycle Repeats Until Completion

This process repeats until the end of the project. Contractors continue submitting claims as progress is made, and owners or consultants review and approve construction payments accordingly. Each party has a defined role to keep the system moving.

Typically:

• At practical completion, part of the retention is released.
• At the end of the defects liability period (DLP), the final balance is paid.

For contractors, it means reliable cash flow tied to verified progress. For owners and consultants, it ensures that payment follows actual performance. When well-managed, the construction progress payment cycle helps keep everyone accountable and the project moving forward.

To see how progress payments tie into overall project budgeting, check out our guide to project cost management with practical steps for tracking and controlling construction costs.

What Construction Contract Types Support Progress Payments?

Progress payments are supported by most construction contract types, including time and materials, cost-plus, lump sum, and unit price contracts. Each one handles billing differently, but all can be structured to release payments as work gets done.

Here’s how each type works with progress payments:

No matter which construction contract you use, the progress payment schedule must be clear. Define how progress will be measured, what paperwork is needed, and when money gets released. That clarity keeps your team aligned, cuts down admin time, and avoids payment delays.

How Do Contractors Bill for Progress Payments?

Contractors bill for progress payments by submitting a payment application after a stage of work is complete. This application shows the value of work done since the last claim and must follow the billing process set out in the contract. Most projects use monthly billing, milestone triggers, or percentage-based claims.

What’s Included in a Progress Payment Application

To get paid, contractors submit a complete package, not just a basic invoice. Depending on the contract, this usually includes:

• Payment application form: Standard forms like AIA G702 or ConsensusDocs 710 are commonly used.
• Schedule of values (SOV): A breakdown of all work items and their share of the contract price.
• Progress report: Details or site photos showing work completed during the billing period.
• Change orders: Any approved scope or pricing changes since the last claim.
• Subcontractor invoices: If applicable, supporting pay apps reviewed or compiled by the principal contractor.
• Lien waivers: Signed conditional or unconditional waivers to show no outstanding claims.
• Payroll records or materials receipts: On some jobs, these may be required to support cost-plus or T&M billing.

The contract sets the payment schedule, usually monthly or tied to milestones. Some contracts allow submissions only on specific days.

Missing deadlines or incomplete paperwork can delay progress payment or trigger disputes. The payment application must match what’s allowed under the contract, down to the documentation format.

What Role Does Retainage Play in Progress Payments?

Retainage is money that gets held back from each progress payment as financial protection for the project owner. It’s usually 5% to 10% of every payment claim and is clearly outlined in the building contract.

The idea is simple: you hold part of the payment until the contractor finishes the job properly and takes care of any defects. Each time a contractor submits a progress claim, retainage is deducted from the total value of completed work.

Retainage is typically released in two stages:

• At practical completion: A partial payment is made when the main work is done and handed over.
• After the defect liability period: The final amount is released once all outstanding issues are resolved.

This protects the project owner, but it adds pressure on contractors and subcontractors. They’re delivering work, paying for labour and materials, and waiting months to receive that final withheld amount. This can stretch cash flow, especially for early-stage trades who finish their work long before the final handover.

Some contracts allow partial retention release after specific packages are completed. For example, if a subcontractor finishes site prep early, they might apply to recover some of their withheld funds before project completion.

To keep retention clear, each progress payment application should include:

• Total value of work completed to date.
• Retainage withheld on the current claim.
• Retention held so far across the job.
• Net amount approved for payment.

Most construction billing software includes retention tracking built into progress claim templates. This gives both parties visibility on how much is withheld, when it’s due, and what needs to happen before it’s paid.

What Are the Benefits of Progress Payments in Construction?

Progress payments help manage cash flow, reduce financial risk, and keep construction projects running smoothly. By tying payments to verified work, both contractors and project owners gain more control over money and progress throughout the job.

Here’s how progress payments benefit everyone involved:

• Improves cash flow for contractors: Ensures steady cash flow as work is completed and billed.
• Reduces upfront cost pressure: Contractors don’t need to fund the entire project on their own.
• Limits financial risk for project owners: Payments match actual progress, not projected work.
• Encourages timely completion: Reaching the next milestone means unlocking the next payment.
• Supports ongoing coordination: Creates regular checkpoints for communication and quality control.
• Flags payment issues early: Late or missed payments become visible before the final stage.
• Simplifies tracking and forecasting: Progress claims show exactly how much work has been done and paid.

For construction companies, this means fewer cash shortages, less need for external financing, and a smoother path through the construction project. For project owners, it ensures money is spent only on verified work and keeps the team focused on delivery. When structured clearly, progress payments reduce risk across the board.

What Challenges Do Progress Payments Create?

Progress payments help move construction projects forward, but when the process breaks down, it creates friction between contractors and project owners. Most problems stem from timing, documentation gaps, or unclear contract terms. If progress claims aren’t managed carefully, small issues can turn into serious cash flow or legal problems.

