Most construction projects are not paid in a single lump sum at completion. Instead, payments are typically made in stages as work progresses.
Two key components of this structure are progress payments and retainage, and both can become sources of dispute if they are not clearly defined in the contract.
What Are Progress Payments?
Progress payments are issued periodically as work is completed, usually at specific milestones or monthly billing cycles. For contractors, these payments are essential for maintaining cash flow to cover the cost of labor, materials, and equipment throughout the life of the project. For property owners, progress payments provide a way to tie payment to completed work.
Disputes frequently arise over what constitutes “complete” work. A contractor may determine that a phase has been finished and submit an invoice, while an owner may disagree or raise concerns about the quality of the work. Additional issues can include delays in approval, insufficient supporting documentation, or payment withheld due to unrelated disputes.
What Is Retainage?
Retainage is the portion of each payment – commonly five to ten percent – that is withheld and only paid upon substantial completion of the project. The purpose of retainage is to give the property owner some leverage to make sure the contractor will complete their work and address any final repairs or deficiencies.
In practice, however, retainage is a frequent source of conflict. Contractors and owners sometimes have differences of opinion about what “substantial” completion means. If substantial completion is not clearly defined, or if minor punch list items delay final payment, disagreements can escalate.
Many of these issues can be traced back to poorly drafted contracts. Clearly defined terms regarding how progress payments are calculated, what documentation is required, and when retainage must be released can prevent disputes before they arise. If questions arise regarding withheld funds or contract terms, consulting with an experienced construction law attorney can help clarify rights and reduce the risk of further disputes.