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Hey Contractors How To Fill Out Aia Pay Apps Part 1
f we grabbed the first 10
small subcontractors you 1. Your project manager cuts your
crossed paths with and request to a value he can
tested them on filling out AIA understand. You receive a partial
pay applications, 7 or more would payment.
probably fail the test. At least,
that's about the error rate I've 2. Your project manager informs
seen while reviewing pay you that you if you don’t get a
applications. corrected application in by the
deadline, you will have to wait
AIA pay applications are another 30 days for payment. You
frustratingly difficult to fill may not receive any payment.
out. To fill one out correctly,
you must ignore change orders 3. Your project manager makes the
that have been approved, but not corrections himself and may hold
processed. You must ignore it against you in the future when
receivables still outstanding you need a favor or are looking
from previous applications. for work. Like the rest of us,
project managers like working
Basically, you have to divorce with people who don't create
yourself from reality. headaches.
Pay apps are an important You really have no choice other
component of cash management. than learning how to fill out the
When you screw up your pay app, AIA form correctly.
three things might happen, none
of which put you in good standing I am going to show you how to
with your general contractor, and fill one out correctly. In Part
two of which damage your cash 1, we attack the first page (AIA
position: form G702) and in Part 2 we will
work on the second page (AIA form that have been priced and
G703). FORMALLY approved by the GC. If
the project manager is sitting on
Before we get started, grab a your change order paper work,
copy of the form. If you don’t call him at least a week before
have access to one, drop me an your pay application is due and
email and I’ll send you the form. URGE HIM to complete the paper
work. Being the squeaky wheel is
Line 1, Original Contract Sum. often your only recourse.
The price the GC agreed to pay Assume the GC has processed and
you for the scope of work you signed $100,000 in change orders.
agreed to perform. This includes
all accepted alternates. Line 3, Contract Sum to Date
Pull out your contract. Look at This should be easy. Add the
it. This number should NEVER numbers on lines 1 and 2. This is
change from your first pay your OFFICIAL contract sum at the
application to your last. date of this pay application.
Assume your contract was for Your contract sum to date is
$900,000. $1,000,000 ($900,000 plus
$100,000)
Line 2, Net Change by Change
Orders. Line 4, Total Completed and
Stored to Date
Here it is. The line that creates
much frustration. This value comes from the left
side of column G on page 2. The
Add up all of the change orders box is the fourth from the left,
bottom row. Your contract may allow you to
reduce the retention to 5% near
For now assume that you have substantial completion.
completed $500,000 of work and
have stored $50,000 of materials In the blank next to the dollar
in approved storage sites. sign, you need to write down the
dollar value of retention that
Your line 4 total would be applies to your completed work.
$550,000. To arrive at that number, turn to
page 2 and add together the
Line 5, Retainage (three lines). values from the bottoms of
columns D and E. Multiple by 0.1
Your contract should set the if the retention is 10% or by
terms of retention. If it 0.05 if the retention is 5%.
doesn’t, demand that no retention
be withheld! If the GC failed to Assuming 10% retention and
put retention in your contract, $500,000 of completed work, write
do not allow him to use it. down $50,000.
On a side note, if you happen to Line 5b, _% of Stored Materials.
be providing a performance bond,
retention is not justified. The Repeat the process used for Line
bond serves the same purpose as 5a except use the value from the
the retention. bottom of column F on page 2 .
Line 5a, _% of Completed Work. Usually, the retention for
completed work and stored
In the blank next to the "a.", materials is the same. Write down
write down the current retention whichever rate is contracted next
percentage. Typically, it is 10%. to the "b.". In the blank next to
the dollar sign, write down the
retention for your stored Line 7 Less Previous Certificates
materials. for Payment
Assuming 10% retention and The pay application has now
$50,000 of completed work, write entered the twilight zone.
down $5,000. Confusion is caused by generals
and owners who take so long to
Line 5 Total Retainage. pay that you are submitting your
next pay application before the
Add together the totals from previous one gets paid.
lines 5a and 5b. This value
should match your total of column Natural instinct is to write down
I on page 2. payments received to date on line
7 and ignore pay requests being
For our example, the figure would processed. Don’t do that. Trust
be $55,000. the paper trail. This pay
application doesn’t care whether
Line 6 Total Earned Less you’ve been paid. It only cares
Retainage whether you’ve earned additional
payment.
What you’ve earned, as far as
approved change orders are Go back to your immediately
concerned, is on line 4. What the preceding pay application and
client is allowed to retain is on write down the value from Line 6
line 5. Subtract the Total Total Earned Less Retainage on
Retainage ($55,000) from your that application. For the sake of
earned revenue ($550,000) and our example, assume you had
enter the difference ($495,000) submitted to date on $400,000.
on Line 6.
Line 8 Current Payment Due in full. What a dream world the
AIA
Take your Line 7 value ($400,000) lives in.
and subtract it from your line 6
value ($495,000). Write down the Frequently, clients and GCs only
difference on Line 8 $95,000). pay part of your application. The
AIA form never reflects partial
This represents the value you payment of an application. It
should be paid for worked earned wasn’t designed to. Keep track of
during this pay period AND any what’s been paid vs. what’s been
change in retainage during the earned and invoiced (applied
pay period. for).
Line 9 Balance to Finish The table at the bottom of page
Including Retainage one is fairly straight forward.
You will need to separate the
Take the contract sum to date change orders that add money to
from Line 3 ($1,000,000) and your contract from those that
subtract the Total Earned Less subtract money from your
Retainage from Line 6 ($495,000). contract. The Net Changes by
This tells the General Contractor Change Order should be exactly
that he is contracted to pay you equal to the value you entered on
an additional $505,000 AFTER line 2.
paying this application.
In summary, following the
This is another confusing line instructions and you have a shot
because it acts as if all change at getting paid everything you're
orders have been formally owed.
processed and that all previous
pay applications have been paid
About the Author:
Ron Roberts, The Contractor's Business Coach, teaches contractors how to turn their businesses into a profit spewing machines. To receive Ron's FREE Contractor Best Practices Newsletter visit http://www.FilthyRichContractor.com.
Read more articles by: Ron Roberts
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