Progress Payments

Progress Payments

Progress PaymentsOwner must pay for workGC & Subs must prepare invoices for work doneContract TypesWay payments are handled is based on contract typeMost contractsRequest for payment submitted to owner monthly Progress payment is made during following monthGC must have enough cash to keep project running

Cost Plus & GMPPM requests payment based on actual expensesMust have invoices from Subs and SuppliersPM submits invoices and GC payroll to ownerImpossible to overbillFees & lump sum items billed using schedule of values & % completePM may be audited by owner

Lump SumBased on % complete & schedule of valuesFront loading and overbilling can occurUnit PricingPaid based on quantities installedCan be subjectiveTime & MaterialsPaid on actual labor hours and labor rate plus materials costs based on supplier invoice

Measurement for PaymentCertain measurements do not represent true pay quantitiesPipeline paid for by amount shown on drawingDrawing shows horizontal distance not length of pipeline on gradeDoes not include pipe overlap (bell & spigot joint)Contractor must take this into account when bidding jobRPR must know how to measure bid item

Rock and Earth QuantitiesCompacted earth takes up less area than earth in natural state (shrinkage)shrinkage depends on material and compaction methodsFine Sand 6%, Sand and Gravel 8%, Ordinary Clay 10%, Loam 12%, Surface Soil 15%Rock takes up more space when removed (swell) from ground

A/E and contractor should agree on a method of measuring material and use it throughout projectTruckloads of loose materialWater content can change weight of load10% WC = 500lbs extra / 10 ton loadPay for materials in place as calculated from dimensions shown on the plansMust be careful on a unit price bid to make sure contractor is not over excavating to use more material.

Paving QuantitiesSmall differences in depth can make a huge difference in price0.5 over a 12 lane 1 mile long = 2200# Also need to make sure that asphalt is at temperature when spread

Measurement Guidelines for Unit Price QuantitiesPipelines depend on contract can be horizontal distance (drawings), measures along top of joined pipeDo not measure along side of pipeCurbs top edge facing the streetChannels use same location in channel for each measurementSewer Lines measure edge of manhole to edge of manhole manholes separate item

Fencing horizontal or along top rail of fencePavements area but watch for underruns on pavement thicknessRetaining walls each wall is measured as a prism, where walls meet do not double count

Schedule of ValuesAgreed upon breakdown of contract costMust be agreed upon before first progress paymentBased on estimate and buyout valuesUsually tied to activities or CSI DivisionF 15-1Should be reasonably detailedGC can frontload fees into early pay itemsNot good practice

Fee on Cost plus can be based on % completeWhen project 60% done fee should be 60% paidActual costs incurredMore up front to cover start up costsStraight line equal payments each month

Change Orders Approved change orders can be paid as separate line items or spread over schedule of values

Payment Request ProcessPayment Request usually at end of monthPM must gather invoices from subs and suppliers & GC costs for submittal to A/E firmSubs & Suppliers must have their invoices to PM by 20th of monthSubs & suppliers must estimate work and materials that will be completed by end of monthOnly pay for materials that are on siteIf stored off site must be in bonded facilityPM must estimate GC work to end of month

Payment Request ProcessPM then creates schedule of value with work completed F15-2Draft submitted to owner and A/E firm for approval by 25thAllows for changes before end of monthA/E approves request F15-3

Cash as a ToolA contractor with a reputation for paying subs and suppliers fast and fairly may get a better price on the bidJust as GC does not have huge capital neither do subs and suppliersMust pay in a timely mannerDiscounts for early payment to suppliersWhoever pays gets discount

Lien ManagementSuppliers use materialmans noticeF15-4Lien releases F 15-6Subs and suppliers will hold a lien on the property until paid in fullConditional lien releases are signed every month to release that part of the project that is being paid for except retentionUnconditional Lien Releases are a final release of all rights to place a lien on the property by a sub, supplier or GCSigned after final payment

RetentionMoney held back until project is completed and approvedUsually 5 10 % Withheld monthlyEarly subcontractors should be paid off 30 days after they are doneHelps with their finances

Retainage5 10% of contract priceGives owner $ to satisfy lien claims if GC does not payAlso is the profitCan do either a lump sum or it can be computed based on each months progress payments

Retainage given to GC 35 days after completion of work if all lien releases turned inAll employees paidApproval of the performance insurance CO.GC gets all but the amount representing the value of uncompleted or substandard work or materials.

Liquidated Damages during constructionCan have liquidated damages for missed milestonesThrows other contractors behindDeduct from next progress payment

Unbalanced BidsContractor raises prices on some items and lowers prices on others w/o changing total project costShould be rejected if found

Why do unbalanced bidsTo discourage certain types of construction and encourage others that the Contractor is good atContractor thinks A/E estimate is low can make unit price high and make extra profitIncrease unit prices on first items of work to be completed => receive excessive early payments then default on the job Leaves Surety with too little $ to do job

Can build up working capital eliminates squeeze due to 10% retentionDetecting an Unbalanced BidUsually an unbalanced bid indicates and A/E error in estimateUse a spreadsheet to compare bids to find wide swings in bid pricesAll contractors should be in the same price range if normal bid

Resolving an Unbalanced BidEasiest way is to reject all bids (owners perogative)Take bids to A/E point out area where possible error exists in estimate Get a new estimateRebid job