Michigan Residential Builders License Practice Test

What is it called when a contractor requests payment after completing a segment of work?

1. Final payment

2. Deposit

3. Progress payments

4. Contract milestone payment

The correct answer is: Progress payments

The term for a contractor requesting payment after completing a segment of work is called progress payments. This practice is designed to provide cash flow to contractors as they complete various phases of a project, allowing them to cover expenses related to labor and materials before the overall project is finished. By structuring payments based on the completion of specific work segments, both the contractor and the client can manage risks effectively. The contractor receives compensation more regularly, which helps maintain continuity of work, while the client has the opportunity to assess the quality and progress of the work before making additional payments. Other options do not fit this context. A final payment refers to the total amount owed upon completion of a contract, while a deposit is typically an upfront payment made before work begins. A contract milestone payment is specific to a contractual agreement where payment is made when certain predetermined points in the project are reached, but the term "progress payments" more broadly encompasses payments made throughout the project's duration.