Construction Progress Payments & Retainage
Also known as: Payments under fixed-price construction, schedule of values, retainage
What you do here: Bill monthly for work in place; watch retainage
At a Glance
- Who it's for
- Fixed-price construction contractors (SF 1442 awards)
- When you get paid
- Monthly, for work in place / materials delivered
- Retainage
- Up to 10% may be withheld if progress is unsatisfactory
- Governing clause
- FAR 52.232-5 and 52.232-27 (construction prompt payment)
- Cash-flow effect
- Steady monthly draws, minus any retainage held
What It Is
Construction is financed differently from supply and service work. Under FAR 32.103 and the clause at FAR 52.232-5 (Payments Under Fixed-Price Construction Contracts), a construction contractor submits monthly requests for progress payments based on the value of work actually in place and materials delivered, measured against a schedule of values. The contracting officer can hold retainage — up to 10% of the amount due — if the contractor's progress is not satisfactory, releasing it as performance gets back on track and at completion. Construction has its own faster prompt-payment cycle under FAR 52.232-27: 14 days for the government to pay a proper progress-payment request, and mandatory flow-down of prompt payment (and interest) to subcontractors and suppliers.
When It’s Used
- On fixed-price construction contracts (typically awarded on the SF 1442).
- For monthly draws against a schedule of values as the project is built.
- When the government elects to hold or release retainage based on progress.
- Where prompt-payment obligations must flow down to construction subcontractors and material suppliers.
Key Features
| Feature | What It Means |
|---|---|
| Schedule of values | Payment is based on a breakdown of the contract price by work item, so each monthly request bills the value of work completed and materials on site. |
| Retainage | The contracting officer may withhold up to 10% of the amount due if progress is unsatisfactory, then reduce or release it as performance improves and at completion. |
| 14-day construction cycle | FAR 52.232-27 gives the government 14 days to pay a proper construction progress-payment request — faster than the 30-day supply/service standard. |
| Prompt-payment flow-down | Prime construction contractors must pay subcontractors within 7 days of receiving payment and flow down prompt-payment and interest terms. |
| Final payment and release | Retainage and final payment are released at completion, typically conditioned on a release of claims. |
The SDVOSB Cash-Flow Angle
Construction is where retainage quietly squeezes small SDVOSB primes: 10% held across a multi-month job is real money you've spent on labor and materials but haven't collected. Price it in, and track it. The 14-day construction prompt-payment cycle is faster than supply work, but you also carry a mandatory 7-day flow-down obligation to your subs — if you're late paying them, you can owe them interest. On construction set-asides, the limitations on subcontracting (85% self-performance for general construction, 75% for specialty trades) interact directly with how much of the schedule of values your own crews earn.
How to Get Paid
- Establish an approved schedule of values that breaks the contract price into billable work items.
- Submit monthly progress-payment requests for work in place and materials delivered.
- Track retainage withheld and push for its reduction/release as progress becomes satisfactory.
- Pay your subcontractors within 7 days of receiving payment to avoid owing them interest.
- At completion, submit final payment and release documentation to recover retainage.
Watch Out For
- Retainage of up to 10% can tie up significant cash across a long build — model it into your bid.
- Late payments to subcontractors trigger a 7-day flow-down obligation and potential interest owed to them.
- Billing ahead of work actually in place (front-loading the schedule of values) is a common and risky practice the government scrutinizes.
- On construction set-asides, watch the 85%/75% limitations-on-subcontracting self-performance floors as you subcontract the work.
Run the Numbers
Frequently Asked
How much retainage can the government hold on a construction contract?
Under FAR 52.232-5, the contracting officer may retain up to 10% of the amount due if the contractor's progress is not satisfactory. Once progress is satisfactory, retainage may be reduced or eliminated, and it is released at completion. Retainage is a tool to protect the government's interest, not an automatic across-the-board 10% hold on every job.
How fast must the government pay a construction progress payment?
FAR 52.232-27 sets a 14-day cycle for the government to pay a proper construction progress-payment request — faster than the 30-day standard for supplies and services. Construction primes must also pay their subcontractors within 7 days of receiving payment and flow down prompt-payment and interest obligations.
Primary Sources
- FAR 32.103 — Progress payments under construction contracts
- FAR 52.232-5 — Payments Under Fixed-Price Construction Contracts
- FAR 52.232-27 — Prompt Payment for Construction Contracts
Plain-English reference, not legal, accounting, or financial advice. Payment and financing terms are set by each contract, and the FAR is amended from time to time — always read the actual contract clauses and invoicing instructions, confirm the applicable procedures with the contracting officer and payment office, and consult qualified counsel or an accountant for your specific situation before relying on this.
Change log (1)
- LaunchedPublished the federal contract financing & payment methods reference covering how an SDVOSB gets paid — invoice payment and the Prompt Payment Act (FAR Subpart 32.9 / 52.232-25), progress payments based on cost (FAR Subpart 32.5 / 52.232-16), performance-based payments (FAR Subpart 32.10 / 52.232-32), commercial product & service financing (FAR Subpart 32.2 / 52.232-29 & -30), construction progress payments and retainage (FAR 32.103 / 52.232-5 & -27), cost-reimbursement and T&M public vouchers (FAR 52.216-7 / Subpart 42.7), payment by electronic funds transfer through SAM (FAR Subpart 32.11 / 52.232-33), electronic invoicing via WAWF and IPP (FAR 32.905 / DFARS 252.232-7003), assignment of claims for bank financing (FAR Subpart 32.8 / 52.232-23), and contract debts and government offsets (FAR Subpart 32.6 / 52.232-17) — each with an at-a-glance quick-facts card, a when-it's-used list, a key-features table, an SDVOSB cash-flow angle, a how-to-get-paid checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source citations, and cross-links into the glossary, how-to guides, FAQ, contract types, clauses, forms, thresholds, and the price-to-win and limitations-on-subcontracting calculators.