Progress Payments in Construction: The Subcontractor’s Guide

In most industries, billing is straightforward: you perform the work, you send an invoice, and you get paid. Commercial construction is not like most industries.

Subcontractors front labor, equipment, and materials for weeks or months before receiving payment. They follow a billing process they didn’t design, and that certainly doesn’t favor them—one tied to legal rights (lien laws), compliance documentation, and GC-specific requirements.

That's why progress payments exist in commercial construction. Instead of waiting until project completion, they provide regular cash flow throughout the project to keep everyone compensated (and in business) down the chain.

This guide will give you a full understanding of how progress payments work, how to bill for them, and what to do when payments stall.

What are progress payments?

Progress payments are partial payments issued throughout the life of a construction project, based on the amount of work completed to date. So instead of receiving one total sum at the end of the project, subcontractors receive multiple payments, typically monthly (though it could also be based on a percentage of the project complete, i.e., 30%, 60%).

A progress payment is calculated based on the percentage of each SOV line item that’s complete, plus any approved change orders and stored materials (if the contract allows), minus retainage.

Difference Between Progress Billing and Progress Payments

To receive a progress payment, subcontractors submit a progress bill, which is a formal payment request. On most commercial projects, this request must be submitted using standardized AIA® billing forms (G702®/G703®) or a GC’s equivalent pay application form and portal. 

TL;DR: Progress billing is how subs document what they’ve completed and what they’re owed; progress payments are the dollars released back to the subcontractor once that billing is reviewed and approved.

Which contract types support progress payments?

There are four main construction contract pricing structures, and each can support progress billing and payments. The concept is always the same—you bill for the work completed to date. What changes is how you prove and document that progress based on the contract type.

Lump Sum Contracts

On lump sum (a.k.a. “fixed price”) contracts, all parties agree to a set price for the entire project before work begins. This contract type requires accurate estimates of labor, materials, and all other project costs to create a well-defined scope of work. It’s the most common contract type between subcontractors and GCs.

How to Bill Progress Payments on Lump Sum Contracts

Progress payments are billed as percent complete for each SOV line item at regular intervals (typically monthly) or upon completing key milestones. You'll submit your pay app showing updated completion percentages, along with supporting documentation—progress photos, delivery receipts, inspection reports, etc.

While the total contract price is fixed, these contracts can still be modified through change orders. Make sure to document any deviations from the original scope as they happen, and ensure all changes are approved in writing before performing additional work.

Time & Materials (T&M) Contracts

On T&M contracts, payment is based on actual time spent and materials used, meaning the final cost isn't set until the work is done. This contract type works well for projects with undefined scope, uncertain conditions, or work that's difficult to estimate upfront. 

You charge for labor at agreed-upon hourly rates (which include wages, overhead, and profit margin) and for materials at cost plus a markup—typically 10-30%—which covers what you pay for materials, freight, and storage fees. While the total cost is undetermined upfront, you'll provide a rough estimate with your hourly rate, approximate hours, and general materials list.

How to Bill Progress Payments on T&M Contracts

Progress payments are billed based on documented hours worked and materials purchased during the billing period. You'll need to track and submit detailed time sheets, material receipts, and equipment logs with each pay application. Since there's no fixed price, accurate documentation is critical—it's both your proof of work and your basis for payment.

Cost-Plus Contracts

On cost-plus contracts, you bill for all project costs plus a set profit margin. This covers both direct costs (labor, materials, and equipment) and indirect costs (insurance, office space, and administrative expenses). The "plus" portion is your guaranteed profit. 

Some cost-plus contracts include a "not to exceed" clause to keep costs under control, or bonuses to incentivize completing work on time and under budget.

How to Bill Progress Payments on Cost-Plus Contracts

Progress payments are billed for actual costs incurred during the billing period, plus the agreed-upon profit margin. You'll need comprehensive documentation—receipts, invoices, timecards, and expense reports—to justify each cost. 

The GC or owner typically has the right to audit your costs, so maintain detailed records and only bill for expenses explicitly allowed in your contract.

Unit Price Contracts

On unit price (or “measure and pay”) contracts, work is divided into fixed-cost units where you bill for each unit separately. The unit price includes labor, materials, equipment, overhead, and a markup for profit. These contracts are commonly used for projects with repeatable elements—like highway development priced per mile or multi-unit housing priced per dwelling—especially when the total number of units is unknown at project start.

How to Bill Progress Payments on Unit Price Contracts

Progress payments are billed based on the number of units completed during the billing period. You'll report quantities installed for each line item, which are then multiplied by the agreed unit prices. 

This is one of the most straightforward billing processes—you don't need to break down hours or materials, and often don't even need to submit a schedule of values. Just make sure to clarify measurement methods upfront, as disputes often arise over how units are counted and verified.

Does retainage affect progress payments?

