Contracts, blueprints, invoices, notices, pay apps, waivers, modification orders, and other documents are common in construction projects. Documents are utilized in the payment process, on the job site, and at the office. One of the documents that affects everyone, from the project manager to the accountant, is the schedule of values (SOV). In this article, we’ll explain what the schedule of values in construction is, and we’ll also attach a template with an example to help you understand it better.
What is a Schedule of Values in Construction?
A schedule of values, or SOV, is a fully documented list of work completed on a certain project. A schedule of values is an essential component of any building project. Without an SOV, contractors and labor workers would be unable to see what has been done so far on a project or in what order. SOVs not only give you and your team an ordered view of previously accomplished activities on a project, but they also organize what still has to be done in the order of completion.
Billing against a schedule of values is normal practice for major commercial contractors. Smaller contracting firms or remodelers frequently misunderstand an SOV, which can lead to your project failing if you do not properly utilize your SOV as a management tool. During the construction phase, the SOV will assist in guiding teams and billing.
SOV is named a schedule of values because it organizes the various values of each task. Contractors, architects, and owners will collaborate from start to finish to estimate the cost value of each job in order to determine how much money will be spent on project construction. The SOV can assess how much money was projected to be spent on each activity and how much money was really spent once the project is completed.
Another reason why the schedule of values should be regarded seriously as part of your construction documents is that they can frequently become a critical part of a construction agreement. When this is the case, the cost of the job and materials can be agreed upon before construction begins. This protects contractors both financially and legally.
Why is a Schedule of Values Important in Construction?
A schedule of values is utilized as a management tool in monthly pay app processing, as well as a vital tool in analyzing project progress as a completion % relative to plan. Because cash flow is defined by the SOV, and payment timing is dependent on how the SOV was built and allocated funds, it can be critical for contractors to ensure cash flow continues and their bills are paid.
Common SOV Problems
Because the schedule of values can influence cash flow on a project, construction contractors may be tempted to “front-load” the SOV so that the majority of payments come in at the start of the project and they obtain the cash quickly. They may seek to do this by artificially boosting the values of early project activities while discounting the work at the end.
While this may be appealing — who wouldn’t want to obtain more money sooner? – It is a horrible idea for a variety of reasons. The owner and architect must sign off on the SOV and will be aiming to avoid this precise behavior. It’s never a good look to be found attempting to fudge the numbers for your own profit.
However, front-loading an SOV can lead to other severe issues down the road. If a payment dispute arises, the reasons can be complicated when the value on the SOV does not match the payments made down the chain. Especially since most SOVs stipulate that only a specific amount is authorized for contractor profit and overhead.
Furthermore, if there is a dispute over the sub’s work (but the contractor has overstated the worth of that work in the SOV), it will be difficult to establish that the contractor should be able to collect the full amount when the part is due to go to the sub whose work is contested.
There are numerous more concerns that can result from not preparing the SOV appropriately and accurately. Therefore, doing it correctly is simply the right thing to do.
Among the numerous documents necessary during construction projects, the SOV is one that is inextricably linked to cash flow and, as such, should be familiar to all stakeholders.
Why Use Schedule Of Values In Construction?
The schedule of values is critical for keeping complex projects on track and minimizing payment delays. They are used by contractors and subcontractors to maintain track of finished work, support payment applications, and confirm that the cost of each work item matches the contract price. Contractors risk mismanaging costs and overspending early in the project without it.
In some circumstances, having an incorrect SOV is equally as bad as not having one at all. Contractors may encounter challenges ranging from small scheduling delays to payment and cash flow disruptions if an SOV contains inaccuracies. If the difference is significant enough to cause an extended delay, it could result in a violation of prompt payment regulations and serious legal action.
An accurate SOV is also a useful tool for project managers. The owner can confirm that work is continuing according to schedule and within the project budget by reviewing an updated SOV. It enables them to make payments on time, avoid project delays, and provide accurate information to other stakeholders.
When to Use the Schedule of Values in Construction
Contractors working on large-scale commercial projects with many moving elements should use SOVs. Contractors working on these complicated projects require a value schedule in order to stay on budget, track values, and manage payment applications.
