Methods of Billing

Site administration & control

Presented by :
Pranesh G (P2370090)
Shubham Goswami (P2370091)
Introduction to Billing Methods in Construction
In the construction industry, billing methods play a critical role in managing project finances
and ensuring proper compensation for work performed, it is essential to understand the
various billing methods commonly utilized, each with its advantages and considerations.

Accurate billing is crucial in construction projects, it ensures that all parties involved are
compensated fairly and appropriately for their work, materials, and resources. Proper billing
helps in maintaining healthy relationships between contractors, subcontractors, and clients,
reducing the likelihood of disputes arising from financial discrepancies.
Fixed price billing method(Lump sum)
A fixed price contract entails an agreement between the contractor and client to
establish a predetermined price for all services before the project commencement. For
instance, if both parties agree that the project will cost $20,000, the final expenditure
will amount to $20,000, barring any modifications via change orders. Typically,
contractors assess the time, labor, and material requirements based on the project's
scope of work. Subsequently, they develop a comprehensive budget that encompasses
all anticipated costs throughout the project duration.

Cost-plus billing method

Under the cost-plus construction billing method, contractors are reimbursed for all
project expenses along with an additional percentage or fixed fee designated for
profit. In this approach, a construction invoice will detail every expenditure linked to
the project, encompassing materials, labor, equipment, and subcontractor costs. These
costs are meticulously documented and then augmented by an agreed-upon margin to
ensure the contractor realizes a profit.
Time & Materials billing method
In a time and materials contract, the client and contractor establish the project objectives
and specify the desired outcome. Following agreement, the contractor sets hourly labor
rates, material costs, and markup percentages. Payment milestones are defined,
facilitating swift invoicing since rates are prearranged. Material expenses are usually
billed directly to the client, while labor is charged on an hourly basis.
Typically, contractors furnish clients with labor hourly rates and an estimated project
duration, providing a rough estimate of the total cost range. However, it's advisable to
negotiate terms that allow for markup on material costs within a time and materials
contract. This practice can enhance profit margins and ensure sustained profitability,
especially if additional or higher-quality materials are required.
Time & Materials billing method
Unit price billing method
Under unit price construction billing, contractors receive payment based on the quantity
of each task performed, as measured on-site. Contractors present owners with prices for
individual tasks or units, with payment being made for each unit expense. Unit price
contracts are often referred to as "measure and pay" contracts, aiming to break down
projects into measurable components.
Contractors segment all project tasks into units and estimate the cost of labor, materials,
equipment, subcontractor expenses, and other miscellaneous costs for each unit. This
establishes a fixed rate for each unit at the project's outset. If additional work is
necessary at any point, contractors can incorporate the extra costs into the relevant unit,
adjusting the total cost accordingly.
Unit price billing method
Running Account Bill
This billing process operates concurrently with the project, either following a predetermined
payment schedule (e.g., weekly, monthly) or aligned with project milestones. There are various
reasons why a company might opt for progress-based billing, including the direct funding of
ongoing project costs such as equipment, labor, and subcontractors.
Many contractors favor this approach, particularly for sizable, long-term projects, as it ensures a
consistent influx of payments throughout the project duration. Moreover, it offers a degree of
protection against clients who may delay or default on payments.
Since progress-based billing correlates with the project's advancement, it also benefits clients,
allowing them to synchronize payments with visible changes at the job site. This affords clients
greater flexibility by breaking down lump sum payments into more manageable, periodic
installments over the project's timeline. However, it's essential to note that delayed payments can
significantly disrupt this billing method, potentially leading contractors to suspend construction
activities until payment is received.
Running Account Bill
Applications of 5D CAD for Billing in Construction using GIS
Research objectives
Creating a database by linking CAD drawings, Construction Schedule & Element wise Cost of
the structure to develop a 5D model to be used for
1. Monitoring the project progress.
2. Linking all project related information.
3. Preparing Cash flow and cost projections
4. Preparing Bills for Contractors and vendors
5. Verifying and certifying Bill claimed by the contractors.
6. Identifying Deviation from the specifications and eliminating errors.
7. Facilitating ease in Periodic Bill audits during & after the construction.
Flow Chart
Conclusion
The construction of any project involves meticulous planning and management of data from
conception to maintenance. This data must be stored systematically for review, update, and
analysis, aiding in decision-making and tasks such as budget control, cost projection, and
financial audits. Monitoring and controlling project progress and budget are crucial to avoid
overruns, which could lead to project failure with significant consequences. Detailed planning
facilitates budgeting by providing comprehensive information on resources and costs throughout
the project, aiding in execution and decision-making through 3D simulations. It serves as a
knowledge model for all stakeholders, providing spatial and non-spatial information, maintaining
material inventories, and facilitating verification and certification of bills, saving time and effort.
The GIS model supports smooth transitions and verifications during handover, closure,
termination, loan applications, and audits, with data easily exportable for presentation and
communication purposes.
References
https://tread.io/blog/construction-billing-methods-best-practices
https://www.knowify.com/blog/construction-billing-methods/
https://www.invoiceowl.com/invoicing-guide/construction-billing-methods/
https://www.procore.com/library/construction-billing
https://flashtract.com/blog/major-types-construction-billing
https://www.researchgate.net/profile/Drkarthik-Nagarajan/publication/
352023803_Applications_of_5D_CAD_for_Billing_in_Construction_using_GIS/links/
60e5660f92851c2b83e50b58/Applications-of-5D-CAD-for-Billing-in-Construction-using-
GIS.pdf
Thank you