2.6 Payment Applications, Draw Schedules & Schedule of Values
Key Takeaways
- AIA G703 lists each schedule-of-values line item with scheduled value, work completed to date, stored materials, retainage, and balance to finish; AIA G702 summarizes it into the application for payment.
- The Schedule of Values must assign every contract dollar to a line item; front-loading early items to accelerate cash may be rejected by the owner or architect as an unbalanced SOV.
- Retainage is typically 10% withheld each period (sometimes reduced to 5% after 50% completion) and released at substantial completion, minus a punch-list holdback.
- Onsite and off-site stored materials may be billed only when the contract allows and the materials are documented, segregated, insured, and titled to the project.
- The GC must collect partial lien releases from subcontractors before paying them to avoid double payment if a sub or supplier later files a Florida construction lien.
2.6 Payment Applications, Draw Schedules & Schedule of Values
The Contract Administration exam's Project Contracts content area includes Obtaining payments and draws, and the Business & Finance exam includes Prepare Invoices/Draw Requests. Progress payments are the contractor's lifeblood on a long project, and the GC must know how to prepare a schedule of values, submit an application for payment, document stored materials, and release lien rights with each draw.
Payment Methods
| Method | How It Works | Risk |
|---|---|---|
| Monthly progress (most common) | GC bills for work completed in the period; owner pays less retainage. | Cash-flow gap if owner pays late. |
| Milestone / lump sum | Fixed payment at defined completion milestones. | Front-loaded risk if milestones are back-loaded. |
| Cost-plus | Reimbursed cost plus a fee; requires detailed cost records. | Audit burden; disputes over reimbursable costs. |
| Unit-price | Payment per installed unit (CY, SF, LF). | Measurement disputes; field verification required. |
Application for Payment (AIA G702/G703)
The standard progress-payment package on a commercial project uses two AIA documents:
- AIA G703 — Continuation Sheet: Lists each line item of the schedule of values with scheduled value, work completed to date (previous + current), stored materials, retainage, and balance to finish.
- AIA G702 — Application and Certificate for Payment: Summarizes the G703 line items into the total application, including the percentage of work complete and the net amount due after retainage and prior payments.
Exam Key: The application is the contractor's sworn statement of value completed; the architect/owner reviews and certifies it. A false overstatement of completion is misapplication of funds under F.S. 489.129.
Schedule of Values (SOV)
The Schedule of Values is a detailed breakdown of the contract sum assigned to each work item, used as the basis for billing each period. Best practices:
- Granularity: Break down by CSI division or trade; every contract dollar assigned to a line.
- Front-loading limits: Over-loading early line items (site work, foundations) to accelerate cash is detectable and may be rejected by the owner or architect.
- Stored materials: Materials delivered and properly stored but not yet installed may be billed (with documentation) if the contract allows—often capped (e.g., not to exceed the installed value of the relevant line).
- Retainage: Typically 10% withheld, sometimes reduced to 5% after 50% completion per contract; released at substantial completion.
Stored Materials and Off-Site Storage
- Onsite stored materials: Billable when delivered, properly stored, and tagged to a line item; supported by invoices and storage documentation.
- Off-site stored materials: Billable only if the contract permits and the materials are segregated, insured, and titled to the project; require a bonded warehouse or similar arrangement.
- Documentation: Bills of lading, paid invoices, and sometimes a bill of sale for off-site materials.
Partial Release of Lien with Each Draw
Florida lien law (Chapter 713 F.S.) intersects with every payment. As the contractor receives progress payments, it must provide lien releases to the owner:
- Partial Release of Lien: With each progress payment, the GC releases lien rights through the date of payment covered by the draw—conditional upon receipt of funds.
- Final Release of Lien: At final payment, the GC executes a final release extinguishing all lien rights on the project.
- Subcontractor releases: The GC must collect partial and final releases from subcontractors and suppliers before paying them, to prevent a subcontractor lien from attaching after the GC has been paid.
Exam Key: A contractor that pays a subcontractor without obtaining that subcontractor's partial release of lien risks double payment—once to the sub, and again if the sub files a lien or the sub's supplier files a lien. Collect releases before releasing funds.
Retainage and Close-Out
- Retainage accumulation: Withheld each period; tracked on the SOV continuation sheet.
- Subcontractor retainage: The GC may withhold retainage from subs at the same or higher rate; must account for it separately.
- Release at substantial completion: Retainage is typically released shortly after substantial completion and acceptance, minus a small punch-list holdback.
Connecting Payment Applications to the Exam
Expect scenario questions such as:
- A GC bills $200,000 of work completed with 10% retainage and $50,000 prior payments → net due = $200,000 − $20,000 retainage − prior payments.
- A sub is paid without a partial lien release, then files a lien → GC exposed to double payment; the proper practice is to collect the release first.
- An SOV front-loads 90% of the contract into site work → owner/architect may reject the SOV as unbalanced.
- Stored materials billed without storage documentation → application item is disallowed.
On a commercial project, which AIA document provides the line-item breakdown of the schedule of values that supports a progress-payment application?
A GC receives a progress draw and pays a subcontractor without first collecting that subcontractor's partial release of lien. The sub later files a Florida construction lien. What is the consequence?
A schedule of values assigns 90% of the contract sum to site work and foundations, with very little to finishing trades. What is the likely result?