You're about to wire $340,000. Here's what's actually in that document.
Every month during construction, the general contractor submits a pay application — a formal request for payment for work completed during the period. On a $5M project, a single pay application might be $400,000 or $600,000. Most owners approve them with a quick review and a wire.
That's understandable. The construction process is consuming your attention in a hundred other ways. But the pay application is where billing disputes live, where front-loading happens, and where the gap between what you're paying for and what's actually been built can compound month over month.
Here's how to read one correctly.
The AIA G702/G703: what you're actually looking at
Most commercial construction pay applications use the AIA G702 (Application and Certificate for Payment) and G703 (Continuation Sheet) forms — or a contractor's proprietary equivalent. Both forms contain the same core information:
The G702 (Summary Page) tells you:
- Original contract sum (what you agreed to pay for the project)
- Net change by approved change orders (additions and deductions since contract)
- Adjusted contract sum (original + approved change orders)
- Total completed and stored to date (how much work has been done including materials stored on site)
- Retainage (the holdback percentage, typically 5-10%, withheld until project completion)
- Total earned less retainage (what the GC has earned minus the holdback)
- Total previous payments (what you've already paid)
- Current payment due (what they're asking for this period)
- Balance to finish including retainage (what's left to complete the project)
The G703 (Continuation Sheet) tells you:
- Every line item in the schedule of values (the budget breakdown by work category)
- How much was contracted for each line item
- How much was billed in prior periods
- How much is being billed this period
- How much is stored (materials on site but not yet installed)
- What percentage complete each line item is
The G703 is where you do your actual review. The G702 is the summary that results from it.
What is the schedule of values — and why it matters
Before the first pay application, the GC submits a schedule of values (SOV) — a breakdown of the contract sum into line items. On a well-prepared SOV, each major trade and work category has its own line: concrete, structural steel, mechanical, electrical, plumbing, finishes, and so on.
The SOV is the baseline against which every pay application is evaluated. If the SOV was poorly structured at the start of the project — with lines that are too broad, or front-loaded — every subsequent pay application will be harder to evaluate.
Front-loading in the SOV: Front-loading happens when a GC assigns a higher percentage of the contract value to early-phase work than those line items actually represent. For example, a GC who assigns $450,000 to "site work and foundation" on a project where the actual site work costs $280,000 is front-loading. They receive the $450,000 when the foundation is complete, collect the margin early, and the later phases are effectively funded by the owner's early overpayments.
A well-prepared owner or CM reviews the SOV before approving it and pushes back on any line items that appear disproportionate to their actual cost. If you didn't catch front-loading in the SOV, you'll see it in the pay applications — the early applications will show completion percentages that feel high relative to what you can observe on site.
Four things to check on every pay application
1. Percentage complete vs. observable progress
Walk the job site before approving the pay application. The G703 will show percentage complete for each line item. Does it match what you can see?
An electrical line item showing 65% complete on a building that is still in rough framing should raise a question. Your electrician may have rough-wired more than you expected — or the percentage may be optimistic. Ask.
You don't need to be a construction professional to make this assessment at the major trade level. Structure and shell: can you see the framing? Is it actually 70% done? Interior finishes: is the flooring actually in? The visual inspection is the first check.
2. Stored materials billed but not on site
Pay applications can include billing for materials purchased and stored on site (but not yet installed). This is legitimate — if $80,000 in HVAC equipment is sitting in a protected storage area at the job site, billing for it when it's delivered is reasonable.
What's not reasonable: billing for materials that are "stored" at the GC's warehouse off-site, that haven't been delivered yet, or that were invoiced to the GC but not yet received. Ask for the delivery confirmation or the supplier's invoice for any stored materials line item that's significant.
3. Change orders — approved vs. pending
The G702 shows net change by approved change orders. Look at this number and compare it to your own tracking of approved change orders. If the GC's number is higher than what you've formally approved in writing, stop and reconcile before approving the pay application.
Change orders that are "pending" — submitted but not yet approved — should not appear in the current payment request. A GC who includes pending change order work in the pay application billing is collecting payment for work that hasn't been agreed to yet.
4. Retainage mathematics
If your contract specifies 10% retainage, every line item should show 10% withheld. Check the math: does the retainage column add up to 10% of the total completed work? On a large pay application, arithmetic errors in the retainage column can create over- or under-collection of retainage that compounds across periods.
When is retainage released? Typically at substantial completion — when the project reaches a state of completion that allows the owner to use it for its intended purpose, even if punch list items remain. The retainage release is a negotiated event. Know the terms in your contract before you get there.
The lien waiver: get it before you wire
Every pay application should be accompanied by a conditional lien waiver from the general contractor, and — critically — unconditional lien waivers from all major subcontractors and material suppliers for the prior period's payment.
Conditional lien waiver: The GC waives lien rights against the property for the current payment amount, conditional on actually receiving the payment. This protects you if the GC cashes your check but doesn't pay their subs.
Unconditional lien waiver: Executed after the prior period's payment was actually received. Confirms that the GC (and ideally the subs) received and applied the prior payment. Subs who weren't paid by the GC can file liens against your property even though you paid the GC — the unconditional lien waivers from subs confirm the money flowed through.
An owner who approves pay applications without collecting lien waivers is operating without protection. On a $5M project with 15 subcontractors, the lien exposure if the GC fails to pay their subs can be substantial — and the sub can file a lien against your property even though you paid the GC in full.
When to push back — and how
The pay application approval process is not adversarial. The vast majority of GC billing is accurate, and pushing back unnecessarily damages a relationship you need for the next 9 months. But when something doesn't add up, the right move is to ask, not to silently approve.
The professional way to push back: "Before I process this application, I need to reconcile line item 14 — the percentage shown (72%) is higher than what I observed on site last week. Can you walk me through what's driving that number?" That's a legitimate question. A GC who bristles at it is a GC to watch carefully.
Document all approvals and all pushbacks in writing. The pay application process creates a paper trail that matters if there's a dispute at project completion.
What a CM does that you can't easily do alone
A construction manager or owner's rep who reviews pay applications professionally brings three things you don't have time to provide yourself: familiarity with the SOV from project inception (they reviewed it before approval), a site visit specifically for pay application verification, and the professional standing to push back on billing without damaging the relationship.
The CM fee on a $5M project is typically $100,000-$150,000 across the project lifecycle. On a project where the CM catches one meaningful front-load, one questionable stored materials billing, and one pending-change-order-included-in-billing situation, the fee has paid for itself before the project reaches framing.
Building a project without an owner's rep? If you want a one-time review of your GC's pay application before you wire, or a quick read on your schedule of values before you approve it, that's a conversation worth having early.