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This is the first in a two-part series on this blog addressing schedules of values in construction, comprised of: (a) Part 1 – Fundamentals (addressing what are schedules of values, standard forms, and contractual requirements); and (b) Part 2 – Construction (addressing development, submittal, and review of schedules of values). |
Money is the lubrication that makes the wheels turn on capital projects. Many things are part of the progress payment process for construction contracts, but few are as important as the schedule of values. This blog post describes schedules of values and their use in construction contracts.
What are Schedules of Values?
A schedule of values is required for virtually every construction project. It is a detailed breakdown of the contract price, arranged in a tabular format, by the various components of the work. The required level of detail in such breakdowns will vary by type of work, project, and the project’s design professional or construction manager as advisor (CMa). Schedules of values are most useful and most applicable for work compensated on a lump sum basis and work compensated on the basis of cost-plus-a-fee.
The price breakdown is often apportioned by geographic area of the project (for example, by building, when the work is in multiple buildings at the same facility), then by specifications section, then by type of work in the section, then by materials and equipment price, transportation and delivery to the site, construction equipment and machinery used, installation price, and perhaps other costs.
The reason for breaking down lump sum work is obvious: when the contract price will be paid in a series of progress payments, more detail is required to ensure progress payment amounts are fair to both the owner and contractor. Progress payments for lump sum work are made based on the design professional’s or CMa’s estimate of the work performed to date in accordance with the contract documents. Often, when the value of the work is broken down into greater detail, monthly progress payments are easier and less-controversial for the project’s principal participants.
Schedules of values are also required for work compensated on the basis of cost-plus-a-fee, to apportion the guaranteed maximum price (GMP) among the work’s constituent elements. While work compensated on the basis of cost-plus-a-fee is for compensable costs actually incurred, the owner is typically not obligated to pay more than the associated value for any element of the work. A schedule of values for cost-plus-a-fee work does not establish “mini-GMPs” for each element of the work, but rather provides the design professional (or CMa) and owner with the contractor’s opinion of the approximate, planned value of each element of the work.
Schedules of values are typically not required for, and typically have less applicability for, unit price work. Unit price work is eligible for payment when the specific unit of work is performed in accordance with the contract documents. Where a unit of unit price work is so broad that it will be performed over a somewhat lengthy period of time, resulting in a long interval between the contractor starting to incur cost and when payment is received (i.e., “days revenue outstanding” or “DRO”) for such work, consideration should be given to breaking up the subject work into multiple unit price items, to optimize the contractor’s cash flow. Although certain owners sometimes make partial payments for a given unit of unit price work, such practice is uncommon and may be unacceptable to the contractor’s surety.
During construction, a proper schedule of values supports progress payments that are fair to both the owner and contractor. Contractors have an understandably strong interest in keeping their DRO as low as possible and therefore desire appropriate cash flow. Sometimes, to improve its cash flow, a contractor may assign inflated values to early-start line items in the schedule of values, which is often termed, “front-end loading”. In contrast, owners and the contractor’s surety both have a strong interest that the contractor not be paid more than is merited for work acceptably performed since the prior progress payment.
Standard Forms
Schedules of values are commonly prepared on established, standard forms widely accepted in the design and construction community. Over the years, such forms have substantially contributed to establishing common practice and expectations in the industry.
Perhaps the most common is the American Institute of Architects (AIA) Document G703—1992, Continuation Sheet. This is a one-page document intended to be used with AIA G702—2018, Application for Payment. Both AIA G702 and G703 are static forms. Many construction contractors have adapted them into Microsoft Excel workbooks for convenience. As of July 2022, the current edition of both G702 and G703 is 1992, although AIA published a 2018 edition of G703 specific to sustainability-rated projects
Another common form is the “Progress Estimate – Lump Sum Work” worksheet in the Engineers Joint Contract Documents Committee’s Document C-620—2018, Application for Payment.
EJCDC’s schedule of values form and AIA G703 are nearly identical, except that EJCDC C-620 is published as a comprehensive Microsoft Excel workbook that includes the application for payment summary form, together with EJCDC’s lump sum schedule of values worksheet, plus separate worksheets for unit price work items and a stored materials summary. A schedule of values form is also included in EJCDC’s other application for payment forms adapted for other project delivery methods, such as construction manager as advisor (EJCDC’s CMA-Series), construction manager at risk (EJCDC’s CMAR-Series), and design-build (EJCDCs D-Series).
Figure 1 - Example of a schedule of values prepared on EJCDC C-620.
AIA’s and EJCDC’s documents are copyrighted. Thus, owners, design professionals, and CMa’s should not distribute copies to contractors. Rather, contractors should obtain their own copy from the document’s publisher for their associated nominal cost.
Contractual Requirements
EJCDC C-700--2018, Standard General Conditions of the Construction Contract, defines schedules of values as:
““[1.01.A.]36. Schedule of Values—A schedule, prepared and maintained by Contractor, allocating portions of the Contract Price to various portions of the Work and used as the basis for reviewing Contractor’s Applications for Payment.”
EJCDC C-700—2018 further indicates:
“[2.03.]A. Preliminary Schedules: Within 10 days after the Effective Date of the Contract (or as otherwise required by the Contract Documents), Contractor shall submit to Engineer for timely review:
“3. a preliminary Schedule of Values for all of the Work which includes quantities and prices of items which when added together equal the Contract Price and subdivides the Work into component parts in sufficient detail to serve as the basis for progress payments during performance of the Work. Such prices will include an appropriate amount of overhead and profit applicable to each item of Work.“
“2.05 Acceptance of Schedules
“A. At least 10 days before submission of the first Application for Payment a conference, attended by Contractor, Engineer, and others as appropriate, will be held to review the schedules submitted in accordance with Paragraph 2.03.A. No progress payment will be made to Contractor until acceptable schedules are submitted to Engineer.
