Types of Billing in Construction

1. Lump‑Sum (Fixed‑Price) Billing

Definition: A single total price agreed up front for the entire scope of work.Calculation: Contractor submits one comprehensive amount covering all materials, labour, plant, overheads and profit.Pros:

• Budget certainty for client

• Simplified invoicing and cash‑flow forecastingCons:

• Risk of unforeseen costs falls on contractor

• Change orders require formal variation billingUse Cases:

• Well‑defined, low‑risk projects (e.g., small building works)

• Projects with limited scope changes

2. Unit‑Rate Billing

Definition: Work items are measured and billed at pre‑agreed rates per unit (e.g., per m³ of concrete, per metre of piping).Calculation: Quantity measured on site × unit rate for each itemPros: Types of Billing in Construction

• Flexibility for varying quantities

• Transparent linkage between measurement and costCons:

• Requires rigorous measurement and verification

• Cost uncertainty if quantities deviate significantlyUse Cases:

• Earthworks, road construction, bulk concrete pours

3. Re‑Measurement (Measurement‑Based) Billing

Definition: Similar to unit‑rate but with full re‑measurement of work actually performed before billing.Calculation: Post‑execution measurement of all work items × respective unit ratesPros:

• Accurate reflection of actual work done

• Fair to both client and contractor when quantities are uncertainCons:

• Administrative burden of detailed measurement

• Potential for measurement disputesUse Cases:

• Complex civil works where initial quantities can’t be finalized

4. Cost‑Plus Percentage Billing

Definition: Contractor bills actual cost of work plus an agreed percentage fee.Calculation: (Direct costs + indirect costs) + agreed % marginPros:

• Contractor reimbursed for every expense

• Incentive to keep costs down if percentage is fixedCons:

• Less budget certainty for client

• Requires full transparency in cost reportingUse Cases:

• Emergency works, pilot projects, or highly uncertain scopes

5. Time & Materials Billing

Definition: Labour and plant are billed at hourly/daily rates, plus materials at cost.Calculation: (Labour hours × labour rate) + (Plant hours × plant rate) + materials costPros:

• Direct link between effort and billing

• Simplifies billing for variable workloadsCons:

• Client bears risk of low productivity

• Needs timesheet and materials log controlsUse Cases:

• Maintenance, small repairs, or specialist subcontract work

6. Progress (Interim) Billing

Definition: Periodic billing based on percentage of work completed or milestone achievements.Calculation: Agreed percentage of contract sum or milestones certified × contract pricePros:

• Smoothes cash flow for both parties

• Reflects true work progressCons:

• Requires robust progress measurement and certification

• Disputes can arise over percent complete vs. physical progressUse Cases:

• Large projects spanning many months or years

7. Milestone Billing

Definition: Payment triggered by achievement of specific project milestones (e.g., foundation complete, roof on).Calculation: Fixed sums tied to each milestone, as per contract schedulePros:

• Aligns payments with tangible deliverables

• Encourages timely achievement of key stagesCons:

• Milestone definitions must be crystal‑clear

• Delay in a milestone delays cash flowUse Cases:

• High‑value turnkey contracts, EPC projects

8. Retention & Final Account Billing

Definition: A portion (typically 5–10%) of each interim payment is retained to ensure defect rectification; released upon project close‑out. Final account reconciles all sums.Calculation: Retention withheld on each interim × contract sum; final release upon issuance of final certificatePros:

• Provides client security against incomplete or defective work

• Incentivizes contractor to close out punch‑list promptlyCons:

• Impacts contractor cash flow until project close‑out

• Final account negotiations can delay retention releaseUse Cases:

• Standard practice across most construction contracts

Mastering Billing Methods

Each billing type requires strong skills in measurement, valuation, documentation and contract interpretation. To develop your expertise, explore Bhadanis Institute’s specialized programs in:

• Quantity Surveying

• Estimation & Costing

• Billing Engineering

• Tendering & Contracts Management

• Planning Engineering

• Construction Project Management

These courses will equip you to select and implement the optimal billing approach for projects across Gulf capitals and Indian cities.