In most industries, businesses submit simple one-page invoices to request payment. Only the most basic construction projects can get by with a simple invoice. Because construction jobs have a lot of moving parts, with a lot of money on the line, most general contractors will require subcontractors to request payment with a payment application, also called simply a “pay app.” Here’s how pay apps work in construction, and what information they require.
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How payment applications are used in construction
At its core, a pay application is a detailed construction invoice, with a number of supporting attachments. The document, or group of documents, provides information about the progress of a contract, and requests payment for the work completed.
Generally, the pay application provides an accounting of the work completed and materials provided through a certain time period. It follows the work required by the contract, including any change orders, to determine the amount due. Supporting information is usually required to be provided as well. While there is no singular universal pay app, there are a handful of standard forms, and the supporting information required is generally fairly similar.
Watch the video: Payment Applications in Construction
Standard Pay Application Form
AIA Document G702 and ConsensusDocs 710 are pretty standard pay applications – and require comparable information. Even if the pay app required on your particular project is not one of these common documents, the information on the app itself, and on the supporting documents, will likely be similar.
The first page of a pay application includes the overview of project status and provides the critical financial information. This is what is typically referred to as the “pay application form.”
Accordingly, the following list of general information is what you will likely need on hand to correctly fill out the pay application, and make the process easy and streamlined.
- the name of the project
- the name of the property owner/contractor/architect
- the number of that particular pay app
- the time prior (dates) covered by the particular pay app
- the original contract amount
- any change order
- total value of work completed to date
- retainage (calculated as a certain percentage of the work performed)
- total amount of prior payments
- current amount due
- total balance remaining
In addition to the foregoing information – the first page of a standard pay app also includes a space for certification by the direct contractor and architect of labor/materials furnished and amounts due as represented on the pay app.
Supporting Documents / Attached Schedules
Most pay applications are not delivered as standalone documents – they require additional information and supporting documents. Some of the additional information that may be required can be: the schedule of values; list of subs (and work performed); a project schedule; and lien waivers (both from you and down the chain).
The titles of these supporting documents gives a pretty clear picture of the desired content. A schedule of values is an overview of the project on which the pay apps will be based; i.e. the schedule of values sets out the projected cost for individual aspects of the project to the extent required. Often, expenses must be broken down into smaller items not larger than some figure, say $20,000, in order to provide clarity to the expected expenses. For example, instead of $100,000 for site prep – the schedule of values would break that larger item into $20,000 for grading, etc. and assign time values so that progress can be assessed. The list of subs may be required for a couple of reasons: 1) to justify the expense in the pay app, (i.e. work provided by subs during the period and even payroll records may be required to justify the value of the work performed and amount due); and 2) in conjunction with the lien waivers that are also generally required to be provided.
Lien waivers may be requested during the processing of the pay app prior to payment, at some other time, or provided with the pay app itself depending on the project and contract at issue. Lien waivers are a crucial step in receiving payment since they provide protection for the property owner (or GC, or whomever) from paying for the same work twice. In fact, providing a signed lien waiver with your pay app without waiting for a request from a higher-tiered party can work to get you paid faster.
Pay apps – like many things in the construction industry – take a relatively simple concept and add layers of complexity. By familiarizing yourself with the common forms and requirements (including supporting documentation), you can position yourself to make your business more efficient and get paid faster.