The GC kicked back your pay app
Find the reason in writing, fix it, and check every pay app before it goes.
Most rejections are small. The previous billed amount doesn't match what the GC has on file, a lien waiver is missing, or a change order appears on the pay app before anyone approved it. You find out days later, the cutoff has passed, and your cash moves to next month. On a job with a 30 day cycle, one bounced pay app means you funded payroll and material for two months instead of one.
Three moves, in order
What CFOS does about it
CFOS keeps the schedule of values, the billed to date and the retainage on each job, so the previous billed column on a G702 and G703 starts from what you billed last time. Revisions are kept, which means you can see what changed between the pay app the GC rejected and the one you sent next. Change orders signed on a daily go on the next pay app as drafts, so nothing unapproved slips in. COIs and lien waivers are read when they come in and flagged red when they're missing or about to expire, so you find the paperwork problem before you send. You can send the pay app to the GC from QuickBooks or log it for another system, and the PM gets reminders ahead of the due date.
Who owns this: Office manager or bookkeeper.
At $5M, one $200K pay app pushed a month means you fund payroll twice. Check it before it goes. That costs less than a late check.
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Step 06: Project management
Billing dates, change orders, and notices, written as standards that work without anyone following up on them.
Other problems step 06 solves
Other things that go wrong
What owners ask
GC rejected pay application?
Find the reason in writing, fix it, and check every pay app before it goes. Most rejections are small. The previous billed amount doesn't match what the GC has on file, a lien waiver is missing, or a change order appears on the pay app before anyone approved it. You find out days later, the cutoff has passed, and your cash moves to next month. On a job with a 30 day cycle, one bounced pay app means you funded payroll and material for two months instead of one.
Which part of the system fixes this?
The step is number 06, project management. Billing dates, change orders, and notices, written as standards that work without anyone following up on them. It's drawn from chapter 6 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Pull the last three rejected pay apps and write down the reason the GC gave on each one, so you can see which reason repeats.
Why do GCs reject pay apps and not just fix the number?
The GC's office has its own cutoff and its own paperwork rules, and a pay app that doesn't tie to their records is faster to bounce than to correct. Their project accountant often has a pile of them and no time to call you. That means the fix is on your side, and the best fix is to send it clean the first time.
Can I bill the rejected amount on the next pay app?
Usually yes, but check the contract and the GC's process first. Some GCs want a corrected pay app for the same period and some want the work rolled into the next one. Either way, ask in writing which one they want so the previous billed column stays right.
Who should check the pay app before it goes out?
Someone who didn't build it, ideally the PM who knows what was actually installed. The preparer sees the numbers and the PM sees the field. Two sets of eyes catch most rejections before the GC ever sees them.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 06 depends on step 04, estimating system. Install it ahead of that and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.