How do we prepare for a final account in a construction contract?
Preparations for the final account begin early and normally continue throughout the contract period.
In a construction contract environment, a ‘final account’ has a specific meaning.
What is required within a ‘final account’ process? Specific requirements will depend on the content of a contract but ultimately the final account is the final monies due per the contract after the defects period finishes (excluding latent defects).
The starting point is that interim applications for payment, staged payments and statements reflecting the current progress of works are usually prepared during any project by a contract administrator or quantity surveyor for each party as work progresses. Applications are certified or notices are served to challenge the applications; variations also take place during the lifetime of the contract whilst works are ongoing.
The final account at the end of any project will include the interim applications, certified sums, discrepancies and variations, and will summarise the calculations and adjustments to be applied to the contract sum agreed at the outset taking into account what actually happened ‘on the ground’.
The final account in its simplest form, determines the amount payable or receivable taking all the above into account. Final payment is confirmed within the final certificate or final statement.
Construction contracts require contractors to provide necessary documentation to adjust the contract sum within a specific timeframe and following a precise process. The idea is to give greater transparency and certainty where possible.
Contract sums may often need to be adjusted for one or more of the following reasons:
- Variations: contractors must ensure that variations and additional work are captured in the account and that the supply chain submits accurate costs to them as part of the process.
- Statutory fees
- Payment to subcontractors or suppliers
- Provisional and prime cost sums
- Loss and expense claims
Issues may first be raised with the interim applications. But all too often, the parties save up additional claims or deductions until the end of the contract, which often makes final accounts difficult, and ripe for disputes.
As a preliminary step prior to the final account, the contract administrator will ensure that all the contract instructions have been carried out and there are no omissions. This acts as a framework within which other variables are included, such as time extensions, delays, adjustment for materials, and set-off or contra charges.
Determining and agreeing on the final account can be an adversarial and time-consuming process that often results in disputes. Our specialist construction adjudication and litigation team at Helix Law regularly advise on final account disputes nationally, including acting in adjudications and enforcement on a No Win No Fee basis where it stacks up for you and for us. This allows our clients to minimise financial risk while making commercially sensible decisions about pursuing sums due under the final account. With specialist construction law expertise, we support clients in presenting robust, well-evidenced final accounts, strengthening their position in negotiations and maximising recovery. If you are involved in a construction adjudication or enforcement, or are grappling with a final account dispute, we’d love to assist you.