How progress billing works for professional services

A schedule of values breaks the contract fee into line items, usually by phase (schematic design, design development, construction documents, construction administration) or by task. Each line carries a scheduled value, and the line values must add up to the contract total.

Agree the schedule with the client before the first invoice. Every later invoice is read against it, and a schedule the client never accepted invites a dispute on every bill.

• Keep lines small enough that percent complete can be judged honestly, but few enough that the client can review the invoice in minutes.
• Give each line a stable code so invoices, timesheets, and change orders all point at the same thing.
• Add approved change orders as new lines rather than quietly raising an existing line, so the original contract stays visible.

Each line on a progress invoice answers the same four questions. Laid out as columns, they make the invoice self-checking: the client can recompute every number from the one before it.

• Scheduled value: the fee assigned to the line.
• Percent complete to date: how much of the line is done, judged at the end of the period.
• Previously billed: the sum of every earlier invoice on the line.
• This invoice: scheduled value times percent complete, minus previously billed.

The contract is split into four phases: schematic design $24,000, design development $36,000, construction documents $48,000, and construction administration $12,000, for a total of $120,000. Before this period the firm had billed schematic design in full and design development at 25 percent.

At the end of this period schematic design is 100 percent complete and design development is 60 percent complete. Nothing has started on the last two phases.

• Earned to date: $24,000 x 100% + $36,000 x 60% = $24,000 + $21,600 = $45,600.
• Previously billed: $24,000 + ($36,000 x 25%) = $24,000 + $9,000 = $33,000.
• This invoice: $45,600 - $33,000 = $12,600, all of it on design development (35 points of progress x $36,000).
• Balance to finish: $120,000 - $45,600 = $74,400.

Some contracts, mostly public and construction-related work, let the client withhold a percentage of each payment as retainage until the work is complete. The rate is set by the contract and, in the United States, often limited by state statute; 10 percent is a common starting point, sometimes reduced once the project is half complete.

With 10 percent retainage, the invoice above changes as follows.

• Retainage on this invoice: $12,600 x 10% = $1,260.
• Amount due this invoice: $12,600 - $1,260 = $11,340.
• Retainage held to date: $45,600 x 10% = $4,560, which the firm invoices separately when the contract allows release.
• Track retainage as a receivable of its own. It is easy to forget, and it often sits unpaid for months after the project closes.

Percent complete is a judgment, and it is where progress billing goes wrong. Billing ahead of progress pulls cash forward but leaves too little fee for the remaining work; billing behind progress finances the client with your own payroll.

A useful cross-check is effort spent against effort budgeted. If design development was budgeted at 240 hours and 150 have been logged, effort says 62.5 percent. If the project manager says 60 percent, the two agree. If the project manager says 80 percent, ask what is left and whether the budget was wrong.

• Have the project manager set percent complete, not the person preparing the invoice.
• Write down the reason for any line that jumps more than the effort supports.
• AIA publishes standard payment application forms that follow this same columnar layout; many clients ask for them by name on building projects.

Hubity previews each month's invoices from approved time, expenses, retainers, and contract progress, then drafts them for a person to review and send.

See how it works