Yes. Every progress payment includes the percentage completed on the SOV, stored materials (if allowed), and approved change orders—and then retainage is deducted. (Retainage is the portion—typically 5-10%—withheld from each progress payment to ensure the subcontractor finishes their scope and submits closeout documentation.)

For example: If your progress billing request is $100,000 and retainage is 10%, you receive $90,000. The GC withholds the remaining $10,000 until the end of the job.

What are the benefits of progress payments?

Predictable Cash Flow

Progress payments ensure subcontractors get paid as work is completed rather than only at the end of the project. This keeps cash flowing to cover labor, materials, equipment, and supplier payments—without subcontractors financing the project out of pocket.

Ability to Stop Work If Payment Stalls

Progress payments can give subcontractors leverage if cash slows. Many subcontracts include a “right to suspend work for nonpayment” clause, allowing work to pause if payment isn’t received within a defined timeframe (e.g., 30 days after the GC receives funding). When that clause exists, subs can protect themselves without immediately escalating to filing a mechanic’s lien.

Surfaces Payments Problems Early

Progress payments create visibility up and down the chain. For GCs and owners, they ensure payment correlates to actual work completed and reduce the risk of overpaying ahead of performance. For subcontractors, they’re an early warning system: if a GC pays late in month three, it's a signal to escalate—not a surprise discovered at final billing.

Limits Debt and Borrowing

Steady payments reduce reliance on credit lines and working capital. With progress payments, subcontractors don’t have to borrow against future receivables or their retirement savings (an increasingly common last resort) to fund ongoing work.

Are there drawbacks to progress payments?

Progress payments solve many cash flow challenges, but they aren’t perfect. They require significant administrative time and documentation—especially on AIA® billing projects.

Here are the main drawbacks:

Time-Consuming and Tedious

Every progress billing cycle requires assembling a complete pay app packet:

• AIA® G702/G703 (or GC-specific forms)
• Updated SOV
• Stored material documentation
• Conditional lien waivers (plus lower-tier waivers if required)

For many subcontractor billing teams, this turns into days of chasing PMs, reconciling backup documentation, and troubleshooting portal requirements.

How to Manage It 

Establish a repeatable billing workflow:

• Standardize your internal checklist for every pay app.
• Track GC submission deadlines in a central calendar.
• Push PMs to confirm percent complete by a set internal deadline.

Pro Tip: Teams that standardize this workflow with Siteline generate complete, accurate pay apps—AIA® or GC-specific formats—in minutes instead of days, without chasing PMs or waivers.

Disputes Over Percent Complete

Progress billing requires alignment between the subcontractor, GC, and sometimes the owner or architect. Disagreements can occur when:

• The GC disputes the percent complete on an SOV line item.
• Stored materials aren’t properly documented.
• Backup doesn’t match what’s installed in the field.

How to Manage It

Document everything—daily reports, progress photos, delivery tickets, etc.—so in the hypothetical event that you bill 45% and the GC insists on 35%, you have proof to back your payments.

Risk of Underbilling or Overbilling

Because progress payments require you to bill based on percent complete, precision matters. If you bill less progress than you’ve completed, you’re underbilling, meaning you’ve done the work but haven’t collected the cash. You end up financing the project with your own capital.

If you bill more than what’s been completed, you’re overbilling, which can trigger GC scrutiny, delay approval, or require you to “earn back” the overbilled amount later in the project, limiting future billings.

How to Manage It

Use real-time job cost reporting to keep billing aligned with actual costs and completed work. Tie change orders to billing immediately; don’t let them pile up.

Retainage Traps Cash Until Closeout

Even with progress payments, retainage withholds 5–10% of every invoice. Over the course of a long project, that retained amount often becomes the subcontractor’s entire profit margin.

How to Manage It

Push for milestone retainage releases, rather than waiting for final completion—especially if your scope ends early (sitework, concrete, utilities, etc.).

Progress payments protect your cash flow; Siteline protects your time.

Progress payments are supposed to keep subcontractors financially whole throughout a project. But when each pay cycle requires chasing PMs, tracking down lien waivers, reconciling backup, reformatting SOVs, and navigating GC portals, progress payments start to feel a lot more like progress paperwork.

That’s where Siteline comes in.

Siteline was built specifically for subcontractor billing teams. With it, you can:

• Generate accurate AIA® G702/G703 pay apps (or GC-specific forms) in minutes.
• Centralize SOVs, stored materials, change orders, and percent complete.
• Auto-track deadlines, requirements, and supporting documents.
• Collect vendor and sub-tier lien waivers without the back-and-forth.
• Reduce billing errors that can trigger pay app rejections.

Instead of spending days assembling pay apps, you spend minutes reviewing them.

If progress payments are creating stress instead of stability, we can help. Schedule time to talk with us, and see whether Siteline can remove the billing chaos and help you get paid up to three weeks faster.