Most general contractors don't get paid for the work they did last week. They get paid for the work they bill, on the forms the architect expects, with the math the owner can verify. Submit a clean pay application on the first of the month and money lands in your account in 30 days. Submit a sloppy one and your foreman is floating payroll on a credit card while you argue line 14 with a project manager who hasn't been on site since the foundation pour.
The American Institute of Architects (AIA) figured this out decades ago. Forms G702 and G703 are now the default language of construction billing across the United States, used on commercial projects, institutional work, and a growing share of high-end residential builds. If you bid AIA-style work and you can't fill out a G703 in your sleep, your cash flow is leaking before the first invoice goes out.
This guide walks through what each form does, how to build a defensible schedule of values, how retainage and change orders flow through the continuation sheet, and how the same numbers tie into ASC 606 revenue recognition on your year-end financials.
What G702 and G703 Actually Are
Two forms work together as a single payment package.
G702 — Application and Certificate for Payment is the one-page cover summary. It tells the owner the contract sum to date, the total work completed and stored to date, the retainage held, the previous payments already made, and the current amount due. It's signed by the contractor (certifying the work was performed), the architect (certifying the work was observed), and ultimately approved by the owner who cuts the check.
G703 — Continuation Sheet is the line-item detail behind the G702 cover number. Each row is one component of the project's schedule of values — say, "Concrete - Foundations" or "Electrical Rough-In" — with columns for the scheduled value, work completed from prior periods, work completed this period, materials stored, total completed and stored to date, percentage complete, balance to finish, and retainage withheld.
The G702 number ties out to the G703 totals. If they don't reconcile, the architect rejects the pay app and you wait another billing cycle.
Building a Defensible Schedule of Values
The schedule of values (SOV) is the foundation of every pay application you will ever submit on the job. Get it wrong at contract signing and you will fight about every billing for the rest of the project.
A good SOV breaks the contract sum into 40 to 60 line items. Too few and you can't defend the percentage complete the architect challenges. Too many and you bury your project managers in busywork without adding precision.
What to include as line items
- Mobilization and general conditions — site setup, temporary utilities, project management. Front-loaded but not absurdly so; architects scrutinize this.
- Division-by-division trade work — site work, concrete, masonry, structural steel, rough carpentry, roofing, doors and windows, drywall, paint, flooring, plumbing rough and finish, HVAC rough and finish, electrical rough and finish.
- Allowances — for finishes the owner hasn't selected, listed as a single line until decisions are made.
- Bonds, insurance, and permit fees — billed when paid, not amortized.
- Closeout — final cleaning, punch list, attic stock, O&M manuals, as-builts. Reserve 1–3% of contract value here, because the last 10% of any project takes 30% of the effort.
What to avoid
- Front-loading material costs onto labor lines. Architects spot this immediately and will challenge every future billing.
- Lumping change orders into the original SOV. Each change order gets its own row on the G703.
- Aspirational line values. Bid honestly. If concrete cost you $180,000 and you list it at $240,000 to recover margin from a thin masonry line, the owner will ask for backup at the worst possible moment.
The SOV gets approved by the architect before the first pay application. Treat that approval as a contract amendment in its own right — file it with the executed agreement and reference it in every G703 you submit.
Walking Through a Pay Application
Here's how a typical monthly pay application flows.
Step 1 — Decide the billing cutoff. Most AIA contracts bill through the 25th of the month, with the application submitted between the 25th and the 30th and paid within 30 days of certification. Pick a cutoff date in the contract and never deviate from it. Crews ask "is this on this month's billing?" — the answer should be "if it was installed by the 25th, yes."
Step 2 — Walk the site and assess percent complete by line item. Don't guess. Each foreman should give you a defensible percentage for their scope, ideally with photos. "Drywall hung, taped, first coat" is roughly 60% complete; "drywall hung only" is closer to 35%.
Step 3 — Fill out the G703.
- Column A — line item number.
- Column B — description of work.
- Column C — scheduled value (from the approved SOV).
- Column D — work completed from previous applications.
- Column E — work completed this period.
- Column F — materials presently stored (not yet incorporated into the work).
- Column G — total completed and stored to date (D + E + F).
- Column H — percentage complete (G ÷ C).
- Column I — balance to finish (C − G).
- Column J — retainage withheld.
Step 4 — Carry totals up to the G702 cover. Original contract sum, net change orders, contract sum to date, total completed and stored, retainage, total earned less retainage, less previous certificates for payment, equals current payment due.
Step 5 — Submit the package with backup. Lien waivers from subs covering the prior payment, certified payroll if required, stored-materials documentation, and any change order paperwork pending architect approval.
Industry data shows complete applications with proper backup get paid about 18 days faster than incomplete ones. Skipping the lien waiver to "save time" almost always costs more in float than it saves in admin.
Stored Materials: The Column F Trap
Column F on the G703 lets you bill for materials you've purchased but not yet installed. It's a lifeline when you've prepaid for steel, generators, or owner-furnished long-lead equipment. It's also where most disputes start.
To bill for stored materials and survive an audit, you need:
- Off-site storage agreement signed by the owner if the materials aren't on the job site, naming the storage facility, insuring the materials, and granting the owner title.
- Paid invoices showing the contractor has actually paid the supplier.
- Inventory lists and photographs with serial numbers where applicable.
- Insurance certificates naming the owner as additional insured for the value of the stored materials.
