Pay-When-Paid (PWP) Liability Calculation
When you have consultants on a project, not all of the money you bill your client belongs to your firm — a portion needs to be set aside for your consultants. Pay-When-Paid (PWP) Liability is how BaseBuilders tracks that amount for you, so you always know how much of your receivables is actually earmarked to go back out.
How PWP Liability Is Calculated
PWP Liability is calculated on a phase-by-phase basis, for each consultant tied to that phase:
Percent of Gross Fee Billed × Consultant Fee + Billed Pass-Throughs = Accrued Liability
Payouts you've made to that consultant are then subtracted from the accrued amount to arrive at the current liability:
Accrued Liability − Payouts Made = Current PWP Liability
At the project level, PWP Liability is the sum of the current liability across all consultants and all phases.
When Liability Accrues
PWP Liability accrues when you invoice your client — not when you receive a pay request from a consultant. Receiving a consultant's pay request (their invoice to you) does not, by itself, increase your liability. Until you've billed your client for a phase, there's nothing accrued against it, regardless of any pay requests sitting in your inbox.
This is intentionally not an accounts payable calculation. It's a forward-looking liability designed to keep you aware of dollars you'll need to set aside as client payments come in.
Example
Phase A has a fee of $5,000, and you've invoiced your client $2,000 against it (40% of the phase fee). Phase A has a consultant fee of $1,000.
PWP Liability = ($2,000 ÷ $5,000) × $1,000 = $400
When you collect that $2,000 from your client, $400 of it is earmarked for your consultant and should be paid out.
If you've already paid your consultant $200 toward this phase:
Current Liability = $400 − $200 = $200
Pass-Throughs
If your invoice also includes billed pass-through costs for a consultant, those amounts are added directly to accrued liability — pass-throughs are money you've billed on the consultant's behalf and owe back to them in full.
For example, if you bill $125 in pass-throughs on top of the accrued fee liability above, your accrued liability increases by that same $125.
Multiple Consultants and Phases
PWP Liability is tracked independently for each consultant on each phase, then rolled up:
- Each consultant's liability is calculated only against the phases they're tied to.
- A single invoice line item billed against a phase can trigger liability accrual for multiple consultants at once, if more than one consultant is tied to that phase — each consultant's share is calculated using their own consultant fee for that phase.
- Project-level PWP Liability is the sum of all consultants' current liability across all phases.
Overpaying a Consultant
If you pay a consultant more than their currently accrued liability, your liability for that consultant goes negative.
For example, if a consultant's accrued liability is $90 but you pay them $120:
Current Liability = $90 − $120 = −$30
A negative liability means you've paid that consultant a greater percentage of their fee than you've yet billed your client for. This isn't an error — you're free to pay consultants ahead of billings if that fits how you run your business — but the system will reflect that you're temporarily "upside down" on that consultant until you invoice your client for enough of the gross fee to bring the liability back to zero or positive.
Rolling Up Across Projects
PWP Liability summarizes at the project level, and project-level totals can be summarized together to see your total position across all active work: total receivables due from clients, how much of that is owed out to consultants, and how much is actually yours to keep.
Best Practice
Review PWP Liability regularly, especially before making consultant payouts. Since liability accrues on invoicing (not on receipt of a pay request), it's possible to owe a consultant money before you've actually collected the related client payment — keeping an eye on this figure helps you plan cash flow and avoid paying out further than your billings support.
Summary
PWP Liability is calculated per consultant, per phase, as (Percent of Gross Fee Billed × Consultant Fee) + Billed Pass-Throughs, minus any payouts already made. It accrues when you invoice your client, not when a consultant submits a pay request, and is not an accounts payable figure — it's a forward-looking liability to help you track dollars owed out. Overpaying a consultant relative to what's been billed produces a temporary negative liability, which resolves once further billings catch up. Project-level liability sums across all consultants and phases, and can be rolled up across projects for a full picture of receivables versus consultant obligations.