Construction billing and pay applications: the general contractor's guide
Progress billing is how a general contractor gets paid, and small mistakes in it delay cash for everyone. This guide explains how the billing cycle works, how to build a schedule of values, how pay applications and change orders fit together and how retainage affects what you actually receive.
A good schedule of values makes every later pay application easier to build and easier to approve.
A pay application should be backed by what is actually built, so billing and field records need to agree.
Approved change orders belong in the contract sum before you bill against them.
Retainage rules vary by contract and state, so check yours before you forecast cash.
How progress billing works
On most commercial jobs the owner does not pay in one lump. Each month the contractor submits a pay application showing how much of the work is complete, and the owner pays for that progress less any retainage. Subcontractors bill the general contractor the same way, which then rolls up into the GC's own application.
- 1Agree the contract and the schedule of values.
- 2Build the work each period and track what is complete.
- 3Submit a pay application for the period.
- 4Review, approve and pay, less retainage.
- 5Repeat until the work is complete.
Build a schedule of values that works
The schedule of values breaks the contract sum into line items. Every pay application reports progress against those lines, so the quality of the breakdown decides how smooth billing will be.
- Break the work into lines that match how the project actually gets built.
- Make each line large enough to be meaningful and small enough to measure.
- Make the lines add up exactly to the contract sum.
- Avoid front-loading beyond what the contract and owner will accept.
Prepare the pay application
Many projects use the AIA G702 and G703 forms: the G702 is the application and certificate for payment, and the G703 is the continuation sheet that lists progress by line. Your contract may name a different form, but the logic is the same.
| Line | What it shows |
|---|---|
| Original contract sum | The agreed price before any changes |
| Net change by change orders | Approved additions and deductions to the contract |
| Total completed and stored to date | Work in place plus materials stored, across all periods |
| Retainage | The amount held back under the contract |
| Less previous certificates | What has already been billed and paid |
| Current payment due | What you are asking to be paid for this period |
Fit change orders into the cycle
A change order changes the contract sum, the schedule or both. Until it is approved, you generally cannot bill against it, so the timing of approvals shapes your cash flow.
- Record the change with its reason, scope and cost as soon as it arises.
- Get written approval before work proceeds wherever the contract requires it.
- Add approved changes to the contract sum so they flow into the next application.
- Pass changes through to affected subcontractors with matching paperwork.
Retainage and what you actually get paid
Retainage is a percentage of each payment held back until the work, or a defined portion of it, is complete. It often falls somewhere between five and ten percent, but the rate, when it reduces and when it is released all depend on the contract and on state law.
Use the calculator to see how contract sum, change orders, progress and retainage combine into the amount due. Every number is editable.
- Revised contract sum
- $2,459,150
- Total completed and stored to date
- $1,106,618
- Retainage held (10%)
- -$110,662
- Earned, less retainage
- $995,956
- Less previous payments
- -$800,000
Subcontractor billing and getting paid faster
Your pay application is only as clean as the ones beneath it. A single late or incomplete subcontractor application can hold up the whole month.
- Give subcontractors a clear billing calendar and cut-off date.
- Confirm their insurance certificates are current before you process a payment.
- Reconcile each subcontractor's percentage complete with what you see in the field.
- Submit your own application on time and complete, with required backup attached.
Frequently asked questions
9.1What is a pay application in construction?
A pay application is a request for payment that a contractor or subcontractor submits for work completed in a billing period. It shows the contract sum, approved changes, work completed to date, retainage and the current amount due.
9.2What are the AIA G702 and G703 forms?
The AIA G702 is the application and certificate for payment, and the G703 is the continuation sheet that breaks progress down by schedule of values line. Many commercial projects use them, but your contract decides which form is required.
9.3What is a schedule of values?
A schedule of values divides the contract sum into line items. Each pay application reports the percentage or value completed against those lines.
9.4What is retainage and how much is typical?
Retainage is a portion of each payment held back until work is complete. It is often in the range of five to ten percent, but the rate and release terms depend on the contract and state law.
9.5Does Korus support pay applications and change orders?
Yes. Korus supports pay application billing and change order tracking, alongside contracts, vendors and field records in one platform.