The best way to know how much income you’re going to make in the future is to base your projection on the contracted work you have scheduled to start. A construction draw schedule allows you to plan the amount of income you’ll be receiving for a project as the project progresses. Creating a draw schedule helps you plan out your cash flow and be better prepared when problems come up.
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What is a construction draw schedule?
A construction draw schedule is a plan that lays out the amount of money that a contractor will request on a project as it progresses. It will show the timing and amount of each draw request during the lifetime of the job, calculated as a percentage of the total amount in the construction agreement. For contractors, a draw schedule basically an income projection for a specific project.
A draw schedule is based on milestones and the expected progress of the work throughout the life of the project. For example, if a project is going to take two months to complete and the work will be completed at a steady pace, you would expect to request half of the contract value in the first month, and the remaining half in the second month.
However, if the same project takes a while to get off the ground, you may only draw 30% of the contract the first month, with the remaining 70% coming in the second month. The draw schedule would let the parties on the project know which of the two schedules above to expect.
Draw schedules can be complicated, especially when there are multiple activities being completed in the same draw period. The key to developing an accurate draw schedule lies in creating an accurate project schedule and a complete schedule of values.
Putting a construction draw schedule together
The process for developing a construction draw schedule starts with creating a project schedule and schedule of values, then calculating what value of the work will be complete at each draw request. Let’s look at this process step-by-step:
1. Build a project schedule
Start by developing your project schedule. The easiest way to do this is to start with project milestones, which are key dates that need to be met in order for the project to stay on schedule.
Map those dates on your schedule, then add in each of the activities needed to get you from one milestone to the next. A whole lot of detail isn’t required if you’re only using the schedule for determining your draw schedule. But if you’ll be using the schedule to run your project, you’ll want to be as detailed as possible.
Make sure to label each activity with the name or type of contractor who will be performing the work, as this makes the calculation step easier.
2. Develop your schedule of values
Next you’ll want to develop your schedule of values. This is a breakdown of your contract into phases or activities. It’s often used for billing purposes and showing the progress of the work on the project.
3. Determine the number of draw requests
Analyze your project schedule to determine how many draw requests you’ll be asking for. Changes will probably happen, so this doesn’t have to be totally exact. For example, if the project is scheduled to take five and half months, then you’ll probably be requesting six draws if you request one draw a month.
4. Assess milestones
For each draw request period, look at the schedule and determine which milestones will be complete and how much of the work will be done. By labeling each project schedule activity with the contractor performing the work, you can analyze a subcontractor’s contract and determine the percent and amount that’ll be complete at each draw.
Once you have the milestones laid out and the percentage of each scope that’ll be complete, you are ready to calculate the approximate amount of each draw.
5. Calculate the value at each milestone
For each potential draw request, add up the value of the work activities and milestones that’ll be completed during the draw period. Don’t forget to add things like general conditions, overhead, and profit that don’t show up on the project schedule. Next, list the potential dates of each draw request and the anticipated amount for each. When you add up all the draw requests, the total should be the amount of your contract. If it’s not, review your calculations to see if you missed anything.
Draw schedules are usually requested at the beginning of the project for planning purposes. We all know changes will happen, that’s for sure. Updates may be requested as the project progresses to more accurately reflect the flow of the work.
Draw schedules reduce cash flow problems
Draw schedules allow contractors, project owners, and financial institutions to know the anticipated cash flow throughout a project’s lifetime. This information helps them make cash flow projections for the coming months or years. Armed with this information, contractors and owners can help ensure that they’ll maintain a positive cash flow throughout the project.