How to Audit a G702/G703 Pay Application

1. Front-loading

Front-loading is when a contractor claims high completion on early pay apps relative to actual work performed. The most common target is mobilization — billed at 100% on pay app #1 or #2 even when the project is only 5% underway. Sitework, excavation, and foundation items are also frequently front-loaded.

How to check: Calculate the project's overall percent complete (total billed to date ÷ contract sum). Then look at line items that are significantly above that percentage. Mobilization at 100% when the project is 15% complete is a red flag. Request backup documentation — daily reports, invoices, receipts — before certifying.

2. Retainage math

Retainage is the percentage (typically 5–10%) withheld from each payment as protection against contractor default. It must be calculated correctly on every line item, every pay app.

The formula: Retainage Withheld = Retainage % × (Completed Value + Stored Materials)

How to check: For every line, multiply (Scheduled Value × % Complete + Stored Materials) by the retainage percentage. Compare to what the contractor shows in the retainage column. Any discrepancy is under-retention — money the owner is paying out that should be held. On a $5M project at 10% retainage, a systematic 1% undercount is $50,000.

3. Stored materials documentation

Contractors can bill for materials that have been purchased but not yet installed — as long as those materials are stored on-site or in a bonded warehouse and are properly documented. In practice, stored materials claims are one of the most abused categories.

Red flags: Stored materials exceeding 15–20% of a line item's scheduled value; stored materials claims on items that aren't near delivery in the project schedule; no delivery receipts or stored materials certificate submitted.

How to check: Require a stored materials certificate (AIA G706A or equivalent) for any stored materials claim. Verify materials are insured and title has passed to the owner. Cross-check the claim against the project schedule — if structural steel is claimed as stored but steel erection is 6 months away, question the claim.

4. Math verification

The "This Period" amount for each line should equal:

This sounds simple, but arithmetic errors are surprisingly common — and they always seem to favor the contractor. On a 20-line schedule of values, manually checking every line takes 30 minutes and is easy to rush.

5. Round number patterns

When most or all line items show exactly round completion percentages (25%, 50%, 75%, 100%), it indicates the contractor estimated completion rather than measured it. This is common in the field — but it's also how deliberate overbilling gets hidden. Actual construction rarely progresses in perfect increments of 25%.

How to check: If more than 60% of line items show round percentages, require field verification before certifying. Ask for daily reports, site photos, or third-party inspection reports.

6. Construction sequencing logic

Construction has dependencies. Electrical rough-in can't be complete if framing is at 40%. Plumbing trim can't be 90% done if mechanical rough-in is at 50%. Reviewing completion claims against construction logic catches a category of overbilling that pure math checks miss.

How to check: Draw the dependency graph for major line items. If downstream work claims higher completion than upstream work, request explanation. Ask for a site walk or third-party verification.

7. Premature retainage release

Most contracts specify conditions for retainage reduction or release: substantial completion, certificate of occupancy, punch list completion. Contractors sometimes bill for retainage release before these conditions are satisfied — either by misrepresenting project status or by misreading the contract.

How to check: Know your contract's retainage release conditions. Verify the trigger has actually been met (CO issued, punch list signed off) before certifying any retainage release.