A schedule of values (SOV) in the construction industry is an itemized list of all the tasks that have to be completed to fulfill a scope of work, along with their associated costs. The schedule of values serves many purposes for both owner and contractor over the course of a construction project, including aiding progress tracking and effective financial management.聽聽
The schedule of values is a core guiding document throughout a construction project. By referencing the SOV, the owner and general contractor can make informed decisions and communicate more effectively about project progress and outcomes.聽聽
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Understanding the schedule of values
A construction schedule of values is an item-by-item cost breakdown of the total contract value. During the contract and negotiation process on a lump sum or guaranteed maximum price (GMP) project, the general contractor creates the SOV, and both parties sign off on the agreement before building begins.聽聽
Throughout the project, owners and contractors can use the SOV to judge what percentage of the project is complete, how much of the work can be billed for, and how well the project is staying on budget.
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How to create an SOV
Architects or owners may dictate the exact format of a schedule of values and any substantiating documents required to back up the information on it. Still, the general format of the SOV is pretty formulaic, and many people use a schedule of values template to build theirs out.聽聽
- The contractor should start by listing out each and every task needed to complete the build as line items.
- Assign each task to a project phase and figure the costs associated with completing all line items, including labor, equipment rentals, materials, and permits.
- Establish a unit price for each task.
- The totals for each task should add up to the entire contract sum.聽聽
- Include details about costs for the current billing period, the remaining project cost, and any retainage the owner is withholding.
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What is a schedule of values used for?聽聽
The schedule of values, when included in a suite of contract documents, provides transparency between the owner and contractor. A well-delivered SOV will leave no ambiguity about what will happen throughout the life cycle of a construction project.
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Progress and cost tracking
Since the SOV lists each task involved in a project鈥檚 completion, it becomes a handy tool for measuring project progress against the project timeline. By comparing the schedule of values to the construction schedule, all stakeholders can quickly establish how far along the project has come, identify shortcomings, and make any necessary adjustments.
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Reviewing pay applications
Owners and contractors regularly refer to the SOV to establish the amount of completed work that the contractor can bill for. Standardized contract documents like the American Institute of Architects (AIA) actually require that payment applications be submitted to the contractor in accordance with the schedule of values before any progress payments will be made.聽聽
Since the SOV lays out the cost associated with each completed task, the contractor can use it to add up the amount owing for each pay application. Both parties can use the SOV to verify that the correct amount is billed and paid out during each pay cycle.聽聽
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Financial management and cost control
Contractors can use the SOV to anticipate incoming cash flow and make budgeting and purchasing decisions accordingly. Owners enjoy the predictability of knowing what the contractor will bill for during each pay cycle.聽聽
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Contract clarity
A specific, clear, and detailed schedule of values acts in concert with other contract agreement documents to establish definite guidelines for payment processing expectations. The more iron-clad the SOV is, the more it can act as an impartial reference to help the team steer clear of conflict.
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Common challenges with a schedule of values
The benefits the schedule of values provides depend a lot on its execution. General contractors needs to take great care in creating the SOV, as it will impact many facets of the project鈥檚 progression, and the relationship with the project owner.
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Too vague
Like any work agreement document, clarity is key when drafting SOVs. Contractors should not make any assumptions, but spell out as many details as necessary to avoid misunderstandings and payment disputes. Rather than using general terms like 鈥減lumbing installation,鈥� the SOV should spell out the exact equipment to be installed, where it will go, and the requirements to consider each deliverable complete.
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Change orders
Change orders represent a change to the scope of work as documented in the contract; those changes should also be reflected in the schedule of values. Change orders can cause several problems with payment and the financial health of construction projects if not managed effectively. Contractors should always seek approval on change orders before doing any work that deviates from the contract scope. Architects should require contractors to provide backup documents that prove the necessity of changes before agreeing to them, and prove their completion before payment approval.
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Front loading
Front loading refers to the contractor practice of billing more than what it has spent early on in the project, to get more money early on in the project. Front loading can be problematic for a number of reasons, including that it can lead to a diminished cash flow later on in the project, which can stall progress and even lead to contractor default if not managed effectively.聽聽
Contractors should avoid front loading their billing, instead billing amounts that accurately reflect their project expenditures. Architects and project owners can avoid contractor front loading by completing site visits to gauge project completion and requiring enough backup documents to prove the contractor鈥檚 work has progressed as billed.
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Inaccuracies
Since the SOV guides so many interactions between construction stakeholders, it is critical it be as accurate and up-to-date as possible. Mistakes or omissions can lead to scheduling issues, payment delays, cost overruns, and major cashflow implications.
The financial picture of the construction project is changing constantly, so it鈥檚 critical for contractors to continually update the SOV to reflect payments coming in and going out.
Using payment software like 91糖心vlog can simplify invoice collection and record-keeping to make it easier to maintain the SOV throughout the project. Payments made and received through 91糖心vlog can be tracked in real time for increased transparency between the contractor and client. Notes and memos added to transactions offer further clarity into payments for better tracking.聽聽
91糖心vlog also allows card users to tag expenses by project and expense type, making reconciliation and backup even easier.聽聽
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Conclusion
The schedule of values is a core construction document, acting as a construction management tool to guide many of the financial, budgetary, and scheduling decisions throughout a construction project. All construction stakeholders benefit from a clear, specific, and up-to-date SOV.聽聽
Using financial solutions like 91糖心vlog to manage payments can help keep tabs on project expenses to better manage the SOV over time, so that it can continue to act as an objective reference point for the building project.
