Progress billing
Progress billing is the periodic payment mechanism (usually monthly or twice-monthly) of a unit-price contract. In each period the contractor measures the physical work completed, backs it up with measurement sheets, values it against the bill of quantities, and submits the progress billing to the supervisor, who reviews and approves it before the invoice is issued and payment is made.
The gross amount of a progress billing is the sum of (quantity completed in the period x unit price) for each work item. Two customary deductions are applied to that gross: advance-payment amortization —a proportional share of the advance received at the start is repaid in each billing— and retainage (for example a performance or warranty holdback, and in public works deductions such as the one for inspection and oversight). The result is the net amount payable for the period.
In public works, progress billing is a formal requirement under public procurement regulations: they set maximum deadlines for the agency to review and pay, require the quantities to be supported with measurement sheets and sketches, and mandate amortizing the advance and applying retainage. Private projects follow the same logic, with the percentages and deadlines agreed in the contract.
Progress billing measures progress for the purpose of billing, not profitability: it reflects what has been completed and approved, not the actual cost incurred. That is why it differs from financial progress (how much of the budget has been spent) and from cost control; a project can be billing on schedule and still be consuming more resources than planned.
Formula
Example
A progress billing with a gross of $1,000,000 for the period. With a 30% advance to amortize ($300,000) and a 5% warranty retainage ($50,000): Net payable = 1,000,000 - 300,000 - 50,000 = $650,000 (before tax).
Frequently asked questions
How is progress billing calculated?
You measure the quantity of each work item completed in the period (the measurement sheet), multiply it by its unit price, and add the results to get the gross amount. From that gross you subtract the advance-payment amortization and the agreed retainage; the result is the net amount payable, to which the applicable taxes (VAT or sales tax) are then added.
What is the difference between progress billing and a construction budget?
The budget is the total cost forecast of the project at the outset; progress billing is the periodic billing for the work actually completed during construction. The budget is prepared once; progress billings are issued each period (twice-monthly or monthly) until final settlement.
Why is the advance deducted from each progress billing?
Because the advance is money paid up front that must be repaid: each progress billing amortizes a proportional share (usually the same percentage that was received as an advance), so that by the end of the project the advance is fully settled.