When materials move from stored (Column F) to installed (Column E), they shift out of F into E. Total in Column G doesn't change — but the percentage complete in Column H typically jumps, because installed work is what drives the project forward.
Retainage: The Money You Earned and Haven't Been Paid Yet
Retainage (some contracts call it "retention") is the percentage of each progress payment the owner withholds until the project is substantially complete. Standard rates run 5% to 10%, depending on jurisdiction and contract.
State law increasingly caps retainage on private projects. California SB 61, effective January 1, 2026, limits retention on most new private construction contracts to 5% of each progress payment and 5% of the total contract price — a meaningful change for contractors who used to live with 10% withholding on California work. Most public-works statutes and many private contracts now require release of retainage within 30 to 45 days of substantial completion, with subcontractor retention released within 10 days of the prime contractor receiving its share.
On the G703, retainage appears in Column J and is calculated as a percentage of Column G (total completed and stored to date). On the G702 cover, total retainage is subtracted from total earned to arrive at the current amount due.
Reducing retainage mid-project
Many contracts allow the owner to reduce retainage at 50% completion if the work is on schedule and the contractor's performance has been satisfactory. Build a calendar reminder for the milestone and submit the request in writing — owners rarely volunteer to release money they're holding.
Booking retainage on your own books
Retainage withheld is still revenue you've earned. On your balance sheet, the amount sits in Retainage Receivable — a separate asset account from regular Accounts Receivable. Don't lump them together, because retainage receivable has a different collection profile (months or years, not 30 days) and your banker will want to see them broken out separately when underwriting your line of credit.
The journal entry when you issue a pay application looks like this:
- Debit Accounts Receivable (amount due now)
- Debit Retainage Receivable (amount withheld)
- Credit Contract Revenue (total earned this period)
When the owner releases retainage at the end of the job, you transfer Retainage Receivable into Accounts Receivable and collect normally.
Change Orders on the Continuation Sheet
Approved change orders modify the contract sum and have to flow through the G703. The clean way is to list each approved change order as its own line item below the original SOV — "CO #1 — Added scope: rear patio extension, $48,500" — and bill against that line just like any other.
Pending change orders are trickier. The work may be in progress while the architect and owner negotiate price. AIA documents allow you to bill at your reasonable estimate while a change order is pending, but most owners will resist. Get the change order signed before you bill it, even if you have to absorb a few weeks of cash-flow drag.
On the G702 cover, "Net change by change orders" sits between "Original contract sum" and "Contract sum to date" — making the total contract value transparent on every billing.
ASC 606 and Percentage of Completion
If your books are on accrual basis and your projects span multiple periods, ASC 606 — the FASB revenue recognition standard — governs how you recognize revenue. For most general contractors, this means revenue is recognized over time, using an input method (typically cost-to-cost) to measure progress toward satisfaction of the performance obligation.
The link between the G702 pay application and ASC 606 revenue is direct but not always identical.
G702 progress billing measures progress by the architect's certification of percent complete on the schedule of values.
ASC 606 cost-to-cost measures progress by total costs incurred to date divided by total estimated costs at completion (the "EAC").
When the two diverge, you get over-billing or under-billing:
- Over-billing (billings in excess of costs and estimated earnings) is a liability on the balance sheet. You've billed faster than you've earned — common when you front-load the SOV. The liability unwinds as you incur the costs to back up the billings.
- Under-billing (costs and estimated earnings in excess of billings) is an asset. You've earned more revenue than you've billed — common when change orders are pending or the SOV is too back-loaded. The asset converts to receivable when you catch up the billings.
A typical month-end journal entry for a single project might look like:
- Debit Construction in Progress (costs incurred this period)
- Credit Accounts Payable / Cash (subcontractor and material costs)
- Debit Cost of Construction (revenue × cost-to-cost %)
- Credit Construction in Progress
- Debit Accounts Receivable + Retainage Receivable (G702 amount)
- Credit Contract Revenue + Billings in Excess (or debit Costs in Excess) to balance
For accountants who haven't worked construction, the over/under-billing reconciliation is the single most common audit finding. Track it monthly, project by project. Don't wait for year-end.
Practical Habits That Get You Paid Faster
After years of watching contractors fight about pay applications, a handful of habits separate the firms that get paid in 30 days from the ones who wait 90.
Submit on the same day every month. Architects route pay apps in the order they arrive. If yours lands the second business day after the cutoff, every month, it gets priority handling.
Pre-meet your G703. A week before the cutoff, walk the site with the architect's project manager and agree on roughly where each line item will land. Surprises in a pay app are why architects reject them.
Honest percentages build trust. If you bill 85% on drywall this month and 95% next month, the architect approves both without a fight. If you bill 95% this month and you're really at 70%, the architect catches it, kicks the pay app back, and now you're suspect on every billing for the rest of the job.
Lien waivers tied to checks. Conditional waivers on the current billing, unconditional waivers on the previous billing once you've been paid. Architects who've been burned will hold your pay app until the waivers reconcile.
Track your over/under-billings monthly. If your over-billings start growing faster than your costs, you're heading for a cash crunch the moment a project closes out. The G702 number tells you what you billed; your accounting system tells you what you earned. The difference matters.
Keep Your Construction Books Audit-Ready
Job-cost accounting is unforgiving. Every dollar of subcontractor invoice, materials purchase, and labor burden has to land on the right project, the right line item of the SOV, and the right period — or your over/under-billing schedule lies to you, your gross margin lies to you, and you find out at year-end that the job you thought made money actually lost it.
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