A crucial component of the construction payment process is the General Contractor’s Application for Payment. This application, typically filed using AIA G702 and AIA G703 forms, requests payment for work completed during a specific period. Properly reviewing this application ensures that the payment amounts align with work completed, contract terms, and any changes in scope.

In this post, we’ll walk you through the key steps we take to review a general contractor’s application for payment, ensuring that the payment is fair, accurate, and in compliance with the contract.

Verify AIA G702 Calculations

The AIA G702 form summarizes the total amount requested for the period, including any change orders. The first step in reviewing the application is to check the calculations:

Do the numbers add up? Verify the calculations, using both the provided table and your own judgment.

Look for discrepancies between the requested amounts and prior months. Is the requested amount reasonable, given the progress of the project?

Confirm Change Orders

Changes to the scope of work often lead to adjustments in the payment application. During your review:

Identify New Change Orders: Check if any new change orders are incorporated in this period.

Verify Documentation: Ensure you have a copy of the executed change order and all relevant backup documents, such as front cover sheets and signature pages. These should be included in your report attachments.

Review Retention Amounts

Retention is often held by the owner to ensure the general contractor and subcontractors complete the work to satisfaction. When reviewing the payment application:

Check for Changes in Retention: Has retention increased or decreased compared to the last application? The table in your report should help identify these changes quickly.

Assess Retention Release: Final retention should only be released once all work is complete, including punch list items, and all waivers and closeout documents have been provided. Ensure that the retention release follows the agreement and is justified.

Verify the “Total Earned Less Retainage” from Previous Period

Check that the amount shown as “Total Earned Less Retainage” from the previous month is correctly reflected under “Less Previous Certificates for Payment.” This ensures continuity in tracking payments and retention.

Confirm the AIA G702 and G703 Consistency

The AIA G703 details the individual line items and their progress. Ensure that the values in the AIA G702 (summary) correspond with the detailed breakdown in the G703. This helps ensure the application aligns with the overall project budget.

Assess the Percentage of Completion

It’s important to evaluate the overall financial percentage of completion against your observations on-site.

Reasonable Financial Completion: Compare the percentage billed with the physical completion observed. It’s normal for the financial completion percentage to vary slightly from the physical percentage. However, if the discrepancy is significant, further investigation is required.

Use Judgment: Your role is to apply professional judgment, ensuring that billed amounts are appropriate for the work completed.

Resolve Discrepancies Before Giving Funding Recommendations

Discrepancies can arise in payment applications, and it’s crucial to address major issues before making a funding recommendation.

Major Discrepancies: For significant discrepancies, consider recommending a short pay (reducing the payment amount) until the issue is resolved. Ensure the reason for the short pay is fully explained in the report.

Minor Discrepancies: Minor issues should still be noted in the report, but funding should not be withheld. Instead, these issues should be addressed in the following month’s payment application.

Track Reallocations in the Schedule of Values

The AIA G703 form includes the schedule of values, which outlines the work categories and their associated costs. During your review:

Identify Reallocations: Reallocations in the schedule can indicate changes in the scope or budget. Major reallocations might point to issues in the buyout process, so address any concerns with the contractor’s project manager.

Ensure Compliance with the Contract: Check if any reallocations require owner approval as per the contract.

Validate Line Items and Subcontractor Backup

It’s important to verify that the amounts requested for each line item match the amounts requested in the subcontractor’s backup.

Review Subcontractor Documentation: Ensure that the amounts billed by the subcontractor align with the work completed and the financial schedule.

Ensure Compliance with the Construction Agreement

Review all billings to ensure they align with the terms outlined in the construction agreement. Common things to check:

General Conditions and Requirements: Ensure these are billed per the contract, whether at cost or as a fixed monthly amount.

Contractor’s Fees: Confirm that the contractor’s fee is calculated according to the agreement, and note any changes. Increases in the contractor’s fee should only occur with an approved change order.

Review Deposits and Offsite Materials

Deposits for long-lead items or offsite materials can create additional financial risks. During your review:

Check for Deposits: For items like elevator equipment or materials sourced overseas, verify if deposits have been made. These are often a part of the construction agreement.

Offsite Stored Materials: Review any billings related to offsite stored materials. Ensure proper documentation is provided, such as bills of sale, invoices, photos, and insurance certificates. Missing documentation should lead to a short pay recommendation.

Conclusion

Reviewing a general contractor’s Application for Payment is a critical part of the construction payment process. By following these detailed steps, you can ensure that payments are accurate, align with the work completed, and comply with the contract. Addressing discrepancies early and maintaining clear documentation helps protect both the project owner and the contractor, ensuring that the project remains on budget and on schedule.

In summary, paying attention to the details of the AIA G702 and G703 forms, confirming the accuracy of requested amounts, and ensuring that all documentation is provided and complies with the contract terms will help ensure a smooth payment process and minimize financial risks.