“3. Contractor’s Schedule of Values will be acceptable to Engineer as to form and substance if it provides a reasonable allocation of the Contract Price to the component parts of the Work.”
“[15.01.]A. Basis for Progress Payments: The Schedule of Values established as provided in Article 2 will serve as the basis for progress payments and will be incorporated into a form of Application for Payment acceptable to Engineer. Progress payments for Unit Price Work will be based on the number of units completed during the pay period, as determined under the provisions of Paragraph 13.03. Progress payments for cost-based Work will be based on Cost of the Work completed by Contractor during the pay period.”
AIA A201—2017, Standard General Conditions of the Contract for Construction, includes:
Ҥ 9.2 Schedule of Values
“Where the Contract is based on a stipulated sum or Guaranteed Maximum Price, the Contractor shall submit a schedule of values to the Architect before the first Application for Payment, allocating the entire Contract Sum to the various portions of the Work. The schedule of values shall be prepared in the form, and supported by the data to substantiate its accuracy, required by the Architect. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor’s Applications for Payment. Any changes to the schedule of values shall be submitted to the Architect and supported by such data to substantiate its accuracy as the Architect may require, and unless objected to by the Architect, shall be used as a basis for reviewing the Contractor’s subsequent Applications for Payment.
Ҥ 9.3 Applications for Payment
“§ 9.3.1 …the Contractor shall submit to the Architect an itemized Application for Payment prepared in accordance with the schedule of values, if required under Section 9.2, for completed portions of the Work….”
EJCDC C-700 appears to require a schedule of values for all construction, regardless of its compensation method, despite EJCDC C-620 including separate worksheets for lump sum work and unit price work.
In contrast, AIA A201 Section 9.2 clearly indicates schedules of values are required for “stipulated sum” (presumably meaning lump sum) work and “Guaranteed Maximum Price” work (i.e., work compensated as cost-plus-a-fee with a GMP), A201 does not expressly address whether the architect’s approval of the schedule of values is required, but instead refers to the architect “objecting” to such a submittal. Presumably, unless the architect expressly objects, the schedule of values will be acceptable for use. Also, unless expressly required elsewhere in the contract, AIA A201 Section 9.2 appears to not require a schedule of values for cost-plus-a-fee work without a GMP.
The general conditions’ language on schedules of values may be amended via appropriate supplementary conditions. However, detailed requirements for schedules of values may be set forth in the Division 01 specifications, where CSI MasterFormat—2020 allocates, “01 29 73 – Schedule of Values”. Such a section may address:
- The required form of the schedule of values, such as AIA G703 or EJCDC C-620.
- Applicability of the schedule of values to lump sum work, work compensated on the basis of cost-plus-a-fee, and unit price work.
- Requirements and timing for furnishing the initial (preliminary) schedule of values and for the schedule of values accepted by the design professional or CMa, where the project’s general conditions do not otherwise address such matters.
- Where the project’s general conditions either do not address schedules of values, or do so in language that is less complete than in AIA A201 or EJCDC C-700, language adapted from A201 or C-700 may be included in Section 01 29 73 – Schedule of Values.
- Required level of price breakdowns and general organization of the schedule of values.
- Restrictions to reduce the potential for “front-end loading”, such as appropriate limitations on the amount payable for bonds and insurance, mobilization, and demobilization.
- Allowable proportions of the cost of materials and equipment payable for approval of required shop drawings, product data, and samples.
- Reasonable proportions of the cost of the permanent construction that are to be allocated to field quality control and training of facility operation and maintenance personnel. Such provisions help reduce the potential for “front-end loading”.
Section 01 29 73 – Schedule of Values, should be adapted to the specific needs of each project. Failure to do so may increase the potential for “front-end loading or may increase the contractor’s days revenue outstanding (DRO), which imposes financial hardship on the contractor and their subcontractors and suppliers.
Conclusions
A project’s schedule of values is a critical document that, when acceptable to the design professional or CMa, contributes to efficient, appropriate progress payments to the contractor for lump sum work and work compensated on a cost-plus-a-fee basis. Because of its key role in the progress payment process, due diligence should be devoted to understanding and specifying schedule of values requirements.
The forthcoming conclusion of this two-part series addresses schedules of values during construction, including the design professional’s or CMa’s review of the contractor’s schedule of values.
Copyright 2022 by Kevin O’Beirne
The content of this blog post is by the author alone and should not be attributed to any other individual or entity.
The author of this blog post is not an attorney and nothing in this blog post constitutes legal advice. Readers in need of legal advice should consult with a qualified, experienced attorney.
Kevin O’Beirne, PE, FCSI, CCS, CCCA is a professional engineer licensed in NY and PA with over 30 years of experience designing and constructing water and wastewater infrastructure for public and private clients. He is the engineering specifications manager for a global engineering and architecture design firm. He is a member of various CSI national committees and is the certification chair of CSI’s Buffalo-Western New York Chapter. He is an ACEC voting delegate in the Engineers Joint Contract Documents Committee (EJCDC) and lives and works in the Buffalo NY area. Kevin O’Beirne’s LinkedIn page