Valuations

Question 1

What is the purpose of a valuation?

Answer 1

To provide advice to the certifier on value to allow them to issue their interim certificate

Question 2

How is the Construction Act relevant with regards to valuations?

Answer 2

It contains statutory requirements relating to interval and procedure for contracts that have a duration of over 45 days

Question 3

What happens if a contract does not contain the valuation provisions required by the Act?

Answer 3

The Scheme for Construction Contracts will apply to fill the gaps

Question 4

What are the provisions of the Scheme for Construction Contracts?

Answer 4

• Payment becomes due 7 days from the end of a relevant period (28 days)
• The final date for payment is 17 days later
• A notice should be issued to the contractor 5 days after payment becomes due stating the amount certifier and the basis on which it was calculated
• If money is to withheld, a written notice must be given to the contractor no later than 7 days before the final date for payment

Question 5

What are the standard provisions under JCT?

Answer 5

• Interim Valuation Date is the nearest business day in the month to the date stated
• Due dates are 7 days after interim valuation date.
• Payment notice shall be given to contractor 5 days after the due date.
• Final date for payment is 14 days from its due date.
• A payless notice is to be issued no less than 5 days from final date for payment.

Question 6

What are the main elements of a valuation?

Answer 6

a) Preliminaries
b) Measured work
c) Variations
d) Materials on site
e) Materials off site
f) Loss and expense
g) Retention

Question 7

What needs to be in place for you to include payments for materials on site?

Answer 7

The materials should be for the works, adequately protected, delivered to programme and in a reasonable quantity

Question 8

What needs to be in place for you to include payments for materials off site?

Answer 8

• Proof that ownership will transfer to the employer on payment (vesting certificate)
• Insurance until materials arrive at site
• Materials are clearly labelled as for the site and set apart from other materials
• A materials off site bond has been provided if required

Question 9

What is a retention of title clause?

Answer 9

• Where the sub contractor or supplier retains ownership of materials until they are paid for them by the contractor
• This is why vesting certificates are important – otherwise the employer may pay for materials that are not owned by the contractor
• Can lead to disputes in the event of insolvency
• General wisdom is materials that have been incorporated in the works belong to the employer BUT less clear if they haven’t

Question 10

How do you evaluate interim valuations?

Answer 10

• Go to site and conduct valuation
• Check work done, materials on site, materials off site
• Value preliminaries, agreed variations and any claims
• Valuation amount is gross valuation, less r retention, less previous payment.

Question 11

What are the options for conducting valuations under JCT D&B?

Answer 11

• Alternative A – stage payments

- Alternative B – periodic payments

Question 12

How do stage payments work?

Answer 12

• The stages and their values are set out in the contract particulars
• The stages are usually related to the completion of significant design items e.g. substructure

Question 13

Why might stage payments be chosen in the contract and used?

Answer 13

Easier to manage, no requirement for a PQS as the employer could manage. The described works are either completed or not.

Question 14

When might advance payments be used?

Answer 14

• This is dealt with under clause 4.8
• It allows the contractor to receive lump sum payment in advance
• The payments, values and dates should be set out in the contract particulars
• They may be used where the contractor incurs high costs at the start of a project
• E.g. items with long lead times or the need to purchase specialist plant for manufacturing
• JCT provides an advance payment bond to cover the employer financially

Question 15

What are the disadvantages of advance payments?

Answer 15

• May reduce the incentive of the contractor
• Bad for the employer’s cashflow
• Concerns over why the contractor can’t fund the expenditure – insolvency worries

Question 16

If a contractor’s work has been certified and paid in an interim valuation, can it be devalued in a later certificate?

Answer 16

• Payment in an interim certificate is a payment on account of the final sum
• It is always open to the architect to certify a sum that is devalued in a later certificate