Any large construction project involves hundreds or thousands of tasks before it is completed. A schedule of values (SOV) is an essential construction document that comprehensively associates a cost to each of those tasks, ultimately helping to track progress and manage cash flow. The SOV is often organized by different categories or trades, and it helps ensure accurate and transparent billing throughout the project.
This guide will explain why a schedule of values is an essential part of any complex construction project and how to leverage this document properly.
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Schedule of values itemizes the individual work steps and associated payment milestones within commercial or industrial construction projects. The SOV ensures all parties are made aware of their respective financial obligations while ensuring contractors can effectively manage progress billing during each completed stage of the project.
Basically, a construction project’s SOV is the ultimate financial oversight of a construction project. It itemizes each project work task and its corresponding costs while ensuring construction billing clarity.
A schedule of values is an absolute requirement on large construction projects for several key reasons:
First, in an industry where the average receivable collection times typically reach 90 to 120 days or more, today’s contractors need a well-documented and itemized payment plan. That plan ensures consistent payments and improved cash flow. The schedule of values acts as a payment roadmap that defines the project’s overall costs, ensuring complete transparency and accountability.
Today’s large-scale construction projects take anywhere from a year to three years or more before project closeout. As change orders can make a significant impact on an SOV, it will typically be updated to reflect the schedule and cost impact. Keeping track of change orders and their corresponding costs is essential to ensuring timely and accurate payment throughout the project’s timeline.
Failure to capture these change orders within the schedule of values means delayed or missed payments, payment disputes, or potential litigation. In this way, an SOV is a complement to the project’s contractual agreement.
A well-crafted, detailed, and itemized schedule of values ensures alignment between all stakeholders. It provides a clearly defined budget while helping contractors and owners be more cognizant of potential delays and project overruns. This improves communication and decision-making while also helping to foster trust among all parties.
Finally, an SOV encapsulates every cost associated with a given construction task. Nothing is left to interpretation. Nothing is left unaccounted for. An SOV is a constantly adjusting document that accounts for various change orders throughout a construction project’s life.
The first portion of an SOV includes a name and description of the project, along with a unique identifier or reference number. The name of the general contractor and the individual owners and stakeholders responsible for ownership and payment are also included.
The SOV itemizes all sequential work tasks with estimated start and completion dates as well as their associated costs. These work tasks contain detailed explanations and descriptions of the work to be performed. As each work task is completed, the document is amended to represent amounts paid and any remaining balances owed.
The schedule of values also defines current and upcoming payments, amounts outstanding, and summarizes remaining tasks to be completed. Payment terms are clearly outlined within the document, while all parties sign off on each completed task and confirmation of payment.
Finally, all SOV documents define the project’s total cost while including retainage. Sometimes referred to as holdback, retainage protects owners should the contractor be unable to complete the project or if the contractor does not complete the project to the agreed-upon Scope of Work (SOW).
With retainage, a portion of the project’s price is retained until the finished project has met all inspection requirements.
Given the complexity of today’s design-build construction projects, the schedule of values must be equally complex. Putting an SOV together requires a detail-oriented and meticulous approach where every line item’s costs and work are clearly defined and well-understood.
Each line item must be properly broken down into the work involved, the construction material used, as well as the expected start and end dates. For each line item to be accurate, your estimations for that work must also be accurate so that owners have a clear understanding of payment requirements.
When crafting the schedule of values, you must adopt a comprehensive approach. That means clearly defining the overall cost of the project and ensuring that all line items together match that total cost. Ensuring the accuracy of the SOV will help to foster improved communication, collaboration, and agreement between you as the contractor and your customer.
Here is some insight on the all-important steps to take.
The first and most important step is to ensure all stakeholders have a clear understanding of the total cost and timeline of the construction project.
Clarity during this initial stage is paramount to success. By ensuring buy-in on the construction project’s timeline and cost, you ensure your team can put together an accurate and detailed SOV.
Understanding the specificity required within the SOV is also important, as different stakeholders may or may not require more detail for certain work tasks.
By ensuring that everyone is on the same page, you, as the contractor, can mitigate any misunderstandings between yourself and the owner while ensuring everyone has a solid grasp of the potential risks, roadblocks, and setbacks inherent within the project.
Once the cost and timeline have been agreed upon, you can begin to itemize the individual work tasks within the SOV. Be as accurate as possible with the cost estimates on each line item and ensure each line item has detailed and well-explained work descriptions.
When listing individual line items within the SOV, ensure you have properly accounted for all work-related expenses. That means meticulously cataloging material, transport, overhead, profit, and labor as well as potential overrun costs.
The more accurate your estimate for each line item, the less likely the project will experience cost overruns or require budget extensions.
The SOV must be meticulously managed, updated, and revised throughout the construction project. Scheduling periodic reviews and assessments on work task completion with all stakeholders ensures everyone is on the same page.
Not updating the SOV risks payment delays and misunderstandings, so ensure the SOV properly documents and attests to each completed work task, expected payment, remaining work to be performed, and any change orders.
A constantly updated SOV is one where all stakeholders are always informed, always made aware of progress, and always empowered to make better, more informed decisions.
