What's in a pay application
Most commercial projects in the US bill on forms modeled on the American Institute of Architects' G702 and G703, or on the owner's or lender's own version of them. The names vary; the structure doesn't.
| Part | What it shows |
|---|---|
| Summary page (G702-style) | Original contract sum, net change orders, contract sum to date, total completed and stored to date, retainage, total earned less retainage, previous certificates for payment, current payment due and balance to finish. The contractor signs it (often notarized) and the architect certifies it |
| Continuation sheet (G703-style) | One row per schedule-of-values line: scheduled value, work completed from previous applications, work completed this period, materials presently stored, total completed and stored to date, percent complete, balance to finish and retainage |
| Attachments | Lien waivers, change order log, stored-materials documentation and anything else the contract requires |
AIA, G702 and G703 are the American Institute of Architects' trademarks; if your contract calls for the AIA documents themselves, use licensed copies.
Step 1: build the schedule of values
The schedule of values (SOV) breaks the contract sum into billable line items: typically by CSI division or trade (sitework, concrete, framing, electrical, plumbing), plus general conditions, insurance and fee. The owner or architect approves it before the first pay app.
Two habits make every later pay app easier:
- Split large lines so each can be judged on site. "Electrical $420,000" is hard to certify at 37%; "Electrical rough-in $160,000" and "Electrical trim and fixtures $110,000" are not.
- Keep change orders as their own lines, added to the SOV once they're approved, so the original contract and the changes stay visible.
Step 2: the math, line by line
Each month, for every line of the schedule of values:
- Work completed this period: the value of work put in place since the last pay app (scheduled value × the percentage completed this period).
- Materials presently stored: materials delivered but not yet installed, if the contract allows billing for them (usually with invoices, photos and proof of insurance, sometimes only for on-site storage).
- Total completed and stored to date = previous applications + this period + stored materials.
- Retainage = total completed and stored to date × the retainage rate (the contract sets it; many states cap it).
Then, on the summary page:
| Line | Example (illustrative) |
|---|---|
| Contract sum to date (original + approved change orders) | $1,200,000 |
| Total completed and stored to date | $480,000 |
| Retainage (10% in this example) | $48,000 |
| Total earned less retainage | $432,000 |
| Less previous certificates for payment | $310,500 |
| Current payment due | $121,500 |
| Balance to finish, including retainage | $768,000 |
Numbers are an illustrative example, not a benchmark. Your contract decides the retainage rate, whether stored materials can be billed and how change orders are added.
Step 3: lien waivers and backup
Owners and lenders don't release money against a pay app alone. Expect to include:
- a conditional lien waiver from you for the amount of this pay app;
- unconditional waivers from you, and usually from each subcontractor and major supplier, for the payment received on the previous pay app;
- the change order log and backup for stored materials;
- for lender-funded work, the lender's own draw request and title company requirements.
The rules for those waivers depend on the state. Texas, California, Georgia and Arizona prescribe statutory forms; see our lien waiver rules by state for the forms, notarization and timing in each.
Step 4: certification and payment
The architect (or owner's representative) reviews the pay app against the site, may adjust percentages, and certifies the amount due. Payment terms then run from certification under the contract and, on many projects, under the state's prompt payment law.
Most pay apps that come back are rejected for the same few reasons:
- percentages that don't match what's on site;
- change orders billed before they're approved;
- stored materials without invoices or insurance certificates;
- a missing or wrong-form lien waiver from a subcontractor;
- math errors carried from the continuation sheet to the summary.
Retainage on the pay app
Retainage is held on every pay app until the contract, or state law, allows it to be reduced or released, typically at substantial or final completion. Track it per subcontract as well: you owe your subs their retainage when the owner releases yours, and many states set deadlines for passing it down. Our guide to retainage in construction covers the rules.
Doing it in software
Spreadsheets work until the third change order or the tenth subcontractor. The usual pain points are rolling previous-application totals forward correctly, keeping change orders in the SOV, collecting and matching waivers to each payment, and tracking retainage owed down the chain.
Construction accounting software and construction ERPs handle much of this; see how we approach software for construction companies. Agenbord Build for general contractors is designed around this exact workflow: pay apps from the schedule of values with change orders, retainage per contract and per subcontract, and lien waivers requested and matched to each payment. It's in early access.
This guide is general information, not legal or accounting advice. Your contract and state law govern billing, retainage and lien waivers.
Sources
Prices, plans and laws change. We review this guide periodically; check the linked sources for the latest figures. Nothing here is legal or financial advice.
