Progress Payment Submittal Requirements

Construction lenders often include specific requirements for progress payment requests in their loan agreements. This is an excellent tool to guard against misuse of funds during a construction project. As a developer, you can follow this lead and establish similar requirements for projects that do not involve a lender. 

Prior to the start of construction, the first step is to work with the contractor to create a detailed line item-budget. The budget should be thoroughly broken down into line-item categories that detail individual items of work to be completed. If possible, it is recommended to stay away from combined line items such as “Office Repairs” and instead break this item down into relevant categories such as Framing, Rough Electrical, Sheetrock, Painting, etc. This budget can be managed using industry standard forms such as the AIA G702/G703 or on a spreadsheet template. Once the budget is developed and agreed upon, set a requirement that the contractor needs to submit requests for payment with all individual costs billed to specific line items. This lets you track the progress of individual items of work and the total level of completion for the project.  

The next requirement is for the contractor to submit a complete set of invoices for all costs being requested. The invoice package should be organized by items of work, and each invoice or receipt should be labeled with the corresponding line-item name and number from the project budget. It is ultimately your responsibility as the developer to review this invoice package to verify that all amounts are correctly recorded and applied to the budget. If errors are discovered during this review, the request can be returned to the contractor for correction. It is important to thoroughly review all invoices and receipts to ensure that all materials and labor are being billed correctly and that you are not paying for anything outside of the scope of the project.  

Along with the invoices, it is recommended that you require submission of lien waiver forms. Lien waivers should be obtained from the general contractor and from all subcontractors, material suppliers, or other vendors who are granted lien rights against your project by providing service. For each payment request you should receive conditional lien waivers for the current request as well as unconditional waivers for the previous request. By requiring that lien waivers be submitted with payment requests you can verify that the contractor is paying subcontractors and vendors on time. Tracking these forms can be tedious, but it is well worth the peace of mind knowing that you are protected from a lien being filed against your property. 

It is also important to verify that your project is kept in good standing with local building officials. Asking the contractor to include a copy of the current building permit inspection card allows you to verify that work is progressing and that the proper approvals are being obtained. This card should be initialed by the building inspector noting when items have been inspected and approved. This offers an additional layer of security for you to verify that the work you have paid for has been completed appropriately. It is also recommended that you request a copy of the inspector’s comments for any items of work not approved during an inspection.  

Your project will naturally encounter challenges and site conditions that may require changes to the budget or use of contingency funds. Requesting that the contractor submits any potential upcoming change orders with the payment application lets you quickly review the changes to costs in the context of the overall budget. By reviewing potential change orders along with periodic payment requests you can reduce delays and keep your project moving forward smoothly.  

It can be challenging to convince a contractor to submit requests for payment with an extensive document package, particularly if they are used to submitting a lump-sum request for overall progress. Enacting these requirements at the beginning of the project and including payment submittal requirements in the contract establishes a baseline for your interactions with the contractor. This also offers the chance to demonstrate to the contractor that a complete and thorough submission package will streamline payment processing and limit owner-caused delays by making prompt decisions about pending change orders. Managing the outflow of funds from the project budget is one of the most challenging responsibilities for a developer, and those challenges are compounded if payment requests are vague and lack proper documentation. Utilizing a detailed and specific set of payment submittal requirements helps alleviate the stress of disbursing funds and assists in tracking the costs associated with the project.