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Retainage and pay applications, explained

On most commercial jobs a contractor is paid monthly, by a pay application on the AIA G702 and G703 forms, less retainage. This guide explains what each form holds, how retainage is figured and released, and where lien waivers fit.

The schedule of values

Every pay application starts from the schedule of values: the contract sum split into lines, usually by trade or cost code. The lines must add up to the contract sum. When a change order is approved, the schedule of values gets a new line or a changed one, and the contract sum changes with it.

The G703 continuation sheet

The AIA G703 continuation sheet has one row per line of the schedule of values. For each row it shows:

• Scheduled value: the line's share of the contract sum.
• From previous applications: what was billed on this line in earlier months.
• This period: the work done on this line this month.
• Materials presently stored: materials on site or in storage, not yet built in.
• Completed and stored to date: previous, plus this period, plus stored.
• Share complete: completed to date divided by the scheduled value.
• Balance to finish: scheduled value less completed to date.
• Retainage: the amount held back on this line.

In the sample job, line 3 is the slab on grade. Its scheduled value is $131,871.80. Pay application 2 billed $65,935.90, and the rest, $65,935.90, is billed this period. Completed to date is $131,871.80 and the balance to finish is $0.00. The sample contract holds back a tenth of the work completed, so the retainage on the line is $13,187.18.

The G702 application

The AIA G702 is the summary page. It carries the totals of the continuation sheet and works down to the amount due:

1. The original contract sum, plus or minus approved change orders, gives the contract sum to date.
2. Total completed and stored to date, from the continuation sheet.
3. Less retainage, on completed work and on stored materials.
4. Less what was certified on previous applications.
5. The rest is the current payment due.

The architect, or the owner's representative, certifies the application. The certified amounts become next month's "from previous applications" column. That is why each new application should start from last month's certified amounts, not from last month's spreadsheet.

Retainage

Retainage is part of each payment the owner holds back until the work, or a stage of it, is complete. It protects the owner if work is left unfinished or defective. The contract sets how much is held, whether the amount held drops once the job is half done, and when it is released. The same terms usually apply to each subcontract. The general contractor holds retainage from its subs, just as the owner holds it from the general contractor.

Keep a separate record of retainage, by line and by party: what was held each month, what was released, and what is still held. When the job reaches substantial completion, that record shows what to bill for release.

The rules on retainage differ by state and by public or private work. Follow your contract and ask your own advisers about the law where you build.

Lien waivers

A lien waiver is a signed statement. In it, a contractor, sub or supplier gives up its right to file a lien for the amount it has been paid. Owners and lenders ask for them with each payment. They come in two pairs:

• Conditional or unconditional. A conditional waiver takes effect only once the payment clears. An unconditional waiver takes effect when it is signed.
• Progress or final. A progress waiver covers one payment. A final waiver covers the whole contract.

A simple rule prevents most disputes: no payment to a sub or supplier goes out until its matching waiver is on file.

How BuilderSite does it

BuilderSite builds pay applications on the AIA G702 and G703 forms from the schedule of values and last month's certified amounts. Retainage follows your contract terms and is tracked by line and by party. A payment to a sub or supplier cannot be recorded until its lien waiver is on file. Bills, payments and invoices export as files for QuickBooks. See Pay applications and retainage.

More guides: How plans become a priced estimate · How to handle a change order