Given the importance of accurate and timely updates, leveraging today’s latest templates and technologies can dramatically improve how you manage the SOV. Control, accuracy, costs, updates, change orders, and payments are all much easier to manage without having to rely upon manual paper processes.
An SOV managed through intuitive software also helps to reduce the impact or likelihood of key-entry and data-entry errors. When the right software and template are used, the SOV becomes an accurate tracking solution accessible to anyone at any time.
As important as SOV templates are, they simply cannot track the real-time adjustments and changes so common within construction projects. That’s why selecting the right cloud-based construction project management software is so important.
Today’s cloud-based software and its intuitive AI features ensure SOV documents are updated in real-time, keeping everyone abreast of up-to-the-minute developments. This means near-instant changes to labor and material allocation for various work tasks and continuous time-to-completion updates that keep everyone informed and aware.
With cloud-based software, the SOV becomes a living, breathing document that automatically refreshes thanks to the combined work and efforts of workers using the software.
Cash flow management, financials, and all construction invoices and payments become much easier to manage with the right payment software. That software will effectively eliminate all the most common frustrations associated with manual paper processes and manual tracking.
The right construction payment software eliminates repetitive manual data entry and key entry errors. In its place is a more accurate payment tracking software that ensures your business’s finances and project budgets are always updated.
The key to any successful project is the ability of a construction project manager to manage multiple variables while immediately adjusting for the unforeseen and unaccounted for. However, equally important is ensuring proper and timely communication among all employees, workers, stakeholders, and owners.
A well-written, thorough, and detailed SOV plays a critical role in construction project management. It fosters improved communication. It ensures everyone is aligned with the same objectives while helping project managers better manage costs, timelines, and work tasks. Most importantly, it empowers project managers to take the steps needed to mitigate risk and ensure a successful project.
The SOV document is the ultimate payment and billing solution. Timely billing is critical to cash flow management, and the SOV ensures there are minimal disagreements concerning the costs of individual work items. In this regard, the SOV becomes the overriding document regarding all payments.
Not only does the SOV ensure accurate billing and payment, but it acts as the essential repository for all project change orders and their associated increases or decreases in work item costs.
Finally, the SOV also summarizes the project’s retainage – a critical safeguard that owners need while ensuring contractors are paid for any materials, tools, and accessories stored away from the job site.
While the SOV defines how and when each stage of the construction project will be billed, it also aids project managers in measuring deliverables versus outcomes. Project managers can then adjust accordingly, diverting much-needed materials and labor to work items behind schedule.
A detailed SOV provides the ultimate oversight of a project’s budget, allowing contractors to take proactive steps to address any poor cash positions. Given the need to coordinate and manage multiple bill payments of their own, contractors rely on the SOV as a means of immediately addressing any potential cash flow shortages.
To err is human, but making the following mistakes with the SOV can lead to substantial problems throughout the construction project. These problems can lead to extensive billing and payment delays, cost overruns, extended project timelines, numerous reschedules, reduced profit, disagreements, and, in the worst of cases, legal action.
Inaccurate costs lead to reduced profit for completed work. Multiple repeated mistakes mean making up this shortfall on other work items becomes extremely difficult.
All work items listed must be clearly defined, and their appropriate costs must be properly outlined. An SOV that lacks specificity and detail often leads to numerous delays, difficulties in having work signed off by stakeholders, delayed payments, and disputes.
Capturing change orders – however small – is critical to SOV management. It’s not just about covering your costs. It’s not just about ensuring prompt payment for deliverables. It’s ultimately about avoiding the high costs and endless delays associated with construction disputes.
Change orders should specify what needs to be changed, why it needs to be changed, when the change order was requested and approved, and what impact the change order has on work item costs. Failure to properly capture, document and track change orders within an SOV can lead to extensive work-related delays, possible rework, and extended project timelines.
No, an SOV is not the same as an SOW. Whereas a scope of work (SOW) outlines what work is being done and how for each work item, an SOV instead outlines the expected payments once each of these line items is completed and signed off.
While there may be aspects of work descriptions within an SOV that seem similar to an SOW, the SOV typically lacks any description of the processes and individual steps involved in completing a work item, the way an SOW would.
Having a schedule of values for every construction project ensures minimal delays in billing and receivables collection. It’s critical to all construction projects because it ensures the interests of the contractor and owner are protected while allowing both to monitor and track the project’s timeline and progress.
Construction project management software provides near-instant updates and all but eliminates manual data tracking and reporting throughout the contract. That software amalgamates all in-process and completed work while providing all stakeholders with a single user interface with which to check the progress of individual work items within the SOV.
Simply put, project management software enhances the SOV by ensuring a more accurate, more detailed, and more specific document with near-instant updates.
Over the past four decades, Autodesk has become the must-have cloud-based software company and digital solution for thousands of companies in multiple industries worldwide. Our reliable, stress-free, easy-to-use design-build software helps engineering, construction, manufacturing, and architecture companies through every stage of their projects.
If you would like to learn more about how Autodesk can help you better manage your next construction project’s SOV while providing invaluable project management insight, contact us now.
