Gross to net: the order matters
A payment certificate is a ladder of subtractions. Each rung is simple. The errors come from putting them in the wrong order, and from a total that balances anyway.
QScope Team · 5 January 2026 · 6 min read
Every payment certificate does the same thing. It establishes the value of everything done to date, takes off what should be held back, takes off what has already been paid, and states what is due now.
Written out, the ladder is this:
| Step | Line |
|---|---|
| 1 | Gross valuation to date |
| 2 | Less retention |
| 3 | Sub-total: net valuation to date |
| 4 | Less amounts previously certified |
| 5 | Less other deductions under the contract |
| 6 | Amount due this period |
Why retention comes off before previous payments
Because retention is a percentage of the gross valuation to date, not of this month's increment.
Deducting retention only from the movement produces a figure that is right in month one and progressively wrong afterwards, because it never revisits the retention held on earlier work as the valuation changes. On a job with any remeasurement or any omitted variation, the two methods diverge and keep diverging.
The half rate step
After practical completion the retention rate halves. In ladder terms, step 2 splits:
- Retention at the full rate on work valued before practical completion
- Retention at the half rate on work valued after it
Or, on many contracts, the whole retention held is recalculated at the reduced rate for the period after practical completion. Which of those applies depends on the contract wording, and it is worth reading rather than assuming, because the difference is real money on a large job.
What is not in dispute is that the release is a release of half of what is held, and the reduced rate applies going forward. Doing one without the other is the classic error.
Deductions that belong at step 5
- Liquidated damages, where they have been properly triggered by the notices the contract requires
- Advance payment recovery, at the rate the contract specifies
- Amounts recoverable under specific contract provisions, such as insurance premiums paid on the contractor's default
- Contra charges, where the contractual mechanism for them has been followed
The common feature is that each requires a contractual route. A deduction that is fair but has no mechanism is a deduction that will come back.
Where the total balances and the certificate is still wrong
The reason this ladder rewards care is that most errors preserve the total.
Move retention below previous payments and the arithmetic still works. Include an omitted variation as a negative in measured work rather than as an omission and the total is the same. Net a contra charge inside the gross valuation and the amount due is unchanged.
All three produce a certificate with a defensible bottom line and an indefensible structure. The consequence arrives later: the retention statement does not reconcile, the variation register does not agree the valuation, or the contractor asks why a deduction it never received notice of has appeared inside the measured work.
Stating it clearly is part of the job
Section 110A requires the basis on which the sum is calculated. A certificate that shows the ladder in order, with each rung labelled and each deduction identified, satisfies that requirement as a by-product of being clear.
A certificate showing a gross figure and a net figure with nothing in between satisfies nobody, and invites the request for a breakdown that you then produce by hand.
The check that takes thirty seconds
- Does the retention shown equal the contract percentage of the gross valuation to date?
- Does the previous payments figure equal the sum of everything certified before, exactly?
- Is every deduction at step 5 traceable to a contract clause and a notice?
- Does the amount due equal the change in net valuation, less step 5?
If all four hold, the certificate is arithmetically sound and structurally defensible. If the fourth fails while the others pass, something has been netted off in the wrong place.
QScope produces the ladder in the contractual order on every certificate, with each rung labelled, so the contractor can follow the arithmetic without asking for a breakdown.