Retainage on stored materials: G702 Line 5b and G703 Column F

The short answer: Line 5b on an AIA G702 is retainage on stored material: the retainage rate the contract sets, applied to the total of Column F on the continuation sheet, materials presently stored and not yet built into the work. Line 5a runs on a different base, the cumulative Column D plus Column E, and Line 5 is 5a plus 5b. The two bases add up to the total of Column G, so together they cover Line 4 once and only once. What makes 5b hard to check is not the multiplication. It is that Column F moves on its own schedule: it falls when the material is installed, not when the invoice is paid, and the value that leaves it reappears in Column E without changing Column G. Miss that and the same material is billed twice inside a document whose every internal total still ties.

The two bases: 5a and 5b split Column G

Both bases come off the continuation sheet, and between them they partition Column G. Every row is G = D + E + F, and the split holds at the totals: the sum of D plus E is the base for Line 5a, the sum of F is the base for Line 5b, and together they are the sum of Column G, which is Line 4. Run that check first, because no rate applied to a wrong base produces a right Line 5.

The 5a base is cumulative: Column D plus Column E across the schedule, every dollar completed to date, not the Column E claimed this period. How the rate gets set, how reducing retainage works, and what a wrong base does to the rest of the chain are all in how retainage is calculated.

A note on the lettering. On AIA’s own G703 the column after G is percent complete, G ÷ C, and it carries no letter. H is the balance to finish, C − G, and I is retainage, used where the contract varies it line by line. Many vendor forms letter the percent column H and shift the rest along, so read the heading printed above a column, not the letter beside it. Where a per-line retainage column exists, its total has to equal Line 5.

What Column F holds, and what moves it

Column F is materials presently stored: material delivered and suitably stored but not yet incorporated into the work, and explicitly not already counted in D or E. Once the material is built into the work its value stops being stored material and becomes work completed. It leaves Column F and appears in Column E for the period it was installed. That instruction is narrow, it is the part almost nobody restates, and two consequences land on whoever certifies the payment.

Paying for stored material does not reduce Column F. The column is not a receivable and it does not draw down against the check. It states what is standing uninstalled, so it falls when the material goes into the work, not when the invoice is paid.

Value moving from F into E does not change Column G. The same money is reclassified, so G holds, and so do the balance to finish and the percent complete. Only the split between the bases moves: dollars leave 5b and land in 5a.

Column D is separate. D carries work completed in previous applications, so material sitting in F does not roll into D next month. Some vendor forms do roll it into D and clear F. The row adds up either way, but under a split rate the two conventions produce different Line 5 figures, because value parked in D falls into the 5a base.

Two periods, worked

A $250,000 electrical subcontract, five lines, no change orders, 10 percent retainage on completed work and on stored material. Application 1 covers the first month. The switchgear has been delivered and is standing on a pallet in a warehouse.

Read item 3: nothing completed previously, nothing built this period, 60,000 of gear delivered, so 0 + 0 + 60,000 = 60,000 for Column G, 60,000 ÷ 90,000 = 66.7% complete, 90,000 − 60,000 = 30,000 to finish. Column C sums to the 250,000 contract. Column G sums to 83,000, which is what Line 4 has to read, and the bases split it: 23,000 plus 60,000.

Application 2. The rough-in continues, the first branch wiring goes in, and 20,000 of the stored gear is set.

Item 3 is the line to watch. Column E takes the 20,000 of gear installed, Column F falls from 60,000 to 40,000 by the same 20,000, and Column G stays at 60,000. No new value was billed there: the gear entered the schedule last month. Everything else carries forward, each line’s Column D equal to its own prior D plus E, and the Column D total of 23,000 equal to last month’s D plus E. The same F to E move on a single row, in a smaller worked example, is in what happens to stored material the next period.

Line 5a is 10% of D plus E: 10% of 23,000 is 2,300, then 10% of 75,000 is 7,500. Line 5b is 10% of Column F: 6,000, then 4,000. The 2,000 that came off 5b is retainage on the gear installed, and at a single rate it reappears inside 5a, so the reclassification on its own leaves Line 5 unchanged.

Line 7 on application 2 is 74,700, application 1’s Line 6, not its Line 8. The two are equal here only because application 1 had no previous certificates, so its Line 6 and its Line 8 both read 74,700. From application 3 on they separate: Line 7 would read 103,500, application 2’s Line 6, while application 2’s check was 28,800. Line 8 on application 2 is 103,500 − 74,700 = 28,800.

The double count, read from the retainage side

The fault itself is common: material billed in Column F last period is installed and added to Column E while Column F is left where it was, so the line inflates by exactly that amount. Two other guides here take it from their own angle, the seven causes of a G703 that does not match its G702 and a line billed over 100 percent. What follows is the same fault from the retainage side: where the phantom dollars land in the two bases, and why nothing inside the document objects.

One identity does the work. Because Column D equals the prior application’s D plus E, the change in Column G on a line, period over period, is Column E this period plus the change in Column F. New value billed = E + (F this period − F last period). Installing material already carried in Column F adds no new value, so E rises, F falls by the same amount, and the sum is zero. That is what item 3 did: 20,000 + (40,000 − 60,000) = 0.

