Of all the documents involved in a construction project, the Schedule of Values (SOV) is key for tracking the progress of your work as a contractor, getting paid on time, and (perhaps most importantly) managing your cash flow — especially on larger commercial construction projects.
Even if you haven’t created a Schedule of Values yet, as you grow your business and take on larger commercial projects, it’s definitely something to be knowledgeable about to support your future success. If mismanaged or completed incorrectly, it could result in cash-flow challenges during the life of the project or beyond.
So, what is a Schedule of Values exactly, and how should you approach it to ensure optimal results on your next project?
What is a schedule of values?
A Schedule of Values is a document used by key stakeholders on a construction project, from general contractors and subcontractors, to property owners and construction managers, that lists out the value and cost of every billable work item on a step-by-step project timeline, and the percentage of the work that’s been completed to date. It’s essentially a comprehensive cost breakdown of the entire contract that property owners or construction managers use to verify the work performed, and to release payment.
Prior to beginning a construction project, the prime general contractor or sometimes a second-tier subcontractor (who’s hired directly by the general contractor) creates the Schedule of Values by assigning a dollar amount to every item of work they need to do, and in what phase of the project, in order to get the job done. Then, all parties agree upon the details of the SOV as part of the signed contract before construction begins.
How is an SOV used on a construction project?
A Schedule of Values is often used on large construction projects in order to oversee progress and effectively manage contractor payment applications. It provides much-needed transparency and the oversight necessary to ensure a project stays on track, contractors get paid in a timely manner, and that no items fall through the cracks.
The SOV allows the project owner or architect to efficiently track the percentage of the project that’s been completed while knowing exactly how much they’ll need to pay contractors throughout the project. Contractors use the document to plan and monitor their cash flow, send invoices at the designated times, and submit the document as proof of their work with each progress payment application.
Why is a schedule of values important to cash flow?
The timing of your progress payments — a subcontractor’s cash flow during a project — hinges on how well you put the Schedule of Values together. And, as any contractor knows all too well, when you’re running on tight margins and even tighter timelines, cash flow is everything.
When you submit a payment application, the owner or architect will use the Schedule of Values to review the work performed and either dispute the application or release payment.
Assuming the SOV was agreed upon as part of the contract, billing discrepancies or disputes should be minimal, if they occur at all. This enables you to receive your payments in a timely manner so you have enough cash flow to complete your work on schedule. In order to keep cash flow consistent, it’s vital that the correct amounts and dates are clearly stated and agreed upon in the initial contract. It’s important to note that change orders will certainly occur throughout the project, and the SOV will be updated to reflect these new additions.
While it may feel tempting to overstate costs early in the project to accelerate your payments on the project, this is highly discouraged. “Overbilling” could actually lead to slower payments because of disputes on the SOV from the property owner. Additionally, there’s reputational risk on the line as well as potential legal consequences.
How to fill out a schedule of values
Since a properly created SOV can make or break your cash flow, here are the best practices to follow when filling out your form:
- Tailor your line items to the project.
The amount of detail you need to provide varies from project to project, so find out what level of detail is required by the owner or architect in order to track the project and process payments. For example, some might require that you break each line item down into work valued under a certain dollar amount (under $20k, for example), while others might accept a less specific, higher-level breakdown of costs. This will depend solely on the property owner or architect.
- Choose your template.
There’s no industry-wide method for how to fill out a Schedule of Values, and there is no one template to follow. However, the general format to expect will include columns with the following details:
- The description of each item of work. (Electrical? Drywall? Plumbing? This is where you list your work as outlined by the contract.)
- The total cost for each item.
- What you’ve been paid to date on the work, from prior billing periods.
- The percentage of the work that’s been completed.
- Your costs for the current billing period.
- The remaining cost for completion.
- Retainage costs.
To help get you started, you can find free SOV templates on websites like Project Manager Society.
3. Assess your costs.
Take a deep dive into the details of your costs for the necessary work, including labor, materials, equipment and retainage. These are the values that will ultimately need to be entered into your SOV, so break down every phase of your work and the associated costs, from pre-construction to completion.
- Avoid front-loading (overbilling) your costs early on.
As tempting as it may be to inflate the value of early project activities, this can cause far more problems in the long-run than it solves in the short-term. Not only could it damage your reputation with your general contractor, the project owner or the architect, who will see this as a red flag when they sign off on the Schedule of Values, but it can also cause issues with payment discrepancies during the project, and even possibly put you at risk for liability related to false claims.
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