Construction projects require structured methods for tracking costs and authorizing payments. Clear, transparent financial management is necessary to ensure funds are properly allocated. The Schedule of Values (SOV) serves as the foundational document for this process, establishing a unified financial roadmap. The SOV represents the total contract sum, broken down into specific, agreed-upon components of work, setting the stage for how money will flow from the owner to the contractor.
Defining the Schedule of Values
The Schedule of Values is a contractual instrument that provides a complete inventory of every component of work included within the construction agreement. It serves as an itemized breakdown of the entire contract price, assigning a monetary value to each distinct element. This document includes costs related to labor, materials, equipment, overhead expenses, and profit, detailed by specific work category.
Each value listed on the SOV must align with the contractor’s final, negotiated bid and must sum up exactly to the total contract sum. The SOV transforms a single lump-sum contract price into a granular, verifiable list of financial commitments that guide financial administration.
The Primary Purpose of the Schedule of Values
The purpose of the Schedule of Values is to introduce transparency and control into the payment process for the owner and any involved lending institution. This standardized structure allows the owner’s representative, typically the architect or a construction manager, to systematically review and confirm payment requests. The document ensures that funds are disbursed only for work that has been executed on-site or for materials that have been properly procured and stored.
Employing the SOV as a financial benchmark mitigates the owner’s risk of overpaying the contractor prematurely. By linking specific dollar amounts to defined stages of completion, the document provides a clear audit trail and a consistent metric for measuring physical progress against financial drawdowns.
How the Schedule of Values is Structured and Itemized
The organization of the Schedule of Values requires a logical flow that mirrors the actual construction sequence. Standard industry practice dictates that the SOV be itemized according to the Construction Specifications Institute (CSI) MasterFormat, a standardized classification system. Adherence to the CSI MasterFormat ensures uniformity and consistency across different projects, simplifying communication.
The CSI MasterFormat divides the construction scope into numbered divisions (e.g., Division 03 for Concrete, Division 09 for Finishes, and Division 23 for HVAC). Each division forms a major line item on the SOV, accompanied by its total monetary value. Contractors may further delineate detailed sub-items within these major line items to provide granular clarity, such as separating the cost of formwork from the concrete pour itself.
This hierarchical structure allows for precise tracking and prevents the commingling of costs. Non-physical project costs, such as supervision, permits, and mobilization expenses, are often listed as distinct, high-level line items at the beginning of the SOV. The SOV may also incorporate unit pricing for specific items, allowing for easier valuation of small scope adjustments without requiring a formal change order.
The Creation and Approval Process
The general contractor is responsible for creating the Schedule of Values, drafting it based on the project’s accepted budget and contractual scope of work. The draft is typically submitted to the owner and the design team shortly after the Notice to Proceed is issued. This initial submission aligns financial expectations before significant work begins.
A rigorous review process follows, where the owner, architect, or construction manager scrutinizes the breakdown for accuracy and proper cost allocation. Reviewers confirm that the itemized values are reasonable and that the total sum matches the executed contract price. Formal approval is required before the contractor can submit the first application for payment.
Once approved and signed, the Schedule of Values becomes the official financial baseline and a binding exhibit to the construction contract. Any subsequent financial transaction must strictly adhere to the line items and values established. The authorized SOV remains the single source of truth for all financial reporting and progress tracking.
Using the Schedule of Values for Progress Payments
The approved Schedule of Values is the primary tool for generating monthly progress payment requests. Contractors typically use standardized forms, such as the AIA G702 (Application and Certificate for Payment) and the G703 continuation sheet. The line items established in the SOV are directly transferred onto the G703, creating the framework for the monthly billing cycle.
At the end of each period, the contractor assesses the percentage of completion for every line item on the G703. This assessment is based on physical work installed and the value of materials purchased, delivered, and stored. The contractor multiplies the total value of each SOV line item by its calculated percentage of completion to determine the amount due.
The resulting figures are totaled to determine the gross amount earned, which is summarized on the G702 cover sheet. The project team, including the architect and owner, verifies these completion percentages through site visits and documentation review before certifying the payment application. This verification ensures the calculated payment accurately reflects the physical progress achieved.
A standard contractual practice is to withhold a specified percentage, known as retainage, from the total earned amount. This retainage, usually five or ten percent, is held by the owner until substantial or final completion. Retainage serves as a financial incentive and security measure until the contractor meets all final contractual obligations.
Managing Changes and Adjustments
The approved Schedule of Values is the financial baseline, but it is not immutable, as projects often experience scope changes. Any modification to the original scope must be formalized through a written Change Order (CO). The CO process is the sole mechanism for legally altering the values or items listed on the original SOV.
When a Change Order is executed, its financial impact must be reflected immediately in a revised Schedule of Values. If the change involves a new scope of work, a new line item is added to the SOV, increasing the total contract sum. A CO might also adjust the value of an existing line item if the scope has been revised, such as a material substitution.
The accuracy of the SOV is maintained by ensuring that the sum of all original line items plus the value of all approved Change Orders equals the current, revised contract price. This guarantees that the payment application process operates against the most up-to-date financial structure, preserving transparency.