Here are the most common challenges:

• Delayed payments: Payment claims can get stuck in review or approval stages, holding up cash.
• Work percentage disputes: Contractors might claim 60% complete, while the owner only sees 40%.
• Overbilling or underbilling: Incorrect or inconsistent billing throws off cash flow and reporting.
• Administrative overload: Every claim needs backup, including photos, invoices, receipts, lien waivers, and reports.
• Legal risk exposure: Missing retention terms, unclear milestone definitions, or unpaid claims can lead to contract disputes.

Without a clear process, even a simple monthly progress claim can trigger tension. When project milestones aren’t well-defined or verified, the owner may reject claims.

On the other side, contractors face pressure to front costs while waiting for approvals. These issues can slow down the job, delay subcontractor payments, or trigger a chain reaction of financial stress across the construction industry.

How Can You Resolve Construction Progress Payment Disputes?

Most progress payment disputes come from unclear scopes of work, vague milestones, delayed change order approvals, or conflicting views on job completion. To keep things moving, contractors and owners need a defined process to resolve disputes—ideally written into the contract before work starts.

Many construction contracts include dispute resolution clauses under construction law. In Australia, the Security of Payment Act gives contractors the right to recover unpaid progress claims through adjudication.

Contracts like the NSW HIA Lump Sum Contract or Master Builders contracts include dispute resolution clauses, often with strict timelines and notice procedures. In Victoria, residential projects are also governed by the Domestic Building Contracts Act, which outlines clear progress payment terms and dispute processes for domestic building work.

In other regions, contractors may file a mechanics lien if payment is wrongfully withheld. Here’s a practical dispute resolution flow:

• Start with a conversation: Talk it out with the client or superintendent.
• Send formal notice: Submit a written notice explaining the issue and referencing the contract.
• Suspend work if allowed: Some contracts give contractors the right to pause work until payment is made.
• Move to adjudication or legal steps: Use official processes if no agreement is reached.

The best way to avoid progress payment disputes is prevention. That means:

• Define payment milestones clearly in the contract.
• Agree on how the percentage of completion will be measured.
• Document progress thoroughly with each progress claim.
• Communicate consistently between all parties.

What Tools Help Manage Progress Payments Effectively?

Many project teams still rely on spreadsheets to track progress claims, retention, and approvals. It’s especially common among client-side project managers, consultants, and government asset owners who are used to legacy systems.

But spreadsheets come with risks like version errors, missed updates, and no built-in verification. When things go wrong, they’re hard to trace.

Modern construction teams now use digital tools built specifically for progress payments. These systems connect contract data, milestones, payment schedules, and documentation in one place.

Here are the most useful tools and software for managing progress payments:

• Construction management software: Ties progress tracking, contract terms, and billing together.
• Billing platforms: Automate payment claims, retainage, schedules of values, and change order updates.
• Progress claim templates: Standardize applications to match contract formats (e.g. AIA G702, ConsensusDocs).
• Retention tracking tools: Show withheld amounts, paid retention, and future release dates.
• Project dashboards: Give clear visibility over completed work, payment status, and upcoming claims.
• Collaboration features: Let project owners, contractors, consultants, and finance teams stay aligned.

Construction project management software like Mastt help automate and streamline this entire workflow. Progress claims can be tied directly to real project milestones, with built-in approval flows and a full audit trail. Documents, certifications, and payment history are all stored securely in one place, ready for review at any time.

We designed Mastt to solve the exact pain points project owners and consultants face. No more messy spreadsheets. No more chasing approvals.

With Mastt, you can track claims in real time, reduce delays, and make faster, more confident payment decisions—all without breaking process or losing control.

Best Practices for Setting Up Progress Payment Systems

Start with this: make sure progress payments are tied to real, measurable work. Whether it’s a finished milestone or a confirmed percentage of completion, every payment trigger must be clear and easy to verify. That one step alone prevents most disputes down the line.

Use these best practices to build a system that actually works:

• Set clear milestones or billing points: Use physical stages, dates, or quantifiable progress.
• Define submission and approval deadlines: Keep claims moving with fixed timeframes.
• Use a consistent claim format: Schedule of values, payment application, supporting evidence.
• Track retainage separately: Show withheld amounts on every claim for transparency.
• Build in change order workflows: Adjust claims easily when project scope shifts.
• Use project dashboards: Tools like Mastt provide real-time views of progress and payment status.
• Align all stakeholders: Ensure owners, consultants, and contractors follow the same structure.

Without clear systems, payment cycles get delayed, claims fall apart, and trust breaks down. The right tools help prevent that.

Mastt is built to support construction progress payment workflows from end to end. You can link each claim to real milestones, manage retention automatically, and track approvals without touching a spreadsheet. It’s fast, clear, and built for project owners and project managers who need control without slowing the job down.