A percentage of each progress payment withheld until the project is complete, typically 5–10%.
Retainage (or retention) is money the owner holds back from each progress payment as security against incomplete or defective work. Typically 5–10% per draw, released at substantial completion or after the warranty period. State laws vary on maximum retainage percentage and how quickly it must be released. Subcontractors who don't track retainage owed to them often write it off as a loss.
Open full definition →
See also: Progress Billing, AIA Billing (G702/G703), Substantial Completion
Industry-standard progress billing forms developed by the American Institute of Architects.
The AIA G702 (Application and Certificate for Payment) and G703 (Continuation Sheet) are the standard progress billing forms for commercial construction. Each pay period the contractor submits the G703 (line-item progress by trade or scope) and G702 (summary with retainage held and amount due this period). The architect signs off, the owner pays. AIA billing is required on most commercial and federally-funded work.
Open full definition →
See also: Retainage, Progress Billing, Lien Waiver
Invoicing in stages based on percent of work completed, instead of one invoice at the end.
On multi-month or large projects, progress billing breaks the contract into invoiced stages — typically monthly or at defined milestones. Each invoice shows what percentage of the contract is complete, what was billed previously, what's being billed now, and what retainage is held. Progress billing keeps cash flowing during the work and is the norm on any project lasting more than a few weeks.
Open full definition →
See also: Retainage, AIA Billing (G702/G703), Milestone Billing
A specified dollar amount in the contract for an item whose final cost isn't yet determined.
Allowances let a contract proceed before every selection is made. Common in residential remodel: a $5,000 cabinet allowance, a $3,000 tile allowance, a $1,500 fixture allowance. The customer selects within the allowance budget; overage or savings is reconciled in the final invoice. Allowances reduce contract delays for indecisive clients but require careful tracking — the allowance line items are a common source of payment dispute.
Open full definition →
See also: Change Order, Selections, Progress Billing
A wage rate (and fringe benefit rate) set by state or federal law that contractors must pay on public-works projects.
Federal prevailing wage is set by the Davis-Bacon Act on federal projects over $2,000. Many states have parallel prevailing wage laws covering state-funded work (California, New York, Illinois, etc.). Rates are set per craft per locality and typically include base wage + fringe (health, pension, training). Certified payroll reporting (WH-347) is required, with sworn statements from the contractor for each pay period. Non-compliance carries severe penalties.
Open full definition →
See also: Certified Payroll, Davis-Bacon Act
A weekly payroll report required on prevailing-wage projects, sworn under penalty of perjury.
On federal Davis-Bacon work and most state public-works projects, contractors must submit weekly certified payroll reports (federal form WH-347 or state equivalent). The report lists each worker, hours, wage rate, fringe paid, deductions, and net pay. The contractor signs a Statement of Compliance under penalty of perjury. False certified payroll is a federal felony. Software that generates certified payroll is the primary value-add of construction accounting tools like Sage and Acumatica for federally-funded contractors.
Open full definition →
See also: Prevailing Wage, Davis-Bacon Act
Accounting method that recognizes revenue and cost on long-term projects as work is completed, not when invoiced.
For tax and financial reporting on long-term contracts (typically over 1 year, or any contract spanning a year-end), contractors use percent-complete accounting to recognize revenue and cost as work progresses, not when invoices are sent. A WIP schedule shows, per job: contract amount, costs to date, estimated costs to complete, percent complete, revenue earned, billings to date, and over/under billings. WIP accounting is mandatory for large contractors and is the core selling point of Sage Construction and Acumatica Construction Edition.
Open full definition →
See also: Progress Billing, AIA Billing (G702/G703), Retainage
A contract where the owner pays the contractor's actual costs plus a markup (percentage or fixed fee).
In a cost-plus arrangement, the contract specifies the markup (commonly 10–20% of cost) but not the final price. The contractor passes through actual material, labor, and sub costs with the markup added. Common in custom-home builds and remodels where the scope can't be fully defined upfront. Often capped with a "GMP" (Guaranteed Maximum Price) so the owner has cost certainty. Requires detailed time and material tracking — sloppy receipts kill cost-plus profitability.
Open full definition →
See also: T&M (Time and Materials), Fixed-Price Contract, GMP (Guaranteed Maximum Price)
A contract type where the contractor bills for actual labor hours and materials used, plus markup.
T&M billing is common for service work and unknown-scope repairs. The contractor bills labor at an hourly rate (typically including burden and markup) plus materials at cost or with a markup. T&M shifts scope risk to the owner — total cost is unknown until work is complete. Most plumbers, electricians, and HVAC service techs run T&M for unscheduled repairs. Photo and time documentation is critical for T&M disputes.
Open full definition →
See also: Cost-Plus Contract, Fixed-Price Contract, Progress Billing
A contract where the contractor agrees to complete the scope for a defined total price, regardless of actual cost.
Also called "lump sum" — the most common contract type for residential remodel and small commercial. The contractor takes on cost risk; if actual costs exceed the bid, the contractor absorbs it. If costs come in under, the contractor keeps the difference. Requires accurate estimating and tight scope control. Change orders are how new work or scope changes are added to a fixed-price contract.
Open full definition →
See also: Cost-Plus Contract, T&M (Time and Materials), Change Order
A hybrid contract: cost-plus during construction, but capped at a maximum total price.
GMP combines the flexibility of cost-plus (with open-book pass-through) and the certainty of fixed-price (the cap). Common on larger residential builds and commercial work. The contractor and owner share savings if actual costs come in below the GMP. Above the cap, the contractor absorbs overruns. Requires detailed estimating and open-book accounting throughout the project.
Open full definition →
See also: Cost-Plus Contract, Fixed-Price Contract, WIP (Work In Progress)
A billing schedule tied to specific defined project events instead of monthly percentages.
Instead of monthly progress billing, milestone billing invoices at defined points: deposit, mobilization, demolition complete, rough-in complete, drywall complete, substantial completion, final. Common in residential remodel where each phase is a clear milestone. Easier for the owner to understand than percent-complete; harder to align with mid-month cash flow needs.
Open full definition →
See also: Progress Billing, AIA Billing (G702/G703)
An estimate is an informed guess; a quote is a binding offer at a fixed price.
In contractor practice, "estimate" and "quote" are often used interchangeably, but legally they're different. An estimate is a non-binding approximation, subject to change when actual scope is determined. A quote is a binding offer to complete defined work at a stated price; if the customer accepts, a contract is formed. Use "estimate" for ballpark; "quote" when you're ready to commit. Software workflows typically standardize on "quote."
Open full definition →
See also: Fixed-Price Contract, Change Order