GC Pay Applications
The timely review and processing of the general contractor’s pay application for payment is really important to your GC. And if it really important to him, it should be important to you - the development manager.
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Pay Fast
Pay the GC quickly so he can pay his subs, and they can pay their suppliers to prevents liens on the property. Also, your GC will appreciate quick payment, which will strengthen the relationship between the GC and owner, which will make running the project more pleasant for the development manager. Also, give your GC updates on his payment. For example, "Hey Bob, the bank just approved our draw request for funding and we should be wiring you your payment for your pay app #8 early next week." Sending that email update to your GC doesn't cost you anything, and lets him know that you care about the status of his payment.
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Check the Monthly Billing
Your architect is contractually required to review and sign off on the pay application to confirm that the amount of work the GC is billing for accurately reflects the work in place. However, you as the development manager should also be reviewing the pay app. On almost all project I have been a part of, the GC will use the AIA G702 form for his pay app cover sheet and the AIA G703 continuation sheet to show his line item break down schedule of values. Below are the items you want to focus on during your review of the pay app.
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Change Orders
Item #2 on the G702 shows the approved change order dollar amounts that have been added to the GC's contract amount. Make sure that matches the total amount of approved change orders you have signed.
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Work Completed
You also want to look at column E, and the percentage amount in column G on the G703 to make sure they generally reflect the amount of work in place. For example, if your GC is billing for 85% of his concrete line item value, but you know that he still has to pour all of his paving, which accounts for way more than 15% of the concrete scope of work, you should question your GC about why he is billing so heavily on concrete and that his billing does not reflect the work in place.
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Retainage
The retainage dollar amounts are summarized on item #5 on the G702. But also check the line item retainage amounts on column I of the G703 to make sure that all the line items that should have retainage withheld actually do have it withheld. Some line items like general conditions and insurance don't normally have retainage withheld.
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Stored Materials
On some projects, your contractor and sub may have items that need to be purchased and stored in a warehouse well in advanced of them being installed onsite. Common examples are steel, joists, electrical equipment, millwork, and appliances. Your GC, and their subcontractors, are going to want to invoice for these stored materials as soon as they arrive to the warehouse. But before your bank will fund the GC’s pay app charging for these stored materials, the GC needs to provide the bank proof the stored materials are in fact in a warehouse and intended for this project. The bank typically requires photos, invoices, and a certificate of insurance for these stored materials. So as not to slow up the funding of the GC’s pay app, if you see that he is charging for stored materials, ask him to provide the above mentioned documentation before you send the pay application to the bank.
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Lien Releases
With each pay application, your GC should be turning in a conditional lien release and and unconditional lien release for all past payments. You and/or your bank may also want the GC to provide conditional and unconditional lien releases from subcontractors. I would recommend against requiring subcontractor lien releases before releasing payment to your GC. It is usually difficult and time consuming for your GC to collect these subcontractor lien releases and it can really bog down the payment process, ironically increasing the chance of liens being filed by subcontractors and suppliers. Also, if your GC is reputable, there is little chance that he won't pay his subs, so there is little chance to get a lien from a sub. Liens and lien notices usually come from material and equipment suppliers that furnish materials and equipment to subcontractors. Getting a lien release from a sub will not help against liens from material and equipment suppliers.
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