Progress payments are payments made progressively as work is completed in a project, reducing the need for upfront capital and allowing for monitoring of work progress. Lien releases must be obtained for each payment, and contracts should clearly outline responsibilities and expectations.
Progress payments are payments that are provided progressively over the course of a project in direct relation to the amount of work that has been completed. They may also be known as progressive payments. This payment method can be seen in the construction trades, where it can be used to compensate contractors, subcontractors, and others on a job. It is also seen with some government contracts.
One advantage of using progressive payments is that it reduces the need for working capital because people don’t need to put up a large sum of money up front to pay for a project. They also don’t need to struggle to make a big payment at the end of the project. Instead, they can space out payments as the work is completed. This also allows people to be more flexible with the working capital they have because they don’t need to sink it all in one place.
Another advantage of compensating people in the form of progressive payments is that they provide opportunities to monitor work. Paying for work in segments encourages people to stick to set work schedules, and also allows the payer the opportunity to stop a project if it’s not progressing as planned or if there are quality concerns. The payments also meet any obligations up to that point on the job, making firing workers less of a hassle.
When people use progressive payments to pay for general contracting work, they must be careful to get lien releases with each payment. The releases state that the subcontractors and vendors have been paid in full up to that point and that they cannot take action against the owner for late payment. If lien releases are not obtained, the property owner has no way of knowing whether or not vendors and subcontractors have been paid, and this could become an issue later.
If payment for a project is to be handled in the form of progress payments, this should be structured in the contract. The contract should clearly outline the responsibilities and expectations of all parties involved to reduce the risk of disputes as the project progresses. Having an attorney who is familiar with these types of projects review the contract can be highly recommended to ensure any gaps or glaring errors are resolved before the contract is finalized.
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