The construction industry is known for a lot of things, but internal consistency isn’t necessarily one of them. Take the billing process, for example. Everyone’s got their own workflow and set of requirements when it comes to payments. But while every company might do things a bit differently, it’s not complete anarchy out here. To help make things more consistent, the American Institute of Architects (AIA) created a set of forms for progress billing in commercial construction. Today, AIA billing is the industry standard, and you’ll find that most large general contractors use some form of it in their payment process.
In this guide, we’ll cover how AIA billing works for construction projects, along with the strengths and weaknesses of this payment process.
Key Takeaways
- AIA billing is the standard payment application process for progress billing in larger construction companies, helping subcontractors streamline invoicing.
- Using AIA documents provides a higher level of clarity and transparency on projects, which can in turn help foster stronger relationships between stakeholders.
- Whether a job you’re working on uses AIA billing or not, it’s a good process to follow internally.
What is AIA Billing?
To bring some sense of order and consistency to the complicated world of construction, the AIA has created dozens of forms and contract templates over the years. Many of these, like the AIA G702 and G703 continuation sheet, have withstood the test of time and have become an industry standard. These two sheets make up the AIA billing process, which you’ll encounter in most construction projects of a reasonable size.
You can shop all the AIA contract documents here.
The G702 Application and Certificate for Payment form is a straightforward summary of information, including:
- The contract’s total value
- Information on the owner you’re billing to
- Your payment application number
- Any change orders
- The amount of billings you’re sending in a given period
- The amount you billed on previous applications
- Any retainage withheld
On the other hand, the G703 continuation sheet is based on your schedule of values. This AIA form further breaks down all of your project line items (the total of which should mirror what’s on your G702). This form helps paint a clear picture of what was done and when, helping avoid any discrepancies in billing.
🔎 Dive Deeper: Read the full guide to construction accounting.
The Upsides of AIA Billing
9 times out of 10, the project owner or general contractor will be the one to choose whether or not AIA billing is used on a project. So while you might not get much choice when signing onto a project, the AIA payment application became the industry standard for a reason.
Along with providing one standardized way of approaching progress payments, the AIA forms keep everyone in check by offering more clarity. Even if you’re a small contractor working on a job that doesn’t require AIA billing, you can easily choose to use this template when submitting your billings to the person upstream from you. This way, you’ll have a broken-down schedule of values based on the scope of work you’re performing, which will let the GC know where you’re at in terms of progress.
This kind of transparency in billing creates stronger relationships in the long term and will help GCs/owners validate your work more quickly, so you can get paid faster.
The Downsides of AIA Billing
Of course, not everyone is going to like the way AIA does things. For instance, some emerging contractors prefer to bill in bulk for a period instead of breaking out line items. Of course, this makes it easier to overbill, but over time, they often find that the people upstream won’t allow this. In that sense, the AIA’s commitment to transparency can be a turn-off for some.
A few other disadvantages to AIA billing include:
AIA is more work - It takes time to break out line items in the way a GC or project owner wants. Also, if you aren’t creating precise estimates from the beginning of a job, it can be challenging to translate those numbers realistically into an AIA form.
Potential for back-and-forth - There can be a lot of back-and-forth between you and the person upstream from you on what’s acceptable, making it slower to get billings in.
Lack of flexibility - While construction accounting software is making it less difficult to customize forms like the G702 and G703, it’s easy to make errors that could lead to discrepancies in billing. What’s more, you’ll need to get approval from the owner or GC if you want to customize these forms in your billing software. As well, the software may not be an exact type of AIA, but close to the G702 and G703.
Different location requirements - Depending on where you work, you might be subject to specific requirements around notarization or validation when submitting forms.
What the AIA Billing Process Looks Like
So it’s time to submit your first AIA payment application. Where do you start?
- You’ll begin with the G703 continuation sheet, which will have your schedule of values. Go ahead and fill in all the appropriate line items here to arrive at your total (which should be mirrored on the G702 summary page).
- For each subsequent billing, you’ll need to go in and validate each number from the last approval and move your math over to the completed areas.
- Review the numbers in each area, put in the work you’ve done over the billing period, and then roll that number up to the G702.
- Now you can deliver your forms to the entity above you. Once delivered, there may be some back-and-forth until you eventually arrive at a number everyone agrees on.
- The last piece in the billing process is billing retainage. At this point, you’ll have everything billed out and will just show the retainage column. Now you can move over the retainage amounts to zero them out and modify the G702 to show no retainage left. One important call out: Some people will allow retention to be combined with any last progress billing, but we recommend doing a separate retainage billing altogether. This way, your payment is much less likely to be held up, and you can record the retainage payment more easily when it comes.
Like we mentioned before, it’s a good idea to follow the G702 and G703 process internally whether a job uses AIA billing or not. If you’ve established a good schedule of values from a good initial estimate, the AIA process will help you keep better track of your profit margin, when payment applications are due, and will produce more accurate job costing.
Last Thoughts
If you’re used to doing construction billing one way and are suddenly thrust into a project that requires AIA billing forms, don’t worry too much. While the AIA forms can be a bit confusing at first, you’ll soon discover just how much this method can streamline the payment process, helping you maintain transparency and hopefully establish stronger working relationships on-site. Want to learn more about billing and payments? Check out our guide to contractor payment schedules.