Progress Payments

1. Progress Payments

2. Progress Payments • Owner must pay for work • GC & Subs must prepare invoices for work done • Contract Types • Way payments are handled is based on contract type • Most contracts • Request for payment submitted to owner monthly • Progress payment is made during following month • GC must have enough cash to keep project running

3. Cost Plus & GMP • PM requests payment based on actual expenses • Must have invoices from Subs and Suppliers • PM submits invoices and GC payroll to owner • Impossible to overbill • Fees & lump sum items billed using schedule of values & % complete • PM may be audited by owner

4. Lump Sum • Based on % complete & schedule of values • Front loading and overbilling can occur • Unit Pricing • Paid based on quantities installed • Can be subjective • Time & Materials • Paid on actual labor hours and labor rate plus materials costs based on supplier invoice

5. Measurement for Payment • Certain measurements do not represent true pay quantities • Pipeline paid for by amount shown on drawing • Drawing shows horizontal distance not length of pipeline on grade • Does not include pipe overlap (bell & spigot joint) • Contractor must take this into account when bidding job • RPR must know how to measure bid item

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

7. A/E and contractor should agree on a method of measuring material and use it throughout project • Truckloads of loose material • Water content can change weight of load • 10% WC = 500lbs extra / 10 ton load • Pay for materials in place as calculated from dimensions shown on the plans • Must be careful on a unit price bid to make sure contractor is not over excavating to use more material.

8. Paving Quantities • Small differences in depth can make a huge difference in price • 0.5” over a 12’ lane 1 mile long = 2200# • Also need to make sure that asphalt is at temperature when spread

9. Measurement Guidelines for Unit Price Quantities • Pipelines – depend on contract can be horizontal distance (drawings), measures along top of joined pipe • Do not measure along side of pipe • Curbs – top edge facing the street • Channels – use same location in channel for each measurement • Sewer Lines – measure edge of manhole to edge of manhole – manholes separate item

10. Fencing – horizontal or along top rail of fence • Pavements – area but watch for underruns on pavement thickness • Retaining walls – each wall is measured as a prism, where walls meet do not double count

11. Schedule of Values • Agreed upon breakdown of contract cost • Must be agreed upon before first progress payment • Based on estimate and buyout values • Usually tied to activities or CSI Division • F 15-1 • Should be reasonably detailed • GC can frontload fees into early pay items • Not good practice

12. Fee on Cost plus can be based on • % complete • When project 60% done fee should be 60% paid • Actual costs incurred • More up front to cover start up costs • Straight line equal payments each month

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

14. Payment Request Process • Payment Request usually at end of month • PM must gather invoices from subs and suppliers & GC costs for submittal to A/E firm • Subs & Suppliers must have their invoices to PM by 20th of month • Subs & suppliers must estimate work and materials that will be completed by end of month • Only pay for materials that are on site • If stored off site must be in bonded facility • PM must estimate GC work to end of month

15. Payment Request Process • PM then creates schedule of value with work completed • F15-2 • Draft submitted to owner and A/E firm for approval by 25th • Allows for changes before end of month • A/E approves request F15-3

16. Cash as a Tool • A contractor with a reputation for paying subs and suppliers fast and fairly may get a better price on the bid • Just as GC does not have huge capital neither do subs and suppliers • Must pay in a timely manner • Discounts for early payment to suppliers • Whoever pays gets discount

17. Lien Management • Suppliers use materialman’s notice F15-4 • Lien releases F 15-6 • Subs and suppliers will hold a lien on the property until paid in full • Conditional lien releases are signed every month to release that part of the project that is being paid for except retention • Unconditional Lien Releases are a final release of all rights to place a lien on the property by a sub, supplier or GC • Signed after final payment

18. Retention • Money held back until project is completed and approved • Usually 5 – 10 % • Withheld monthly • Early subcontractors should be paid off 30 days after they are done • Helps with their finances

19. Retainage • 5 – 10% of contract price • Gives owner $ to satisfy lien claims if GC does not pay • Also is the profit • Can do either a lump sum or it can be computed based on each months progress payments

20. Retainage given to GC 35 days after completion of work if • all lien releases turned in • All employees paid • Approval of the performance insurance CO. • GC gets all but the amount representing the value of uncompleted or substandard work or materials.

21. Liquidated Damages during construction • Can have liquidated damages for missed milestones • Throws other contractors behind • Deduct from next progress payment

22. Unbalanced Bids • Contractor raises prices on some items and lowers prices on others w/o changing total project cost • Should be rejected if found

23. Why do unbalanced bids • To discourage certain types of construction and encourage others that the Contractor is good at • Contractor thinks A/E estimate is low can make unit price high and make extra profit • Increase 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

24. Can build up working capital – eliminates squeeze due to 10% retention • Detecting an Unbalanced Bid • Usually an unbalanced bid indicates and A/E error in estimate • Use a spreadsheet to compare bids to find wide swings in bid prices • All contractor’s should be in the same price range if normal bid

25. Resolving an Unbalanced Bid • Easiest way is to reject all bids (owner’s perogative) • Take bids to A/E point out area where possible error exists in estimate • Get a new estimate • Rebid job