How Progress Billing Works for ICI Subcontractors#

Executive Summary#

Progress billing allows subcontractors to invoice for completed work throughout a project rather than waiting until final completion. For ICI subcontractors working on projects that span weeks or months, progress billing is essential for maintaining cash flow. This guide explains how progress billing works, the documentation required to support invoices, and common mistakes that delay payment.

The Context for ICI Subcontractors#

Construction projects often extend over months or years. A mechanical insulation contractor working on a large commercial building might have a contract spanning six months. Without progress billing, the contractor would need to fund all labor, materials, and equipment costs for six months before receiving any payment—an unsustainable cash flow burden for most subcontractors.

Progress billing addresses this by allowing contractors to invoice periodically as work is completed. The general contractor (or owner, on direct contracts) pays for completed work, and the subcontractor uses those funds to cover ongoing costs.

Understanding how progress billing works—and what documentation supports it—helps subcontractors maintain healthy cash flow and avoid payment disputes.

Progress Billing Methods#

Percentage of Completion#

The most common progress billing method for ICI subcontractors is percentage-of-completion billing. Under this approach:

The total contract value represents 100% of the work
Each billing period, the subcontractor estimates what percentage of total work is complete
The invoice reflects that percentage minus amounts previously billed

Example calculation:

Total contract value: $500,000
Work completed to date: 35%
Value of completed work: $175,000
Previous billings: $100,000 (representing earlier 20% completion)
Current invoice: $75,000 (representing 15% completed this period)

Percentage-of-completion requires honest assessment of work status. Overbilling (claiming more completion than actual) creates problems later when the math does not work out. Underbilling sacrifices cash flow unnecessarily.

Milestone-Based Billing#

Some contracts define specific milestones that trigger billing. Rather than estimating percentages, the subcontractor bills when they reach defined completion points:

Milestone 1: Mobilization complete - 10% of contract
Milestone 2: Phase 1 installation complete - 30% of contract
Milestone 3: Phase 2 installation complete - 30% of contract
Milestone 4: Testing and commissioning complete - 20% of contract
Milestone 5: Final completion and closeout - 10% of contract

Milestone billing provides clarity about when invoices can be submitted but may create cash flow gaps if milestones are spaced unevenly or if work progresses slowly toward a milestone.

Time and Materials Billing#

Time and materials (T&M) billing invoices for actual labor hours and materials used, typically with markup percentages defined in the contract. T&M is common for:

Service and maintenance work
Change order work
Projects where scope cannot be precisely defined in advance

T&M billing calculation:

Labor: 200 hours × $75/hour = $15,000
Materials: $8,000 at cost × 1.15 markup = $9,200
Equipment: 40 hours × $50/hour = $2,000
Total invoice: $26,200

T&M billing requires detailed documentation of hours worked, materials purchased, and equipment used. Without supporting documentation, T&M invoices invite disputes.

Lump Sum with Scheduled Draws#

Some contracts establish a fixed payment schedule regardless of completion status:

Draw 1 (after contract signing): 20%
Draw 2 (30 days): 20%
Draw 3 (60 days): 20%
Draw 4 (90 days): 20%
Draw 5 (completion): 20%

Scheduled draws provide predictable cash flow but create risk if work falls behind schedule—the subcontractor might receive payment before earning it, then face pressure to complete work that has already been paid.

Documentation Requirements#

Progress billing is only as reliable as the documentation supporting it. General contractors and owners scrutinize billing submissions to verify that claimed work was actually completed.

What Progress Invoices Require#

Standard progress invoice documentation typically includes:

Schedule of Values (SOV): A breakdown of the contract into line items, each with a value. The SOV establishes how completed work will be measured and billed.

Application for Payment: The formal request for payment, often using industry-standard formats like AIA Document G702 (Application and Certificate for Payment).

Continuation Sheet: Detail supporting the application, typically showing each SOV line item with previous billings, current billing, and percentage complete.

Backup Documentation: Supporting materials that verify completion claims:

Daily reports showing work performed
Timesheets documenting labor hours
Delivery tickets for materials incorporated
Photos showing completed work
Inspection reports or sign-offs

The Connection Between Field Documentation and Billing#

Progress billing accuracy depends on field documentation accuracy. A foreperson documenting daily work creates the record that supports billing claims. A timesheet capturing labor hours provides backup for labor billing.

When field documentation is incomplete, billing becomes difficult:

How many hours were worked on this project versus others?
What materials were installed this period?
What work was completed that justifies the percentage claimed?

Without answers to these questions, billing submissions may be challenged or rejected.

The Billing Cycle Process#

Typical Timeline#

Progress billing follows a cycle that typically spans several weeks:

Week 1-3: Work is performed and documented. Field staff capture daily activities, labor hours, and materials used.

Week 3-4: Office staff compile field documentation, calculate completion percentages, and prepare the billing submission.

Submission Date: The billing package is submitted to the general contractor by the contractually required date (often the 25th of the month for billing through month-end).

Review Period: The GC reviews the submission, verifies claims, and may request additional documentation or adjustments.

Approval: The GC approves the billing for inclusion in their own payment application to the owner.

Payment: After the owner pays the GC, the GC pays subcontractors according to contract terms (often 30-60 days after billing submission).

Why Timing Matters#

Missing a billing submission deadline can delay payment by an entire billing cycle. If a subcontractor misses the March 25th submission deadline, they may not be able to submit until April 25th, delaying payment by a month.

