What is a Construction Pay Application?
- Popular Forms
- Types of Billing
- Top Links
AIA Payment Application
The AIA (American Institute of Architects) publishes one of the most popular construction payment application forms, the AIA g702. These are commonly used between general contractors and subcontractors on mid-sized and large jobs, and as part of a larger set of contract documents.
Consensus Docs Pay Application
ConsensusDOCs publishes another popular application of payment form, the ConsensusDoc 292 Pay App. This form is commonly used by GCs and subcontractors to manage construction payment, and like the AIA docs, is used as part of a larger set of contract documents.
Excel Pay Application
General contractors and subcontractors commonly exchange construction payment applications using Excel templates. This is easy for the parties to use, does calculations well, and is free.
Levelset Pay Application
General contractors and subcontractors can easily exchange pay applications using Levelset, and the Levelset payment application template. This payment application form uses the common style of AIA, ConsensusDOCs, and Excel pay apps.
The Schedule of Values
The "Schedule of Values" refers to a component of most pay applications. Some pay app forms, like the AIA g702, refers to this as the "continuation sheet." It sets forth the actual work done and materials delivered by a contractor during the billing period.
Construction Draw Request Process
The construction payment process is unique and typically follows a monthly "draw request" process.
Progress Payments & Billing
Many general contractors, subcontractors, and vendors will get paid monthly, and more than once, on a construction job. This results in "progress billing" and progress payments.
Sometimes, a construction job is not complex, regulated, or structured enough for formal payment processes. In these cases, the parties will invoice the job in a more regular fashion.
Construction Loan Draw Process
Many commercial construction jobs have a construction lender in place, and these lenders will dictate a formal payment and payment application exchange process.
Running Accounts Billing
It is common, especially on smaller projects, for contractors to work a job on a "running accounts" billing system, whereby the contractor is paid hourly, through T&M, or else wise, while passing along bills as they accrue.
Billing on Prevailing Wage Jobs
The payment process can be complicated when construction jobs are regulated and have prevailing wage requirements. Payment applications must contain certified payroll records in this instance, and this complicates the pay app process.
- How to Exchange Waivers and Pay Apps Easily Webinar
- Common Pay Application Templates – AIA and ConsensusDocs
- Construction Payment Technology Can Present Difficulties to Set Accounting Procedures
- Construction Payment: What Is a Schedule of Values?
- Continuation Sheets | How Details Can Speed Up the Pay App Process
- Pay Applications | Common Mistakes to Avoid
Construction pay applications are the documents exchanged between contractors during payment. Pay applications can be called many different things including payment applications, applications for payment, pay apps, invoices, and more.
In most industries the invoicing and payment process is simple. When owed money, the business owner or person in charge of bookkeeping generates an invoice using their accounting software package (such as Quickbooks for small businesses, or an enterprise ERP for bigger companies), and sends the invoice to their customer. This gets logged into their accounting software as an “accounts receivable.” The party receiving the invoice, on the other hand, inputs this into their own accounting software as an “accounts payable,” and in time, makes a payment to the invoicing party (i.e. the vendor). Almost any accounting product can handle this invoicing and payment process with ease.
On most construction jobs, the payment process and the method of applying for payment are quite unique.
Instead of preparing a simple invoice, construction job participants are required to prepare a full “application for payment.” These pay applications are much more robust than a simple invoice. In fact, they are more like a full payment “package,” and since it requires many items that do not live within accounting systems, the package is usually assembled by-hand and involves a variety of people across an organization.
A construction pay application typically requires the following items to be included:
- A “Schedule of Values” or “Continuation Sheet” identifying all the work completed and materials delivered during the pay period;
- Backup evidence of the work done / materials delivered. This may include photographs, statements, daily work logs, material delivery confirmations or invoices, etc.;
- Lien waivers signed by the party submitting the payment application, and lien waivers collected from subcontractors, suppliers, and other vendors hired by the party submitting the payment application;
- If on a prevailing wage job, certified payroll records.
Clearly, these items are not all stored in a Quickbooks account, or in an enterprise ERP.
Instead, they are most likely spread amidst different electronic and physical job folders, different job participants, and must be manually created by the parties depending on the specific requirements of a job. And since so many layers of job participants are involved, and documentation must be assembled from each of them, it can be painful for those preparing construction pay apps in collecting, tracking, and requesting documentation (like lien waivers) from the right parties.
Since the payment application process is so convoluted and intricate, it’s no wonder that the parties choose to do it only monthly. The difficulty in preparing pay applications, tracking them, and approving them is exactly why construction jobs have payment draw schedules. And it’s exactly why it takes so long for payments to get processed in construction.
The other difficult thing about construction pay applications is that they are unique to each project. What is required in a pay app, including the form that should be used, changes from project-to-project depending on the specific requirements set forth on that job. It’s not uncommon for a subcontractor to be juggling different pay application requirements on every one of their jobs!
Some organizations, like the American Institute of Architects (AIA) and the ConsensusDOCs group, have tried to standardize the payment process (and all construction contracting) with standard “form documents.” Both groups have popular payment application forms as part of their form sets. But, unfortunately, even when one of these “form” pay applications are used, the specific requirements can remain unique and time-consuming.
This page provides you with a guide to everything you need to know about pay applications, including frequently asked questions, common forms, common issues, how payment terms and laws affect your payment applications (i.e. retainage, prompt payment, pay when paid clauses, etc.), and ultimately aims to help you make the pay application process as easy as possible.