FINAL ACCOUNT
VOL 1
Construction contracts generally provide some mechanism for the final payment to be made to the contractor on completion of the works described in the contract. Generally this payment will be made at the end of the defects liability period providing that all patent defects have been rectified.
Preparing the final account is the process of calculating and agreeing any adjustments to the contract sum (the amount originally set out in the contract to be paid to the contractor for completion of the works) so that the amount of the final payment can be determined. The amount of the final payment is then set out in the final certificate (or final statement). It is possible for the final certificate to show that money is owed to the client, rather than due to the contractor.
Construction contracts may in fact not require the preparation of a final account, although they generally do require the contractor to provide all documents necessary for the adjustment of the contract sum within a specified time, and set out the time scale for and consequences of issuing the final certificate.
The contract sum may need to be adjusted for a number of reasons, including:
Variations.
Fluctuations.
Prime cost sums.
Provisional sums.
Payments to nominated sub-contractors or nominated suppliers.
Statutory fees.
Payments relating to the opening-up and testing of the works.
Loss and expense.
Liquidated and ascertained damages.
Contra claims imposed as a result of the contractor's operations (such as a third-party claim resulting from contractor negligence or contractual breach, for example, flooding a neighbor's property).
The release of any remaining retention.
Agreeing the final account can be a complicated, time consuming and adversarial process, often resulting in disputes. The process can be made easier if adjustments to the contract sum are agreed as the project progresses rather than saving them up for the end. It is also beneficial if the client's quantity surveyor and the contractor's quantity surveyor work together on drafts of the final account before agreement it sought. It is preferable that a draft copy of the final account is signed off by the contractor as an 'in full and final settlement' prior to issue.
Agreement of the final account will allow the contract administrator to issue the final certificate. The final certificate is conclusive that all patent defects have been remedied, all adjustments to the contract sum have been agreed and all claims settled. Latent defects may still become apparent after completion of the contract and these may give rise to action for damages, for breach of contract or negligence.
Where proceedings have begun in relation to a dispute, the conclusiveness of the final certificate is subject to the findings of those proceedings.
In addition, the final certificate itself can be disputed (usually within 28 days). Adjudication, arbitration or other dispute resolution procedures may then be necessary to resolve the dispute. The final certificate is then only conclusive in relation to matters that are not disputed.
If the client intends to pay a different amount from that shown on the certificate, they must give notice to the contractor of the amount they intend to pay and the basis for its calculation (a 'pay less notice' - see Housing Grants, Construction and Regeneration Act for more information).
VOL 2
The final account stage of a building contract is the process during which the quantity surveyor determines the final cost of a project, based on the following documents:
The form of contract
Original priced bill of quantities
Variations
Drawings
Agreed contractor claims.
For public sector projects in particular the final account acts as the final part of the audit trail, allowing all financial transactions relating to the contract to be clearly traced with the contract bills of quantities being the starting point, it can be a lengthy and time consuming process. For a private sector client it may not always be necessary to produce a fully detailed final account as long as the client is convinced that the final project has delivered value for money.
For some public sector clients the account documents are subjected to audit. The final account should be prepared during the contract period, as some of the detail required will have been used during the preparation of variations and interim certificates and not left until the contract is complete. One reason for doing this is that it is better to measure and price variations during the currency of the contract while the facts are still fresh in people's minds, before work becomes covered up and changes of personnel make the accurate preparation of a final account more difficult and time consuming. Contracts will typically specify a fixed period following practical completion of the work within which the account must be prepared.
The final account which is prepared by the quantity surveyor is composed of the following:
Statement of Final Account
Final account summary
Adjustment of Prime Cost Sums if used
Adjustment of Provisional Sums
Adjustment of Provisional Items
Adjustment of variation account
Adjustment for fluctuations
Adjustment for contractor's claims
This statement is generally prepared in accordance with the conditions of building contract.ie the standard form of building contract. For example, in the JCT 05 Standard Form the clause dealing with the preparation of the final account or final adjustment is clause 4.5.
After the architect has issued the Certificate of Practical Completion the contractor must supply the quantity surveyor with all the necessary documentation in order that the final account (adjustment) can be prepared. The quantity surveyor then has an additional three months to prepare the final account (adjustment); there is no stipulated penalty stated in the contract if these deadlines are not met.
The adjustment of the contract sum normally falls under several relevant items, although the quantity surveyor must have regard to all the matters listed in the standard form of contract and conditions. The contract conditions tabulates all the matters that shall be dealt with in order to adjust the contract sum in accordance with the conditions.
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