When I named this newsletter The Draw Schedule, I figured the people who got it would really get it and the people who didn't… well, they would Google it and understand why it fit.
Draw schedules are extremely important in the construction finance world so let’s discuss.
What a draw schedule is
A draw schedule, sometimes called a schedule of values or an AIA schedule, is the document that controls how money flows from a customer to a contractor over the life of a construction project.
Before work starts, the contractor breaks the entire project down into line items: mobilization, material, engineering, fabrication, delivery, and so on. Each line item gets assigned a dollar value that represents its share of the total contract. Those line items, laid out on a table, are the schedule of values.
That document becomes the basis for every pay application submitted on the job.
How it actually works
Every month (or every billing cycle, depending on the contract) the contractor submits a pay application saying how much of each line item is complete. If the material line item is worth $200,000 and the contractor claims it's 60% complete, they're requesting $120,000 for that line item in that pay app.
The customer reviews the pay app and either approves or adjusts each line item. Once approved, the customer issues payment minus retainage if applicable.
This is called AIA billing because the standard pay application forms (G702 and G703) were developed by the American Institute of Architects and have been the industry standard for decades. If you've ever seen a construction pay app, you've seen these forms.
Why it matters for the WIP
Here's where it connects to everything else we talk about in this newsletter.
The schedule of values is the foundation your WIP schedule is built on. The percentage complete you calculate for each job flows directly from the approved pay applications. If the schedule of values is front-loaded, meaning the early line items are assigned more value than they're actually worth, your WIP is going to show overbillings early in the job and potentially understate costs later.
A schedule that has mobilization and sitework eating up 30% of the contract value on a job where those items represent 10% of the actual work is a red flag.
A clean, balanced schedule of values that accurately reflects the actual cost distribution of the work is one signal of a well-run billing operation.
The bottom line
A draw schedule is how contractors get paid on construction projects. It’s a line-by-line breakdown of the work with a dollar value assigned to each piece, billed against as work progresses.
It's also the name of this newsletter.
The two are related. The draw schedule sits at the intersection of field operations, project management, and construction finance - which is exactly where this newsletter lives. Every issue is about something that touches the flow of money through an active construction project.
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Need a second set of eyes on your WIP schedule, your schedule of values, or your bonding package? Reply and we’ll talk.