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Progress Payments: Schedules of Values, Part 2 - Construction

By Kevin O'Beirne, PE, FCSI, CCS, CCCA, CDT posted 12-13-2022 03:42 PM

  

This is the second in a two-part series on this blog on 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).

The schedule of values is a critical document that facilitates proper disbursement of progress payments to a construction contractor, especially when payments are on a lump sum or cost-plus-a-fee basis. This blog post addresses the schedule of values during the project’s construction stage.

Preparing and Submitting Schedules of Values.

Regardless of whether the contract documents expressly (such as EJCDC C-700—2018, Standard General Conditions of the Construction Contract, and AIA A201—2017, Standard General Conditions of the Contract for Construction) require, common sense dictates that a schedule of values acceptable to the design professional or construction manager as advisor (CMa) must be submitted prior to the first progress payment request.

Immediately following its receipt of the notice of award, the successful bidder should start organizing its planned costs for the project, with an eye toward determining which subcontractors and suppliers will be retained, so that the schedule of values can be prepared promptly upon issuance of the notice to proceed. Organizing the costs may require more time than a project owner, design professional, or CMa may initially believe, because the final day of the bidding or proposal process is often hectic (see: “Bid Items: Keep Your Bid Form Simple”), requiring time to sort out which costs apply, in the event the contract is awarded and signed. Contractors, subcontractors, and suppliers should understand the owner’s, design professional’s, and CMa’s desire to receive an acceptable schedule of values as soon as possible once the construction contract is signed and effective.

Amounts indicated in the schedule of values should be supported by documentation. As described below, when amounts appear unreasonable or perhaps inappropriate, the design professional or CMa should request copies of the documentation substantiating the proposed amounts. Such documentation must be well-organized and readily available, to be furnished upon request.

When compensation is on a lump sum or cost-plus-a-fee basis, the first progress payment should not be recommended or certified by the design professional or CMa until the schedule of values is submitted and accepted.

Schedules of values are typically “informational submittals” (see: “Shop Drawings and Submittals: Types of Submittals”), should be submitted in accordance with contractual requirements for submittals, and should be reviewed by the design professional or CMa, as applicable, as discussed below.

Schedules of Values During Construction.

When reviewing the contractor’s schedule of values, the design professional or construction manager as advisor (CMa) should:

  1. Determine whether the schedule of values is in accordance with required form and format.
  2. Verify the sum of the various line items in the schedule of values equal the amount of each associated bid/pay item, and verify the sum of all bid/pay items, including unit price work items, equals the contract price,
  3. Determine whether the breakdown presented in the line items in the schedule of values is appropriate for the design professional’s or CMa’s administration of progress payments. In some cases, a project’s specifications Section 01 29 73 – Schedule of Values, may mandate a certain breakdown for each element of the work, such as costs for materials and equipment to be incorporated into the construction, transportation costs, installation costs, and rental of construction equipment and machinery. Compliance with such requirements should be verified. Greater detail in the schedule of values usually supports more efficient processing of progress payment requests, because there are often fewer disagreements about the amounts eligible for payment.
  4. Verify the schedule of values complies with contractually stipulated limits, such as a provision requiring that costs of bonds and insurance be not greater than a specified percentage of the total contract price, or that not less than a specified percentage be allocated to demobilization costs.
  5. Where the basis for progress payments will be determined based on the earned value of work completed during the prior pay period, based on a cost-loaded construction progress schedule, line items in the schedule of values should correspond to the cost-loaded activities on the construction progress schedule, and the amounts assigned to each activity should be identical to the corresponding line item in the schedule of values. For more on cost-loaded construction progress schedules, see, “Construction Progress Schedules: Basics of Review”, previously posted on this blog.
  6. Determine whether the amount indicated for each line item appears reasonable for the type and extent of work included. This helps reduce the potential for “front-end loading”.. However, the design professional or CMa typically does not evaluate the amount of each line item in detail..

Where an obviously low or high value is assigned to a particular line item, the design professional or CMa should request documentation substantiating the amount. For example, where a given element of the work has a reasonably known value and the schedule of values for that line item appears unreasonably low, the probable remainder may be allocated, whether intentionally or inadvertently, to another line item and should, thus, be corrected before the schedule of values is accepted.

The design professional’s or CMa’s comments on the schedule of values may be furnished either orally at a conference (as implied by EJCDC C-700—2018 Paragraph 2.05.A) or in writing.  When comments are in writing, in addition to the standard disclaimer language on the design professional’s or CMa’s submittal review stamp (see: “Shop Drawings and Submittals—Submittal Review Stamps”, on this blog), comments on the submitted schedule of values should include language such as,

The amount assigned to each line item in the submitted Schedule of Values is the Contractor’s affirmation that such amounts are sufficient for Contractor’s performance of each element of the Work in accordance with the Contract Documents and the Contractor’s means, methods, procedures, techniques, and sequences of construction, and associated safety and protection measures.

Failure to establish an appropriate schedule of values at the outset of construction has strong potential for inappropriate payments to the contractor, especially for lump sum work. Paying the contractor less than the earned value of the work performed during the pay period is likely to adversely affect the contractor’s financial condition and ability to pay its subcontractors and suppliers. Paying the contractor more than the earned value of the work performed during the pay period is unfair to the owner. When a performance bond has been furnished for the contract, paying the contractor more than the actual, earned value of the work performed increases the potential for the surety to abandon its obligations, if it is revealed, after the owner has issued a notice terminating for cause, the unpaid balance of the contract price is insufficient to complete the remaining work.

Amounts established in the schedule of values should typically not be revised as the construction progresses, unless by mutual agreement of the design professional (or CMa), contractor, and owner. Where the contractor seeks to reallocate amounts between line items, documentation supporting the reallocations should be required.. Where the contract price has been changed by a change order, corresponding revisions to the schedule of values should be made prior to the next progress payment request.

In addition to establishing the basis for payment for lump sum work and, for cost-pus-a-fee work, providing the design professional or CMa with a “yardstick” against which to evaluate costs incurred, schedules of values are occasionally useful in negotiating changes in the contract price.  However, when referenced during price negotiations, the owner, design professional, and CMa should recognize that many factors affect the value of a given element of work. Costs may change over time, and change order work is not always identical to similar work included in the original contract. Such variations are likely more common than may be initially thought by some owners and design professionals.  

 

Conclusions

An appropriate schedule of values is necessary for orderly, efficient processing of 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 preparing, submitting, and reviewing schedules of values during construction.

For additional information regarding progress payment procedures, see the Construction specifications Institute’s (CSI) Construction Contract Administration Practice Guide, Second Edition (2020).

 

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 has been 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

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