What is a pay application in construction?

A pay application in construction, or a pay app, is a grouping of documentation that contractors and subcontractors share during payment. It's similar to an invoice and varies by project. Pay applications include the paperwork that proves construction work took place and provides confirmation that the billed amount is correct and fair for all involved parties. The pay application process happens several times during construction projects and often appears in a construction contract before a project begins. It outlines the forms to use and the set schedule of pay application deadlines.

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Pay application uses

Pay applications are applicable throughout the course of construction projects from before work begins and sometimes lasting after work on a project is complete. Because pay applications are complex and detailed, many parties elect to handle them as frequently as every month. This approach allows parties to keep accurate supply tracking, payroll management and material costs in alignment. Most construction projects have payment draw schedules or marked milestones of when to submit pay applications to maintain a consistent and accurate process.

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Pay application vs. invoice

The major difference between a pay application and a standard invoice is complexity. Most industries have simple bookkeeping, ordering and invoicing methods. For example, a craft beer brewer may get an invoice for bottles and cans ordered from a supplier, billed per order or in the established interval, like quarterly or annually.

Comparatively, the payment system in the construction industry is unique because of the number of supplies, vendors and subcontractors working on a single project and the complexity of all billable elements, from labor to equipment and raw materials. It requires a complete application for payment, much more detailed and lengthy than an invoice. Pay applications sometimes involve many people within an organization or construction management team or a specific construction project manager oversees and organizes them.

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Key information to include with a pay application

Though pay applications can vary depending on the nature of your project, key information that's common to include is:

• Project name

• Number of the specific pay application

• Name of the property owner, architect and contractor

• Dates covered in pay application

• Change orders

• Original contract amount

• The total value of work completed to date

• The total amount of previous payments

• Current amount due

• The total balance remaining for the project

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Documents to include with a pay application

A pay application can include various documents depending on the project, though most include the following items:

• Schedule of values (SOV): This documentation or related continuation sheets identify all the work completed thus far and any materials delivered during the pay period. An SOV is a comprehensive list of every work item and its value for a project, from start to finish.

 

• Daily reports: These outline the details of a site and its progress, serving both as a legal record and as an update to stakeholders and subcontractors. Daily reports build confidence and trust during a project and give insight into the progress, performance and productivity of a build.

 

• Photography: Photo documentation indisputably shows evidence of work completed and material delivery. It acts as a record to explain complicated architectural elements or building language while also offering a chance to identify site conditions and reduce hazardous risks.

 

• Vendor invoices: These invoices help determine how much you owe to suppliers, vendors and other third-party businesses.

 

• Lien waivers: These are signed and collected by all parties, including subcontractors, suppliers, vendors and the party submitting the pay application. Lien waivers serve as a type of receipt in the construction industry.

 

• Payroll and wage reports: Because private and public construction projects follow local, state and federal laws, they also adhere to prevailing wage regulations and certified payroll laws. Public projects have more stipulations than private ones, so payroll and wage reports can vary in complexity depending on the project.