How a Schedule of Values Can Work Later for Your Lien Enforcement

How does the schedule of values affect your contract? Most contractors and subcontractors believe a good and enforceable contract is all that is needed to protect their rights. There is some truth in that belief, but it is incomplete. Additional documents and data matter, especially invoices, waivers, and change orders. Those documents either prove the work was performed or change the expected scope of work. But there is one more document that is often 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 the costs and expenses involved. It is a start-to-finish document meant to capture everything the project is or will be. Depending on the complexity of the project, there can be hundreds or thousands of line items, often organized by category. Even when the costs are organized by category, such as plumbing or landscaping, a careful review covers all aspects of the project and, importantly, how the funds are to be allocated.

The detail in the schedule of values depends on the complexity of the project. A large development is necessarily far more detailed than a simple home remodel, so it is best to consider the schedule of values on a case-by-case basis. There is no industry-wide standard for this kind of document, so pay attention to how your project is being managed. It can tell you a great deal about how complex the project is. No matter what, the schedule of values is an important document for defining and protecting your right to be paid for the work 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 proper. Perhaps more importantly, the general contractor uses it to track the project's progress against stated goals. Both purposes relate to the project's cash flow, from the owner to the general contractor and from the general contractor to the subcontractors.

The Importance of Tracking Changes

Beyond those purposes, a schedule of values matters when it comes to change orders and modifications. Changes happen in nearly every project, and any change affects all parties involved. Those changes must be accounted for in the schedule of values, even when they carry significant timeline and budget implications. Keeping the schedule of values current allows the project to continue payments as necessary and allows payment amounts to change as the project changes.

What to Look Out For

General contractors tend to front-load the schedule of values so that most payments come up front, leaving work to be performed later. While that may protect general contractors in terms of accounting, this kind of overbilling is generally considered a poor practice that causes larger problems as the project continues. It becomes a particular problem when a change order comes in, because the value of payment should match the value of the work to be performed. When it does not, the value of the work can be artificially low, making an increase harder to justify.

When a Dispute Arises, You Turn to the Schedule of Values

As a subcontractor, the most important part of your contract is the ability to protect your rights, and the most common way to do that is through a mechanics lien. The schedule of values is an important document here. It includes a clear record of what work was subcontracted, the amount expected to be paid for it, and the amount of work performed to date. If a dispute arises, both sides will likely turn to the schedule of values to determine the parties' expectations for the work, including cost. Any claim for a mechanics lien will use data from the schedule of values to support the amount owed.

Protecting Your Right to Lien

Having the schedule of values can help protect your right to file a mechanics lien, because it clearly records what was contracted for and what work has been performed to date. If there is a dispute about a particular subcontractor's work, the parties turn to the schedule of values to determine the amount originally set for that work. When filing a mechanics lien, including this document along with the original contract is a strong way to support your claim of the amount owed.

Drafting good construction contracts is only part of the paperwork process. If you have questions about how change orders work or whether your schedule of values reflects the correct amounts for the work performed, contact us.