What is the purpose of using AIA Documents for Pay Apps?
Every construction project is different. There are often unexpected variables that change the nature and cost of the job. Construction projects usually span over a period of weeks, months, or even years. For this reason, almost all construction projects require the use of payment applications- commonly AIA documents. Unlike invoices, which are straightforward bills from vendors, contractors submit the documents to apply for payment. The owner or architect of the project will then approve or reject the Pay Application.
To avoid time-consuming rejections, Pay Apps are typically required to follow a standardized format. For most construction companies, this means dealing with AIA G702 and G703 documents. These complex legal documents are the accepted industry standard provided by the American Institute of Architecture. However, they can be both costly and time-consuming. Many people struggle to fill them out correctly and quickly.
In this article, we will cover the basic concepts around these commonly used AIA documents.
The AIA G702 Explained
To start with, the AIA G702 is a one-page document that requires contract information and nine payment fields. All nine fields are necessary every time a Pay App is submitted. As the project progresses, calculations become more complex. Consequently, the potential to make costly mistakes grows. It is essential to understand what you should fill out and why to avoid these errors. Here’s what you can expect on your AIA G702 form.
Also known as the header, this section includes the essential knowledge and identification regarding the Pay Application. It is crucial that the person processing and approving the AIA application understands which project you are referencing.
- Parties Involved begins by listing the name and address of the project’s owner, the contractor requesting payment, and the architect (if applicable). The title of the project is also listed here.
- Application number: Each project requires multiple pay apps. Here, you denote which application this is within the project.
- Period to: Enter the last date of the billing period the app covers.
- Contract for: Input a brief description of the labor and materials covered in this particular application.
- Contract Date: Provide the date you signed the contract.
- Project Number: Include a project number if applicable.
Contractor’s Application for Payment
Perhaps the most important part of the G702, the Application for Payment is the central part of this AIA document. This section is where you calculate changes and deductions. Accuracy is critical to avoid rejections. As you complete more Pay Applications throughout the project, the amounts in each form build off this information. To keep up with the changes, many companies end up using less-than-ideal spreadsheets and document storage.
- Original Contract Sum: This is the initial amount specified in the contract. It never changes.
- Net Change by Change Orders: Change orders add or deduct work from the original project specifications. This line will include a positive or negative price that describes the costs involved in the change order. Input this value from the net changes in the change summary.
- Contract Sum to Date: Calculate the sum or difference between line 1 and line 2 to get the total amount paid as of the pay app date.
- Total Completed and Stored to Date: This is the amount billed for all the work completed up to date, along with the value of materials currently being stored on-site. It is the same as the “grand total” on the G703 continuation sheet. Be sure that these amounts line up.
- Retainage is the percentage of payment held until the job is complete. Line 5a is the sum of columns D&E on the continuation sheet. Line 5b is column F on the continuation sheet. To calculate retention for the Pay App, multiply line 5a by the total amount of work completed and line 5b by the total amount of materials stored. Add these together to get the total retainage.
- Total Earned Less Retainage: To calculate the total without retainage, subtract the amount in line 5 from Line 4.
- Less Previous Certificates for Payment: This line subtracts all previous payments received during the project. For the first pay app, the number will be zero. Otherwise, it should be the number on line 6 of the previous payment.
- Current Payment Due: Subtract line 7 from line 6 to calculate the total you’re expecting to bill for this pay period.
- Balance to Finish Including Retainage shows how much is left to be paid on the project. To calculate this amount, subtract the amount in line 3 from the amount in line 6.
Change Order Summary: The first line includes costs added or deducted from the project for approved change orders on prior pay apps. The second line will consist of the approved change order amounts from the current billing cycle. Net changes provide the amount for line 2.
Sign and Certify
A standard G702 document may require each Pay App to be notarized. In some situations, both parties agree to eliminate the notarization requirement. This section requires the signature of the contractor and the date of submission.
Architect’s Certificate for Payment: Architects, project managers, or property owners complete this section once they have reviewed and paid for the amounts in the Pay Application. Contractors should leave this blank.
The AIA G703 Explained
Construction projects require the use of payment applications, also called “Pay Apps.” These two AIA documents work alongside each other. The G703 contains all the specific information about the amounts included in the Pay Apps. The additional documents provide proof and support to the claims made in the AIA G702. Additionally, each G703 builds on previous submissions. As a result, the AIA G703 is a precise and complex document with no room for error.
Next, Application Information provides the necessary identification of what projects and parties are involved. When filling out the Application Information, copy the header information found in your G702. Be sure to check and make sure all the information is an exact match.
Table of Work and Values
Finally, this table will list each work item and the associated values and costs of labor and materials for the AIA G703. For each column beyond A and B, listed amounts will be added together with the sum recorded in the “Grand Total” row. If the Table of Work and Values spans multiple pages, grand totals go on the last page.
- Column A, Item No.: Will either be a numbered list or the CSI standardized numbers used to correspond with the type of work listed.
- Column B, Description of Work provides a brief description of the work provided.
- Column C, Scheduled Value: The amount required for the completion of each listed item. It should match amounts on the schedule of values unless change orders are involved.
- Column D, Work Completed from Previous Application: This is the sum of all work completed before the current pay app. Calculate this amount by adding Columns D and E from the previous continuation sheet.
- Column E, Work Completed this Period: List the total value of work completed during this pay period. Do not include Previous payments, retainage, and materials stored on-site in column E.
- Column F, Materials Presently Stored: Materials Presently Stored indicates the value of materials stored on site. It must include the cost of materials purchased at the date of the Pay App.
- Column G, Total Completed and Stored to Date: Add columns D, E, and F to calculate the total value of work completed and stored materials.
- Column G%: Divide the values in column G by the scheduled value in Column C for percentage completion for each line.
- Column H, Balance to Finish: Subtract the amounts in column G from Column C. Then, you can calculate how much money you’ll need to complete the work for each line item.
- Column I, Retainage: Use this column if you’re using a variable retainage rate. Projects with a fixed retainage percentage leave this column blank.
In conclusion, it’s easy to see why G702 and G703 documents can quickly get complicated and leave considerable room for error. Completing AIA forms, in general, can be a time-consuming process. Cut down on mistakes and hours spent doing paperwork when you generate these documents with Flashtract.