03 interim valuations

UEBQ4724 UEBQ4724

Professional Practice IIProfessional Practice II

LECTURE 3LECTURE 3

Interim Interim

ValuationsValuations

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(1) (1) INTRODUCTION

As a precedent, when the value of contracts in UK was more

than a few thousand pounds, it had always been normal practice

for contractors to be paid sums on account as the construction

work proceeded i.e. paid progressively.

Why pay progressively???

It is generally recognized that it would be unreasonable toexpect Contractors to finance construction operations

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expect Contractors to finance construction operationswithout assistance from Employers.

The expense of borrowing large sums, which otherwisewould be involved, would add significantly to total costs which it is in the interest of Employers to minimize.

*(J. Ramus-Contract Practice for Surveyors-Payment Requirementunder HGCRA-UK)

*(CIPAA-Malaysia)

(1) (1) INTRODUCTION

It is universally accepted that interim payments are approximate

only, and, provided the amounts included for the various

constituents are reasonable, no objection will be raised because

they are not exact.

*(Sample-Example Of Interim Valuations Calculation)

*(Samples-Example Of Int Valuations Calc-rev Contract Sum)

*(Samples-Example Of Int Valuations Calc-Sectional Compl)

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For this reason, the amounts shown in certificates are always

round RM, as also are the sums in the main money column of

valuations.

* (Samples-Interim Valuation)

*(Samples-Example Of Int Valuations Calc-Sectional Compl)

(A) (A) FREQUENCY OF VALUATIONS AND

'VALUATION DATE'

PAM Form 2006 Edition (Clause 30)

Employer to pay the contractor such sums as are stated to be

due in Interim Certificates at the periods stated in the Appendix

to the Conditions of Contract.

In practice, this normally means monthly, commencing one

month after the date on which the contractor takes possession

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month after the date on which the contractor takes possession

of the site.

The architect usually relies on the Surveyor to advise him as to

the sum which should be stated as due in any such certificate.

In order to do this, the Surveyor prepares a valuation in

accordance with the provisions of clause 30 of the PAM Form.

*(Sample-Appendix to PAM 2006)

*(Sample-Letter for Interim Valuation no. 8)

*(Sample-InterimValuation no. 8)


'VALUATION DATE'

As an alternative to regular monthly certificates, the contract

conditions may provide for 'stage payments', i.e. for payment to

be made when certain defined stages in the construction work

have been completed.

Thus, the first payment may be due when the substructure is

finished and ground slabs laid, the second when superstructure

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finished and ground slabs laid, the second when superstructure

walls and upper floors are constructed, the third when the roof

is finished, and so on.

Stage payments are more appropriate to housing contracts than

to more complex projects where the stages are often not so

readily or satisfactorily definable.

*(J. Ramus-Contract Practice for Surveyors-example of stages forstage payments method)

*(Samples-S&P-PaymentSch)


'VALUATION DATE'

As the sum eventually certified as due for payment relates to

work actually completed and unfixed materials and goods

actually stored on site, it is necessary for the Surveyor personally

to visit the site to see for himself both the completed work and

the unfixed materials and goods and then to ascertain their total

value.

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Where the contract provides for advances at regular intervals, it

will be advantageous to decide from the start a fixed date in

which month on which to do valuations.

Although the Surveyor has no obligation under the terms of the

PAM Form to notify the contractor when he proposes to visit

the site for valuation purposes, nevertheless it is desirable as well

as courteous to do so and even better if the Surveyor and the

contractor's surveyor agree on a 'valuation date' in each month.


'VALUATION DATE'

From the contractor's point of view, the exact position of the

day in the month may well affect his cash flow as, e.g., his

invoices for materials become payable at the end of the month.

From the employer's point of view the 'valuation date' will affect

his cash flow situation also.

If the Employer is a public authority and it is necessary for

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If the Employer is a public authority and it is necessary for

payments to be approved by a finance committee, then the date

of the committee meeting in each month may have a direct

bearing upon when the valuation ought to be done, if payment is

not to be delayed unduly.

The Surveyor should give careful consideration to any such

factors involved, including his own commitments in regard to

other contracts already running.

(B) (B) GENERAL PROCEDURE

The proper way to prepare an interim valuation is to value, on each

occasion, the amount of work which has been done since the

beginning of the contract and the value of unfixed materials and

goods on the site on the 'valuation date'.

From the total value so arrived at, the total of previous payments on

account, if any, will be deducted, leaving a balance due for payment.

By following this procedure strictly, any under-valuation or over-

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By following this procedure strictly, any under-valuation or over-

valuation of either work completed or of unfixed materials on the

last 'valuation date' will be automatically corrected.

The surveyor should not attempt to value in isolation the work done

and the materials delivered since the last valuation.


