Schedule of Values
What is a Schedule of Values?
A Schedule of Values, or SOV, at its most basic and fundamental level, is a start-to-finish list of work items on a project broken down into their component parts with corresponding values. This end-to-end list represents the entire project and the entire contract price, from beginning to end. According to the standard AIA documents, “The schedule of values shall allocate the entire contract sum among the various portions of the work.”
The schedule of values, then, is the representation of the total project written down on paper, step by step. This allows the architect (or owner) to see what percentage of the work has been completed, and agree on progress payments.
In practice, the granularity by which the schedule of values must be broken down can vary. On some jobs, the requirement of the owner and architect might be that every item must be broken down into increments of less than $20,000 as separate line items. On other projects the value threshold may be more or less – there is no single, industry-wide accepted value threshold.
Who needs to use a Schedule of Values?
Generally, schedules of values are used by contractors and will be familiar to direct contractors (prime / general contractors) on commercial, public, and complex residential work. The quick answer to who needs to use a schedule of values is any contractor contracting for work with an owner or architect who requires a schedule of values for the management of the cash-flow and progress payments on the project. However, that glosses over why a contractor may want the insights and oversight that an appropriate schedule of values can provide.
The schedule of values, and the work amounts and costs listed thereon, control the cash flow on a project. And, cash flow is the lifeblood of a contractor. Too many hiccups, and it can spell disaster, even for contractors that are generally well-prepared to manage cash flow issues. Relying on a schedule of values to make sure that the work is progressing as it should and allowing the corresponding progress payments when the work calls for it can provide insight and oversight into the payment process overall. A schedule of values is used as a management tool in pay app processing, and as a valuable tool in evaluating a project’s progress relative to the plan. Since cash flow is determined by the SOV, the timing of payments depend on how the SOV was constructed and how the schedule of value allocates the funds.
In what circumstances is a Schedule of Values normally used?
A schedule of values is normally used on projects that are more complex, more expensive, and have more composite parts. While having a list of the work to be performed, when (and over what period of time) it is to be performed, and how much it should cost, is beneficial to any contractor on any project, it is easy to see why that information is crucial on complex projects and projects that require a lot of payment application management. Generally, a schedule of values is applicable to projects with an approved budget, or Fixed Price, or Cost-Plus / GMP contract.
Does a Schedule of Values change according to the project location?
Not because of the project location. A schedule of values is not something that is set forth by statute statutory law in the same way that a mechanics lien laws, or even some contract requirements are. In fact, a schedule of values is not even an AIA standard template, although ConsensusDocs provides a typical SOV form.
While the SOV form itself used may change slightly depending on the requirements of the owner, architect, or CG – these differences are not specifically due to the location of the project, but rather are due to variations in the amount of specificity required, or something similar. This is not to say, however, that geography can’t have some secondary impact. It could be the case that architects in a particular location may, as a group, want a certain level of specificity in a schedule of values that is not necessarily the same in other locations.
Does a Schedule of Values change according to the project type?
Not specifically due to the project type. Similar to above, for project location, there is no specific modification to a schedule of values based on project type. While the scope of the schedule of values is likely different on a residential project than it would be on a significant commercial project, the differences are not mandated by project type, but rather by project complexity.
What happens if I make a mistake with a Schedule of Values?
Making a mistake with a schedule of values can be problematic for a variety of reasons. Since the SOV governs the allocation of payments, and cash flow is of extreme importance to contractors, it can be tempting to “front-load” the SOV, in an attempt to get more funds released earlier in the project. This can have significant negative consequences, however.
Contractors may attempt to front-load the SOV by artificially increasing the values of the early project activities and devaluing the work at the end. While it’s easy to see why this would be tempting, it is a bad idea for many reasons. The owner and architect must sign off on the SOV and are generally looking to avoid this exact behavior, and attempting to fudge the numbers for one’s own benefit is never a good look.
Beyond that, however, front-loading an SOV can create other problems down the line, as well. If a payment issue arises, the justifications can be tricky when the value on the SOV does not mesh with the payments made down the chain, especially since most SOVs require that only a certain amount is allowable for contractor profit and overhead. A contractor can run afoul of prompt payment laws if s/he attempts to withhold payment from a sub subject to some dispute, but the SOV still collect payment from the owner pursuant to an “incorrect” SOV. Additionally, if there is a dispute regarding the sub’s work (but the contractor has loaded too much into the value of that work in the SOV) it will be difficult to argue that the full amount should be able to be collected by the contractor when some is supposed to go to sub whose work is disputed
There are many other issues that can arise from not preparing the SOV correctly and accurately, such as issues related to reputational risk, owner/architect/lender exposure for overpayment, false claims act liability, and more.
Is a Schedule of Values usually paired with anything else?
A schedule of values is usually paired with the construction contract, and is specifically referenced by many standard form construction contracts, like AIA templates and ConsensusDocs forms.
A schedule of values is, by definition, something that must be prepared prior to the work being initiated on the project, and is generally applicable to projects with an approved budget, or Fixed Price, or Cost-Plus / GMP contract.