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How Construction Payments Work

Money in construction moves in stages, not one lump. Understanding the milestone model — advance, progress payments, retention — is your single best protection against overpaying.

AECORD Editorial3 min readConstruction 101

The Milestone Model

You pay for construction against progress, in slices. A small advance gets work started; then agreed amounts are released as the project reaches physical milestones — foundation done, each slab cast, brickwork up, plastering complete, finishing done; then a final slice on handover, with a small percentage held back as retention.

The principle is simple and protective: you pay for work that has actually been completed and verified. Never let payments run ahead of physical progress — the moment you have paid for more than has been built, your leverage is gone.

The milestone payment ladder

Mobilisation advance

A modest start payment — commonly around 10%.

Plinth complete

A slice released once the foundation and plinth are done.

Each RCC slab

A slice as each floor slab is cast.

Brickwork & plaster

Released against masonry, plastering and waterproofing.

Finishing & handover

Flooring, fittings and paint, then the balance on handover.

Retention released

~5% held back, paid after the defect liability period.

Typical Payment Stages

For an independent home built under a labour-plus-material contract, a common structure looks roughly like this (illustrative, negotiate for your project): ~10% mobilisation advance; a slice on completing the plinth/foundation; a slice as each floor's RCC slab is cast; a slice on completing brickwork/masonry; a slice on plastering and waterproofing; a slice on flooring and finishing; the balance on handover; and ~5% retention released after the defect liability period.

The exact percentages vary with the contractor, the contract type and the number of floors. What matters is that each release maps to a milestone you can see and verify on site — not a date on a calendar and not the contractor's cash-flow.

Retention & the Final Payment

Retention is a percentage of each payment (or of the contract value) that you deliberately hold back — commonly around 5% — and release only after the defect liability period ends and any snags are fixed. It is your incentive for the contractor to come back and fix leaks, cracks or faulty fittings that appear after you move in.

Do not pay the full amount on handover. A building can look finished and still hide defects that only show up over the first monsoon or first few months. Retention keeps a reason for the contractor to return.

Protecting Yourself

Three rules cover most of the risk. (1) Tie every payment to a verified milestone, in writing, in the contract. (2) Keep a modest advance and a real retention — front-loaded payment schedules are the classic route to being let down. (3) Get a receipt or running-account record for every payment, and keep the paper trail.

If a contractor pressures you to pay ahead of progress "for materials" or "for cash flow", that is a conversation to have carefully — a genuine material advance can be handled by paying the supplier directly, or against delivered material on site, rather than as loose cash ahead of work.

Frequently asked

What percentage should I pay at each stage of construction?

There is no fixed legal schedule — it is negotiated — but a common shape for a home is roughly a 10% advance, then progress slices as the plinth, each slab, masonry, plastering and finishing are completed, the balance on handover, and about 5% retention released after the defect liability period. The key rule is not the exact numbers but that each release maps to a milestone you can verify on site.

What is retention money in a construction contract?

Retention is a portion of the payment — commonly around 5% — that you hold back and release only after the defect liability period, once any defects that surface after handover have been fixed. It gives the contractor a financial reason to return and make good problems like leaks or cracks, so you are not left paying to fix them yourself.

Is it safe to pay a big advance for materials?

Be cautious. A large cash advance ahead of work is one of the most common ways homeowners lose money. If genuine upfront material funding is needed, prefer paying the supplier directly, or paying against materials actually delivered to site, rather than handing over a large sum in cash before work has progressed.

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