Why a pay application is not a bill
A vendor bill is a request to pay for something delivered. A pay application is a claim that a percentage of each line of a subcontract is complete, cumulatively, less what was certified before, less retainage. It has to be checked against the subcontract’s schedule of values, against the field’s view of progress, against prior applications and against compliance. Only after that does it become a payable, and then for less than its face amount.
| Vendor bill | Subcontractor pay application | |
|---|---|---|
| Basis | Delivered goods or services | Cumulative percent complete by schedule-of-values line |
| Checked against | A purchase order or receipt | The subcontract, prior applications, field progress, compliance |
| Amount payable | Face amount | Current period less retainage |
| Job cost | Face amount | Full certified amount, including retainage withheld |
| Liability | Accounts payable | Accounts payable plus retainage payable |
| Who approves | AP and a budget owner | Project manager certifies progress; AP approves the payable |
The workflow
- Receive the application and check it is against the right subcontract and period, with the schedule of values summing to the current subcontract value including approved change orders
- Compare each line’s claimed percent complete against the field: the superintendent or PM confirms or adjusts
- Check the application against prior certifications so cumulative amounts do not go backwards and work is not billed twice
- Check compliance for the period: lien waiver, insurance, W-9, and any lower-tier waivers
- Certify the application at the agreed amounts; a certification is the PM’s signature, not AP’s
- Convert the certified application to a vendor invoice: current amount due to accounts payable, retainage withheld to retainage payable, full amount to job cost
- Approve and schedule the payable in the normal AP process; payment eligibility re-checks compliance
- At the end of the job, process the final application and retainage release against final waivers and closeout documents
Retainage on the vendor side
Retainage withheld from a subcontractor is still job cost the day it is withheld. The subcontractor has earned it; you are simply holding the cash. Booking only the net payable to the job understates cost to date on every open job, which overstates percent complete and earned revenue. Hold the retainage in its own liability account by subcontract, release it as its own document when the conditions are met, and reconcile the account to the sum of open retainage by subcontract at each close.
- Rate from the subcontract, which may differ from the prime contract rate
- Step-downs applied from the application where they take effect, not retroactively
- Release only against a final or partial release document, never by a manual journal
- Release blocked until final waivers, closeout documents and the owner’s corresponding release where the contract ties them
Controls that matter
- Schedule of values must reconcile to the subcontract value before an application can be submitted or certified
- Cumulative completed per line cannot exceed the line’s scheduled value
- Certified applications cannot be edited; corrections are a new application or a rejection with a reason
- The person who prepared the application cannot certify it when another approver exists
- A certified application converts to exactly one vendor invoice, so it cannot be paid twice
- Commitment balance on the subcontract reduces as applications are certified, so remaining commitment and cost to complete stay honest
How Forge ERP handles subcontractor pay applications
In Forge, a subcontract is a governed commitment with a schedule of values and compliance terms. Pay applications are entered against it by period and application number, with completed and stored amounts and retainage per line, and move through draft, submitted, certified, rejected, converted or voided. Amounts must be nonnegative, and the preparer cannot certify while another approver is available. Certification checks compliance for the application period: verified W-9, active project insurance covering the period end, and a verified lien waiver of the required class and scope.
Converting a certified application creates the vendor invoice, splitting the amount between accounts payable and retainage payable so the retained portion carries the job and cost code from the day it is withheld. The invoice is eligible for payment only when it is ready to pay and the application’s compliance still holds, with any missing item named. Retainage release is a separate governed step, and open retainage balances appear with bills, invoices, credits and deposits as open items.
Forge ERP covers projects, purchasing, accounts payable, billing and receivables, job cost and WIP, reporting and close. Payroll runs in your payroll provider and lands in Forge as job-costed labor with burden. Forge is in beta with a 14-day free trial.
Frequently asked
- Who should certify a subcontractor pay application?
- The person who knows the field progress, usually the project manager, with the superintendent confirming percent complete. Accounts payable approves the resulting payable but should not be certifying progress it cannot see.
- What if the subcontractor’s percent complete is higher than ours?
- Certify at your assessment and tell the subcontractor which lines were adjusted and why. The application should record both the claimed and the certified amounts so the disagreement is visible rather than silently overwritten.
- Does the pay application have to match what I bill the owner?
- Not line for line, but the subcontractor’s certified progress is evidence for the corresponding lines on your own application to the owner. Certifying more to a sub than you can bill the owner is a cash flow problem; billing the owner more than you certified to the sub is an over-billing that the WIP schedule will show.