Unpaid Construction Bills in the Philippines: What a Contractor Should Do When the Owner Withholds Progress Payments or Retention

The first few days: record the work, do not demobilise yet

Secure the evidence before you talk money, and send written notice before you talk about stopping. The days right after a missed payment are when tempers run highest and when contractors make two costly moves: pulling the crew after a shouting match, and hauling away equipment or materials to 'offset' the debt. Either one lets the owner argue that you abandoned the works and breached first.

Work through this order instead:

1. Document the site. Photograph and film each floor and each trade, date-stamped, so the stage of completion is obvious. Having the owner's representative or the project manager present helps, but record it even if they do not come.
2. Assemble the billing file. Every progress billing, every acknowledgement or reply, every stated reason for a deduction, arranged by period. The periods with no sign-off are where the fight will be.
3. Trace every variation. For each item of additional or changed work, match it to an instruction, a message thread, a revised drawing or a site slip.
4. Read the payment and dispute clauses. Note the payment period, the consequence of delay, how notices must be served, the conditions for suspension, and whether disputes go to arbitration or to court.
5. List what you owe downstream. Subcontractors, suppliers and workers. An owner's default does not excuse unpaid wages, so protect payroll and statutory contributions first.

Only after these five steps should you decide whether to send a demand, negotiate or suspend. Keep every message in writing and keep the tone measured. Anything that reads as a threat will be used against you later.

Unpaid progress billings: close the paper trail before you argue

Whether a progress billing is recoverable depends on whether you can show the owner knew about that period's quantities and never validly objected. In practice owners give one of three reasons for not paying: incomplete documents, a disputed percentage of completion, or alleged defects. Answer each one separately. Bundled together, they become a reason to delay indefinitely.

• Incomplete documents. Ask for a written list of what is missing, submit each item, and keep proof of delivery. Many contracts give the owner or its engineer a fixed period to review a billing. What follows if that period lapses without objection depends on the wording of your contract.
• Disputed completion. Propose a joint measurement on a fixed date and sign the result on site. If the owner does not attend, measure anyway, record it on video and send the result in writing.
• Alleged defects. Ask for an itemised defect list and respond to each line, either agreeing to rectify by a stated date or disagreeing with reasons. A defect can justify holding back a matching portion. It should not justify withholding the whole billing.

Then send a formal demand that identifies the billing period, the basis of the amount, the contract clause, the deadline and the rights you reserve. On drafting and on who should sign it, see how a demand letter works. The general collection sequence for trade debts is in what to do when a client will not pay. Construction billings also trigger invoicing and withholding tax, so your records must match the treatment described in tax for construction contractors, or you will add a tax problem to a payment problem.

Retention not released: check whether the release conditions have actually been met

Retention money is not the owner's to keep, but when it falls due is decided by the release conditions in your contract. Before you chase it, answer three questions. Has completion or acceptance been confirmed in writing? Has the defects liability period run out? Have the defects raised in that period been rectified and signed off? If any answer is unclear, the owner has an argument for holding on.

A workable sequence:

1. Request acceptance and keep the record. Ask in writing for final inspection. If the owner stalls, preserve proof that you asked and received no answer, together with evidence that the project is already in use, for example that the owner has moved in, opened for business or sold units.
2. Close out the punch list. Clear items one by one and obtain a signature for each. The value of open punch items is usually small against the total retention, so propose that only a matching amount be held and the balance released.
3. Offer a bond in substitution. Some contracts allow a contractor to replace cash retention with a guarantee bond. Whether this is allowed, for how much, and how long the bond must stay valid depend on the contract and on the issuer's terms.
4. Bill formally when the period ends. Cite the clause, state the expiry date and attach the rectification records.

Be realistic about one point. If the contract never spelled out the release conditions, or if there are genuine defects you have not fixed, a retention dispute can run for a long time and often ends in a negotiated discount or in arbitration rather than in full payment on demand.

