Just because you’ve signed a construction contract you’re comfortable with doesn’t mean the documentation is at an end. There are invoices, waivers, subcontractors, and, of course, change orders to deal with. There is also the big Schedule of Values, a significant document that lists, from start-to-finish, all the items that make up the project. These are generally grouped by set, but should as a whole represent the entire project, including allocating all the funds for the project broken down by the different portions of work.
In some cases, these documents can be massive as the project is large and the granularity needed varies from project to project. There is no industry-wide standard for how much detail is given in the schedule as the needs of different construction projects vary. However, this detailed document can become incredibly important to defining, and protecting, your right to be paid for work performed.
What is the Schedule of Values?
The schedule of values is used both to manage monthly payments to subcontractors and to evaluate the construction progress against the plan. Because of these two factors, the schedule of values can be important in determining cash flow and when payments are made by the owner to the general contractor and from the general contractor to subcontractors and suppliers.
Not only does this affect cash flow, but it’s an important document to pay attention to when change orders or modifications come in. It’s important to make sure any changes that are requested of you are not only properly documented, but are also reflected in the schedule of values. Doing this ensures that payment continues, on increases, as appropriate based on the change.
Contractors are often tempted to front-load the statement of values such that most of the payments happen up front and tasks completed later in the project have a lower value. This is a practice called overbilling, a bad practice in general and particularly a problem down the line when an issue arises or a change is requested and you need to increase the value of a particular task. If the value of that task is artificially low, then it is much harder to justify an increase.
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.