The American Institute of Architects (AIA) billing process is a hassle-free, industry-standard process that commercial and industrial construction companies use for billing and payments. The ultimate payment solution in terms of accuracy, reliability, and transparency, AIA billing comprises two essential documents that simplify progress tracking, billing, and receivables collection.
Learn how the AIA billing process works, what documents are needed, and how your construction company can leverage this universally accepted payment process for your next construction projects below.
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At its core, the AIA billing process ensures contractors are justly compensated for completed work. By defining an industry standard widely accepted by contractors, stakeholders, and owners of large commercial construction projects, the AIA billing process eliminates the most common billing and payment delays within the construction industry.
The American Institute of Architects (AIA) created the AIA billing process as a means of eliminating the confusion that often comes from different customized billing forms. By relying on a standard that all contractors and owners can follow, the AIA billing process reduces the likelihood of disagreements.
Within the AIA billing process, two primary documents drive payments. These include the G702 and G703 documents. Both documents are used in unison to clarify billing and payments during a given construction project.
The G702 document is called the Application and Certificate for Payment, while the G703 document is called the Continuation Sheet. Contractors use the G702 document to summarize the total value of the construction project, amounts paid to date, and the current amount due.
The G703 document provides a more accurate and detailed breakdown of the summary provided in the G702 document. In this way, it complements the G702 document and the construction project’s schedule of values (SOV) by providing an accurate list of completed work.
Both the G702 and G703 forms provide the framework by which construction companies can fully leverage the AIA billing process. Both documents are widely accepted within the construction industry and have become the preferred means of progress billing and payment tracking.
For contractors, the G702 document is the official form when billing work. The G702 document summarizes work performed, the amount the contractor is requesting for payment, any previous payments made, what amounts are in retainage, and the date the current payment must be made.
The G702 document will also provide information concerning the total value of the construction project, finished work to date, and outstanding balances. For contractors and owners, the G702 document provides a comprehensive summary of work performed and the amount requested for payment.
With the G703 document, contractors can provide a detailed summary of completed work, remaining work, and the number of materials on hand or at the jobsite within a given line item of the SOV.
In this case, the G703 is more detailed about a given line item, allowing contractors to provide more comprehensive breakdowns of the work completed and corresponding costs.
For owners, it means having a document that provides them with granular information about what they’re paying for, what percentage of the overall construction project is being billed, and when payment should be made.
The benefit of both the G702 and G703 documents is that their use is not contingent upon the size of the construction project. As both documents have gained in popularity and become the norm, more contractors and owners use both regardless of the scope or size of the construction projects under their management.
Again, understanding the terminology and terms used in the AIA billing process is essential for contractors, stakeholders, and owners. By understanding the terms used within AIA billing, everyone ensures a transparent billing and payment process.
Here is a list of the most common terminology used within the AIA billing process.
Typically referred to as a construction change order (CCO), this document outlines a requested change to a given line item within a construction project’s Scope of Work (SOW). Contractors, subcontractors, owners, and other stakeholders can initiate a CCO. Its purpose is to alter the work requirements of a given line item.
A CCO can be quite elaborate. It can be initiated by the contractor themselves if they encounter jobsite conditions that make the specific work item untenable. It can be initiated by subcontractors who may find that the material requirements or processes are not safe or not conducive to maintaining the overall timeline for the project.
Regardless of whether the change order is initiated by the contractor, a subcontractor, owner or other third party, it must clearly define the reason for the requested change, a description of the change, how that change will impact the costs of the line item and the project overall and what, if any impact, the change will have on the project’s overall timeline.
A CCO is often accompanied by supporting documentation that attests to the change request. That documentation can come from a third party, such as an engineering firm or consultant.
With each change order, a number is assigned as well as a detailed outline that explains what changes to work processes are needed.
Finally, a CCO cannot proceed without the appropriate signoffs from the party that initiated the change request, owners, and other stakeholders.
All large-scale industrial or commercial construction projects contain retainage, which is simply a percentage or portion of the project’s total value held back until the finished project meets all requirements found within the SOW.
Retainage is used by owners of construction projects as a means of ensuring the finished project meets all the agreed-upon requirements. It provides owners with a level of security knowing that this final amount for payment won’t be made until they are satisfied with the finished job.
For contractors, retainage acts as an incentive that ensures they meticulously follow proper work processes and procedures throughout the project.
With the AIA billing process, a percentage of each line item billed is retained by the owner. Typically, this amount varies from five to 10 or 15 percent, depending on what was agreed to. With each line item billed, another percentage of that line item’s costs is withheld.
With each milestone achieved by the construction company, the retainage amount grows until the project is finished. Once the owner is fully satisfied with the final project, the retainage amount is paid in full to the contractor.
While owners benefit from the security that retainage provides, and contractors are incentivized to follow proper work processes and procedures, it can impact a contractor’s cash flow. In some cases, it’s not just the contractor that sometimes experiences cash flow issues due to retainage. It can also affect all the subcontractors on a given project.