Now the fault. Same application 2, same 20,000 of gear installed, except Column F is left at 60,000.

Every identity inside the document still holds. The row adds up, 0 + 20,000 + 60,000 = 80,000, and stays under the scheduled value at 80,000 ÷ 90,000 = 88.9% with 10,000 to finish. Column D still equals the prior D plus E on every line, and the totals still foot: Column G sums to 135,000 and Line 4 reads 135,000. Run the identity and it says 20,000 + (60,000 − 60,000) = 20,000 of new value billed on item 3, so ask what arrived or what was built. With no delivery ticket dated inside the period, Column F should have fallen and did not: the same 20,000 of gear is billed twice, as stored material last month and as work completed this month.

Watch where the 20,000 lands. The 5a base does not move, because Column D and Column E are unchanged. All of it sits in the 5b base, the one column on the sheet a receiver cannot walk out and count.

The bases still add to Line 4 in both columns, 75,000 + 40,000 = 115,000 and 75,000 + 60,000 = 135,000, so the one structural check on the retainage bases passes on a document that is 20,000 wrong. Only 10% of the phantom value is held back: Line 5 comes out 2,000 high, which leaves 18,000 of the overstatement running straight into Line 6, 121,500 against the 103,500 earned. Line 7 is 74,700 either way, so Line 8 asks for 46,800 against the 28,800 due, and Line 9 reports 128,500 of scope left instead of 146,500.

Both columns tie internally, which is the point: no arithmetic check inside one document finds this, a boundary mapped in what a G702 checker cannot check. It takes last month’s continuation sheet on the desk beside this one.

It does not stay hidden forever. Item 3 now has 10,000 of room under its scheduled value while 40,000 of gear is still to install, so either a later sheet writes Column F down, restating a figure already certified, or the line runs past its scheduled value and surfaces as an overbilled line. At 100% complete, Column F has to be zero.

Do not assume 5a and 5b carry the same rate

The example above holds one rate on both bases because that is what its contract says. Contracts do not have to. A retainage clause can hold a different percentage on stored material than on work in place, or hold nothing on it at all, and the form carries whichever regime the contract sets: the G702 prints a separate rate blank per base for exactly that reason. Take application 2 under a clause holding 10% on completed work and 5% on stored material. Line 5a stays 7,500. Line 5b on the 40,000 still stored becomes 2,000 rather than 4,000, so Line 5 is 9,500 and Line 6 is 105,500. Application 1 changes with it: its 5b becomes 3,000, its Line 5 becomes 5,300, and its Line 6 becomes 77,700, so Line 7 follows and Line 8 on application 2 is 105,500 − 77,700 = 27,800.

Retainage rules are not uniform across jurisdictions either, and a rate that is routine on one job is not a safe default on the next. Some retention schemes set a ceiling on the whole payment rather than on each base, so a split rate is not automatically compliant just because the arithmetic works. That is a question for the contract and for the statute that governs the job, not for the form. The reading for a receiver is narrow: do not assume 5a and 5b carry the same rate, read the retainage clause before checking either figure, and on public work check the statute that governs the job or ask your attorney. What may be held is a question for your contract, your statute and your counsel.

What to require behind Column F

Column F is the one column with nothing on site to point at. Work in place can be walked and counted. Stored material is a claim about a pallet somewhere. This is check 7 of the eight checks on a pay application you receive, taken down to the document level. Ask for five things on the first application that carries a Column F balance:

• The supplier invoice, tied to the line item and to the figure in Column F. What is billed as stored is the material cost, not an installation that has not happened.
• A delivery ticket or bill of lading dated inside the billing period, for material appearing in Column F for the first time.
• Proof of insurance covering the material where it stands, in the amounts and naming the interests the contract requires.
• The storage location, and whether it is on site or off site. Many contracts set separate conditions on off-site storage, so read that clause before the material ships.
• Written confirmation that the material is not already installed, which is the same as confirming it is not also sitting in Column E on this or an earlier application.

Two more are contract questions rather than arithmetic: whether title passes on payment for stored material, and whether a supplier waiver or a warehouse receipt has to come with the application. The subcontract sets both. For the rest of the packet, box by box, see verifying a pay application you received.

What PayAppCheck checks here

On an upload, PayAppCheck recomputes both bases from the schedule, the sum of D plus E and the sum of F, and tests that the two add to Line 4. It applies the rate the form declares, checks 5a + 5b against Line 5, and carries the chain through Lines 6, 8 and 9. Where the form prints a different rate on each base, only the base whose rate is on file can be recomputed. With the prior application in the account it checks each line’s Column D against what that line had billed by the end of the prior period, and Line 7 against the prior Line 6. What it cannot do is read your contract, or tell you whether the pallet exists: the Column F comparison above is yours to run, against last month’s sheet. To run the arithmetic on figures you type, at a single rate, use the free retainage calculator.

Questions people ask

PayAppCheck is software, not a law or accounting firm. Not legal, accounting or tax advice. Verify lien, notarization, and retainage requirements against your contract, your state statute, and your accountant.