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Aia invoice form for Building services

so I just turned on the recording and uh we'll get kicked off with this first ccan webinar series uh billing and Commercial change order management um so my name is Dan deroule I'm one of the founders here at noi um I manage the partner program so I've had the pleasure of working probably with many of you um if you want to contact me my email will show up at the end of the presentation but I'm always happy to receive email from from advisers accountants um and answer any questions they may have pertaining to either our product or the construction area all right so today what are we going to go over uh the first thing we're going to try to do is understand what sort of under lines all this billing process which is actually the contractual line items and the difference between bid line items and the so-called schedule values um there are actually some pretty important distinctions and we just want to make sure that we have some of the terminology in place so that as we proceed talking about the g702 and g703 that uh that we're all using the same language second and this is probably what all of you join for um we want to go over the g72 and g73 AA documents um this uh you know the the that collection of documents is sometimes called an application for payment or a pay wreck I mean there are many different ways contractors refer to it what it is it's a standard invoicing style for much of commercial construction it really is the industry standard three we want to go over the change order process between subcontractors and gc's and GCS and owners and Architects and this is because it actually has a huge impact on the especially g703 document so it's important that we understand some of the funny things that can come up there and that obviously is learning objective four as you see and then five you know throughout the presentation um and this is based a lot on our own experience in dealing with customers and dealing with uh proadvisor and advisors who work with contractors we have a lot of advisor tips things that we learned that hopefully you can bring uh to Bear when when you work with contractors in your own practice all right so here we are with the with the background items I mentioned talking about contracts so there's actually a pretty big difference between bid line items and the contractual s so meaning schedule of values they can be the same but they're often not because what happens is that bids are broken up into the line items requested by an estimator and the estimator is the person at the GC uh or at the construction manager you know owner's rep whoever um who says so I can evaluate your bid correctly please submit it uh with this sort of breakdown and then they'll compare your bid if you're a subcontractor GC against all the others who are bidding against you and based on you know how you've broken things down whether they think you can actually complete it given the price you've quoted they may award you the job but those line items are not necessarily what they're going to ask you to build and we actually have an example down here below because what happens is once that bid moves into the contract process once that is actually accepted and then turned into a contract between you and say a GC or your rather your client a GC or your GC client and an owner it will get broken down into a schedule of values which is actually what you have to build so in this example here we have a bid line item where I bid kitchens in Tower one which would literally be all the kitchens across all the units in a tower for a fixed price of a hundred or excuse me of a million dollars and on the contract um my GC has broken it down so that I will then Bill 41 kitchens 42 kitchens 43 kitchens 44 kitchens um and one of the things about the S so is it's typically uh carved up in such a way that it's easy for the GC or for the owner to walk through and verify that you've completed what you've said you've done so obviously if you're breaking it down to 41 kitchens 42 kitchens Etc they can send a super or equivalent your project manager through the building and say yes you know this this contractor has completed 50% of the 41 kitchens 100% of the 41 kitchens Etc all right so retainage another important Concept in commercial construction this is the amount of money that's withheld from each invoice until the job is complete um the most common value for this uh for retainage is 10% um so for example uh if you have a $10,000 contract and you're 10% done uh you don't actually invoice for $1,000 you invoice for 900 and the last hundred is held back until the end is retain as retainage um now this actually can cause all sorts of problems because gc's are notoriously slow at releasing retainage at the end of a job I mean subs any subcontractor who does meaningful amounts of commercial work will complain to you about how long it takes them to get paid on their retainage so this is actually a very meaningful tip um you as advisors should talk to your commercial sub clients and you know many of your contractor clients uh in the trades or specialty contractors probably do do some commercial work and see if you can get them to negotiate for reduction in retainage from 10% to 5% at 80% completion it's actually fairly common especially for larger contractors and what it does it means that there's much you know that there's half as much retainage to release at the end of the job and obviously when you're not yet finished the GC wants you to keep going so um they'll typically pay you quite quickly on that one so they they'll pay you ing to the normal payment cycle and it really does make a nice difference in the cash flow of uh of these contractors so that's a good advisor tip definitely one worth writing down