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Florida Construction Business and Finance Exam

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5.1 Progress Billing, Schedule of Values & AIA G702/G703

Key Takeaways

  • The Schedule of Values (SOV) provides the structural foundation for progress payments, allocating the total contract sum across discrete project work packages and CSI divisions.

  • Unbalanced front-loading of the SOV—inflating early milestone values to finance ongoing operations—violates contract terms, compromises surety bonding, and exposes contractors to civil liability.

  • AIA Document G702 (Application and Certificate for Payment) summarizes contract status, tracking original contract sum, net change orders, completed work, stored materials, and retainage.

  • AIA Document G703 (Continuation Sheet) breaks down individual line items, calculating work completed from previous applications, work completed this period, and stored materials.

  • Under AIA A201 Section 9.3.2, off-site stored-material payment requires advance owner approval, a storage location agreed to in writing, and owner-satisfactory procedures that establish title or otherwise protect the owner's interest, including applicable insurance, storage, and transportation costs. The standard text does not itself require a “bonded warehouse.”

Last updated: October 2026

Progress Billing, Schedule of Values & AIA G702/G703

Progress billing is the primary mechanism through which cash flows from project owners to prime contractors and downstream subcontractors. In commercial construction, invoicing is not a matter of submitting arbitrary periodic estimates; it is governed by standardized contractual frameworks designed to verify that work billed matches work installed. Under Florida contracting practice and standard American Institute of Architects (AIA) contract administration, progress billing requires two indispensable companion documents: AIA Document G702 (Application and Certificate for Payment) and AIA Document G703 (Continuation Sheet), both anchored to a pre-approved Schedule of Values (SOV).

The Schedule of Values (SOV)

Under AIA Document A201 (General Conditions of the Contract for Construction, Section 9.2), the contractor must submit a comprehensive Schedule of Values to the architect before submitting the initial application for payment. The SOV allocates the entire contract sum across individual work packages, categorized by Construction Specifications Institute (CSI) MasterFormat divisions (e.g., Division 03 Concrete, Division 04 Masonry, Division 26 Electrical).

Requirements for an Acceptable Schedule of Values

  • Substantiating Data: The contractor must support each line item with verified subcontractor agreements, material purchase orders, and internal cost breakdowns.
  • Direct Cost Alignment: Values assigned to line items must reflect true anticipated direct costs plus a proportionate share of project general conditions, overhead, and profit.
  • Owner/Architect Approval: Once approved, the SOV serves as the sole basis for reviewing and auditing subsequent monthly pay applications.

The Legal and Financial Risks of "Front-Loading"

Front-loading is the practice of artificially inflating the allocated monetary values of early project activities (e.g., site clearing, mobilization, earthwork, foundations) while artificially depressing the values of later project phases (e.g., painting, flooring, mechanical trim-out, commissioning).

While contractors often attempt front-loading to generate early working capital and offset mobilization deficits, the practice carries severe consequences:

  1. Breach of Contract: Architects are contractually mandated to reject front-loaded schedules of values as fraudulent or unrepresentative.
  2. Surety and Lender Vulnerability: If a contractor becomes insolvent mid-project after receiving front-loaded disbursements, the remaining contract balance will be insufficient to complete the remaining work, triggering surety takeover litigation.
  3. Florida Construction Lien & Licensing Violations: Deliberately submitting inflated billing values can be construed as misapplication of construction funds under Florida Statutes § 713.345, subjecting the contractor to criminal penalties and CILB license discipline.

Anatomy and Mathematics of AIA Document G702

AIA Document G702 represents the summary page of the pay application, signed by the contractor and notarized, certifying that work has progressed as indicated and that all previous payments have been applied to satisfy trade obligations.