Experience will confirm that valuations are most conveniently set

out on double billing paper, thus allowing for sub-totals to each

section and subdivision being carried out over into the right-hand

money column.

Such sub-totals are often useful for carrying forward into subsequent

valuations.

*(Sample - Interim Valuation)

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*(Sample - Interim Valuation)

Joke for the DayJoke for the Day

Stop Wiping with Cement Bags.docxStop Wiping with Cement Bags.docx

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He will then be in a position to get down to preparing a draft

valuation in the site agents or clerk of works office (if there is no

(a) (a) Preparing the Valuation on Site

The surveyors first task on visiting the site for valuation purposes

(having first made his presence known to the site agent), is to tour

the Works, making notes as necessary of the extent of work done

and listing the quantities of the various materials and goods stored

on the site.

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valuation in the site agents or clerk of works office (if there is no

office for the surveyors exclusive use, as often there is not).

It is highly desirable, if at all possible, that the valuation total be

determined before leaving the site.

The surveyor and contractors surveyor will usually agree to meet on

site at a mutually convenient time on the valuation date in the

month and will prepare the valuation together, although, of course,

the responsibility for the resulting recommendation to the architect

will be that of the surveyor alone.


Sometimes, the contractors surveyor is happy to leave valuations

entirely to the surveyor and will accept whatever amounts the

architect certifies).

Some contractors prefer to prepare detailed applications for interim


Thus, the total sum and its constituent amounts will normally be

agreed before leaving the site and subsequent dispute will be

avoided.

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Some contractors prefer to prepare detailed applications for interim

payments themselves which they submit to the surveyor a few days

before the valuation date.

The PAM 2006 form of contract has acknowledged this practice

through clause 30.1, whereby a contractor is entitled to submit an

application, to the surveyor, detailing what he considers the gross

valuation should be.

PAM Form 2006 Edition (Clause 30.1)


On receiving such an application the surveyor is obliged to carry out

an interim valuation and if he finds he disagrees with the amounts in

the contractors application he must provide the contractor with a

statement detailing the area of disagreement.


If a contractor wants a surveyor to consider his application it must

be submitted at least 7 days before the date of the interim certificate.

The surveyor is to provide the contractor with such a statement at

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The surveyor is to provide the contractor with such a statement at

the same time as he prepares his interim valuation.

This proviso should provide contractors with an incentive to

produce reasonably detailed applications, if they wish, and should

reduce payment disputes

Where a statement of disagreement is provided it must be prepared

to the same level of detail as was contained in the contractors

original application..


Clause 30.2 of the PAM Form provides that 'the amount stated as

due in an Interim Certificate shall be the gross valuation of

specified constituent parts of the Works, less the Retention

Percentage and the total of previous interim certificates.

(b) (b) Inclusions in Valuation

In order to determine 'the gross valuation', the value of each of the

constituent parts has to be ascertained. Those parts may be any or

PAM Form 2006 Edition (Clause 30.2)

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constituent parts has to be ascertained. Those parts may be any or

all of the following:

Preliminaries.

Main contractor's works (as billed).

Variations.

Unfixed materials and goods (material on site).

Nominated sub-contractors' work.

Nominated suppliers' goods.

Retention.


Where there is a bill of quantities, the evaluation of the preliminaries

will usually be less difficult than where there is not.


The preliminaries constituent will then need to be broken down into

In the latter case, it will be necessary, before the date of the first

valuation, to make an apportionment of the contract sum to each of

its principal constituents.

((ii) ) Preliminaries

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The preliminaries constituent will then need to be broken down into

separate amounts such as would normally be seen in the

preliminaries section of a bill of quantities.

This process will be very much easier and the results be more

satisfactory, if there is a Contract Sum Analysis which shows the

total of Preliminaries included in the tender.


The contractor will be able to produce his build-up of the tender

and the individual amounts allowed in it for the main Preliminaries

items.


These amounts will then be available for valuation purposes - and

later, for the adjustment of Preliminaries, if necessary, in the final

account - just as if there had been a bill of quantities.


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account - just as if there had been a bill of quantities.

Even where there is a bill, the situation may still present difficulties.

The contractor may have put amounts against all, some, one or none

of the priceable items in the Preliminaries section, having included

the balance of their value, if any, in other parts of the bill.

The surveyor can only take account, of course, of those items which

have been priced, even though they may represent only part of the

total cost of the Preliminaries.


It is not uncommon to deal with the total value of the Preliminaries

as if the items were either all cost-related or all time-related. (UKs

way of practice.



In local practice, the Preliminaries items are usually broken down to

Initial cost, Recurring cost and Completion Cost.

(Notes(Notes--JRamusJRamus--ChapterChapter1212--InterimValuation)InterimValuation)

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Initial cost, Recurring cost and Completion Cost.