all right so application for payment due dates um so there are very defined payment cycles that that gc's typically have for pay apps um so what you should be aware of is when these pay applications are due write them down and really keep track of them because if you miss it often you have to wait a whole another pay cycle to submit your payout and you know going a month without getting paid really isn't Fun for anybody especially painful um especially if you're you know one of the cash intensive trades like concrete Etc that can have significant cash outlays to get materials onto the job site so you know for you as an advisor uh if you keep track of these payoff due dates for your clients and then send them reminders just a couple days in advance so they can get all their ducks in a row and get back to you with uh with the information you need to to prepare these you know these doc that's really going to make a big difference because missing a pay cycle can be pretty painful all right so let's talk about the documents themselves um and the first thing we're going to talk about is what actually means so is American Institutes of Architects it's uh it's sort of like a guild and you can see here the original documents actually have the American Institutes of Architects logo at the top left and all this levely trademark material um because the actually came up with this and ardized this practice of using these these documents and you know this first one we're looking at here is the g702 cover sheet um because it actually does a really nice job of making it clear to a GC or clear to an owner what they're getting buildt for as well as where they are within the grand scheme of of project billing um so the g702 document we're looking at here is a cover sheet it just provides summary information um and uh it's actually less important than the g703 which is a continuation sheet uh which is actually where all the the action happens um so you know if we're this is just a very quick summary view I promise we're going to drill down into these so you can really understand what these documents are and how to prepare them um a couple quick notes though so uh one it is very very rare for a subcontractor to be required to use actual documents purchased from the American Institutes of Architects so you saw up here you know we had this lovely fancy logo that's all trademarked but it is not possible to copyright a table format so everything else below here you know the general style of the documents can be used by software programs like ours like in this case I'm referring to noi and we can produce style documents as long as we're not putting the logo or making any claims of these being you know legitimate Bonafide documents uh what they are what we produce are formatted documents right style format of documents um and almost every GC in fact almost every government agency will accept them so a lot of government agencies do require style documents to be submitted for for payment um and as long as the formatting is correct they'll take it and the same thing is true with gc's and here's the thing if if your client has been using with like true Bonafide purchase from the documents they're usually wasting about 30 bucks for every document their they're producing and you know I mean maybe that's not a huge amount of money especially for some of your larger clients but it's it's unnecessary in most cases so it's almost always a good cost cut uh for you to bring to their uh to bring to their attention okay so um there's also this other case where a lot of gc's will actually send an Excel file that's formatted to a sub and ask them to use that file uh to build and why gc's do this with their own uh you know sort of putting it on their own b letter head I'm not really sure I mean I think it's probably because they assume that most people don't actually have access to spreadsheets or documents um in this day and age they actually do but in any case that practice is very much around and the funny thing is is even those guys often will take any correctly formatted document so it's usually worth it because you can use a software package like noi to produce documents very very quickly it's usually worth it to ask the the person in charge of AP at the GC whether or not they will accept you know a document produced by a different package as long as it's correctly formatted because more often than not they will and you'll save yourself a lot of time okay so let's actually go through the a documents this is really I think what most of you join for um it's you know I mean it's fairly straightforward but there are definitely a couple of little pitfalls that you should be aware of so one this top table is going to be the schedule values out of the contract remember we were talking about this earlier these are not your bid line items although sometimes they may match up these are the contractual schedule value line items and then the change orders are split into a separate table below but note that the numbering remains consistent you just keep numbering straight down you don't start again at one with the change orders two on the change orders only include change orders that are approved and even then only include change orders that were approved as of the time of the billing so if you're billing as of September 30th um let's say October 15th and a change order is approved on the 10th of October do not include that change order you're going to cause reconciliation problems in in your GC system um so you can imagine that a lot of you know the way this document works is that columns move over time so for example work completed in this period will then shift back into work completed completed previously in the next wreck so as I said in bullet three here any in column e gets moved to column D and added to was ever in