If you’re an experienced advisor to commercial construction companies, you probably can skip this guide. If you’re looking to expand your practice into the commercial construction area, and would like to learn about the industry-standard process for commercial construction invoicing, then this article is for you.
The AIA (American Institute of Architects) Application for Payment process involves two forms that always are presented together: a coversheet (G702) and a detailed “continuation” sheet (G703).
Even though the form set was developed by the American Institute of Architects, it's rare for general contractors (GCs) and extremely rare for sub contractors to have to purchase (at $40-plus each time) official sheets from the AIA; rather, so long as the application for payment you submit matches the table styles of the official documents, the owner or GC is likely to accept it.
The coversheet (G702) is fairly straightforward. In fact, you’ll notice that many paper or excel-based versions of the AIA form reference the columns on the continuation sheet that you’ll need to sum up to arrive at the correct values on the coversheet.
More interesting are the two boxes on the right, one for the contractor’s attestation, plus notary signature and the other for the architects certification. If you’re working with commercial GCs billing owners/property developers, both of these boxes are likely to be required. That means you’ll need to get the application for payment (“pay-app”) notarized, and then send it to the architect for review and sign-off. If you’re working for subcontractors
However, the architect’s certification almost is never required, and the notary signature can often be optional as well. Make sure you ask your GC what they want to see on your payapp; you might be able to save yourself some hassle.
The continuation sheet (G703) is a bit more complicated, and has some common pitfalls that you’ll want to make sure you avoid.
Remember: The whole point of the AIA billing process is to make it crystal clear to the owner or GC what work you’ve completed to date, both in this period and in prior periods. They should be able to send out their superintendent to check against your declared completion. In fact, this often happens, so don’t overstate your progress. With that said, here are some tips for filling out the continuation sheet correctly:
Tip No. 1
Stored Materials (column F) should not be used to distinguish between Labor and Materials. If you need to break out Materials, create a separate line for them in the schedule of values. Stored Materials only is used when you want a GC or owner to pay you for materials you’ve purchased and stored ON-SITE. After those materials are installed, you decrease the stored materials value by the amount of material installed and increase work completed. At the end of a job, your Stored Materials columns should only have 0s.
Tip No. 2
Column D (Work Completed in Previous Periods) in the current period should always equal column D + column E (Work Completed in This Period) from the last pay app you submitted. Stored Materials (column F) MUST pass through Work Completed This Period before moving to Prior Period (i.e., never go straight from F to D).
Tip No. 3
Only include approved change orders, and always mark change orders clearly. It is almost always a good idea to separate change orders into their own table, as that makes the payapp clearer to the owner/GC and can speed up reconciliation. Also, especially when working with large counterparties (whether developers or GCs) be careful. Your change orders on your AIA payapp must match their records. If you submit two or three change orders and they consolidate them into one grand change order with a specific reference number, bill them with their single reference number – not with the two or three you originally submitted. This can create a reconciliation nightmare. Yes, if you’re using a software package like Knowify the reconciliation can be automated and save everyone a lot of time.
Lastly, a note about retention. A very common gripe among commercial contractors is how long it takes for them to get paid their retention at the end of a job. As their advisor, you might consider recommending your client request a retention reduction from the customary 10 percent to 5 percent at 80 percent or 85 percent overall completion. This ensures that half the retainage will be released promptly (along with the progress payment), giving you greater visibility and control over your cash flows.
Dan de Roulet is co-founder and partner program manager for Knowify LLC. de Roulet, who has a long history as an entrepreneur and business developer, strongly believes in the potential of the Knowify software to significantly streamline construction company operations.