Construction Progress Payments Example: Two Pay Applications, Step by Step

Your payment application needs to explain more than this month's work. The reviewer also needs to see how it connects to the last application, which changes are approved, and what remains in storage. A total alone does not explain those differences.

In a Finance at the Jobsite interview, Nordby Construction project manager Michael McKeon describes accounting catching applications with cumulative figures below the preceding month's figures. He also describes his administrator's repeated conversations with subcontractors about changes billed before execution. Those are reconciliation problems, not just arithmetic problems.

This construction progress payments example follows one fictional commercial job through two applications. You'll see a $50,000 approved change, materials moving into installed work, and a $207,000 current payment request. You'll also see why a partially paid previous certificate changes the outstanding receivable, not the new application amount.

Construction progress payments example: establish the first application

Start with the contract assumptions and an approved first-period baseline. This example uses a fictional private commercial project, US dollars, and calculation logic explained in AIA's payment-application instructions. It is not an official AIA form or a statement of DC payment law.

The example uses these terms:

• Original contract: $1,000,000.
• Retainage: an assumed flat 10% of completed work and eligible stored materials.
• Stored-material billing: expressly permitted under the example contract.
• First application: approved unchanged and paid in full before the second period.
• Exclusions: deposits, tax adjustments, variable retainage and disputed claims.

Record the billing cutoff, recipient, reviewer and required backup alongside these terms. In her interview with Finance at the Jobsite, Pleune Service Company CFO Jennifer Murphy describes accounting chasing a schedule of values for months because the team lacked what it needed to bill. Her job-setup process captures billing deadlines and submission requirements before billing begins.

For period one, the schedule of values, or SOV, separates completed work from materials still stored. These are synthetic teaching values, not customer results.

The first application requests $250,000 minus $25,000 retainage, leaving $225,000. There are no previous certificates to deduct. The reviewer certifies $225,000, and the owner pays it.

Keep that approved application as the baseline. Period two changes the work, stored inventory and contract value, but it does not rewrite this history.

Construction progress payments example: calculate the second application

The second application requests $207,000: $480,000 completed and stored to date, minus $48,000 retainage and $225,000 previously certified. The SOV explains where each amount comes from.

Update the contract value

An approved $50,000 change increases the contract to $1,050,000 without automatically increasing earned value. In this example, the parties execute the change before period two, but no work against it is claimed yet.

AIA's instructions describe incorporating executed changes into the contract summary and listing changes separately on the continuation sheet. Our example adds a separate SOV line rather than distributing the change across existing work.

The revised contract establishes the amount available to earn. The next step establishes how much work and eligible material value is actually included in this application.

Separate completed work from stored materials

Carry forward $200,000 of previously completed work, then add current completed work and materials presently stored. Do not place the previous period's $50,000 stored-material balance into the prior-completed-work column.

Under AIA's continuation-sheet guidance, prior completed work excludes previously stored materials. Materials incorporated into the project move from stored materials into work completed this period.

The second-period SOV records that movement:

These broad categories simplify the lesson. Use a more detailed breakdown on your project wherever the reviewer needs it to verify progress.

The structure line needs particular attention. Of its previously stored $50,000, the team installs $30,000 during period two. The remaining $20,000 stays stored. The $150,000 of structure work completed this period already includes that installed $30,000 plus $120,000 of other completed value.

The MEP line adds $100,000 of completed work and $10,000 of newly stored materials. That produces $30,000 presently stored across both lines.

Moving $30,000 from storage into completed work does not earn that value twice. It changes its classification. The cumulative total increases only through additional earned value, which the payment summary then reduces by retainage and previous certification.

Calculate the amount due

Deduct cumulative retainage before subtracting the previous certificate. AIA's payment-application instructions calculate earned less retainage first, then deduct previous certificates to obtain current payment due.

For this example, the summary reads:

Check the result another way. Gross completed-and-stored value increased from $250,000 to $480,000, a $230,000 increase. Retainage increased from $25,000 to $48,000, a $23,000 increase. The difference is $207,000.

The remaining $618,000 consists of $570,000 not yet earned plus $48,000 retained. Neither amount belongs in the current payment request. Before approving that request, verify the records supporting the earned value.

Check the evidence before approving the amount

Approve the supported work and eligible materials, not merely a mathematically correct total. In his interview at 28:20, McKeon explains that a detailed SOV is easier to verify than a single overall percentage claim.

Give each material input a clear review path. This table is a suggested control for the example, not a universal contract requirement.

For the structure line, reconcile the installed $30,000 and remaining stored $20,000 against the material record. For completed work, attach concise descriptions that identify the relevant scope and location. Buildend's daily-report guidance similarly recommends specific work locations, quantities and observable facts.

Keep a hypothetical $20,000 pending change in a separate log. This example assumes it is not yet eligible for inclusion, so it changes neither the $1,050,000 contract sum nor the $480,000 earned total. Actual treatment depends on the contract and applicable authorization process. McKeon also acknowledges exceptions involving directed work before signatures; an unsigned change is not grounds for inventing a universal billing rule.

If review changes a claimed amount, revise the underlying SOV and regenerate the summary before certification. Carry the same approved version into accounting, where certification and cash collection remain separate.

Reconcile the certificate with accounting and cash

A previous certificate and a bank receipt represent different amounts when payment is incomplete. The AIA-style calculation deducts previous certificates, not whatever cash has arrived.

After the second application is certified unchanged, cumulative certificates total $432,000. In the base case, the owner has paid the first $225,000 certificate, leaving $207,000 outstanding. Retainage remains separately tracked at $48,000.

Change only the first payment to see why the distinction matters:

The partial-payment case leaves $25,000 outstanding from period one plus $207,000 from period two. Replacing the previous certificate with cash received incorrectly adds that old $25,000 to the new request.

Use this as a billing-and-collection check, not a revenue-recognition or journal-entry instruction. Match the approved application, SOV and change log to the same project and period. Track collections separately.

If the records disagree, identify the mismatched amount before submitting another application. That comparison is the final check on this month's request.

Check your application against the previous certificate

Use this construction progress payments example to check continuity, not just the final total. The $207,000 request follows from the approved history, current earned value and stated retainage terms.

Place your current SOV beside the previous certified application and check these items:

1. Match the SOV total to the contract plus authorized changes.
2. Carry forward previous completed work without including previously stored materials.
3. Remove installed materials from storage and include them once in completed work.
4. Apply the contract's retainage terms to the correct cumulative amounts.
5. Deduct previous certificates rather than cash received.
6. Confirm the recipient, cutoff, reviewer and required backup.

Replace the teaching assumptions with your actual terms. Different forms, advances and variable retainage need different treatment. Federal fixed-price construction also has separate substantiation and retainage provisions under FAR 52.232-5. The flat 10% used here is not a default for every Washington, DC project.

Start today with the previous certificate, not a blank spreadsheet. Confirm what was already certified, then explain every change between that application and the amount you are requesting now.