Academy/Procurement, Bids & Contracts
Payment terms
When you pay, how much, and what you hold back until the work is actually done.
Payment terms set when the association pays a vendor at each stage of a job: any deposit, progress payments as work proceeds, a percentage held back until completion (retainage), and a final payment. The specific percentages, deadlines, and holdbacks are set by contract negotiation and, on construction work, by state prompt payment law, not by custom.
What payment terms actually specify
A payment schedule is not "pay the invoice when it arrives." A complete one names four things: what portion, if any, is due up front as a deposit; how progress payments are released as milestones in the scope of work are completed; what percentage is withheld as retainage until the job passes final inspection; and what triggers the final payment itself.
| Stage | What triggers it | What the board should confirm |
|---|---|---|
| Deposit | Contract signing | Tied to a specific, small share of total price, not the whole job |
| Progress payment | A milestone in the scope of work is met | Milestone is defined in writing, not "roughly half done" |
| Retainage | Held from each progress payment | Percentage and release condition are written into the contract |
| Final payment | Work passes final inspection or acceptance | Acceptance criteria are defined, not left to a handshake |
Every payment in that schedule should trace back to the written scope of work, not to a verbal update from whoever is on site that day.
Retainage: the portion held back
Retainage is a percentage of each construction payment the association withholds until the work, or a milestone, is complete. It exists to give the association leverage if problems surface late in the job. The percentage allowed, and how it is calculated, is set by state law and varies widely: one law firm reports that New York's Prompt Payment Act was amended in 2023 to cap retainage on qualifying private contracts at 5 percent, down from a range that had run as high as 15 percent under prior practice. Check your own state's prompt payment statute, and your association's counsel, before writing a retainage percentage into a contract, rather than copying a number you saw somewhere else.
Put the schedule in the contract, not in a side conversation
A payment schedule only protects the association if it is written into the signed contract, the same document that carries the scope of work. If a bid comparison surfaces a gap in what different vendors assumed was included, that gap gets written into the scope exhibit attached to the contract, because that exhibit is what controls if the parties later disagree about what was owed and when.
The same discipline applies to extra work. A change order that adds cost or time changes the payment schedule too; a board that pays an invoice for work outside the signed scope, on the strength of a phone call, has nothing in writing to point to if the vendor's number and the board's expectation later disagree.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A vendor's invoice includes work described only in a phone call with the property manager, not in the signed scope of work. What should the board do before paying it?
The contract requires payment within 30 days of an approved invoice, but the treasurer wants to hold payment for 60 days to manage cash flow. What is the actual risk?
A roofing contract sets retainage at 10 percent of each payment, withheld until final completion. Before assuming that figure is standard, what should the board confirm?
Sources
- New York's 5 Percent Retainage Law Underscores Construction Contract Drafting, Holland & Knight LLP
- Ultimate Guide to Construction Bid Leveling: Process, Definitions, and Best Practices, PlanHub
- 2017 AIA Documents, They Are A Changin': What You Need to Know About the AIA's Revisions to the A201, HBBLaw
Related elsewhere in the Academy
Procurement, Bids & Contracts
Next, check whether your scope of work is specific enough to make these payment triggers enforceable.
Retainage caps, prompt payment deadlines, and default payment terms for unpaid invoices vary by state and by what the contract itself says.