In today’s newsletter, I will be discussing everything you need to know about final accounts.
Typically, construction contracts include a provision for the contractor to receive the final payment upon the completion of the specified work. Usually, this payment is made after the defects liability period, as long as all noticeable defects have been fixed.
The preparation of the final account involves calculating and reaching an agreement on any necessary adjustments to the contract sum, which represents the original amount specified in the contract for payment to the contractor upon completion of the project. This process allows for the determination of the final payment amount, which is documented in the form of a final certificate or statement. In certain cases, the final certificate may indicate that the client is owed money instead of the contractor being due payment.
While construction contracts may not explicitly mandate the creation of a final account, they typically include provisions that oblige the contractor to furnish all essential documentation for adjusting the contract sum within a designated timeframe. Additionally, these contracts outline the timeline and potential repercussions associated with issuing the final certificate.
The contract sum may need to be adjusted for a number of reasons, including:
Prime cost sums
Payments to nominated sub-contractors or nominated suppliers
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 neighbour’s property)
The release of any remaining retention
Reaching an agreement on the final account can be a complex, lengthy, and contentious procedure, frequently leading to disputes. Simplifying this process is possible by addressing adjustments to the contract sum progressively throughout the project rather than deferring them until the end. Collaboration between the client’s quantity surveyor and the contractor’s quantity surveyor on preliminary versions of the final account before seeking an agreement also proves beneficial. Ideally, the contractor should endorse a draft version of the final account as a complete and conclusive settlement before its official issuance.
Upon reaching an agreement on the final account, the contract administrator can proceed to issue the final certificate. This certificate serves as a definitive confirmation that all visible defects have been rectified, all adjustments to the contract sum have been mutually agreed upon, and all claims have been resolved. It’s important to note that even after the contract is completed, latent defects may emerge, which could potentially lead to legal action seeking damages for breach of contract or negligence.
If legal proceedings have been initiated concerning a dispute, the final certificate’s authoritative status is contingent upon the outcomes of those proceedings.
Moreover, the final certificate can itself be contested, typically within a 28-day timeframe. In such cases, adjudication, arbitration, or alternative dispute resolution methods may be required to resolve the disagreement. The final certificate then holds conclusive weight only for matters that are not subject to dispute.
Should the client wish to make a payment different from the amount specified on the certificate, they are required to provide a formal notification to the contractor. This notification, known as a “pay less notice” must indicate the intended payment amount and provide a clear explanation of how the calculation was determined.
Remember, if you are faced with a legal issue on your project, Mercantile Barristers will be happy to assist. Similarly, if there is anything from this article you would like to discuss, do not hesitate to message me directly.
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