column D in the next invoice so here's actually the first little Pitfall we have it's column F the stored materials um a lot of people when they first come to these documents think that material stored is the value of the materials for that line item and that's not true uh stored materials are strictly used by contractors to collect for materials stored on site so you've bought material youve brought it to the the job site you stored it there but you haven't installed it in the work yet and the reason why this exists in documents especially for the big for the trades with huge cash outlays up front we talked about the concrete guys earlier guys like that who spend a lot of money and would have cash flow problems if they couldn't collect some material stored once it showed up on the job site so really it's like a cash flow management tool um and what's supposed to happen is as you complete work um that actually ends up um getting incorporated into work completed so the stored materials goes down work completed goes up um and usually stored materials are done at cost so uh usually your margin gets Incorporated finally when when it gets incorporated into the work so if you end a job uh with any value greater than zero in this column F something has gone wrong that's usually A good rule of thumb um okay so you know last little tip um you know sometimes we come across clients come across contractors who sort of wake up in the morning they say I want to get $20,000 for this line item today and maybe the line item value is $4,325 who knows but what that does is that it gives them a very funny percent completion and as you'll remember when we started this conversation a big reason this whole document set exists is that so that a GC can send a project manager or super through and a walk through and compare what they say against what you're trying to to bill so if you're billing you know 46.7 8% completion that's usually a pretty good sign that you're only focused on the amount of money you're trying to collect and not so much on the amount of work you're claiming you completed so um you know it it's common enough that it's Pro it may not interfere with your billing but it's usually a better practice to focus on your actual percent completion as opposed to the amount of money you're trying to get paid with the exception obviously of line items where you're trying to build where you're trying to collect on materials stored okay so the g702 cover sheet um so most of these values just come straight from the g73 from the continuation sheet that we just went over and you can see actually the AI document provides this very helpful sort of add these columns notes uh within the table at the top left but this is really just summary information uh with the exception of the two boxes on the right um and the top box on the right is the one for your own attestation where you say that the information you're submitting is true to the best of your knowledge there's a notary box but it's uh it's worth noting that um you know a meaningful percentage of the time gc's do not require to be notorized that's you know I would say probably 5050 in terms of notorized to be notorized um the bottom the AR usually the AR architect certification is almost never required by subcontractors um so G um okay so commercial contractors often encounter two different kinds of change they encounter change tickets um and a change ticket really is just a guy on site usually you know let's say your Foreman's on site along with uh you know the gc's project manager or you know a super and they see for example trade damage somewhere and they want you to fix it quickly you'll agree to a change ticket with them to do that work it's very usually small scopes of work and you'll agree to do it on a Time materials basis now it's important that that be signed so you you need some sort of agreement that that work is is specified and that you need to get it done but what happens is is that it doesn't actually get build strictly on a time of materials basis on a standard invoice what happens is is that that change ticket is is performed and then an actual formal change order is issued um usually what happens actually is that the subcontractor will send up their change order saying look this took us five hours at say 90 bucks an hour from our guys they'll send it up and the GC will say okay or maybe they'll ask for a reduction in the number of hours whatever happens they'll you know there'll be some back and forth and then finally it will be formalized and and it'll be treated as an actual proper change order um and then that value whatever value finally that change ticket comes to uh will become part of the change order uh values in the bottom table of the 73 um so a change order by itself usually you know you'll skip chain tickets and go through St to a change order if we're talking about a meaningful expansion in the scope of work it's just a formal Amendment to the contract that changes the scope of work to be performed um it does have to be signed by both parties and in some cases especially if you're working with gc's probably not a huge deal for you guys uh even by the architect um so it uh you know change orders are are a big deal in Contracting as I'm sure many of you know um specifically around change tickets it is something that's a big challenge for contractors to manage um if you're working with commercial subs or guys who are doing commercial work do see if you can help them come up with a process for managing change tickets um since it often is quite painful um so the change order them for forms themselves have some uh compliance issues um so there actually is an change order form uh I don't think I've come across anybody who actually uses that one but the important thing is that there are standards from the form that