Timely and accurate payments are crucial for the successful completion of a construction project. Payment applications serve as the backbone of this process, facilitating requests for compensation for contractors and subcontractors who adequately evidence work performed. However, navigating the complexities of payment applications can be challenging.

Managing payment applications successfully directly impacts cash flow and project success. Leveraging an independent payment application review can provide invaluable benefits, including validating charges, saving time, improving accountability, and increasing efficiency.

Gain insights into the payment application process and how a third-party review can bring effective oversight and improve efficiency of payment processes that can boost your project’s success.

What Are Payment Applications?

Payment applications are formal requests for payment submitted by contractors to project owners or general contractors. They detail the total contract value, work completed to date, the amount due, and any retainage withheld. Typically structured in accordance with the contract terms, these documents help facilitate cash flow and help align all parties on project progress and financial obligations.

Common formats for payment applications include:

• American Institute of Architects (AIA) Forms. The AIA’s G702 and G703 are widely used in the United States and include an organized summary of the original contract amount, approved change orders, work completed, the amount requested, and an itemization of cost by Construction Specifications Institute divisions or per the project owner’s request.
• ConsensusDocs. This format offers a comprehensive approach that aligns with various contract types, providing a clear structure for detailing construction progress and payment requests.
• Custom Formats. Many contractors can develop their own templates tailored to owner-specific requirements.
• Online Platforms. Increasingly, contractors are using software, such as Textura or GCPay, with built-in templates and workflows that can help streamline submissions and approvals.

Common Challenges and Pain Points

Despite their importance, payment applications often present several challenges:

• Complex Documentation. Depending on contract type, payment applications may require extensive documentation, including invoices, receipts, and progress reports, leading to errors and delays if not properly maintained.
• Inconsistent Formats. Using different payment application formats with varying requirements may lead to confusion, inefficiencies, and non-compliance with contract.
• Delayed Approvals. Incomplete or inaccurate documentation may lead to slow review and approval processes, which can hinder cash flow and put financial strain on contractors and subcontractors or cause project delays.
• Disputes Over Amounts. Discrepancies between what was requested for payment and what’s approved can lead to disputes, further complicating and delaying the payment process.
• Lack of Transparency. Without clear communication and documentation, misunderstandings can arise.

Guidelines For Managing the Payment Application Process

To mitigate these challenges, consider implementing the following:

• Standardize Formats. Use a standardized template for payment applications that aligns with industry norms. This can streamline the submission process, increase transparency, and reduce errors.
• Maintain Clear Documentation. Keep meticulous records of all project-related documents including contracts, change orders, cost reports and records, and progress photos.
• Establish a Timeline. Set clear deadlines for submitting pencil and final payment applications and keep stakeholders informed of these timelines. This can help avoid delays in approvals.
• Communicate Regularly. Establish a consistent communication process to encourage regular updates on project progress to stay ahead of challenges and reduce disputes.

What’s a Third-Party Payment Application Review?

A third-party payment application review involves an independent assessment of payment applications submitted by contractors on a regular basis throughout the project lifecycle. This review validates that documentation is complete, accurate, and compliant with contractual requirements.

A third-party or independent reviewer can help enhance the payment application process, leading to improved project controls, billing processes, and transparency among relevant parties.

Benefits of Third-Party Payment Application Reviews

Leverage a third-party application payment review to not only improve the payment application process, but also:

• Minimize Errors and Inconsistencies. By validating that charges are allowable and adequately supported, an independent review can help minimize the risk of errors or inconsistencies that can lead to disputes.
• Maintain Focus. Payment applications can be time-consuming to prepare and review, which can pull project leaders’ focus from project execution. A third-party review may allow contractors and project managers additional time to focus on project execution and strategic planning.
• Mitigate Risk. Third-party reviews foster a culture of accountability and transparency throughout the project and help identify risks that may delay the payment application approval and payment process.
• Streamline the Process. A third-party review can offer insights, identify and address potential issues, and offer improvement opportunities, leading to a streamlined payment application review and approval process.
• Uncover Opportunities. Independent reviewers can provide valuable internal controls and best practices recommendations to contractors and project owners to enhance project cost reporting and billing controls to streamline payments and final project cost reconciliations.

We’re Here to Help

To learn more about the payment application process and how an independent payment application review can benefit your organization, contact your Moss Adams professional.

Additional Resources

• Construction Practice
• Construction Audit Capital Projects Advisory Services