(Examples(Examples ofof PrelimsPrelims -- tutorialtutorial 11A)A)

(B) (B) GENERAL PROCEDURE(b) (b) Inclusions in Valuation

The prices contained in the bills of quantities, being 'the Contract

(ii) (ii) Main Contractors Work (as billed) The value of the work carried out by the contractor's own workforce

will be readily ascertainable from the measured work sections of the

bills of quantities or, in the case of lump sum contracts without

quantities, from the Contract Sum Analysis (CSA), if provided, or

from a schedule drawn up on the basis of an analysis of the tender.

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The prices contained in the bills of quantities, being 'the Contract

Bills', must be used, of course, in the valuation of the main

contractor's work, regardless of whether the contractor under-priced

or over-priced the work when compiling the tender..

(Sample(Sample TenderTender DocDoc -- RomanRoman CathalicCathalic BungalowBungalow -- CSA)CSA)


(Sample(Sample -- progressprogress claimclaim ClmClm1717))


On some jobs they number in double or even treble figures.

(iii) (iii) Variations Very few projects, if any, have no variations.


They present a difficulty in the context of interim valuations for

several reasons.

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(Sample(Sample -- progressprogress claimclaim ClmClm1717))

(PAM(PAM FormForm 20062006 ((wthwth Qty)Qty)-- PgPg1515--ClauseClause 1111..99))


In order to value unfixed materials and goods, the surveyor will need

to be satisfied that the materials and goods are actually on the site

(iv) (iv) Unfixed materials and goods (material on site) Clause 30.2 of the PAM 2006 Form requires the inclusion in the

amount of an interim certificate of materials and goods delivered

to the site for incorporation in the Works.

(PAM(PAM FormForm 20062006 ((wthwth Qty)Qty)--PgPg3636--ClauseClause 3030..22))

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to be satisfied that the materials and goods are actually on the site

and to ascertain approximately how much of each material or good

there is.

(Notes(Notes--JRamusJRamus--ChapterChapter1212--InterimValuationInterimValuation--PgPg177177))

(Sample(Sample--InterimInterim ValVal.. NoNo.. 1010))

It is not necessary to know the exact quantities because by the time

the next valuation is done, most or all of the materials will have been

incorporated into finished work which will then be valued as such.


It is common practice for NSCs to make application from time to

time, through the main contractor, for the amounts on account to

which they consider they are entitled.

(v) (v) Nominated sub-contractors' work PAM Nominated Sub-contract spells out in detail what should be

included in respect of sub-contract works.


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Amounts should be inclusive of the proper discount for cash, also

(vi) (vi) Nominated suppliers' goods The value of goods and/or materials supplied by nominated

suppliers should be included in in valuations on the same basis as

those supplied by non-nominated suppliers, namely, that the goods

or materials are properly protected and stored whilst still unfixed and

are not damaged or defective.

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Amounts should be inclusive of the proper discount for cash, also

for packing, carriage and delivery.



Amounts should be exclusive of any trade discount allowed.


Thus, the sum of money deducted is said to be 'retained' by the

Employer and is called 'the Retention.

(vii) (vii) Retention It is a common provision in all the standard forms of building

contract for a percentage of the valuation total to be deducted.

The percentage used to calculate the amount of the Retention is

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The percentage used to calculate the amount of the Retention is

called 'Percentage of Certified Value Retained' (see PAM Form

clause 30.5).


(C) (C) NOTIFYING THE ARCHITECT

When the Surveyor has completed his valuation, he must inform the

architect as soon as possible of the amount of the payment

recommended.


In JCT Form, the period for architect's certification is 7 days from

the valuation date, but PAM 2006 Form allows for 21 days from the

date of receipt of the Contractors application.

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(D) (D) LIQUIDATED AND ASCERTAINED DAMAGES

(L.A.D.) It should be understood that no deduction should be made from the

amount of a valuation for L.A.D. because of failure on the

contractor's part to complete the Works on time.

Even though the Surveyor knows that the Employer is entitled to

such damages, there is no provision in the PAM Form for anyone

other than the Employer himself to make deduction from any sum

due to the contractor.

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due to the contractor. The Employer, if he so wishes, waive his right to LAD, in which case

he will make no deduction.

It may, however, be prudent for the PQS to remind the architect that

the damages are due to the Employer - and even how much - so that

the architect may be in a position to advise the Employer

accordingly.

(D) (D) LIQUIDATED AND ASCERTAINED DAMAGES

(L.A.D.)

*(Sample-Letter for Interim Valuation no. 8)

*(Sample-InterimValuation no. 8)

*(PAM Form 2006 (wth Qty)-Pg23-Clause22.1, 22.2)

*(PAM2006-Appendix-filled)

(E) (E) EXAMPLES OF INTERIM VALUATIONS

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---------- THE END THE END ----------

(E) (E) EXAMPLES OF INTERIM VALUATIONS

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03 interim valuations

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