A plumbing subcontractor’s application lands with a total that looks reasonable and a cover sheet that foots. Line 2’s “from previous application” column is $5,000 higher than the amount you certified last month, and a new line at the bottom bills $8,000 for a change order the PM has discussed but nobody has signed.
A pay application can have the right total and still be wrong in three or four places. The review below catches those before the payment, not on the next draw when they are harder to unwind.
Check the summary math: the pay application calculator works out retainage, the current payment due, and balance to finish from the totals on the application.
What a pay application contains
Most subcontractors bill on AIA G702 and G703 or a close equivalent. The G703 continuation sheet carries the schedule of values, one line per scope item, with columns for the scheduled value, work completed from previous applications, work completed this period, materials presently stored, total completed and stored to date, percent complete, balance to finish, and retainage. The G702 summarizes that sheet and works down to the current payment due. AIA’s guidance shows how the continuation sheet supports the application and how change orders can be listed as lines on G703 and summarized on G702 (AIA’s G702 guide). If your subcontract specifies another form, use it. The checks are the same.
The review, line by line
Pull three things before you open the application: the subcontract with all signed change orders, the last approved application (the version you certified, not the one first submitted), and the PM’s view of progress for the period.
| Check | Compare | Common failure |
|---|---|---|
| Contract sum | Original subcontract plus signed changes vs. scheduled values on G703 | A pending change added to the contract sum |
| Prior billing | ”From previous” column vs. your last certified application | Subcontractor carries forward its own submitted figure, not the certified one |
| Work this period | Claimed amount vs. PM’s progress assessment | Front-loaded lines billing ahead of the work |
| Stored materials | Claimed amount vs. contract terms and evidence | Stored materials billed without the documentation the contract requires, or billed twice once installed |
| Percent complete | Line totals vs. scheduled values | A line over 100% |
| Retainage | Rate and basis vs. subcontract, prior withheld vs. ledger | Wrong rate, or retainage reduced without authorization |
| Arithmetic | Each column foots and cross-foots | Spreadsheet formula errors carried from month to month |
When a line does not agree, send the subcontractor or the PM the exact line, amount, and reason. “Please revise” with no line number starts a two-week loop. Keep the corrected version with the original, and confirm the authorized reviewer approved the version AP will pay.
Worked example: an unsigned change and a stored-materials line (illustrative)
Subcontract: $400,000 original, one signed change order (CO 1) for $25,000, retainage 10%. Through last month you certified $200,000 completed to date and $20,000 retainage, so previous certificates for payment total $180,000. A second change (CO 2, $8,000) is priced but not signed.
The subcontractor submits this continuation sheet:
| Line | Scheduled value | From previous | This period | Stored | Total to date |
|---|---|---|---|---|---|
| 1 Mobilization | $20,000 | $20,000 | $0 | $0 | $20,000 |
| 2 Rough-in | $180,000 | $120,000 | $30,000 | $0 | $150,000 |
| 3 Fixtures | $120,000 | $40,000 | $0 | $15,000 | $55,000 |
| 4 Trim and closeout | $80,000 | $20,000 | $0 | $0 | $20,000 |
| 5 CO 1 (signed) | $25,000 | $0 | $10,000 | $0 | $10,000 |
| 6 CO 2 (pending) | $8,000 | $0 | $8,000 | $0 | $8,000 |
| Total | $433,000 | $200,000 | $48,000 | $15,000 | $263,000 |
As submitted: retainage at 10% is $26,300, earned less retainage is $236,700, less previous certificates of $180,000 gives a payment request of $56,700.
The review finds:
- Line 6 is not part of the subcontract. CO 2 is unsigned. Remove it from the contract sum and from completed work. The $8,000 is tracked separately as pending.
- Line 3 includes $15,000 of stored fixtures. The subcontract allows stored materials with a bill of sale and proof of insurance on the stored goods. Both are attached, so the PM confirms the line. (If they were not, this line would also be held.)
Corrected G702 summary:
| G702 line | Amount |
|---|---|
| Original contract sum | $400,000 |
| Net change by change orders | $25,000 |
| Contract sum to date | $425,000 |
| Total completed and stored to date | $255,000 |
| Retainage (10%) | $25,500 |
| Total earned less retainage | $229,500 |
| Less previous certificates for payment | $180,000 |
| Current payment due | $49,500 |
| Balance to finish, including retainage | $195,500 |
Check the difference: $56,700 requested minus $49,500 approved is $7,200, which is the $8,000 pending change less 10% retainage. Balance to finish: $425,000 minus $229,500 is $195,500. New work and stored materials this period total $55,000 ($30,000 + $10,000 + $15,000), and $55,000 less 10% is $49,500, which agrees with the summary.
Next month, when the fixtures are installed, line 3’s stored amount should drop by $15,000 and its completed amount rise by the same. If both columns go up, the fixtures are billed twice.
Change orders: what counts as approval
A subcontractor bills extra work before its price is agreed. The PM recognizes the work. AP sees a line with no signed change behind it. Both are right, and the question is what the subcontract allows.
| What AP sees | What to check |
|---|---|
| Signed subcontract change | Job, scope, approved amount, and how much has already been billed against it |
| Work directive with price pending | Authority to proceed, supporting cost records, and the procedure for agreeing the amount |
| Charge with no matching authorization | The PM’s record of the work and why it was billed |
| Approved and disputed work on the same bill | Which lines can proceed under policy and which need a decision |
Do not treat an emailed estimate or a field ticket as approval of the invoiced price. AIA identifies G701S as a subcontractor variation of its change order form (AIA’s contractor and subcontractor forms guide). Check the change procedure and forms your signed subcontract specifies.
Some subcontracts allow payment for directed work on a time-and-material basis before the final price is set. If yours does, the line can proceed on the T&M support while the lump-sum price is still open. If it does not, the line waits.
Keep the pending amount in view
Removing CO 2 from the application is the easy part. Losing track of it is the expensive part. Record the pending amount, who can approve it, and when AP should check back. Give the $8,000 to project finance for the cost forecast, and let the controller decide whether it needs an accrual at month end.
When the change is signed, confirm the revised commitment and the next invoice agree before payment. Keep the original bill and the approval so a later invoice that rebills the same work can be caught as a duplicate.
In the ERP: commitment first, then the bill
The approved application should reach the ledger as a bill against the subcontract commitment, with each line on the right job and cost code, and retainage in its own balance.
- Sage Intacct documents subcontracts as commitments in Purchasing, converted to invoices with retainage withheld where applicable.
- Sage 300 CRE distributes cost to the job, extra, and cost code. If the project system shows a change as approved but the matching extra or cost code is missing or unavailable in Sage, the bill can be rejected on import.
- Vista lets assigned reviewers see invoices in AP Unapproved Invoice Review once they are marked ready for review.
The construction AP automation guide covers each of these in more detail, along with tests for holds and failed imports.
Whatever the system, test with two successive draws. Approve this month’s draw with a pending change removed. Then process next month’s and confirm it starts from the certified prior balance, the right retainage, and the pending change still listed separately.
Before you release payment
The amount is only half of it. Before the approved draw goes into a payment run, check the waivers, insurance, and payroll the project requires for this period. Those are covered in lien waiver tracking and subcontractor compliance. For how retainage withheld here gets released later, see the construction retainage guide. The owner-side version of this review is in construction billing.
Four checks people skip
- Tie “from previous” to your last certified application line by line, not to the subcontractor’s last submission.
- Check that last month’s stored amounts moved to completed rather than being added again.
- Record each pending change with an owner and a follow-up date before you remove it from the application.
- Recalculate the G702 from your corrected G703, and save the corrected version with the original.