How to read a G702 and G703 pay application as an owner

A pay application arrives once a month. It asks for money, and it carries a signature line for the owner. Under most AIA A133 based agreements the architect certifies it first, but the owner pays it, and the owner is the one who has to live with the cumulative total at closeout.

The two forms are simple once you know what each box is doing. The G702 is a one page summary. The G703 is the continuation sheet that breaks the contract into the schedule of values and shows how much of each line has been billed. Read the G703 first. The G702 only repeats what the G703 adds up to.

The G702: eight numbers that must agree

The top of the G702 states the original contract sum and the net change by change orders. Together they give the current contract sum. On a GMP contract this is the guaranteed maximum price as amended, not the cost of work to date. If the net change figure does not match your own change order register, stop there. Nothing below it can be trusted until the contract sum is right.

Below that comes total completed and stored to date, taken straight from the G703 total. Then retainage, usually split between completed work and stored material. Total earned less retainage is the amount the contractor has earned so far. Subtract previous certificates for payment and you get the current payment due. These eight figures are arithmetic. Check the arithmetic every month, because the forms are often filled by hand or in a spreadsheet that was copied from last month.

The G703: where the billing actually lives

Each row of the G703 is one line of the schedule of values. Columns run left to right: 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. The percent complete column is the one to read slowly. It is the contractor's claim about progress on that line, and it is the owner's only window into whether billing runs ahead of the work.

On a GMP contract the G703 should also show contingency, allowances, general conditions and fee as their own lines. If contingency is billed as a lump sum line with a rising percent complete, ask what the draws were. If an allowance line is fully billed at 40 percent of the project, ask what was bought. The G703 rarely explains itself. It only shows the totals that the contractor's job cost system produced.

A fictional example

Take a fictional $38 million community college science building. Pay application nine shows the structural steel line at 100 percent complete and the mechanical rough in line at 62 percent. The site walk last week showed ductwork on two of five floors. Sixty two percent may be right if stored material is counted, or it may be front loading. The G703 cannot tell you which. The stored materials column and a bill of sale can.

Five checks before the owner signs

First, confirm the current contract sum matches your own register of executed change orders, not pending PCOs. Second, confirm that the G703 total equals the G702 completed and stored figure. Third, compare percent complete on the five largest lines against what the field report or your own site walk shows. Fourth, look at any line that moved more than a third in one month and ask for the backup. Fifth, confirm retainage is calculated at the rate in the contract, and that any reduction in retainage was approved in writing.

None of these checks require construction expertise. They require the previous pay application, the change order register, and about forty minutes. The hard part is keeping the previous applications in a form that can be compared, which is where most owners fall back to a spreadsheet that was rebuilt last month and will be rebuilt again next month.

What the pay application does not show

A pay application is a record of billing. It is not a forecast. It does not show anticipated final cost, buyout position, pending change orders, or how much contingency remains against how much schedule remains. Owners who read only the pay application learn what has been spent. They do not learn where the project is going to land.

That is why an owner's ledger sits alongside the pay application rather than inside it. Costwitness takes the certified figures from each G702 and G703, stores them as a monthly snapshot, and checks them against the frozen GMP baseline and the change order register. When a line moves faster than percent complete would justify, it raises a flag. A person still decides whether the cause is stored material, front loading, or a schedule of values that was wrong from the start.

In the product

GMP baseline, Monthly owner report, Change order register. Free tool: Pre-GMP Readiness Score, Contingency Runway.

Keep reading

Earlier: Anticipated final cost: the number that matters more than the GMP. Later: Closeout reconciliation: checking the savings figure before you sign off. All articles on owner reporting.