Pay with a Schedule of Values!

by Julie

A Schedule of Values is the Only Way to Pay

On all renovation, home improvement or house building projects, there is only one correct way to pay your contractor or builder.  Use a Schedule of Values.  Money is the primary way for a homeowner to stay in control of a project and the Schedule of Values allows you to do that.

You may see contractors who want to bill 1/3, 1/3 and 1/3 or some other method tied to a date or some random completion that may or may not happen.  This is common but NOT acceptable.  The truly professional way to pay is by using some form of a Schedule of Values.   The size of the project will dictate how involved the Schedule of Values is but it should still be used for all but the smallest of projects.

A Schedule of Values basically sets forth a dollar value per item of work.  Payment is made only for the work actually completed.  Here’s an example of just one line item:

Item– Drywall

Scheduled Value-$5,000

Work Completed-$2,000

Balance Remaining-$3,000

This $2,000 invoice is for ‘work completed’, which includes material delivered to the site.  There is $3,000 left to ‘in the job’ to finish the drywall work.

A Schedule of Values is the fairest way to pay for both parties.  The idea behind this is that the contractor does not get ahead of the job financially.  If something happens to the contractor-you fire him, he leaves, gets hit by a bus, whatever-then there is still enough money left in the project to finish it.

On the other side, the contractor does not have to put out a lot of money before he catches up either.

It is wise for homeowners to double check this billing.  Contractors may try to fudge their billing to get more out of the job now and may not truly leave in enough to finish.  In this example, let’s do a quick check.

What does the $2,000 represent?  There are 150 sheets of 4×12 drywall plus nails and screws at the house. This material is worth close to $2,000, so it is good billing.  The $3,000 remaining is for the labor to hang and finish the rock, which will be billed later as it is completed.

If, however, the builder had billed you $4,000 for the drywall material, then it would not be correct billing. That would only leave $1,000 to complete the installation, which is far less than it would cost to hang and finish.

You will not be able to check every single item on every bill, but spot check a few in the beginning to make sure that your contractor is billing you correctly. Question your contractor if a bill doesn’t seem right.  At the very least, this will let him know that you are watching your money.

The second (and most hidden) reason to pay using a Schedule of Values is that money motivates.  Using the drywall example, picture Builder 1 who still has $3,000 left.  He can confidently call up the drywall sub, knowing there is money there to pay him.  There is probably a portion left in that $3,000 for the builder to keep after he pays the sub.  As a matter fact, he is motivated to do so because he won’t get his portion until the work is completed.  See how the need to get work completed-before you get paid-keeps the project rolling along?

On the other hand, Builder 2 doesn’t have enough left to pay his sub, let alone anything for himself.  He will have to come out of pocket to make up the $2,000 short fall.  It will happen, but there isn’t much motivation to make it happen right away.  So, when Monday rolls around, he may need to go over to someone else’s house to complete work there to get paid before he sends the drywall sub over to you.

Keep the ‘money carrot’ dangling out in front of your contractor at all times.

All bank financed projects require a Schedule of Values.  If your contractor balks about using some variation of a true Schedule of Values, then consider it a red flag about the level of professionalism.  If you truly like your contractor and want to use him, then have a heart to heart. Perhaps he hasn’t done it that way and you could talk him through it.  Maybe you could offer to provide a sample Schedule of Values that the both of you could modify together.

In any event, use a Schedule of Values to pay your contractor or builder on all of your home remodeling or building projects.  You will certainly be glad that you did.

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