Understanding AIA G702: A Step-by-Step Guide to Completing Payment Applications

Jackson Row
By
Jackson Row
Mar 26, 2024
Understanding AIA G702: A Step-by-Step Guide to Completing Payment Applications

Capital projects in the construction industry often grapple with financial and payment challenges, such as cash flow issues, delayed payments, and disputes over work quality. That's a heck of a problem if you're a client side project manager. This is why the payment application process is essential to deliver a successful project. These applications are fundamental for ensuring smooth project progression and maintaining financial transparency.  

AIA's Document G702-1992 Application and Payment Form, or simply G702, is one of the vital documents widely used within the industry. However, getting acquainted with the form is one thing; understanding the entire process is another. This guide will help you navigate through AIA G702 and offers valuable insights into its application, empowering stakeholders and project managers to deliver successful project outcomes.  

Introduction to Payment Applications

Payment applications play a significant role in the construction industry, serving as formal requests for payment submitted by contractors to compensate for work completed within a specific timeframe. Also known as pay apps or an application for payment, these documents provide a clear overview of project progress and financial transactions between contractors and project owners.

In essence, a payment application outlines the following key details:

  • Percentage of work completed during the billing period;
  • Approved change orders, if any, and their impact on costs;
  • Materials, equipment, and services provided; and
  • Total payment due based on the agreed-upon contract terms and conditions.

By effectively managing payment applications, construction stakeholders can ensure accurate financial tracking, timely payments, and smoother project execution, ultimately contributing to successful project outcomes.

AIA's Standard Contract Documents & AIA G702 Overview

Understanding AIA G702: A Step-by-Step Guide to Completing Payment Applications: AIA's G702 Form "Application and Certificate for Payment.
AIA's G702 Form "Application and Certificate for Payment.

The American Institute of Architects (AIA) is renowned for its comprehensive set of standard contract documents that establish the terms and conditions for construction projects. These documents are widely used in the construction industry in the United States to ensure clarity and consistency in contractual agreements.

AIA's G702 form, also known as the "Application and Certificate for Payment," holds particular significance among the AIA's extensive document collection. This form is meticulously crafted to streamline payment processes by documenting work progress, completed work values, and any pertinent deductions or retainage.

For contractors and project stakeholders, the AIA G702 form is a mechanism for facilitating transparent communication, precise financial tracking, and adherence to contractual obligations. Its structured approach ensures consistency and efficiency, contributing significantly to successful project management and outcomes within the dynamic construction industry landscape.

Guide to Completing the AIA G702 Payment Application

Step 1: Project Information

Begin by comprehensively filling out the project information section. Include not only the project name, contractor's name, and architect's name but also critical details such as project location, contract number, and any relevant identification numbers or codes used by your organization or the client. Providing this detailed information helps establish a clear context for the payment application and ensures accuracy in record-keeping.

Step 2: Application Number and Period

Assigning a unique application number is essential for tracking purposes. Ensure each payment application is numbered sequentially to avoid confusion and facilitate easy reference in project documentation and financial records. Additionally, specify the period covered by the payment application accurately, aligning it with the billing cycle or milestone dates stipulated in the contract. This alignment ensures consistency and compliance with contractual agreements.

Step 3: Schedule of Values

The schedule of values is a critical component of the payment application, as it delineates the project's scope and associated costs. When creating the schedule of values, break down the project into granular components such as labor, materials, equipment, subcontractor costs, and overhead expenses. Assign accurate dollar amounts to each category based on the contract terms, project progress, and any approved change orders. Verify that the total value of the schedule aligns with the contract amount to maintain financial transparency and integrity.

Understanding AIA G702: A Step-by-Step Guide to Completing Payment Applications:  An image of a sample Schedule of Values for construction projects
An image of a sample Schedule of Values for construction projects. | Image source: Big Rentz

Step 4: Previous Certificates for Payment

Referencing previous certificates for payment is essential for keeping a coherent record of project progress and payments. Include clear references to previous payment applications by writing down their respective application numbers and the periods they covered. This helps all parties track the project's financial history, monitor progress, and ensure consistency in payment calculations and approvals.

Step 5: Current Payment Due

Calculating the current payment due requires a thorough assessment of the project's progress and completion percentage for each line item in the schedule of values. Apply the appropriate percentage of completion to labor, materials, and other categories based on the work accomplished during the billing period. Consider any retainage or deductions specified in the contract, such as contingency reserves or withheld amounts for incomplete work, and adjust the payment amount accordingly. Provide detailed explanations and calculations to support the current payment due, promoting transparency and accuracy in financial transactions.

Step 6: Summary of Change Orders

Include a comprehensive summary of approved change orders affecting the payment application. Clearly document each change order, including its description, scope of work, associated costs, and the rationale for approval. Specify how each change order affects the project's budget, schedule, and overall scope, ensuring that stakeholders understand the implications of financial transactions and project outcomes. Align the summary of change orders with the corresponding adjustments in the schedule of values to maintain consistency and clarity in payment calculations.

Step 7: Certificate of Contractor

The contractor's certification is a crucial step in the payment application process, as it verifies the accuracy and completeness of the information provided. The contractor must certify that all work completed aligns with the contract requirements, specifications, and quality standards. Additionally, the certification affirms that the payment application reflects the actual progress and costs incurred during the billing period. Provide a detailed certification statement that includes the contractor's signature, date, and contact information for verification purposes.

Understanding AIA G702: A Step-by-Step Guide to Completing Payment Applications: Payment applications involve getting the right certification from all people involved.
Payment applications involve getting the right certification from all people involved. | Image source: Contract Complete

Step 8: Architect's Certification

The architect or project manager responsible for certification plays a pivotal role in validating the payment application. Upon receiving the contractor's submission, the architect must review the application meticulously, verifying the completed work against the contract documents and approved change orders. Confirm that the work meets the specified standards, complies with regulatory requirements, and aligns with the project schedule. Upon thorough review and approval, the architect certifies the payment application, endorsing it for payment processing.

Step 9: Owner's Payment

Once the architect certifies the payment application, the owner must process the payment within the agreed-upon timeframe specified in the contract. Timely payment is essential for maintaining positive cash flow, sustaining project momentum, and fostering trust and collaboration among project stakeholders. Owners should adhere to contractual obligations and payment terms to avoid delays, disputes, or disruptions to project progress.

Conclusion

Understanding the intricacies of payment applications, particularly the AIA G702 form, is crucial for stakeholders in the capital project management space. By adhering to standardized processes and documentation, parties involved can streamline payment procedures, mitigate disputes, and foster collaborative project environments.

Topic: 
Jackson Row

Written by

Jackson Row

Jackson Row is the Senior Solutions Consultant at Mastt. With expertise in risk modeling, cost forecasting, and integrated project delivery, Jackson provides practical solutions to improve outcomes in capital project management. Through his work, Jackson contributes to the advancement of best practices in the construction industry.

LinkedIn Icon

More from our blog

No items found.

Powering Construction Project Management with easy-to-use tools