Progress Payments Progress Payments Owner must pay for

Progress Payments

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

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

• 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

• 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

• 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 Gravel 8%, Ordinary Clay 10%, Loam 12%, Surface Soil 15% – Rock takes up more space when removed (swell) from ground

• 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 = 500 lbs 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.

• 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

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

• 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

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

• 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

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

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 20 th 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

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

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

Lien Management – Suppliers use materialman’s notice F 15 -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

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

• 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

– 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.

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

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

• 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

• 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

• 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