Arizona Contractors License Practice Exam

What are progress payments in construction projects?

1. Full payment upon completion

2. Advance payments before work begins

3. Partial payments after specified phases are complete

4. Payments made based on hourly work

The correct answer is: Partial payments after specified phases are complete

Progress payments in construction projects refer to partial payments made throughout the course of a job, rather than waiting until the entire project is finished to receive payment. This approach helps to manage cash flow for contractors and subcontractors, allowing them to continue financing the project as work is completed. Typically, progress payments are structured around specific milestones or phases of work as outlined in the contract. As each phase is completed to the client's satisfaction, a corresponding payment is issued. This system mitigates financial risks for the contractor and provides assurance to the client that work is progressing as planned. Halfway payments, which are linked to the completion of defined stages, contrast with full payments made upon the project's final completion or advance payments made before any work starts, which could jeopardize fiscal accountability. Additionally, payments made based on the number of hours worked lack the structured milestone approach characteristic of progress payments, which are tied to tangible work accomplishments rather than time expended. Consequently, understanding the mechanics of progress payments is essential for effective financial management in construction projects.