AIA retention billing

Take the work completed and materials stored amount (line 4) and subtract the total amount of retainage that was calculated in line 5. This will give you the total billable amount that you’ve earned up until this point. This section is where all the charges and deductions are calculated — and accuracy is key. Errors can cause the architect or owner to “redline” your application, or reject it. This can delay payment and create cash flow issues, so pay attention to detail. This includes the name and address of the owner, the party requesting payment, the architect (if applicable), and the project itself.

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Schedule of Values (AIA G

For example, let’s take a fixed-price contract with a total value of $20,000 with a negotiated retention rate of 7%. Let’s assume your Bookstime first progress payment, likely in an AIA-style billing format, is for 10% of the job; this would equal $2,000. When recognizing this payment, it would reflect the full $2,000 less the 7% retainage, meaning $140 is being withheld from this payment. Construction retainage is a crucial aspect of project management, serving as a financial safeguard for project owners and stakeholders. Retainage is typically withheld from payments to contractors until substantial project milestones or completion, helping ensure project quality and adherence to contractual terms. This blog post explains construction retainage, its benefits, and when it may be released.

Retainage accounting #

This feature is particularly handy if you negotiate a reduction in retained funds toward the end of the project (which is a good idea!). While retainage and retention mean virtually the same thing, there is a subtle difference between the two. Retainage is the amount of money held back until a project is completed, whereas retention can be viewed as the actual act of withholding the money. In construction, retainage is typically a fixed percentage of the subcontractor’s bill that is withheld, as collateral, until the job is completed to the owner’s satisfaction.

• The contractor should fill in the percentage and multiply it by the value of work or materials, respectively.
• Our Payment Application module automatically calculates retainage and seamlessly transfers it to the AIA G702 & G703 forms.
• The architect, project manager, or property owner will fill out this section.
• AIA Contract Documents, previously an arm of AIA, is now a separate entity that produces the standardized documents, including different types of contracts and documents exchanged on projects.
• Basically, you have to forget about basic accounting principles.
• Often referred to as an AIA billing form, progress billing form, payment app, or pay app, this document is typically used alongside the AIA G703 continuation sheet.

Contractors working under projects that involve AIA A201 general conditions are typically expected to employ the G702 and G703 forms for their payment applications. This section involves filling out all of the “header” information at the top of the AIA G702 pay application. This is where the subcontractor will provide all of the basic information about the project.

• Try to negotiate a lower percentage and shortened timeframes if you can.
• Particularly for large building information modeling (BIM) files, this can get sticky.
• I am reviewing a schedule of value for a project that does not have a % of the project total assigned to project closeout.
• This withholding is regulated by contract terms, serving to ensure work quality, provide leverage for project completion, and cover potential costs if any issues arise post-completion.
• At the end, when you’re 100% complete, you’d have $9,500 billed and $500 in retainage.

Quick Guide to AIA Billing

Ensure you are not overbilling, whether unintentionally or intentionally. Whether or not to capitalize “retainage payable” depends on the accounting treatment used by a company. A liability account generally represents the amount of retainage that the entity has withheld but has not yet paid to contractors or subcontractors. In accounting, the decision to capitalize or not is more about classification rather than capitalization in the sense of recognizing an expense on the income statement.

• Increase billing volume and enable role redundancy without adding headcount.
• Contractors want to avoid situations in which they are rushing to submit a G702 form.
• Thankfully for contractors, there are several measures they can take to protect themselves.
• So before you sit down to fill out the G-702, have the following info handy.
• If there are any discrepancies or disagreements, they will send the contractor a response showing the amount they are willing to certify, along with their reasoning for the change.
• Using these documents, the Contractor can apply for payment due and the Architect can certify that the payment is due.
• This is another confusing line because it acts as if all Change Orders have been formally processed and that all previous Payment Applications have been paid in full.

What About Stored Material and Retainage?

• Most Contractors tell us that AIA Payment Applications are frustrating and difficult to fill out.
• It is similar to an invoice, but requires a bit more information.
• It’s just an application detailing the amount you’d like to invoice.
• Save hours each month on efficient progress billing and better focus on projects.
• This section is used to document the release of lien waivers and any other documents related to the payment.

The contractor submitting the pay application should leave this section blank. If this is the first pay application on the project, this will retainage in construction be zero. However, if it’s a subsequent application, you will put the amount from line 6 of the previous certificate. On this line, you will subtract previous payments that you have already received. When the architect or property owner approves your pay app, they will issue a certificate of payment. This is essentially the approval of your request, and receipt for payment.

Retainage vs. Retention #

Before you sign the form, check the notarization terms in your contract. The G-702 was created with the intention of it being notarized, but there are no laws that require this. Completing any form goes a lot faster when you gather all the necessary information in advance.

How to Include Retainage in a Construction Payment Application

In AIA billing, you can bill for materials you’ve purchased for the job even if they haven’t been used yet. Those costs — and the billings for them — are referred to as “stored material.” Sometimes retainage is held on stored materials at a different percentage than the rest of the job. Also called “retention,” retainage is a percentage of a contract, often 5-10%, that can’t be billed until the entire project is complete and the client has approved the work. Its purpose is to give the client recourse if they aren’t satisfied with the work. It may be used as written documentation of changes in the work, contract sum or contract time that are mutually agreed to by the Owner and Contractor.