Advance payment recovery
When the owner pays an advance (for example, 30% of the contract amount), that money is not a payment for work performed but an upfront sum for project start-up, material purchases, and mobilization. To pay it back, a proportional portion is deducted from each progress payment: that is the recovery, or amortization. This way the contractor returns the advance little by little as it invoices actual progress.
The recovery percentage matches the advance percentage. If the advance was 30% of the contract, each progress payment amortizes 30% of the value of the work executed during that period. As a result, once 100% of the project has been certified, 100% of the advance has been recovered.
Most construction and public works contracts require the advance to be recovered proportionally in every progress payment. The recovery is recorded as a deduction on the progress payment, alongside others such as retention (the performance guarantee held back) or statutory inspection fees; it should not be confused with them. Retention is released at final settlement, whereas recovery merely repays money that was already handed over.
Formula
Example
A contract of $1,000,000 with a 30% advance ($300,000). On a progress payment covering $200,000 of executed work, the recovery is 200,000 × 30% = $60,000. Once all progress payments add up to the full $1,000,000, a total of $300,000 will have been amortized, fully repaying the advance.
Frequently asked questions
How is advance payment recovery calculated?
Multiply the value of the work executed in the progress payment by the same percentage that the advance represented of the contract amount. If the advance was 30%, you recover 30% of each progress payment.
What is the difference between advance recovery and retention?
Advance recovery repays the advance already paid and is deducted proportionally from each progress payment; retention is a performance guarantee that is withheld and released only at final settlement if the work meets its terms. They are separate deductions.
What happens if the advance is not fully recovered when the project ends?
The unrecovered balance of the advance is deducted from the final payment (final settlement) or charged back to the contractor, since it is money paid upfront that did not correspond to work already paid for.