A schedule of values that bills you into a hole
Build the SOV from the estimate, by cost code, and compare billing to cost monthly.
The SOV decides when you get paid, and many get built in an hour on day one to match a GC form. Lines get lumped together, mobilization is left off, and material is mixed in with labor so you can't bill stored material. Then the job starts and your cost goes ahead of your billing for the first third of the contract. You end up underbilled on a job that's going fine, and the bank sees a contractor who is short on cash.
Three moves, in order
What CFOS does about it
CFOS reads your estimate in as the job budget by cost code, and the schedule of values starts from that budget instead of a blank form. Retainage and stored materials are handled on the pay app, and revisions are kept so you can see how the SOV changed over the life of the job. Job cost updates every hour against the budget, and the month-end cost to complete is entered by the PM and approved. The WIP schedule then shows over and under billing by job, so a bad SOV appears as underbilling in the first month, not in the last. QuickBooks keeps the books, and CFOS reads the jobs and invoices from it.
Who owns this: Controller, with the PM and estimator.
At $25M, weak SOVs slow billing and distort your WIP.
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Step 06: Project management
Billing dates, change orders, and notices, written as standards that work without anyone following up on them.
Other problems step 06 solves
Other things that go wrong
What owners ask
Schedule of values subcontractor?
Build the SOV from the estimate, by cost code, and compare billing to cost monthly. The SOV decides when you get paid, and many get built in an hour on day one to match a GC form. Lines get lumped together, mobilization is left off, and material is mixed in with labor so you can't bill stored material. Then the job starts and your cost goes ahead of your billing for the first third of the contract. You end up underbilled on a job that's going fine, and the bank sees a contractor who is short on cash.
Which part of the system fixes this?
The step is number 06, project management. Billing dates, change orders, and notices, written as standards that work without anyone following up on them. It's drawn from chapter 6 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Take your five largest open jobs and compare billed to date against cost to date by SOV line, and flag any line where cost is ahead of billing.
How much can I front load a schedule of values?
As much as the contract and the GC allow, and not more. Many GCs and owners review the SOV line by line and will reject lines that look inflated. Mobilization, bonds and submittals are the usual lines that are fair to bill early.
Can I change the SOV after the job starts?
Yes, but it needs the GC's approval, and you should get it in writing. Keep the revision history so the previous billed column still ties. A change made without approval is one of the fastest ways to get a pay app rejected.
How does the SOV tie back to my estimate?
Each SOV line should roll up from one or more estimate cost codes, so you can compare billing against budget and cost on the same line. When the structure matches, WIP and cost to complete are easier to trust. When it doesn't, you're reconciling two different layouts every month.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 06 depends on step 04, estimating system. Install it ahead of that and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.