In our latest contract clinic, Chris Jones advises a panicking contractor whose costs are considerably higher than the amount the client wants to pay.
We’ve come to the final account and the employer argues the amount due is substantially lower than our costs, so we need to prepare a claim. We’ve never been in this situation before, so don’t know where to start. What are the key things we need to include?
Firstly, let’s not jump to conclusions and assume that a claim needs to be prepared. Has a detailed final account submission been drafted and forwarded to the client? Usually, a first draft of an assessment of the final account will be full of differing opinions, assumptions, and potential errors as to what work has, should have, and wasn’t completed. Let’s take stock and provide the employer with all the facts.
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If it has been left to the end of the project to seek agreement on all elements of the final account, then it can often be a complicated, time-consuming, and adversarial process, often resulting in disputes.
The process can be made substantially easier if adjustments to the scope of work and ultimately the contract sum are agreed upon as the project progresses rather than saving them up for the end. This is often referred to as a ‘rolling final account’. Rolling final accounts will ensure that all instructions and cost effects to a project are up-to-date and agreed upon at any one point of the contract or the latest financial report.
It is also a less painful process if both the client and contractor or subcontractor work collaboratively on drafts of final accounts before the agreement is sought. Without a well-managed change control process, the final account negotiations may be more difficult, with differences of opinion on what were instructions and what should have been instructed.
Most construction contracts generally provide some mechanism for the final payment to be made to the contractor or subcontractor on completion of the scope of works that have been agreed in the contract and adjustments to the contract sum. Of course, these adjustments would need to be substantiated with contemporaneous records, such as signed daywork sheets, marked-up drawings and photographs.
These two principles are always worth following:
1. Build a claim from day one and hope you won’t have to use it; and
2. Records, records, records!
Final account schedule
There is no standard template for a final account schedule. However, it may include (but not be limited to) the following:
- Variable Costs
- Provisional sums
- Approximated quantities
- Prime cost sums
- Day work allowance
- Variations
- Loss and expense
- Fluctuations
- Changes in taxation
- Changes in the cost of labour, transport, and materials
- Contra-charges
- Liquidated and ascertained expenses
As discussed earlier, any result or agreement to values in the final account schedule will only be as good as the backup information and substantiation provided. The substantiation should demonstrate, and evidence, actual works undertaken on site and may include site surveys, site measurements, actual costs incurred, meeting minutes, progress reports, timesheets, and potential entitlement to loss and or expense.
You may find that you must spoon-feed the information to the other party to get a resolution to differences of opinion. The better the information you can provide through good record-keeping, the easier this process will be.
Remember, ‘he who asserts must prove’. Good, complete records, agreed by all concerned, remove the need for speculation, guesswork, and interpretation (or rather misinterpretation) of the facts.
Put simply, records are the evidence that prove your case. A good set of records can be the difference between success and failure.
Chris Jones is a senior consultant at Decipher, A DeSimone Company.
