Progress Claim: a Worked Example

An ordinary invoice records goods delivered at an agreed price, so its amount is settled when it is issued. A progress claim records the contractor's own view of how much of the contract it has completed, at a value it has chosen. The principal's quantity surveyor or engineer then assesses it against the work on site and the contract rates, and often certifies less. Variations the contractor has priced but the principal has not agreed may be cut out. A share of each payment is held back as retention against defects. And the principal may deduct sums it says it is owed, such as liquidated damages for delay.

Each step is legitimate, and none shows on the aged debtors report, which carries the claim at the value the contractor put on it. A lender advancing against that report is advancing against a number the paying party has not yet accepted.

All three markets legislate against payment delays down the contracting chain. In New Zealand, the Construction Contracts Act 2002 lets a payer who disputes a payment claim answer it with a payment schedule, within the time the contract sets or 20 working days if it sets none; a payer that does neither can become liable for the claimed amount as a debt. Retention money withheld under commercial construction contracts is held on trust, and under amendments in force since October 2023 cash retentions go into a bank account kept only for them, unless a complying instrument such as a bond or guarantee is arranged instead. Each Australian state and territory has its own security of payment Act: in New South Wales a respondent has at most 10 business days to provide a payment schedule, and one that provides none must pay the whole claim. In the UK, the Housing Grants, Construction and Regeneration Act 1996, as amended, requires a pay less notice before a payer may pay less than the notified sum, and makes pay-when-paid clauses ineffective unless a third party in the chain is insolvent. Northern Ireland has its own equivalent.

These rules shorten disputes. They do not change what is assessed as due, and the protection can be lost: the timetables bind the contractor too, and in New South Wales a contractor company in liquidation cannot serve or enforce a payment claim under the Act. A lender reads the statute as a reason the cash should arrive sooner, not as a reason to lend against the claimed figure.

A mechanical services subcontractor, constructed for this page, is seven months into a US$8.0m air-conditioning contract on an office building. Its claim for the month is US$700,000. The head contractor's quantity surveyor values the work at US$610,000, leaving out US$90,000 of plant delivered to site but not yet installed. The contract retains 5% of each certified amount, and the head contractor's payment schedule deducts US$45,000 for a delay it blames on the subcontractor. Every figure, the 5% included, belongs to the example. In US$ thousands:

The subcontractor's invoice finance facility advances 80% against ordinary debtors. The answer depends on which figure the advance follows:

Lending on the claim would put US$25,500 more in the subcontractor's hands than the head contractor will pay. Lending on the payable amount ties the advance to the head contractor's own figure. A financier may lend at a lower rate again, the third line, because a certified amount can still be revisited in the final account. The retention held so far, about US$200,000 on some US$4.0m certified to date, is not lent against here: it falls due at practical completion and at the end of the defects period, and only if the work holds.

Work done since the last claim and not yet claimed is not a receivable at all. Accounts prepared under IFRS 15 and its New Zealand and Australian equivalents show it as a contract asset while payment depends on something more than the passage of time; other frameworks carry it as accrued income or work in progress. A progress claim moves value out of that estimate and into an invoice, and certification moves it into a sum the principal accepts is due. A lender reads the three as estimate, claim and accepted sum, each firmer than the last.

Reading them together also shows where a contractor's figures can drift. A business that claims ahead of the work, to bring cash forward, carries smaller contract assets and larger debtors than the site supports, and the gap between its claims and the surveyor's valuations widens.

DEFINED IN ONE PARAGRAPH → · RETENTION, DEFINED → · CONTRACT ASSETS →

It decides how a contractor's working capital is financed. Many invoice financiers exclude progress claims from the ledger they fund, or accept them only once certified, which is one reason contractors often rely on an overdraft or a facility sized on cash flow instead. Where claims are funded, the facility's definitions decide whether the advance follows the claimed, certified or payable figure, and whether retentions and disputed sums are carved out.

It also decides what the lender asks for each month: the certificates and payment schedules behind the ledger. The gap between claimed and certified, contract by contract, is a reading of how well the contractor values its own progress, and a gap that widens on one job can be the first sign of a dispute, a loss-making contract or a principal in difficulty.

ELIGIBLE RECEIVABLES → · AGED DEBTORS REPORT → · HOW BANKS ASSESS A WORKING CAPITAL REQUEST →