Can you suspend work? Yes, but only after the contract's notice steps

A contractor can usually suspend for non-payment, provided the contract or the law gives that right and the contractor served notice and waited out the grace period. Stopping without notice is the most common and most expensive mistake. The owner will say you stopped without cause, deduct for delay, bring in another contractor and claim the difference from you.

Check each of these before you suspend:

• Does the contract provide for suspension or slowdown on non-payment, and what triggers it?
• Must written notice be given first, and to which address and which person?
• How long is the grace period, and from what date does it run?
• Who bears the cost of site security, rented equipment and idle labour during suspension?
• After how long a suspension may you treat the contract as terminated?

During suspension you still have three duties: protect the completed works and keep the site safe, keep paying the wages and statutory benefits of workers who remain engaged, and keep a daily site log. Labour arrangements must follow the rules for project employment described in staffing a construction project. If there are also safety hazards on site, the labour department may step in on its own. See what to do when you receive a work stoppage order.

Do not seize the owner's property, lock the gates, cut water or power, or strip out installed components. These acts may feel satisfying and can expose you to fresh liability.

Finally, tell your own subcontractors and suppliers in writing what is happening and why, so that a lawful suspension upstream does not turn into a string of separate claims against you downstream.

Choosing a forum: negotiation, construction arbitration or court

Read the dispute clause first, because it largely decides where you may go. The Philippines has a specialised arbitral body for construction disputes, and its jurisdiction generally rests on an agreement to arbitrate between the parties. If your contract contains an arbitration clause, arbitration is normally the required route. If it does not, the parties can still agree in writing to submit an existing dispute.

Each route suits a different situation:

1. Negotiation and mediation. Best where the amount is modest, both sides still want to work together, or the disagreement is confined to measurement or punch items. Put any settlement in writing with the amount, the instalment dates and the consequence of default.
2. Construction arbitration. Suited to larger claims that turn on measurement, variations or extensions of time, since arbitrators usually have an industry background. It is closer to the trade than ordinary litigation, but it still demands complete documents and professional representation.
3. Court action. The route where there is no arbitration agreement and the other side will not consent to one. For a small, purely monetary claim, assess whether the simplified procedure in small claims court applies.

For a comparison of the three routes, and for when barangay conciliation is a required first step, see resolving a contract dispute in the Philippines. Before you commit, have a lawyer assess two things: whether the owner has assets that can actually be reached, and whether your own licence status or the identity of the contracting entity has a weakness. A contractor whose licence is not in order faces extra obstacles when suing for payment.

How to sign the next project, and what Yixing can do

Most payment disputes are built into the contract on the day it is signed. On the next project, write these into the agreement and enforce them on site:

• Measurement rules, the billing cycle, the owner's review period and the consequence of silence.
• A requirement that every variation carry a written instruction, with any verbal request confirmed by you in writing the same day.
• The retention percentage, the event that triggers release, the defects liability period and whether a bond may be substituted.
• The contractor's right to suspend on late payment, with the notice procedure.
• The forum and governing law, stating clearly whether disputes go to arbitration or to court.
• Payment security from the owner, such as an advance, a bank guarantee or staged proof of funds.

Keep your own house in order as well: the category and validity of your contractor's licence, tax registration and invoicing, and social-security registration for your workers. All of these are raised by the other side once a claim is filed, and a gap in any one of them hands the owner a fresh reason to delay or to discount what it owes you.

Yixing Travel Consultancy (SEC Registration No. CS202009551, Bureau of Immigration Accredited Agency No. CA-202624381-1) offers compliance retainer services for foreign-owned companies in the Philippines. We organise billing records and correspondence into an evidence file, check that corporate licences and tax registrations are consistent, help prepare Chinese-language versions of demand and settlement documents, and connect clients with licensed lawyers who handle construction disputes. We do not act in arbitration or litigation, and we cannot promise any recovery. For your specific case consult a licensed lawyer; this article is not legal advice.