Line-by-Line Mathematical Mechanics

Line 1: Original Contract Sum ................................... \$1,000,000.00
Line 2: Net Change by Change Orders .............................   +\$50,000.00
Line 3: Contract Sum to Date (Line 1 ± Line 2) .................. \$1,050,000.00
Line 4: Total Completed & Stored to Date (from G703 Col. G) .....   \$420,000.00
Line 5: Retainage:
        a. 10% of Completed Work (Col. D + E) ..... \$38,000.00
        b. 10% of Stored Material (Col. F) ........  \$4,000.00
        Total Retainage (Line 5a + 5b) ..........................   -\$42,000.00
Line 6: Total Earned Less Retainage (Line 4 minus Line 5) .......   \$378,000.00
Line 7: Less Previous Certificates for Payment (Prior Line 6) ...  -\$225,000.00
Line 8: Current Payment Due (Line 6 minus Line 7) ...............   \$153,000.00
Line 9: Balance to Finish, Including Retainage (Line 3 - Line 6) .   \$672,000.00
G702 LineLine DescriptionGoverning FormulaKey Operational Rule
Line 1Original Contract SumFixed Base ValueInitial executed contract price.
Line 2Net Change by Change Orders∑Additions−∑Deductions\sum \text{Additions} - \sum \text{Deductions}Only executed, signed Change Orders (AIA G701) may be included. Unapproved claims cannot be billed.
Line 3Contract Sum to DateLine 1+Line 2\text{Line 1} + \text{Line 2}The active total contract price.
Line 4Total Completed & Stored to DateColumn G Total from AIA G703Sum of all work completed to date plus materials currently stored.
Line 5Total RetainageLine 5a+Line 5b\text{Line 5a} + \text{Line 5b}Contractually withheld percentage (e.g., 5% to 10%) to secure completion.
Line 6Total Earned Less RetainageLine 4−Line 5\text{Line 4} - \text{Line 5}Cumulative net revenue earned by contractor to date.
Line 7Less Previous CertificatesLine 6 from Previous MonthTotal net funds previously certified for payment by the architect.
Line 8Current Payment DueLine 6−Line 7\text{Line 6} - \text{Line 7}The net cash amount payable for the current billing cycle.
Line 9Balance to Finish, Including RetainageLine 3−Line 6\text{Line 3} - \text{Line 6}Remaining unpaid contract funds, representing total future cash flow.

AIA Document G703 (Continuation Sheet)

AIA Document G703 provides the line-item substantiation for Line 4 of Document G702. Every item on the approved SOV appears as a discrete row with nine distinct columns:

  • Column A (Item No.): Numerical tracking sequence (e.g., 03-100, 03-200).
  • Column B (Description of Work): Exact trade scope activity.
  • Column C (Scheduled Value): Approved dollar value from the SOV.
  • Column D (Work Completed from Previous Applications): Cumulative dollar value of work billed in prior months (excluding materials stored).
  • Column E (Work Completed this Period): Dollar value of work installed during the current billing cycle.
  • Column F (Materials Presently Stored): Value of uninstalled materials currently stored on-site or in an approved off-site warehouse.
  • Column G (Total Completed and Stored to Date): Sum of Columns D, E, and F (Col. D+Col. E+Col. F\text{Col. D} + \text{Col. E} + \text{Col. F}).
  • Column H (% Completed / Stored): Column GColumn C×100\frac{\text{Column G}}{\text{Column C}} \times 100.
  • Column I (Balance to Finish): Column C−Column G\text{Column C} - \text{Column G}.

Billing for Stored Materials

Contractors frequently purchase long-lead materials (e.g., structural steel, chillers, electrical switchgear) months before installation. Including these materials in Column F of Document G703 is subject to strict contractual safeguards:

1. On-Site Stored Materials

  • Materials must be delivered to the project site, inventoried, inspected for damage, and stored in a secure, weatherproof area.
  • The contractor must provide invoices proving acquisition cost, minus delivery or labor charges.

2. Off-Site Stored Materials

Under AIA A201 Section 9.3.2, payment for suitably stored off-site materials requires advance owner approval and a storage location agreed upon in writing. Payment is also conditioned on owner-satisfactory procedures to establish the owner's title or otherwise protect the owner's interest, including applicable insurance, storage, and transportation costs. Project procedures may call for segregation, tagging, bills of sale, certificates of insurance, photographs, or warehouse acknowledgments, but those details come from the contract and the owner's approved procedure—not a universal A201 “bonded warehouse” rule.

Test Your Knowledge

A Florida contractor is completing an AIA G702 Application for Payment with the following financial data: Original Contract Sum is $500,000; approved Change Orders total $40,000; Total Completed and Stored to Date is $220,000; Retainage is 10%; and previous payments certified to date total $144,000. What is the Current Payment Due on Line 8?

A

$76,000

B

$54,000

C

$48,000

D

$62,000

Test Your Knowledge

Under AIA Document A201 Section 9.3.2, which condition applies to payment for construction materials stored off-site at a fabricator's facility?

A

The subcontractor must agree to waive all statutory mechanic's lien rights in advance of payment

B

The contractor must obtain a verbal confirmation from the building inspector that the materials meet code

C

The materials must have been fully installed and tested prior to the end of the billing period

D

The owner must approve the payment in advance, the storage location must be agreed upon in writing, and owner-satisfactory procedures must establish title or otherwise protect the owner's interest

Test Your Knowledge

What is the primary risk associated with a contractor submitting an intentionally 'front-loaded' Schedule of Values to the owner and architect?

A

It artificially inflates early payments, creating a cash deficit later in the project that can cause contractor abandonment or surety intervention

B

It automatically lowers the allowable retainage withholding from 10% to 5%

C

It forces the architect to certify 100% of all subsequent change orders without owner review

D

It transfers corporate income tax liabilities from the contractor directly to the project lender

Sections you finish are checked off in the contents.

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5.2 Change Orders, Construction Change Directives & Claims Management

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