The application for payment process is broken (but you can fix it)
Processing applications for payment, or pay apps, should be easy. Subcontractors complete work as assigned and submit their pay apps accordingly. So why has this process plagued industry productivity so much over the last few decades?
There are a few reasons applications for payment have remained complicated. Firstly, each general contractor or developer tends to have their own policies and required documentation for compliance, lien waivers, retainage, and more. And these policies may vary from job to job or state to state. The result is a convoluted pile of paperwork (physical or digital) that is difficult for subcontractors and general contractor teams to navigate. Managing all of this can be a time-consuming and arduous task, to say the least. Let’s walk through just a few of the steps in this process that have a tendency to slow down subcontractor payments and run projects off course.
Getting Lost in the Line Items
Take the schedule of values, for instance. These are your line items with unit pricing based on hours or quantities. It’s meant to be an easy itemized list that provides the GC with an understanding of the work they will be billed for. Unfortunately, there is no standardization of how detailed or broad SOVs are meant to be. They are often rejected and rewritten, costing precious time over something that should be simple. A lack of standardization in this process means SOVs may differ for each job, creating a headache.
Does Anyone Really Understand Lien Waivers?
Next up, the wonderful world of lien waivers. We have no-lien clauses, lien subordinate clauses, conditional waivers, unconditional waivers, and so on. We have 12 states that regulate what the lien waiver must say, and 38 other states that are a mess of non-standards. As you can see, getting paid or paying a contractor is even more complex.
No matter what kind of lien waiver you have to submit or process, they are typically so full of legal jargon and fine print that it’s impossible to deduce what they even mean. There may be people who enjoy reading these (like the people who enjoy reading the Microsoft End Users Licensing Agreement), but we’re guessing they’re few and far between.
We All Just Want to Get Paid
Lastly, let’s take a look at the AIA contractor form G702 Application and Certificate for Payment. This is the form a contractor uses to invoice on the job. It should be pretty easy to complete, right? Let’s examine the instructions. Remember that in order to fill these out correctly, you must ignore change orders that have been approved but not processed. You must also ignore receivables still outstanding from previous applications. Let the fun begin!
Line 1, Original Contract Sum:
This is the price the GC has agreed to pay you for the scope of work you agreed to perform. This includes all accepted changes. This number should never change from your first pay application to your last. Assume your contract was for $900,000.
Line 2, Net Change by Change Orders:
(This one is really fun!)
Add up all of the change orders that have been priced and formally approved by the GC. If the project manager is holding up your change order paperwork, call him at least once a week before your application for payment is due and ask him to complete his side of the paperwork.
Let’s say the GC and process and signed $100,000 in change orders.
Line 3, Contract Sum to Date:
This one is pretty self-explanatory. Add lines 1 and 2. This is your contract sum at the date of this pay application.
For good measure:
Line 4, Total Completed and Stored to Date:
This value comes from the table on page two of the G702 form.
For now, assume you have completed $200,000 of work and have stored $50,000 of materials in approved storage sites. Your line 4 total would be $250,000.
Line 5a, _% of Completed Work:
In the space next to the %, write the current retention percentage. Typically, it’s 10%. In the blank next to the dollar sign, you’ll write the dollar value of retention that applies to your completed work. To get that number, turn to page 2 and add together the values from columns D and E. Multiply by 0.1 if retention of 10% or 0.05 if retention is 5%.
See how we’re getting more complicated now? There are so many areas on this document to make mistakes, and it costs your team hours of valuable time to fix them. There has GOT to be an easier way to do this in 2019.
Are we done yet?
Luckily, this is where GCPay comes in. If you’re looking for an easy-to-use software application that tackles the problems we’ve highlighted above, you’ve found it. GCPay helps you standardize your schedule of values, application for payment processing, lien waivers, and change orders all in one solution. GCPay sends reminders, catches calculation mistakes and helps you organize the digital mountain of paperwork you may face for each job. Use something that is intuitive for your business and saves you time rather than wasting more of it.