How a Schedule of Values Strengthens a Mechanics Lien

How a Schedule of Values Strengthens a Mechanics Lien

March 4, 2020

Being organized is key in running a construction business. And one of the most important organizing tools in construction is the schedule of values, or SOV. An SOV is a management document that allows project stakeholders to track progress payments and construction expenses, and it helps everyone stay on track with the project plan.

If you are working in the construction sector, it is very important that you maximize your schedule of values to help you with your billing processes and even with potential payment claims through a mechanics lien.

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What is a schedule of values?

A schedule of values is a document that breaks down all the work to be done on a project from beginning to end. It is a very important construction documentation that essentially lists all the work items with their associated costs. The costs and amounts included in a schedule of values must agree with the original contract amount.

Throughout the course of a project, a schedule of values is updated to reflect the work that has been performed to date. A schedule of values must also reflect how much payment has been paid to date for a specific task, how much amount remains to be paid, and even how much retainage is withheld by the property owner or contractor.

When do you use a schedule of values?

A schedule of values is typically used in commercial projects and large-scale residential property improvement or construction. In most cases, contractors are required to submit a schedule of values to property owners and architects.

Typically, a schedule of values must be agreed upon before a project commences. Whenever a payment dispute arises – whether it’s between property owners and general contractors, or between general contractors and subcontractors – construction parties usually refer back to the schedule of values to verify how much payment was initially agreed upon over a specific work item.

What information can you find in a schedule of values?

There are no universal templates for schedules of values. Each construction party can organize their schedule of values differently. Property owners and architects may ask for specific requirements such as a fixed breakdown of amounts (i.e., one work item for every $10,000 spent), or general contractors may also design their own SOVs.

Generally, a schedule of values before a project begins will have at least one column for the work item description and another for the contract amount associated with the item. The tasks could be further categorized according to types (e.g. labor, materials, etc.) and there could be cost codes related to each task, depending on company standards.

During the course of a project, the schedule of values will be filled with other columns for Amount Billed to Date and Remaining Amount. There could also be a column for Retainage Amount, if applicable.
Items such as Change Orders and other modifications must also be reflected in a schedule of values.

Because these items are typically not part of the contract, they might cause payment disputes if they are kept hidden and not properly documented for all stakeholders to see.

As mentioned, there are no specific templates for making an SOV. The idea is to keep your SOV organized so all work items are included and all paid items are reflected in the document.

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How does a schedule of values relate to progress payments?

The schedule of values is generally used by both property owners and contractors to assess how much work has been performed to date by looking at the work items listed in the schedule. Once they know how much work items have been completed, they will also know how much payment to disburse.

Construction projects generally do not pay a lump sum to contractors or subcontractors. A schedule of values, therefore, helps a contractor determine how much progress payment to release to subcontractors, depending on the completed tasks. It also works the same way for property owners who determine how much money to pay their general contractors.

Schedule of values purpose

On top of tracking progress payments, a schedule of values is also able to help paint a picture of the current construction progress versus completion. A well-organized schedule of values will show a “progress to actuals” report that clearly states how much work has been done and how much work is still to be completed.

Benefits of having a schedule of values

SOVs assist contractors with billing

Contractors for large-scale projects typically use a schedule of values to help them with their billing processes. It is standard for contractors to determine billing by checking the project’s schedule of values to make sure that the bills are accurate with respect to what has been accomplished.

SOVs promote project transparency

A schedule of values is usually agreed upon by property owners and contractors before a project commences. As the project progresses, the schedule of values is updated and is shared among all stakeholders to ensure that everyone knows what has been done and how much has been spent. This way, all transactions and bills are transparent and everyone is on the same page when it comes to payments.

SOVs determine actual vs. estimated project costs

At the end of a project, an SOV acts like a report that shows how much has been spent to complete the project versus what was estimated before the project started. It helps property owners and architects to keep the budget in check, and it also helps them study how the money has been spent throughout the course of a project.

SOVs help settle payment disputes

When payment disputes happen, an SOV is a good resource to use to verify what has been initially agreed upon in the contract. If an SOV is properly organized and reflects all work items performed to date, it is very effective in settling payment disputes. A good SOV will always show which work items have already been completed and paid.

How does an SOV work to strengthen a mechanics lien?

Having a well-organized schedule of values can help strengthen a mechanics lien because it details the work items and payments that have been agreed upon. If you do not receive payment for a work item, you may use a schedule of values to prove that the item is part of the contract and you are, therefore, entitled to get paid if you have completed the task.

A mechanics lien claimant may append a schedule of values to the original contract when putting together their evidence for a mechanics lien. It is a valid documentation that you can use to strengthen your claim.

Schedule of values for mechanics lien

What issues can you encounter regarding a schedule of values?

The biggest issue when it comes to using a schedule of values is that of overbilling. Overbilling happens when a contractor inflates the amount of the work items that happened early on in a project just so they can get paid more money right away.

Overbilling is also known as “front-loading” and is considered an act of making false claims. While it may be tempting to trick property owners into making bigger payments during the early stages of a project, a contractor must keep in mind that making false claims may ruin their reputation.

Note that an SOV is a transparent document that is agreed upon by higher-tier parties such as property owners and architects. When a property owner realizes that a contractor is attempting to overbill, their business relationship will likely turn sour and they will no longer trust each other.

Making false claims may also be considered a criminal and a civil offense, especially when done on public jobs. At no point in any project must you overbill. Even when charging amounts for change orders and modifications, always stay true to the accurate amounts as it is the ethical thing to do.

Best practices when preparing a schedule of values

1. Never overbill or front-load your SOV

Overbilling your schedule of values will not do you any good. You may end up having to pay penalties and fines and your clients may no longer trust you. Always be honest when building and updating a schedule of values – you do not want to ruin your business’s reputation over something that is easily avoidable.

Digitized schedule of values

2. Ensure that your SOV is updated and accurate

All work items and amounts noted in your schedule of values must be accurate. A schedule of values is something that all stakeholders must see throughout the course of a project, so it must reflect all the work items that have been completed, including change orders and modifications. Make sure that you verify the accuracy of your SOV to avoid complications and payment issues.

3. Use technology to help you build and track your SOV

It is best practice to use technology to track your schedule of values. A digitized SOV helps you understand the reports better and it can make the calculations easier as well. An electronic schedule of values is also easier to share among project stakeholders, and it may be less prone to human error compared to a schedule of values prepared on paper.

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