Final accounts – a risky business

Final accounts may mark the end of the delivery phase, but risks remain that must be managed appropriately to avoid disputes.

In the fifth part of our series on contract management pitfalls, we look at the risks associated with the final account process under construction contracts.

Most construction contracts will include a mechanism for the final valuation of works. Final accounts are, very much as the name suggests, the final valuation of the works delivered by the contractor, and account for extensions of time or delays. Contracts rarely specify the format in which a final account must be presented, but they frequently set out a timeframe in which the final account must be prepared and issued to the contractor.

While for many contracts, calculating the final account is be a straightforward exercise, we frequently see disputes arising out of the final account process, particularly where the contractual timetable for issuing the final account has not been followed, or where the final account is not clear as to how the valuation has been calculated. A lack of clarity around the valuation of contractor’s claims and the reasons why claims have been valued or rejected is a particular trigger point for final account-related disputes.

In our experience, providing a final account that is not sufficiently clear, or providing it out of time, can have the effect of hardening a contractor’s position in respect of claims they may have otherwise resolved pragmatically, and can also result in contractors submitting their own final account (often showing a much higher value than that assessed by the employer!) and referring the disputed sums to adjudication.

How to manage the risk?

Whilst social housing providers cannot always prevent claims from arising, there are some important steps that can be taken to reduce the risk of a final account dispute, and place providers in a good position to defend a claim should that become necessary:

1. During delivery of the works and services, ensure that the interim payment mechanism is administered consistently, as this will provide a clear audit trail for preparing the final account;
2. Similarly, responding to contractor’s requests for additional payment, loss and expense, and extensions of time, when those claims are made, will assist in preparing the final account;
3. Ensure that the final account is issued within the time period required by the contract; and
4. Finally, ensure that the final account is presented clearly and intelligibly. Pay particular attention to the valuing of changes, assessment of extensions of time or delays, and any claims raised by the contractor during the course of the works.

For more information

If you have any questions regarding the issues raised in this briefing or would like to find out more about our bespoke client training programme, please contact Andrew Lancaster.