Guide
AIA billing and pay applications, explained
It looks like a tax form designed by someone who enjoyed it. It answers one question: how much of this contract have you earned.
Reviewed by Darren Lim, US CPALicense CPA.742536026 min read
The first time a contractor is handed a pay application to fill in, it looks like a tax form designed by someone who enjoyed it. Two pages, a grid of columns, percentages that have to agree with each other, and a general contractor who will reject the whole thing over a column that does not foot.
It is less complicated than it looks. A pay application answers one question — how much of this contract have you earned so far — and every column exists to prove the answer.
The two pages
Commercial progress billing usually runs on a pair of standard forms. The names people use are the AIA G702 and G703, though many general contractors and lenders use their own versions of the same two pages.
The summary page carries the headline numbers: the original contract, approved change orders, the revised contract total, the work completed to date, stored materials, retainage withheld, what has already been paid, and the amount being requested now.
The continuation sheet is where the work happens. It lists every line of the schedule of values with what was billed before, what is being billed now, and the resulting percentage complete per line.
The schedule of values is the thing to get right
The schedule of values is your contract broken into line items — mobilization, each phase of work, closeout — with a dollar value against each. It is submitted at the start of the job and it governs every bill you send afterwards.
Two things make a schedule of values work:
Enough lines to bill accurately. One line called “electrical, $400,000” means that every month you are arguing about a single percentage. Broken into rough-in, gear, fixtures, controls and closeout, each month’s bill is defensible because each line describes something that visibly happened.
Front-loaded only where it is honest. Loading early line items above their real value improves your cash position and is an old habit in the industry. It is also what causes a job to look profitable while the remaining work is underfunded — and an owner’s representative who notices will scrutinize everything you submit afterwards. Mobilization and general conditions deserve real value; inventing it elsewhere borrows from your own future.
Stored materials
Most contracts let you bill for material that has been bought and delivered but not yet installed — the switchgear sitting in the warehouse, the windows on site. It usually requires proof: invoices, photographs, sometimes proof of insurance or a bill of sale.
Stored materials sit on their own line on the summary page, and they move across to completed work as the material is installed. In the books they are a job cost that has been incurred but not yet consumed. Billing for them is one of the most effective cash tools on a long job, and one of the most commonly forgotten.
Retainage comes off the application
The pay application calculates what you earned, then subtracts the retainage the contract allows the owner to hold. That withheld amount is money you have earned and cannot have yet, and it has to be tracked separately from ordinary receivables or it quietly stops being chased. See retainage explained.
Why applications get rejected
Almost always for the same handful of reasons, none of them about the work:
- The math does not foot. Columns that should total to the summary page do not.
- The percentage jumped. A line that went from 20% to 90% in a month with no change order invites a question.
- No signature or notary, where the contract requires one.
- Missing lien waivers. Most contracts require conditional waivers from you and your subs with each application. One missing lower-tier waiver can hold the whole payment. See lien waivers explained.
- It missed the cutoff. Pay applications usually have a monthly deadline, often the 25th or the end of the month. Miss it by a day and you wait a full cycle — a month of payroll funded out of your own account.
What the books have to support
A pay application is a claim about your own job costs, so it is only as reliable as the books under it:
- Costs coded to the job, so you can see what has actually been spent against each phase
- Billed-to-date per line, carried forward correctly from the last application
- Change orders separated into approved (in the revised contract total) and pending (not revenue yet) — see change orders and getting paid
- Retainage receivable tracked per job
- A WIP schedule, because billing ahead of or behind the work is exactly what it measures. See WIP schedules
Get those right and the application is a report you run. Get them wrong and it is a monthly spreadsheet exercise that someone rebuilds from memory — which is how the math stops footing.
Related
General information, not legal or accounting advice. Form requirements, retainage limits and waiver rules vary by contract and by state.
How we do this
We build this into your books. Starting with a month that costs you nothing.
The schedule of values, billings to date and job costs kept together, so each pay application is produced from the books rather than rebuilt in a spreadsheet every month.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — license CPA.74253602
- The 24-Hour Guarantee: Your first month back in 24 hours, or the next month is free.
Applications get rejected for math that does not foot and waivers that are missing, not for bad work — and both come from books nobody closed. One month, done properly, free and back in 24 hours.