Missing Pay App Deadlines or Submitting Incomplete Pay Apps Can Cost Your Construction Company Dearly and Cripple the Project
The unfortunate truth of the construction industry is this—contractors do not get paid for the work they complete—they get paid for the work they can document in their pay apps!
Nothing shines the light on a poorly managed or completely broken construction management process like the payment application or “pay app” process. The pay app is the safety harness that tethers the financial resources to the entire construction project. When prepared and submitted correctly and on time, pay apps infuse the project with the necessary capital to complete the original scope of work and any approved change orders, as contracted.
When pay apps are incomplete, submitted incorrectly, or late, the construction project can falter and possibly grind to a halt. Because the unfortunate truth of the construction industry is this—contractors do not get paid for the work they complete—they get paid for the work they can document! This point should hammer home the importance of correctly prepared pay apps. They can quite literally make or break the financial health of the project and your bottom line.
What is a Payment Application or Pay App?
Unlike many other businesses, requesting payment on a construction project may not be as simple as completing the work then sending an invoice to the client. Especially on large, complex construction projects that may take months to complete, additional proof of the finished work by the General Contractor (GC) and any Sub-Contractors must be submitted to the project owner to get paid. This application for payment or “pay app” is the financial pulse of the construction project, infusing money into the project at predetermined intervals so the build schedule remains on track.
Pay applications are much more substantial than a simple invoice and involve an entire document package to substantiate the completed work when submitted. The pay app package is usually assembled by hand. It includes documents that typically live outside the accounting department and heavily involve your on-site construction management team to prepare accurately. The original construction contract should define the pay app submission process, the documentation required to include, and the submission schedule.
When Are Pay Applications Typically Required?
Pay apps are typically used on construction projects where the scope and term of the contracted work require progress billing that spreads payments throughout the job at scheduled intervals. Pay apps are submitted from Sub-Contractors on a construction project to the General Contractor and then from the GC to the owner and other stakeholders. With progress billing, contractors (GC or Sub) submit a new pay app before the pay period deadline for the work completed, including any approved change order work completed and the materials purchased in that period.
Each pay app builds on the previous one and forms a running tally of the finished work and billing to date. Unfortunately, one of the most frequent pay app errors occurs in the calculations from the previous month to the current month. These errors can result in your payment application being delayed or outright rejected. Therefore, accuracy is essential!
What Information is Required on a Pay Application Form?
A pay application conforms closely with the Schedule of Values, or SOV, for the complete project, a comprehensive list of every work item on a project and their corresponding value or cost. This list represents the entire construction project and the total contract price, from start to finish, and is part of the original contract.
The General Contractor or Sub-Contractor typically submits the schedule of values with a pay app, and the documentation of completed work supports the progress payment request. Together, these pay app documents show the percentage of each item of work the GC or Sub has finished and the amount they should be paid for it, minus any pre-agreed retainage withheld. Then, the owner, architect, or other stakeholders review the documents and dispute or approve the progress payment.
A typical pay application documentation form will require:
- Original contract amount
- Sum of all approved change orders
- The total value of work completed
- The total value of materials stored on-site to date
- Retainage amount
- Total amount earned on the contract to date
- Total amount received on the contract to date
- Amount of the progress payment currently due
- Balance to finish the contract
Before Submitting a Pay App, Follow These Best Practices
You should provide as much detail as possible when submitting a pay app. The more documented evidence you can provide to support your payment request, the more likely the owner, if you’re a General Contractor, or GC if you’re a Sub-Contractor, will approve it promptly and send your payment.
Here are some simple tips to remember when preparing your pay app:
- Begin preparing for the upcoming pay period early.
- Waiting till the last minute practically guarantees that something will fall through the cracks or be completed inaccurately.
- Read the original contract carefully to ensure you are meeting the pay application requirements and schedule.
- Be as detailed and thorough as possible with your documentation.
- Include approved and completed change order work with documentation (approved change order forms, photographs, as-built drawings, etc.).
- Double-check your documentation and math.
- Check again!
Missing the pay period deadline, making an error in the documentation, or failing to include the required documents, could result in your pay application being rejected, delaying the critical monetary infusion you need to keep the project moving on schedule.
A correctly produced pay app package will typically include multiple documents, including:
- The payment application form:
- The original schedule of values
- Approved and completed change orders
- Conditional lien waivers
- Invoices from any suppliers or vendors
- Project receipts
- Visual documentation (photos, field drawings, as-built drawings, diagrams, or other visible evidence of the completed work and materials stored on-site)
Key Things to Remember About Pay Apps
Perhaps the most important thing to remember is that contractors don’t get paid for the work they complete. Contractors get paid for the work they can document accurately. Ensure you have an entire project management system in place to track project progress and document completed work, including change orders. Never assume that the owner, General Contractor, or other project stakeholders already know about the work you’ve completed. This line of thinking will help you manage the project and the pay app process more successfully. Ultimately, a complete and accurate payment application is the most powerful tool contractors can use to get paid faster.
Pay Apps: Get it Right the First Time and Get Paid On Time
If you’ve never had to submit pay applications before, they can seem complicated and confusing. That’s why we’ve made them easier to manage. CMPRO™ is simple to learn and use, which increases the likelihood your construction management team will use it every day to document and report on construction progress. Then, when pay app time comes around, the critical documentation needed from the job site is in the system.
CMPRO™ also allows your team to manage Budgets easily, Forecasting, Daily Logs, Change Orders, Vendors and Supplier Invoices, and other mission-critical documents essential to submitting a complete and accurate pay app on schedule. CMPRO™ makes the calculations from the prior month to the current month easy and precise. In addition, CMPRO™ includes a custom pay app form based on the American Institute of Architects (AIA) G702 form as an integral part of our Pay App Management feature, so your pay application will meet the most recognized standard for submission.
CMPRO™ is easy to learn and use, saving you valuable time and money in implementation and team training. CMPRO helps your on-site and in-office construction management teams manage mission-critical elements of every construction project, including:
- Pay Applications
- Pay Periods
- Change Orders
- Vendor Contracts
For your job-site team, CMPRO™ has equally robust construction project management features, including:
- Daily Logs
- Punch Lists
- RFIs (Requests for Information)