What is AIA Billing and What Are Its Pros and Cons?

Money is one of the most important factors in the construction industry. A construction project often contains multiple billing cycles and payment. This often make the financial aspect of a construction project more complex than it should be. 

Even for experienced contractors, payment and billing can be time-consuming. The fact five different construction companies may have five different systems for billing causes even more chaos.

As a solution, many contractors decide to standardize the billing process through AIA billing. Through standardization, billing processes in the construction industry are faster than before.

However, AIA billing and AIA billing forms come with their own strengths and weaknesses. What may seem like a tool for change sometimes makes situations worse. AIA billing may be one of said tools for contractors, but it causes more confusion in most cases.

If you have similar experiences, this is the right place to be. This guide will cover everything one needs to know about AIA billing for it to be helpful.

What is AIA Billing

The American Institute of Architects (AIA) created AIA billing to standardize the billing process.

The two most common AIA billing documents are the G702-1992 and the G703-1992, those being the “Application and Certificate for Payment” and the “Continuation Sheet,” respectively. The AIA provides numerous other forms as well, but the two are the most common as they have set standards to what billing documents should contain. The majority of contractors use G702 and G703 or unofficial/customized versions of them for the billing process.

How Do You Use G702-1992?

Understanding what each section represents helps significantly before filling out anything in an AIA billing form.

A G702-1992 form is made up of sections for different purposes—sections for project information, payment details & calculation, and certification, in their respective order from top to bottom. While the second section is the one that can lead to payment delays and cashflow issues, let’s start with the first section.

Section 1: Application and Certificate for Payment

The first section is fairly simple and straightforward: filling in the basic information of the project. The following is a list of fields on the form and what should be written in them:

• To Owner: Name and address of the project owner
• From Contractor: Name and address of the contractor making request
• Project: Name and address of the property/project
• Via Architect: Name and address of the architect
• Application No.: The payment application’s number
• Period To: The last date of the period which you’re billing up to
• Contract For: A short summary of the project
• Contract Date: The date the contract was signed
• Project Nos.: The date the contract came into effect
• Distribution To: Checkbox to indicate who else should receive a copy of the form

Section 2: Contractor's Application For Payment

This section is where mistakes can have detrimental impacts on the project, so be precise and double check everything!

• Original Contract Sum: The original contract price written in the contract (will never change throughout the project)
• Net Change By Change Orders: Changes to the original sum from change orders, also see line 10 of this section (depending on whether work was added, deducted, or both, this net change can be a negative number)
• Contract Sum to Date: The current contract sum after change orders (combine “original contract sum” with “net change by change orders”)
• Total Completed & Stored to Date: Fill in the “Grand Total” value from G703-1992 Continuation Sheet (see How Do You Use G703-1992?)
• Retainage: % of payment that is withheld until project is done (Multiply line 5a by the amount of work completed, and multiply line 5b by the amount of materials stored and add the two values)
  • “% of Completed Work” & “% of Stored Material”: Both written in the original contract
• Total Earned Less Retainage: Subtract amount of work completed and materials stored by total retainage in line 5
• Less Previous Certifications For Payment: Put zero if this is the first pay app of the project, if not, put the value of line 6 from the previous pay app.
• Current Payment Due: The amount you are expected to receive from this application (simply subtract line 7 by line 6)
• Balance to Finish, Including Retainage: The remaining contract value after this payment is delivered (subtract line 3 with line 6)
• Change Order Summary (both adding and deducting work):
  • Total changes approved in previous months by owner: Put all previous change order before this pay app
  • Total approved this month: Current ongoing change orders during this pay app

Section 3: Certification and Signature

After everything, comes what is likely the simplest section of the pay app: signing. 

An important process to pay attention to is signature notarization. Notarization is a process that brings a third party into the equation of a two party contract/agreement for record-keeping and certificating.

The field for notary publics to sign is standard in official forms from the AIA. If either side of the contract (that’s you and the project owners) decided a notarization is necessary, DO NOT sign the form until a notarization is taking place. If both parties decide otherwise, the form can be edited to fit different needs.

How Do You Use G703-1992?

As mentioned above, G703-1992 (Continuation Sheet) is just as common and important as G702-1992. This section will run you through what you should know about filling out a G703-1992 form.

Section 1: Basic Information

Similar to G702-1992, G703-1992 also contains a field for you to fill out basic information about the project and the contract. The good news is the fields are fairly simple, some are even present in G702-1993 as well: “application number” and “period to.”

Section 2: Table

The table that takes occupies spaces of the document is what we’re using G703-1992 for. The table is for subcontractors to list items and their respective values there for easy calculation and reference. Next, this section will explain the table by going through what should be filled in each column for a single item.

• Item no.: Reference number for each item
• Description of Work: A short summary of the work
• Scheduled Value: The scheduled value represents the cost required to complete each item.
• Work Completed
  • From Previous Applications: Value of all the previous work before this (leave blank if this is the first pay app)
  • This Period: The value of the work covered in this pay app
• Materials Presently Stored: Value of all the materials stored on-site up until the date of the current pay app
• Total Completed and Stored to Date: As the note in the parenthesis states, combine the values of column D, E, and F.
  • Percentage: Take the note’s instruction as well. Divide the value of column G by the value of column C.
• Balance to Finish: Similarly, take the amount of column C and subtract it by the value of column G.
• Retainage: Only for variable retainage rate. Leave blank if the retainage rate of your project doesn’t shift throughout the project

The Pros and Cons of AIA Billing (Forms)

One of the strongest advantages of AIA billing forms is the fact it provides a universal, standardized means of tracking budget. Allowing multiple parties to go through the payment and billing process without the need to “translate.” This not only smoothens cash flow, also saves significant amount of time.

AIA billing forms present details like requested payment, work completed, and materials used in a concise manner. This provides clarity and transparency, which are especially important when dealing with money.

AIA billing forms provide a solution and remedy to non-payments as well. If subcontractors are experiencing a non-payment in construction contracts, an AIA billing form acts as reference and supporting documentation to how much is done and how much is owed.

The use of AIA billing forms speeds up the billing and payment process if all parties are familiar with the ABCs of AIA. However, this is where AIA billing forms’ biggest weakness comes into the scene: it is extremely difficult to get familiar with it. The components in an AIA billing form are complex and often require explanation from an experienced individual in order for first-timers to understand.

On top of this, AIA billing forms must be purchased, and they are quite expensive. Both G702-1992 and G703-1992 cost $39.99 each for a single-time use ($1,599.99 per year allows unlimited usage to all AIA documents). The price that comes with AIA billings forms may pose financial burdens, especially to local businesses.

Conclusion

Whether it be G702-1992 or G703-1992 or any other billing forms, they are all tools to assist contractors and subcontractors fast forward the billing process.

Similar to all tools, they come with a cost. Not knowing how to use AIA billing forms is just as good as not having them in the first place. Contractors and subcontractors must thoroughly understand AIA billing forms to fully utilize them in business.