uh are actually very common in terms of submitting uh change orders in the commercial construction space and I've actually pasted in the table that that most people expect to see at the bottom here and really it's just a breakdown in terms of um you know the contract impact of Prior change orders this change orders and where the the overall contract stands so you know as long as you get this table in here uh it's generally going to be an AI compliant form um so you know I mean another advisor tip um this one's a little bit self-evident but it's very very very important um make sure that you're keeping track of the sign change orders and when they were signed uh because finally you can't build for things that you can't prove were agreed to by uh by your counterparty so usually a GC um but maybe an owner or an architect um okay so here's the complication we've been mentioning so let's say uh so you're using the documents to bill um the important thing here is when you're sending them up your continuation sheet has to match whatever the GC has in his system so it's you know you can imagine the reconciliation nightmare if things get off so here's the thing if you submit up three four change orders and I have here a simple case of let's say add additional sync to restroom A add additional toilet to restroom A third horsepower pump those might all be your own you know on your own change order numbering that might be change ORD 21 23 and 24 now the GC might look at those and say yeah these sort of go together we're going to put these all in our system as uh subcontractor change order number 42 so I have fc- 42 um now here's the problem it's I'm sure you guys are anticipating this already your own people are going to have no idea what SEC 42 means but that doesn't mean that sc42 doesn't matter a lot to you because if you're not actually putting that on your document if you're not saying we are 50% of the way through s42 then your GC is never going to pay you for it so what happens is you now have a very hard time figuring out what you need to bill for and yet you have to because the GC won't pay you you have to include that that actual reference on your payout and you know the trick here there actually is a nice solution this is what software can do for you so for example what we do in noi is we use a field we call the GC reference and what it does is you'll still be able to process the change orders as you understand them you can still go to your your foran and say did we the sink in restroom A did we the toilet because you're going to see those when you're going to fill out your documents but what will happen is if you have matching GC reference fields for each of those change orders you submit then on the documents we're going to smush them all together into a single line item that will say sc42 in this case and that will automate the process of that reconciliation and save you a whole bunch of headaches all right so I think you know that was uh that was a pretty good run through uh the AA billing process I'm happy to answer any questions um I hope we covered sort of the the major the major areas um especially related to filling out the documents themselves and some of the funny things that can happen especially on the continuation sheet owing to things like change orders um and other things that can emerge from from your GC um so at this point you know I think we can either open up the lines or let me check uh see if my colleague has got any questions uh feel free to put in anything on the chat that you'd like to see answered um and we will go back through it um I do see a demo here asking or excuse me a question here asking if a we will do a demo today of no IFI um no I I wasn't planning on doing a demo um although we uh we certainly could um follow up at any time to show you how no I handles these things um that would actually be a fairly quick demo we could do a five or 10 minute run through on how no IFI handles the documents we also have a video on YouTube I believe uh showing how billing Works in noi okay so I see a question here about uh material stored um so I think the the most common practice with material stored is to include um is to add material stored at the price at the cost of the materials to you I think that that is you know at cost is is I think the most common practice um I imagine finally though it comes down to what your contract says with the GC uh as to how how you may build for those things I mean it the you in theory that the purpose of um of material stored is to let you collect on materials you have on site not necessarily uh get paid for you know completed work um I have a question here from Michelle asking any plans for consolidating work orders into a single PO for Price breaks due to quantity or volume um that's an interesting feature question uh for noi but I think maybe I'm not understanding the uh the impact on on billing um so uh yeah I forgive me for skipping that one um any other questions about the billing process okay well I think we uh we got through things pretty quickly which is great um again if you have any questions or comments or would like uh any further deep dives into Noah and how we handle these problems or maybe an opportunity to to show off what we do for any of your clients please feel free to reach out as always we are available uh to answer other questions you might have related to uh to Contracting or commercial construction um and specifically as it relates to the operational side and the financial side of business um so my email is dle JR nfi.com our phone number at NFI is 22233 3230 um thank you very much again for joining us for this webinar uh and I hope to see many of you join us uh at Future webinars um that we hold for for ccam so again thank you for joining us and I look forward to connecting with you all soon