What is a Schedule of Values and How Does it Relate to Milestone Payments?

A Schedule of Values – boring paperwork or critical tool for managing payments throughout the construction of a capital project?  

The correct answer is both, but its function and importance may not be immediately clear. It’s a basic table in some paperwork, but it is legally significant and should be treated as a financial compliance tool.  

Let’s explore.

What is a Schedule of Values?

When a general contractor is awarded the construction of a capital project, a Schedule of Values will exist in the contract. A Schedule of Values is a detailed financial breakdown of a project into line items. Called ‘SoV’ for short, an SoV lists all parts of the construction work awarded to the general contractor, along with the corresponding value of that work, forming the total contract amount.  

This could include everything from a demolition line item to drywall or electrical line items, each with its own defined row in the Schedule of Values tabular format. For an engineer, an SoV will list various design milestones, such as preliminary design, conceptual design, etc.

The Schedule of Values serves multiple purposes:

• Transparency: It provides a clear picture of the contract amount, broken down neatly into individual line items, to give an overall schedule of values/payment schedule.
• Payment Management: The Schedule of Values translates directly to payment processes. It helps review and process the contractor’s payment applications or progress payments based on the completed portions of work.  
• Adjustment Handling: This accommodates expansion of the contract amount with new line items for change orders or authorized adjustments, ensuring that all financial allocations are up to date.

The Relationship with Milestone Payments

A Schedule of Values facilitates milestone payments, typical in construction contracts where payment flows to the contractor on completion of, or progress towards, specific project stages. In a way, a schedule of values becomes a milestone payment schedule.

For instance, a contractor might receive payment upon completing the demolition milestone or after installing the roofing. This method is particularly effective in large projects, broken down into distinct, manageable milestones.

The Schedule of Values is integral to this process because it:

• Establishes Milestones: It forces the principal/architect/superintendents, when setting up the contract amount, to define the value of each milestone by breaking down the project into specific achievable milestone payments/parts.  
• Progress Payment: It allows the general contractor and the principal to measure project progress against the established contract milestones, determining when payments should be made. Progress payments can also be easily achieved, with % completion toward a milestone visible on the Schedule of Value; however, determining the completion percentage can be challenging.
• Completion-Based Payment or Milestone Payment. Completion-based payments are due at 100% completion of a milestone, as opposed to progress payments, which can be submitted as % completed toward a milestone. Completion-based payment schedules are ideal when a large construction project is just a series of smaller, separate work elements.
• Retentions: Retainage against a payment schedule can apply where a portion of the overall payment is withheld until substantial completion/practical completion. This is another aspect where the Schedule of Values plays a critical role. It ensures that each payment reflects actual progress, aligning cash flow with project milestones, which can be a powerful motivator for timely and quality completion.

Practical Implications in Construction Payments

In practice, the type of contract and payment schedule—milestone-based, progress-based, or another format—can significantly influence the project’s financial and operational cadence. For smaller projects, simple payment schedules may suffice. However, for larger, more complex projects, the detailed breakdown provided by a Schedule of Values facilitates process or milestone-based payments, which can ensure that the project stays on track financially and temporally.

Tools to Assist in Managing Schedule of Values

Here are a few tools to help manage a schedule of values

• Owners or Project Consultants: We recommend Mastt as the preferred tool for owners or project consultants managing a general contractor, architect, or other commitments on a capital project from inception to close.
• General Contractors or Subcontractors: We recommend Procore or InEight as a preferred tool for General Contractors managing many subcontractors’ commitments.

Conclusion

The Schedule of Values is more than just a boring piece of financial paperwork. It is a critical tool for managing payments throughout the construction of a capital project and serves as a roadmap that guides both the contractor and the client through the financial execution of the work.

When tied with milestone payments, it ensures a structured and disciplined approach to project execution, minimizing disputes and enhancing transparency. Understanding and effectively implementing this tool using the right software can lead to smoother project execution and improved outcomes for all parties involved, as it deserves the rigor of compliance rather than a complicated, error-prone spreadsheet.

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Disclaimer: While Mastt is dedicated to offering valuable industry insights, it's important to note that we are not legal experts. Therefore, our content should not be interpreted as legal advice. We encourage readers to exercise discretion and seek personalized guidance from qualified legal professionals.