The retainage amount is withheld from each milestone payment.įor example, if you have a project with six milestones and, after each milestone is completed, you’re due a $12,000 payment, you will receive $10,800 ($12,000 minus the 10% retainage). A portion of funding - usually between five and 10 percent - is withheld until the project is completed to the owner’s satisfaction. Most draw schedules include a retainage which is a financial incentive for contractors to complete the work as described in the contract.

However, you can negotiate as many or as few draw payments as you feel you’ll need for your construction project, to ensure you are able to stay on track, on budget, and cover your overhead expenses.

For example, the Closing phase will include: This is called a draw.įannie Mae’s loan agreement includes a seven-payment draw schedule like this:Įach of these milestones includes specific steps that outline what completion of the milestones includes. Typically, these are established around milestones so when one particular phase of the work is completed, the builder receives a payment. With a construction project, the draw schedule outlines when funds will be dispersed to the contractor throughout the project, rather than a lump sum payment. Construction draw schedules allow banks to see the progress of the project and release funds as the project progresses. When finances are provided by a banking institution or similar type of lender, the draw schedule is a binding agreement between the builder, the lender, and the contractor. There are many things taken into consideration when developing a draw schedule, and it’s important to have a clear understanding about them. It’s the how and when construction funds are distributed for a project. In this post, we’ll show you exactly what you need to know about construction draw schedules and how to make them work best for you and your business.Ī construction draw schedule is a form of construction business financing. A draw schedule in construction reduces the issues associated with this and reduces the risk of late payments which frequently plague construction professionals. They help you have a clear understanding of how much you’ll be making by the end of each project and, since construction projects are often delayed by unexpected circumstances or situations, cash flow issues can happen. There are many benefits to having a draw schedule when doing construction projects. If you’re in the business of residential or commercial real estate construction - or are looking to move into this area - you’ll need to have a clear understanding of construction draw schedules.

Construction draw schedule pdf