This timing pressure creates urgency around field documentation. Work completed on March 20th needs to be documented and compiled for billing submission by March 25th. Delays in field documentation create delays in billing.

Retainage#

What Retainage Means#

Most construction contracts include retainage provisions that withhold a percentage of each payment (commonly 10%) until project completion. Retainage protects the owner and GC against incomplete work or claims.

Example with 10% retainage:

Invoice amount: $75,000
Retainage withheld: $7,500
Payment received: $67,500

Retainage accumulates over the project. On a $500,000 contract with 10% retainage, $50,000 will be held until completion and release.

Retainage Release#

Retainage is typically released after:

Substantial completion of the work
Completion of punch list items
Submission of required closeout documentation
Expiration of warranty periods (sometimes partial release occurs earlier)

Understanding retainage terms helps subcontractors plan cash flow accurately.

Common Progress Billing Mistakes#

Insufficient Documentation#

The most common billing problem is insufficient backup documentation. A billing submission claiming 60% completion without documentation showing what work was completed invites scrutiny and delays.

A subcontractor might know their work is 60% complete. The general contractor needs evidence. Without photos, daily reports, or other documentation, the GC may reduce the billing percentage or reject the submission pending additional backup.

Schedule of Values Imbalance#

The schedule of values should reasonably reflect when costs will be incurred. A SOV that front-loads value into early activities creates problems:

A subcontractor might create a SOV with "Mobilization" valued at 25% of contract. If actual mobilization costs are 5% of the contract, the subcontractor receives 25% payment for 5% of costs—but then faces cash flow problems later when 75% of the contract remains but they have already billed 25%.

Imbalanced SOVs also invite GC scrutiny. Experienced project managers recognize front-loaded SOVs and may require revisions before accepting them.

Billing Without Approval#

Some contracts require GC approval before work begins on changes or additions. Billing for unapproved work—even if the work was necessary—creates disputes.

A subcontractor performing additional work should document the circumstances (why the work was needed, who directed it) and seek approval before or immediately after performing the work. Billing months later for work that was never approved invites rejection.

Ignoring Contractual Requirements#

Billing requirements vary by contract. Some contracts specify:

Exact forms to be used
Documentation that must accompany submissions
Certification requirements
Lien waiver requirements
Insurance certificate updates

Billing submissions that do not comply with contractual requirements may be rejected regardless of work completion status.

How Field Staff Support Progress Billing#

The Foreperson's Role#

Forepersons create much of the documentation that supports progress billing:

Daily Reports: Recording work performed, conditions encountered, and progress made. These reports substantiate completion claims.

Timesheets: Documenting labor hours by project, phase, and cost code. This data supports labor billing and job costing.

Material Documentation: Recording materials received and installed. Delivery tickets and installation records support material billing.

Photo Documentation: Photos showing work in progress and completed provide visual evidence of completion.

Change Documentation: Capturing scope changes, additional work requests, and conditions that differ from contract documents.

Quality of Documentation#

Documentation quality affects billing success. Clear, detailed records support billing claims. Vague or incomplete records invite questions and delays.

Effective field documentation captures:

What work was performed
Where the work occurred (location, area, system)
When the work was done
Who performed the work
What materials or equipment were used
Any unusual conditions or events

Timeliness of Documentation#

Field documentation captured the same day as work is performed is more accurate than documentation reconstructed days or weeks later. Details fade from memory. Quantities become uncertain. Circumstances are forgotten.

Forepersons and field staff who document daily create better billing support than those who document weekly or at project milestones.

Payment Issues and Disputes#

Common Causes of Payment Delays#

Progress billing payments may be delayed for various reasons:

Documentation disputes: GC questions completion claims or requires additional backup.

Approval chain delays: Multiple approvals required before payment processes.

Owner payment delays: GC cannot pay subcontractors until owner pays GC.

Retention of disputed amounts: Payment made on undisputed portions while disputed amounts are held.

Cash flow issues upstream: Owner or GC experiencing financial difficulties.

Protecting Payment Rights#

Subcontractors have legal protections for payment, including:

Mechanic's Lien Rights: Most jurisdictions allow contractors to place liens on property for unpaid work. Requirements and timelines vary by jurisdiction.

Prompt Payment Laws: Many jurisdictions have laws requiring timely payment on construction contracts. In the US, the Prompt Payment Act applies to federal contracts. Many states have similar laws for private construction.

Notice Requirements: Preserving payment rights often requires providing notices within specified timeframes. Missing these deadlines can waive rights.

Subcontractors should understand the payment protection laws in their jurisdiction and comply with notice requirements.

How Appello Supports Progress Billing#

Appello's Progress Billing & Invoicing module connects field documentation to billing workflows. Daily work captured through Timesheets & Workforce Admin and project documentation flows into billing preparation, reducing the gap between work completion and invoice submission.

The system supports multiple billing methods—percentage-of-completion, milestone-based, and time-and-materials—while maintaining the connection between field records and billing claims that supports accurate, defensible invoices.

Conclusion#

Progress billing is fundamental to subcontractor cash flow. Understanding how different billing methods work, what documentation supports billing claims, and what mistakes cause delays helps subcontractors maintain healthy cash flow and avoid payment disputes.

The connection between field documentation and billing is direct: accurate field records create accurate billing submissions. Subcontractors who invest in field documentation quality benefit through smoother billing cycles and fewer payment delays.

Related Reading:

How Progress Billing Works for ICI Subcontractors