Most engineering and architecture contracts are billed in phases. Instead of sending one invoice when the work is done, the firm bills each month for the share of each phase it has finished. That's progress billing. On many contracts, the client also holds back a percentage of every invoice until the job is complete. That's retainage.
Both are simple ideas. They get complicated because they compound month after month, across every phase of every contract, and a small mistake in one invoice carries into the next.
How progress billing works
A phased contract splits the total fee into parts. Here's an example for a $120,000 design contract:
- Schematic design: $24,000
- Design development: $36,000
- Construction documents: $48,000
- Construction administration: $12,000
Each month, someone estimates how complete each phase is. The invoice bills the difference between that percentage and what has already been billed.
Say that by the end of month four, schematic design is finished and was fully billed last month. Design development has moved from 25 percent to 60 percent, and construction documents has started at 10 percent. This month's invoice includes:
- Design development: 35 percent of $36,000, which is $12,600
- Construction documents: 10 percent of $48,000, which is $4,800
The total billed this period is $17,400. Billed to date across the contract is $50,400.
How retainage works
If the contract holds 10 percent retainage, the client withholds 10 percent of each invoice. On this month's invoice, that's $1,740, so the amount due is $15,660. The withheld money doesn't disappear. It accumulates as a retainage balance, which is usually released when the project reaches a milestone named in the contract, often substantial completion.
The percentage, the release terms, and any rules about interest on held funds come from your contract, and in some states from statute. Check both before you set up a project.
Where the numbers go wrong
Percent complete drifts from reality. If the estimate is generous early, the phase runs out of fee before the work runs out. If it's cautious, the firm carries costs it could have billed. Tying the estimate to something concrete, like sheets issued or tasks closed, keeps it honest.
Retainage lives in a separate spreadsheet. When the held balance is tracked outside the invoice, it's easy to lose track of how much the client owes at release, or to forget the release invoice entirely.
A phase gets billed past its fee. Change orders, extra hours, and rounding can push billed-to-date over the phase amount without anyone noticing until the client does.
Each invoice is rebuilt by hand. When last month's invoice is the starting point for this month's, every error is copied forward.
How Kineo handles it
In Kineo, each contract holds its phases, fee lines, and retainage percentage. Fee lines billed by declared progress take a percent complete, and Kineo drafts the progress draw for the period. Retainage is withheld at the contract's rate on each invoice, and the project shows the retainage held so far.
Before an invoice is drafted, Kineo checks each line against its budget. Work that would push a line or phase over budget is held back and flagged, so someone on the team decides what to do with it before the invoice goes out.