Smaller projects with a defined price, approved budget, or contract with a guaranteed maximum price can also benefit from an SOV. These contracts pre-determine the entire project cost, and an SOV’s in-progress cost breakdowns can assist ensure that the project never goes over budget.
What Should a Schedule of Values Contain?
An SOV’s major components are a list of work items, values for each item, and the amount of work accomplished. A schedule of values’ size and scope might vary based on the project’s complexity. However, most SOVs include the following components:
- Name and number of the project
- Name of the general or prime contractor
- Date and application number
- Item numbers for work
- Work item descriptions
- Each item’s total worth
- Work accomplished as a percentage
- Work done value for previous and current periods
- Each item’s remaining balance
- The percentage and amount of retention for each item
- Acceptance and acknowledgment
How to Complete and Submit an SOV
The amount of detail required for an SOV varies with the size and complexity of the project. And, the document may alter as the project develops. Consider the following procedures to guarantee that your SOV is as accurate as feasible.
#1. Agree on the Contract Price
Before you begin filling out the SOV, you must first confirm with the owner the overall contract price and project specifications. Jumping ahead may result in erroneous value estimates, necessitating time-consuming revisions later on.
This is also a good moment to inquire with the project owner or architect about the level of detail required for an SOV. Some permit less specific cost breakdowns that mix related work items. On the other hand, others may require you to separate them out in a detailed list.
#2. Include Work Items
After you’ve validated the specifics with the project owner, add a list of work items with associated item numbers to your SOV. This list should cover the entire project from beginning to end, with each item including a brief, easy-to-read summary. You can use preliminary construction estimate reports to assist you fill out this and the next sections.
#3. Determine the Value of Each Item
The anticipated value for each work item should be as accurate as feasible. This is to avoid payment disputes and keep the project running smoothly. Analyze all associated equipment, material, labor, and transportation expenses as you consider each line item. You should also keep track of the agreed-upon retainage cost for each item. The retainage is normally 5% to 10% of the overall contract price and is included in the first contract.
#4. Keep Up to Date As Work Is Completed
You’ll need to update the SOV as the project develops. It should reflect the percentage of work accomplished and the amount invoiced for each period. It should also reflect the remaining cost for each work item. Most major projects have many applications for payment. Therefore it’s critical to keep your SOV as current as feasible during the project’s duration.
#5. Go over and confirm your values.
Take some time to verify and confirm the values shown on the SOV before submitting a payment application. The project owner should have signed off on the original values at the start of the project. However, it’s a good idea to double-check all in-progress costs for accuracy on a regular basis.
#7. Submit with the Payment Application
Contractors should submit the SOV, all modification orders, and any other supporting papers with each application for payment for projects that use a fixed price contract or progress billing. The SOV can be used by project owners and other stakeholders to swiftly check finished work. With an accurate list of values, they can make timely payments to contractors and subcontractors.
Filling out and submitting a schedule of values may appear to be a hard task at first. However, it makes projects function a lot more smoothly in the long term. SOVs that have been updated can also be used as a reference when submitting other construction papers such as RFIs, modification orders, and payment applications.
If you’re unsure about what to include in an SOV, check with the project owner to confirm the format and level of detail they want. This ensures that payments are paid on schedule and that each work item is done as planned.
There is no way of knowing where a building project will wind up at the start. Staying on track with the values schedule is the smartest method to navigate any potential future problems that a project may have. It is not suggested to depart from the schedule in order to earn more money sooner than expected, as this can harm your reputation and your project in the long run.
Using technology in your build processes is an easy way to manage and document SOVs for all of your projects. Producing SOVs digitally rather than on paper allows contractors, architects, and owners to immediately view an SOV’s “progress to actuals” report, as well as any small or substantial revisions and markups added to an SOV during construction. This leaves little room for error or loss of precious work put into your SOV.
Schedule Of values In Construction FAQs
How do you create a schedule of values?
Steps for creating a schedule of values:
- Confirm the Contract Price.
- Add Work Items.
- Determine Each Item’s Value.
- Update As Work Is Completed.
- Review and Confirm Values.
- Submit With the Application for Payment.
Why is the construction schedule important?
The construction schedule is important because it not only shows how quickly the job will get done, it also outlines how the job will be done.