As such, contractors should plan accordingly and be aware of the percentage held back from the outset of any new contract.
A project’s schedule of values (SOV) is essentially a payment processing and tracking document that defines various payment milestones. It provides owners with an itemized list of all the work involved within the construction project, along with the associated costs. It ensures owners have ample time to free up capital before a given line item is billed.
For contractors, the SOV ensures consistent payment throughout a construction project. This helps them better manage cash flow while helping them reduce their costs of financing receivables. This is especially important in an industry where receivable collection timelines can exceed 120 days.
For both owners and contractors, the SOV provides a single reference source by which both parties can track billing and payments. It provides clarity, improves communication, and helps to eliminate any disagreements or confusion concerning the costs of any given line item.
Within the AIA billing process, the SOV can be referenced, but it’s ultimately the G702 and G703 documents that drive billing.
Owners and contractors will often find stored materials outlined within the G703 form. Simply put, stored materials include all the building and construction raw materials and consumables used and stored onsite by the contractor. In some cases, stored materials can also refer to materials that are stored off-site.
Within the AIA billing process, stored materials are often referenced and included in billings. To ensure clarity and traceability, stored materials must come with proof of purchase, such as construction invoices or other documents attesting to ownership by the contractor.
The benefit of the AIA billing process is that it provides billing and payment clarity and transparency for contractors and owners. However, to be successful with the AIA billing process, the following steps must be adhered to:
For contractors, it’s the G702 form that acts as the official document for billing. When contractors are finished with a particular work item, they must ensure that all costs have been properly defined. Next, contractors must ensure their G702 is properly dated and has a specific G702 reference or identification number as well as the construction project reference number or identifier.
In the bottom right-hand corner of the G702 document, there is a section called “Architect’s Certificate for Payment." This section is entirely for the owner, the architect responsible for the overall project, or the project manager overseeing the construction project.
Only after this section has been completed by the owner or architect is the amount for that line item paid. In some cases, owners and contractors may request more than just the signature of the owner or architect for this section. Having this portion notarized is common on larger projects.
To save time and avoid delays with the AIA billing process, contractors should take the extra steps to ensure all required documentation and supporting information are clearly defined and included when submitting the G702 and G703 forms for payment. This means meticulously checking both forms to ensure they comply with the schedule of values to eliminate any confusion or delays.
With the AIA billing process, owners can add notes or ask for clarifications. This can include requesting the contractor to make modifications before payment proceeds.
There are several benefits to the AIA billing process for both contractors and owners. These include providing an easy-to-use framework for contract and pricing negotiation. So, instead of using multiple customized and often confusing and easily misinterpreted billing documents, both contractors and owners can use the standard AIA billing process.
It is for these reasons that the AIA billing process has gained widespread adoption and popularity within the construction industry. Success requires construction companies, stakeholders, owners, and other third parties to become well-versed in how the AIA billing process works, its nomenclature, and terminology.
Once everyone is familiar with the AIA billing process, it becomes a proven solution for billing and payment throughout a construction project’s life.
For contractors, the AIA billing process means relying on a payment tracking system that provides payment consistency, predictability, and reliability. For owners and other stakeholders, the AIA billing process means knowing exactly what they’re paying for.
For all parties involved in a construction project, the AIA Billing process provides clarity, savings in both time and money by helping to avoid costly payment and work scheduling delays, while also providing a legal framework for payment on completed work:
Some of the most common challenges within AIA billing include handling and documenting change orders, inaccurate G702 or G703 forms, trying to combine billings across different line items, not having proper supporting documentation, and the time required for approvals before payment.
While some challenges come with the AIA billing process, the following solutions should help.
Software solutions like GCPay automate the AIA billing process. This solution allows for much easier filling out both the G702 and G703 forms, while its intuitive, user-friendly features easily integrate into a company’s financial system and ERP system. This automated process speeds up the submission and approval time while ensuring accuracy for general contractor accounting teams. The ability to track payments in real-time while having a single repository for a contract’s entire billing means far fewer billing mistakes and faster payment times.
Here are some simple tips for contractors just starting with the AIA billing process.
The AIA billing process provides much-needed billing structure and payment clarity within the construction industry. Its success depends upon all parties involved becoming familiar with the terminology used within the AIA billing process.
By leveraging today’s construction-focused software solutions, construction companies can use a single solution that makes completing G702 and G703 forms a much simpler, more efficient, and less confusing process.
As a market innovator and leader of cloud-based software for construction companies, Autodesk ensures your construction projects can be managed through a single, all-encompassing dashboard. Whether you’re just starting with AIA billing or looking for an integrated solution that will streamline your operations, Autodesk is the solution you’re looking for.
If you want to know more about the cloud-based software solutions Autodesk provides for the construction industry, contact us now.
