Payment Certificates and Subcontractor Payments: Retention and Advance Recovery by the Numbers

The payment certificate is the periodic invoice of a construction contract. Mistakes in it show up as disputes with the employer or the subcontractor, so keep the calculation organized and sequential. The core idea is that every certificate works out the cumulative progress and then deducts what was already paid.

Order of calculation

1. Value of work done cumulatively to the certificate date (executed quantity × item rate).
2. Plus materials stored on site, if the contract allows.
3. Minus the amount paid in previous certificates, giving the value of this payment.
4. Deduct retention at the contract percentage.
5. Deduct recovery of the advance payment.
6. Deduct penalties or other deductions, if any.
7. Add tax as your country’s rules require.
8. Net amount due.

Worked example

• Contract value 1,000,000. Cumulative progress 40%, which is 400,000.
• Previously paid 250,000, so this payment = 400,000 − 250,000 = 150,000.
• Retention 10% of the payment: 15,000.
• Advance payment 10% of the contract (100,000) recovered at 10% of each certificate: 15,000.
• Net before tax = 150,000 − 15,000 − 15,000 = 120,000.

How retention and advance recovery are calculated varies between contracts: some retain a percentage of cumulative progress, some of each payment, and some release retention in two stages. Follow the contract wording.

Subcontractors

It is best when subcontract payment terms are linked to, or consistent with, the terms from the employer, with clear definitions of:

• The retention percentage and when it is released.
• Back charges such as use of site equipment, water or electricity.
• Technical approval: who signs the progress percentages and who accepts them.

Check before submitting

• Executed quantities match the handover records and site measurements.
• Cumulative progress does not exceed the contract quantity without an approved variation order.
• Previous certificate figures match what the employer actually approved.

Ready sheets

Prepare the full certificate chain in the contractor payment certificate sheet, and track subcontractor accounts and payments in the subcontractor payments sheet. To follow cost and schedule performance try the earned value sheet. Numbers here are illustrative and the contract is always the reference.