By Mike Koger, AIA, Esq. Senior Director and Counsel, AIA Contract Documents
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May 20, 2022
A Schedule of Values (SOV) is a critical tool used in construction projects, ensuring that contractors are paid fairly for the work completed. But what exactly is it, and why is it so important for contractors? Let’s explore what a Schedule of Values is, how to create one, and why it plays a vital role in construction contract management.
A Schedule of Values (SOV) is an itemized list that breaks down the total contract sum into different portions of the work to be completed. It allocates costs to specific tasks or phases of the project, allowing for a systematic and fair payment process as the work progresses.
This list is typically required when a contractor is paid on a stipulated sum or Guaranteed Maximum Price (GMP) basis. It serves as a guide for both the contractor and the architect to review payment applications and ensure that funds are disbursed based on actual work completed.
Once the Schedule of Values is created, it is submitted to the architect before the first application for payment. The architect then reviews it to confirm that the costs are allocated properly, ensuring that payments are based on completed work and not front-loaded. Front-loading, the practice of allocating larger sums to early stages of the project, can lead to overpayments and cash flow issues, especially in the event of a contractor default.
As the project progresses, the Schedule of Values may need to be updated. If costs change or if the scope of work evolves, adjustments can be made to ensure that payments continue to reflect the actual costs of the work.
The primary reason contractors need a Schedule of Values is that it is an essential part of the payment process. In fact, without a proper Schedule of Values, contractors may face delays in receiving payments.
For contractors, timely payment is crucial to maintain a healthy cash flow throughout the project. The Schedule of Values ensures that payments are made for work completed, rather than based on estimated costs. This helps contractors avoid overpaying at the beginning of the project and ensures that funds are allocated as the work is completed, reducing financial risk.
The architect plays a key role in reviewing and approving the Schedule of Values to ensure accuracy. By verifying the data, the architect helps prevent any discrepancies or issues that might arise from inaccurate payment applications. Clear, well-structured Schedules of Values allow the architect to do this quickly, speeding up the payment approval process.
A well-prepared Schedule of Values is crucial for receiving timely payment. Here’s how to create one:
As the project progresses, costs may change, or the scope of work may be altered. Section 9.2 of AIA Document A201-2017 allows for revisions to the Schedule of Values. Contractors should keep the architect informed and submit updated versions of the Schedule of Values whenever necessary to reflect any changes in project costs.
Creating a Schedule of Values might seem straightforward, but there are several common pitfalls to watch out for:
Front-loading—allocating too much of the payment for early stages of the project—can lead to significant cash flow problems. Contractors should ensure that the allocation of costs in the Schedule of Values is realistic and reflective of the actual progress of the work.
Inaccurate payment applications are a major cause of delays in construction payments. Contractors must ensure that their Schedule of Values aligns with the actual work completed. Any discrepancies or errors in the data can lead to payment delays or rejections.
To request payment, contractors submit an itemized Application for Payment (AIA Document G702) along with a Continuation Sheet (AIA Document G703). These documents break down the payment request according to the Schedule of Values, allowing the architect to verify the payment request against the work completed.
Architects rely on the Schedule of Values to ensure that each payment request is legitimate and based on work completed. If the Schedule is well-organized and transparent, the architect can quickly assess the payment request, speeding up the approval process and reducing the risk of delays.
The Schedule of Values is an essential tool for both contractors and architects in managing construction project payments. By ensuring accurate allocation of costs and enabling fair, timely payments, it plays a pivotal role in a contractor’s cash flow and the overall success of a project.
By following best practices in creating and maintaining your Schedule of Values, you’ll help ensure that you get paid for the work completed and avoid common payment challenges.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.