The Payment Schedule Before You Sign

The payment schedule is where money and leverage meet. As long as your payments roughly track the work in place, both sides are in balance. When payments get ahead of the work, you've paid for things that don't exist yet, and the conversation about anything that goes wrong gets harder.

It's one of the easiest parts of a contract to skim, and one of the easiest to fix before signing. After signing, it's very hard to change.

The common structures

Milestone payments. A set amount or percentage is due when a defined stage is done: foundation poured, framing complete, drywall hung, and so on. Simple to follow. The milestones need to be clearly defined and tied to work that's actually finished.

Monthly draws on percent complete. Each month the builder bills for the share of each line item they say is complete. This is common when a lender is involved. It tracks the work closely, but someone has to check the percentages.

Cost plus monthly billing. On a cost plus job, the builder bills actual costs plus their fee each month, with backup. The schedule is less about milestones and more about what backup comes with each bill. See Fixed price, GMP, or cost plus.

Deposits

Some deposit at signing is common. Builders use it to secure their schedule, order long-lead items, and cover early costs. What matters is the size and what it's for.

A deposit tied to specific items, like a window order or cabinet deposit, is easy to understand. A large deposit with no stated purpose works more like a prepayment, and it puts you ahead of the work from day one. Ask what the deposit covers and how it's credited back against later payments.

Retainage

Retainage, also called holdback, is a percentage held back from each payment until a completion point the contract sets, often substantial completion. It gives the builder a reason to finish the last items and gives you a cushion if something isn't right at the end.

How much can be held, and when it has to be released, varies by state and by contract. This is a general explanation, not legal advice. Have your attorney confirm what applies where you're building.

What should trigger a payment

Every payment should be tied to something you can verify: a stage that's done, an inspection that passed, or costs with invoices behind them. Calendar dates alone ("payment due March 1") aren't tied to anything.

And every payment request should come with backup. At a minimum:

• What's being billed, line by line, against the schedule of values
• Approved change orders included in this request
• Lien waivers: conditional for this payment, unconditional for the last one (see lien waivers)
• For cost plus, the invoices and receipts behind the costs

When a lender is involved

A construction loan shapes the schedule. The lender sends an inspector before each draw is funded, and the lender's draw process often becomes the payment schedule. That inspector works for the bank, confirming enough work is in place to cover the advance. It's not a review on your behalf. Your lender's inspector works for the bank goes into it.

Two schedules, same job

Here's where two payment schedules can leave you at the framing stage of the same house. Illustrative numbers.

At framing complete	Work-based	Front-loaded
Contract	$1,500,000	$1,500,000
Deposit at signing	$75,000	$300,000
Paid through framing, deposit included	$420,000	$600,000
Value of work in place	$450,000	$450,000
Paid ahead of the work	($30,000)	$150,000

Both builders could be completely trustworthy. But in the second case, if anything goes wrong, you've paid for $150,000 of work that doesn't exist yet.

Questions worth asking

• What triggers each payment, and how will I know it's been reached?
• What does the deposit cover, and how is it credited back?
• Is retainage held, how much, and when is it released?
• What backup comes with every payment request?
• How does this schedule line up with my lender's draw process?
• How many days do I have to review and pay a request?