A progress payment is a partial payment made before a service or delivery is fully provided. These payments are typically issued to a contractor after completing a specific stage of work, allowing for a steady cash flow and cost recovery as the project advances. Progress payments are usually made in several installments.
Retention money is a portion of each progress payment withheld by the project owner to ensure completion and quality. It is typically released upon substantial completion of the project and after addressing any outstanding issues. The percentage withheld as retention is specified in the construction contract.
For example, if a contract stipulates 10% retention, the project owner will withhold 10% of each payment due to the contractor until substantial completion. This serves as a financial safeguard, ensuring the project meets agreed-upon standards and that any defects are resolved. Once the project is completed and outstanding issues are addressed, the retention money is released to the contractor.
An escalator (or escalation) clause is a contract provision that allows for an increase in agreed-upon wages, prices, or rent under specific conditions beyond the control of either party, such as inflation or rising material costs. This clause helps maintain fairness in contracts and protects both parties from unforeseen financial risks. The amount of reimbursement due is determined based on the terms of the escalation clause.
A contract account is an agreement between a business and a customer outlining the specific services to be performed. Contract costing, also known as terminal costing, is a variant of job costing. Contract accounts are particularly useful in industries with long-term projects, such as construction, engineering, and software development.
Contract accounts help businesses assess the profitability of individual contracts, providing valuable insights for making informed decisions about future projects.
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