A construction schedule of values (SOV) is important for managing cash flow, a critical project component that becomes more crucial the larger the venture is. In addition to assisting with project progress tracking, an SOV can ensure that everyone is paid on time.
Even if you’ve managed to avoid creating one, the more your construction firm expands and takes on larger, complex projects, the more vital it is to have one. Lacking a schedule of values in construction (or alternatively, having one that isn’t completed correctly) can result in cash flow difficulties throughout the project’s life cycle, which can stall progress and cause significant delays.
Knowing what an SOV is, how to use it, and what to include is a necessity for the project’s success.
What is a construction schedule of values?
A schedule of values in construction is a central document used and accessed by key stakeholders (i.e., general contractors, subcontractors, and property owners) that functions as a comprehensive breakdown of contract costs and a way to track project progress.
It lists the expenses of every billable work item along a timeline, as well as the percentage of work that’s been assigned and performed.
Before construction begins, a general contractor creates a schedule of values, assigning costs for every item of work while listing the project phase in which the job will be performed. All parties must agree and sign the document to indicate that they understand and approve of the SOV’s details.
How to use a construction schedule of values on projects
Since a schedule of values in construction is used primarily to oversee progress and manage expenses and payments to contractors, there needs to be transparency in how it’s used. With the right amount of oversight, you can ensure your project stays on track, that no items are overlooked, and that contractors will be paid on time.
Not only is an SOV commonly used to plan and monitor cash flow, but it should state exactly how much contractors will be paid according to what they’ve done on the project. General contractors can use it to determine when they’ll need to send invoices, submitting the document as proof of their work.
Project owners often use the SOV to track the amount of work that’s been performed, and how much there is left to be completed. After verifying that the work has actually been done, they can then release payment.
Schedule of values tips: what to include, how to draft one, and what to use it for
A properly drafted schedule of values in construction can be the difference between a project’s success or failure. Here are some things to keep in mind when creating one.
1. Tailor the SOV to the project
Since every project is unique, the amount of detail that needs to be added to an SOV will vary. It helps to work with the owner or an architect to determine what’s important to include and what can be left out to efficiently track payments and progress.
Some projects will have a designated limit on how much specific items of work can cost, and will require work to be broken down into the smallest possible components. Others will require less specificity in breaking down costs.
Ultimately, the main factor that determines how detailed an SOV will be is the property owner.
2. Choose a template and adjust it as needed
Although there’s no set or traditional method for creating a schedule of values, and no template that’s necessarily ‘right’ or ‘wrong’, there are plenty of construction schedule of values templates online for you to choose from.
Most templates include the following:
- A description of each work item (according to the contract, such as plumbing or electrical work)
- How much each item costs
- What percentage of work has been completed
- Costs for the current billing period
- How much has been paid from previous billing periods
- How much remains until the job’s completion
- Retainage costs
These general details are usually compiled in a spreadsheet or in charts. Depending on the scale of your project, you may choose to include more or less detail.
3. Use the SOV to analyze costs
Once you’ve broken down work needed for every phase from pre-construction to completion, plus the associated costs, it helps to analyze and assess the costs you’ve entered into the construction schedule of values for labor, equipment, materials, and retainage. Doing a deep dive into expense details can help you identify excessive and unnecessary spending to cut back on, which helps with more efficient project money management.
4. Avoid inflating costs and overbilling
You may think that it’s better to overvalue the amount you’ll need and ask for more money than required to cover costs, but this can actually end up being counterproductive. Inflating the value of project activities can cause problems in the long run when the amount of resources used doesn’t line up with what was signed off in the construction schedule of values.
Seeing payment discrepancies, project owners or architects may suspect fraud and put you at risk for liability regarding false claims, which could in turn damage your business’ reputation.
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A schedule of values in construction is a necessity for managing costs for larger projects. For comprehensive workforce management, consider modernizing your process or adding to your existing tech stack with Bridgit Bench.
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