Pay Applications Are How Contractors Get Paid - and How Owners Protect Themselves
On a construction project, the contractor is typically paid monthly based on progress. Each month, the contractor submits an Application for Payment (AIA G702/G703) detailing what work has been completed, what materials have been stored on-site, and how much is owed. The architect reviews the application and, if appropriate, certifies it by issuing a Certificate for Payment. The owner then pays the architect-certified amount. This process protects the owner from overpaying for work not yet done and protects the contractor from underpayment disputes. The ARE CE tests pay application review as a core construction administration service.
The Schedule of Values (SOV)
Early in construction (typically within 21 days of the Notice to Proceed, per Division 01), the contractor submits a Schedule of Values - a breakdown of the total contract sum allocated to the major components of work. For example: foundations $120,000; structural steel $350,000; exterior glazing $280,000; HVAC $400,000; finishes $220,000. The SOV must be submitted and approved by the architect before the first pay application. Each subsequent pay application states the percentage complete for each SOV line item - the contractor's compensation each month is the sum of the value of the percentage complete for each line item.
Stored Materials
AIA A201 allows the contractor to include in pay applications the value of materials that have been paid for and stored on-site (or in approved off-site storage). Materials must be properly stored, insured, and identified with the project. Storing materials on-site is common for items ordered long in advance (elevators, mechanical equipment, curtain wall) to reduce the contractor's carrying cost.
What the Architect Reviews
The architect's review of a pay application involves: verifying that the percentage complete for each SOV line item is consistent with the architect's own observation of work progress at site visits; checking that claimed stored materials are actually on-site and properly protected; confirming that required submittals for the work claimed have been approved; verifying that retainage is being calculated correctly; and confirming there are no outstanding liens or notices that should affect payment. The architect is not certifying that the contractor will be paid only what it is owed - the architect certifies their best professional judgment about what has been completed.
Certificate for Payment
After reviewing the application, the architect either certifies the full amount, certifies a modified amount with an explanation, or rejects the application. The Certificate for Payment (AIA G702) states the approved amount. The owner must pay the certified amount within the payment period stated in the A101 (typically 28 days). If the architect reduces or withholds certification, the reason must be stated in writing. Improper withholding of payment certification can make the owner liable for the contractor's financing costs.
Key Exam Points
- Schedule of Values: contractor submits early; allocates contract sum to work components; basis for pay app.
- Pay application: monthly; states % complete per SOV line item; includes stored materials.
- Architect reviews: consistent with site observation, submittals approved, retainage correct.
- Certificate for Payment: architect certifies approved amount; owner pays within 28 days.
- Architect may reduce certification with written reason; unjustified withholding has legal consequences.
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