AIA Billing, Schedule of Values & Retainage

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Alright, AIA Billing, Schedule of Values & Retainage. Don't let the plain title fool you. Here's the part that actually matters on the job: Bill accurately and on time — it's how you stay funded through the job. Learn it well and you will stop financing the owner's project with your own line of credit.

Progress billing on commercial work runs on three things: a schedule of values, a monthly pay application (often on AIA G702/G703 or similar forms), and retainage. Get all three right and cash arrives on schedule. Get one wrong and the pay app comes back marked up and you wait another month.

Building the schedule of values

The schedule of values (SOV) breaks the contract price into line items that sum exactly to the contract sum. Good practice:

• Mirror the estimate — lines by trade or CSI division, so each line maps to a subcontract or a cost code and the field can judge percent complete.
• Include the soft lines — mobilization, general conditions, bonds and insurance where applicable, submittals, and closeout, so you are paid for them as they happen.
• Right-size it — too few lines and every percentage is an argument; too many and the pay app takes a week to prepare. Twenty to sixty lines is typical on a mid-size commercial job.
• Get it approved before the first pay app — most contracts require the architect or owner to accept the SOV up front, and it then governs every bill.
• Collect sub SOVs — each subcontractor's schedule should roll into your lines so their pay apps support yours.

G702 and G703, line by line

G703 is the continuation sheet. Each row carries the item, description, scheduled value, work completed from previous applications, work completed this period, materials presently stored, total completed and stored to date, percent complete, balance to finish, and retainage. Approved change orders are added as new lines, often at the bottom, so the sheet always foots to the current contract sum.

G702 is the one-page summary: original contract sum, net change by change orders, contract sum to date, total completed and stored to date, retainage withheld, total earned less retainage, less previous certificates for payment, current payment due, and balance to finish. The contractor signs it, usually before a notary, and the architect signs a certificate recommending payment. AIA forms are the common standard, but many owners use their own equivalents; the logic is the same.

The monthly billing cycle

• Cutoff and pencil copy — pick a cutoff date, walk the job with the super, and send the architect or owner's representative a draft to review before the formal submission. Agreeing on percentages in pencil avoids a rejected pay app.
• Submit on the contract date — late submissions often slip a full cycle.
• Attach the backup — lien waivers from subs and suppliers for the prior payment, proof and insurance for stored materials, updated schedules, and any other items the contract names. Missing backup is the most common reason a check is late.
• Subs bill you first — set sub pay app deadlines a week or more ahead of yours so their numbers roll in.
• Payment terms — owners typically pay within the window the contract sets, often around 30 days after certification, and most subcontracts pass that timing through.

Retainage, receivable and payable

The owner withholds retainage, commonly 5–10% of each payment, until the work is complete, as security that you will finish and fix the punch list. You usually hold the same percentage from subs. Two accounting rules:

• Retainage receivable is tracked apart from regular receivables; it is earned but not yet collectible.
• Retainage payable to subs is tracked apart from regular payables and released when the owner releases yours, if the subcontract says so.

Many contracts reduce retainage to a lower rate once the job reaches 50% complete, and some states limit retainage by law. Release typically comes at substantial completion or after final acceptance, once the punch list is done and the closeout documents — as-builts, warranties, operation manuals, final lien waivers — are delivered.

Going Deeper (Intermediate)

Retainage receivable grows into a large number — often the whole profit on the job — so manage it on purpose. Forecast when it releases, push for the reduction at 50% if the contract allows, and finish the punch list fast, because every week of delay is your money sitting in the owner's account.

Stored-materials billing lets you bill for materials delivered to the site, or to an approved off-site location, before they are installed. Expect to provide invoices, photos, insurance, and sometimes a bill of sale. Billing the installed value and the stored value of the same material is double-billing, so track what has been billed as stored and move it into work completed when installed.

Front-loading the SOV — pushing value into early lines like mobilization — improves early cash flow, and a little is normal and expected. Taken too far it is both a contract risk and an overbilling that will show up on your WIP schedule as a liability, not as profit.

Advanced / Pro-Level

Pros tie billing to the books. Every month, total billings to date on the G702 are compared with earned revenue from the percentage-of-completion calculation; the difference is the overbilling or underbilling that goes on the WIP schedule. Billing ahead is fine as long as everyone knows it is a liability, not income.

Lien waivers deserve precision. A conditional waiver takes effect only when payment clears; an unconditional waiver gives up rights the moment it is signed. Exchange conditional waivers for the current period and unconditional waivers for the prior period once paid, and never sign an unconditional waiver for money you have not received. Pros also bill only approved change orders unless the contract allows billing pending work, keep a change order log that reconciles to the G702, and verify every percentage with the superintendent rather than the sub's own claim, because an inflated sub percentage becomes your overbilling.

Practice Challenge

You completed $200,000 of an SOV line this month under 10% retainage, and this is the first billing on that line. What do you bill, what do you receive, and where does the difference go? (Answer: bill $200,000 of work completed this period; retainage withholds $20,000, so the current payment due is $180,000; the $20,000 is recorded as retainage receivable and stays there until the contract releases it, and if your sub did that work, 10% of their bill goes to retainage payable on the same terms.)

In Practice

A contractor who bills late with a sloppy SOV and no lien waivers gets the pay app kicked back, finances the job another month on a credit line, and squeezes subs who then slow down. A contractor who walks the job before cutoff, agrees on percentages in pencil, submits on the contract date with complete backup, and tracks retainage to the dollar keeps cash flowing and subs loyal.

Common Mistakes to Avoid

• Billing late or without the backup the contract requires
• Front-loading the SOV so far that it gets rejected or creates a hidden liability
• Losing track of retainage receivable and payable
• Signing unconditional lien waivers before the money is in the bank
• Billing pending change orders or inflated sub percentages

Takeaway: Bill accurately and on time — it's how you stay funded through the job.

Educational content — not legal, accounting, tax, or contractual advice. Accounting methods, tax rules, and reporting requirements vary by state and change over time; verify with your CPA, your contract, and the agencies that apply to your work.