Paying for mobilization before the first draw

Winning a bigger job is good news that costs money. Before the first pay application is approved, you may be paying for bonds and insurance, crews, equipment rental, temporary facilities, submittals, and the first materials, and then waiting through a full billing cycle to see any of it back. That stretch is the longest float on most jobs, and it arrives when you are most committed.

This guide covers how to map your first-payment date, how to lower what you carry until then, and how to think about funding the rest.

Know your first-payment date

Most owners underestimate this date because they count from the notice to proceed. Count instead from the money going out, and follow the cycle to the end:

1. When can you submit the first pay application? Many contracts bill monthly on a fixed date. If you mobilize mid-month, your first application may be weeks away before the clock even starts.
2. How long does approval take? The owner, the architect or the GC reviews the application. Contracts often give them a set number of days, and public work may be governed by prompt-payment rules. Add time for a rejected or revised application.
3. How long after approval does payment arrive? The contract says, and the owner's payment run may add more. If you are a subcontractor, the GC pays you after it is paid, on the terms in your subcontract.
4. What comes off the top? Retainage is withheld from the first payment and every one after it.

Lay those on a calendar. The date you land on is your first cash in, and everything you spend between now and then is the mobilization float.

Ways to lower the float

Ask for a mobilization line item. A line in the schedule of values for mobilization lets you bill early costs in the first application rather than spreading them across the job. Owners expect to see it on larger projects. Keep it defensible: tie it to real costs such as bonds, insurance, temporary facilities, surveys and equipment moves. Loading the early line items beyond what the work supports can breach the contract and sour the relationship on day one.

Bill for stored materials where the contract allows it. Many contracts let you include materials delivered to the site, or stored off site with proper documentation and insurance, in a pay application before they are installed. If yours does, use it.

Negotiate supplier terms before you order. Net-30 or longer terms on materials move part of the float to your supplier. Suppliers are more willing when they can see the contract and the payment schedule, so share them. Ask about early-pay discounts too; sometimes the discount is worth more than the terms.

Stage deliveries. Do not take delivery of the whole job's materials in week one. Schedule them to the work so that you are not paying for drywall that sits under a tarp for two months.

Use joint checks where they help. On some jobs a GC or owner will pay a supplier directly or by joint check for a large material order. It can secure the material without you fronting it, at the cost of some control.

Submit a complete application the first time. A pay application that is returned for a missing lien waiver, a wrong schedule of values or an unsigned certificate can cost you a whole payment cycle. Build the checklist before the first one is due.

Sequence your own subcontractors. Mobilize subs when their work is actually ready, and make sure your subcontract payment terms do not require you to pay them before the owner pays you for their work.

If you still need cash

A mobilization gap is one of the better reasons to use short-term funding, because it is temporary and the end date is known. If you fund it:

• Size the funding to the gap, from mobilization to the first payment, with a margin for a slow approval, rather than to the contract value.
• Match the term to the gap. Weeks of float do not need years of repayment.
• Confirm the job still makes money after the total cost of the funding. If it does not, the problem is the bid, not the bank.
• Know what the funding is secured by, and whether it affects your bonding capacity or an existing lender's position.

Before you sign the next contract

Ask the pay-application and retainage questions during negotiation, when they are cheapest to answer: the billing date, the review period, the payment period, the retainage percentage and its release terms, whether stored materials can be billed, and whether a mobilization line item will be accepted. The answers set the size of your float before a single worker arrives on site.

The Float is general information, not legal or financial advice. Payment terms, retainage and lien rights depend on your contract and your state; read the contract and confirm the current rules with your attorney.