Over and under billing from the owner's side of the table
Over billing and under billing are accounting terms from the contractor's side. Over billing means the contractor has billed more than the cost and earned margin on the work to date. Under billing means the reverse. Contractors manage the balance deliberately, because over billing funds the job and under billing strains cash.
From the owner's side the same facts look different. Over billing means the owner has paid for work that has not yet been done. If the contractor or a subcontractor fails, the owner has paid for something it does not have. Under billing means the owner is holding cash the contractor has earned, which sounds safe until a subcontractor lien arrives because the contractor could not pay them.
How over billing shows up on the G703
The mechanism is the schedule of values. If the early lines, mobilization, site work, foundations, structure, carry more value than their real cost, the contractor bills a larger share of the contract in the early months. The later lines, finishes and commissioning, carry less. By the middle of the project, percent complete by billing runs ahead of percent complete by work. The G703 shows it, if the owner compares the two.
The second mechanism is percent complete on individual lines. A drywall line claimed at 70 percent when three of six floors are boarded is an over bill of that line. Each one is small. Across a hundred lines they add up. A site walk with the G703 in hand is the owner's only real check, and an architect's certification, while required, is usually a reasonableness review rather than a measurement.
Why it matters more on a GMP
On a lump sum contract, over billing is a timing issue. The total does not change. On a GMP with cost of work reimbursement, the pay application is also the record of cost, and cost feeds contingency, shared savings and the anticipated final cost. A front loaded schedule of values distorts the percent complete that the contingency burn rate is measured against. The fund looks healthier than it is, because the denominator is inflated.
A fictional $44 million office building shows the effect. The contractor bills 48 percent of the GMP by month ten. Schedule percent complete is 39 percent. Contractor contingency is 45 percent drawn. Against billed progress the burn looks fine. Against schedule progress the fund is being drawn faster than the work, and the projected exhaustion date moves three months earlier.
Stored materials
Stored materials are a legitimate reason for certified to run ahead of installed work. Check your contract for what is allowed: most require an invoice, proof of title and insurance, and sometimes a site visit to the storage location. Stored material that cannot be verified is over billing with a different name.
Under billing is also a signal
An owner rarely complains about under billing, but it is worth noticing. A contractor who is consistently under billing may have a schedule of values that was set too low on the lines now in progress, may be holding back billing to avoid a difficult conversation about a line that is over budget, or may have cash flow problems elsewhere that will surface as slow subcontractor payment. None of these are the owner's fault. All of them can become the owner's problem.
Under billing also affects the lender. Draw requests that run below the planned curve can trigger questions about schedule and about whether the loan term will cover the extended duration.
What the owner can do
Ask for a schedule of values that is balanced at the start, with general conditions spread over the duration and no mobilization line larger than the actual mobilization cost. Compare billed percent complete to schedule percent complete every month and record the gap. Walk the site with the five largest G703 lines before approving the pay application. Hold retainage at the contract rate and do not reduce it early without a specific reason. Keep a record of each month's gap, so a trend is visible.
Costwitness records the certified figures from each pay application, compares billed percent complete to schedule percent complete, and flags any line or any month where the gap exceeds the tolerance the owner sets. The flag is a prompt to look. The owner's team decides whether the explanation is stored materials, a lumpy schedule, or front loading.
What to check this month
- Calculate billed percent complete from the current G702 and compare it to the schedule percent complete from the contractor's report.
- Walk the site with the five largest G703 lines and note your own percent complete estimate beside the contractor's.
- Review stored material backup for any line with a significant stored amount.
- Confirm retainage is being held at the contract rate and has not been reduced without written approval.
Questions on this
Is over billing the same as fraud?
No. Over billing is common, largely lawful, and often a product of how the schedule of values was set. It becomes a problem when it is large, unsupported, or hides a failing subcontractor. The owner's job is to keep it visible and within reason, not to treat every instance as misconduct.
Can the owner reject a pay application for front loading?
Under most AIA A133 based agreements the architect may withhold certification in whole or in part for work not performed, and the owner may withhold for specific listed reasons. Check your contract. The usual practice is to negotiate the percent complete on the disputed lines rather than reject the whole application.
How does retainage protect against over billing?
Retainage holds back a percentage of each certified amount until completion, which partially offsets any amount billed ahead of the work. It is a partial protection only. If billing runs ahead by more than the retainage rate, the owner has still advanced funds.
In the product
Monthly owner report, Contingency ledger, GMP baseline. Free tool: Contingency Runway, Pre-GMP Readiness Score.
Keep reading
Earlier: Retainage and the owner's ledger: recording what is held and when it releases. Later: The cash flow S curve: planned against certified, with a forecast. All articles on owner reporting.
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