How to Manually Adjust Retainage on an AIA Style Job

In accounting, firms or clients using a contractor for their work have to record the retainage as a liability. The remaining sum that would be paid to the contractor will be referred to as accounts receivables or retainage receivables. The amount that the customer is holding as retention would be recorded as retainage due. Calculating retainage involves determining the percentage of the total contract value that will be withheld until the completion of the project or a specific phase. Retainage in construction is a percentage of the total project amount that gets upheld by the client from the main or sub-contractor until that project is finished. The amount of retainage gets specified before the construction work starts in the construction contract itself.

What is retainage in construction? #

• It’s vital to fill out both the G702 and G703 as early as possible.
• Armed with this basic knowledge about the principles of AIA billing, it’s certainly possible to purchase forms from the AIA and start filling them out.
• If you bill for stored materials, you’ll need to remember not to double-bill.
• Federal projects or municipal jobs are a bit more structured compared to public projects and will follow a similar structure; retention at the federal level is typically capped at 10%.

Once you calculate the net changes, plug this number into line 2. Calculating and displaying retainage/retention on an AIA G-702/G-703 can be complex, especially if you are doing them manually. Architects, project managers, or property owners complete this section once they have reviewed and paid for the amounts in the Pay Application.

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There are a lot of AIA related forms; not just the two that we currently provide in Total Office Manager. While the G702 and G703 are very popular, there are other forms that we will need to support at some point. You will need to separate the Change Orders that add money to your contract from those that subtract money from your contract.

• This line has separate amounts for retainage on completed work, and retainage on stored materials (materials that you have purchased but not used in the project yet).
• If you’re wondering how best to implement AIA invoicing and billing in your construction business, keep reading.
• So the amount you have earned in the pay period is $5,000, but retainage is 5%.
• Stay current on your state’s laws by checking your local department of labor or reaching out to your local contractor association.

Line 4. Total completed and stored to date

• Cloud PM includes dedicated fields for Work and Stored Materials retainage, allowing users to manage each component with precision.
• Kristen holds a Bachelor of Arts in Philosophy and History from Western University, with a post-graduate certificate in journalism from Sheridan College.
• Just subtract the total contract sum to date from the “total earned less retention” in line 6.
• Created by the AIA Contracts Documents program, these templates have achieved an industry-standard status, to the point where their format is widely used even in non-AIA-branded documents.
• Contractors can purchase an AIA G702 form directly from the American Institute of Architects through their website for $39.99 to secure the proper license.

It’s also important to note that prime contractors under the Federal Acquisition Regulation (FAR) act can also withhold payments from subcontractors. Federal projects or municipal jobs are a bit more structured compared to public projects and will follow a similar structure; retention at the federal level is typically capped at 10%. A subcontractor signs a $10,000 contract specifying a retainage percentage of 10% on each invoice. At the 50% completion milestone specified in the contract, they bill $4,500 ($5,000 for retainage in construction work completed minus $500 for retainage payment).

That allows you to more easily control budgets, pay laborers and subcontractors, purchase materials, and manage other debts. While AIA billing has a bad rap for being confusing, cumbersome, and time consuming, it is a manageable process. In addition, because it is a form of progress billing, there are a lot of benefits to it. In this three-part series, we’ll provide all the answers you need for handling your first AIA job. Construction projects are typically set up to invoice monthly with a Proforma invoice.

• In part two of this series, we’ll show you exactly what an AIA form looks like and how to fill it out.
• If you’re 10% complete with that item, you would bill $950 and hold $50 in retainage.
• Before you sign the form, check the notarization terms in your contract.
• If any part of the contract dictates retainage that is not in compliance with state laws, don’t sign it.
• You will need to separate the Change Orders that add money to your contract from those that subtract money from your contract.

In looking at our plain paper version of the AIA G-703; Continuation Sheet, you can see that Columns A, B, and C, should be completed by identifying the various portions of the Project. Any Scheduled Values should be consistent with the Schedule of Values submitted to the Architect at the beginning of the project. This breakdown should be used consistently throughout the project, using multiple pages when necessary. 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.

This line represents how much money you are expecting to bill for in the current period. The total billable amount for the pay app will be the difference between the “total earned less retainage” on line 6 and the “previous certificates for virtual accountant payment” indicated in line 7. In this section, you write the amount of the percentage withheld in lines 5a and 5b.

Just subtract the total contract sum to date from the “total earned less retention” in line 6. Every routine payment application format incorporates it for assistance in retainage accounting. This also occurs due to the pass-through effect as the contractor passes it on to the workers of the project. The most significant advantage of the retainage is the provision of a built-in remedy for failure of project completion by the contractor. Paying from the income statement retainage to subcontractors and suppliers helps the owner complete the work. Since retainage is withheld from each progress payment, you’ll need to account for it in each payment application.