How does the schedule of values affect your contract? Most contractors and subcontractors believe that a good and enforceable contract is all that is needed to protect their rights. While there is some truth in that belief, it remains incomplete. Additional documents and data must be considered, especially invoices, waivers, and change orders. These documents serve to either prove the work was performed or to change the expected scope of work. But there remains one more document that is likely more important than anything else: the schedule of values.
What is the schedule of values?
The schedule of values is essentially the budget for the entire project, listing all details related to the costs and expenses involved. This is a start-to-finish document, purporting to encompass everything that the project is or will be. Depending on the complexity of the project, there can be hundreds or thousands of line-item entries in the Schedule of Value, often organized by category. But just because this list of costs is organized by category (i.e., plumbing, landscaping, etc.), a casual review of the document will include all aspects of the project and importantly, how the funds for the project are to be allocated.
The detail contemplated by the schedule of values will depend on the complexity of the project. A massive development project will necessarily be far more detailed and complex than a simple home remodel. So it’s best to consider the schedule of values on a case-by-case basis. There is no industry-wide standard in the use of this kind of fiscal document, so pay attention to how your project is being managed. It can tell you a lot about how complex the project is. No matter what, the schedule of values is a very important document in terms of defining and protecting your right to be paid for work that you performed.
What the schedule of values means to you
The schedule of values serves a dual purpose. First, it is used to account for and manage how subcontractors are paid. Based on invoices from the subcontractor, the general contractor can use the schedule of values to determine whether the work was complete and whether the work was proper under project management principles. Perhaps more importantly, the schedule of values is used by the general contractor to track the project’s progress against stated goals. Both purposes related to a project’s cash flow, both from the owner to the general contractor and from the general contractor to subcontractors.
the importance of tracking changes in the schedule of values
Beyond those stated purposes, a schedule of values is important when it comes to change orders or modifications. Changes to the plan happen in nearly every project. But any change in a project’s plans necessarily affects all parties involved in the project. These changes must be accounted for in the schedule of values. Even if any changes can potentially implicate vast timeline and budgetary issues. Keeping track of not only the schedule of values. Any unexpected changes will allow for the project to continue payments as necessary. It also allows for payment amounts to change based on alterations to the project.
What to look out for
General contractors tend to front-load the statement of values so that most payments are up front, leaving the work to be performed later. While this may have a tendency to protect general contractors in terms of accounting, this kind of overbilling has been deemed a bad accounting practice in general, causing larger problems as the project continues. Especially when a change order or modification comes in, this causes problems as the value of payment should match the value of the work to be performed. When this doesn’t happen, the value of the work can be artificially low, making an increase undesirable and more unjustifiable.
When dispute arises , you are likely to turn to the schedule of values
As a subcontractor, the most important part of your contract is the ability to protect your rights, and for subcontractors, the most common way to protect those rights is through a mechanic’s lien. The schedule of values is a very important document in this regard. It includes a clear record of what work was subcontracted, the amount expected to be paid for that work, and the amount of work performed to date. If any dispute arises under the contract, both sides will likely turn to the schedule of values to determine the other party’s expectations for the work, including cost. Any claim for a mechanic’s lien will use data and information from the schedule of values to bolster any claim for money owed for work performed.
Protecting Your Right to Lien
Having the schedule of values, however, can protect your right to file a mechanics lien as it clearly records what was contracted for and what work has been performed to date. If there is a dispute regarding the work of a particular subcontractor, parties turn to the schedule of values to determine what amount was originally set for the work. When filing a mechanics lien, including this document as well as the original contract is a great way to strengthen your claim of the amount owed.
Drafting good construction contracts is only part of the paperwork process and, when you work with experienced construction counsel at National Lien & Bond, we’ll make sure that you’re comfortable not only with the contract, but you understand how change orders should work and that the schedule of values reflects the correct amounts for the work performed.
This blog is for educational purposes only and not intended for legal advice.