Preparing final accounts

The final account is prepared at the completion of the construction phase of a project. As the name
implies, the final account is a document that brings together all the financial aspects of a project into one
single document. Its purpose is to allow both the employer and the contractor to value the complete
project.

Timing
The contract states when the final account should be prepared. Often, if the project's financial report has
been prepared in a similar format, it is possible to use that document as the basis of the final account
itself. The Joint Contracts Tribunal contract JCT 05 Private Without Quantities, clause 4.5.1, states that
not later than six months after practical completion, the contractor shall provide the quantity surveyor
with all the documents needed for the adjustment of the contract sum.

Remeasures
Under 'traditional' contracts based upon bills of quantities (BQs), it is necessary to remeasure the works
for the final account. However, if the BQs have been measured from accurate drawings produced at the
tender stage, it is not necessary to remeasure the whole project. Elements that have been subject to
change or design development will need to be remeasured on site or, alternatively, from as-built
drawings. Sub-structure and drainage sections are nearly always remeasured, due to the uncertainty of
ground conditions, depths, and so on.
Once the remeasured value has been ascertained, the original BQ allowance should be omitted from
the final account.
While undertaking the remeasuring of works, the project surveyor is advised to identify all the items or
quantities included in the BQ that are described as 'APPROXIMATE' or 'PROVISIONAL'. Such items
and quantities should be remeasured, or omitted from the final account, as appropriate. Items of this
nature are often included in BQs as allowance for possible works that are not detailed on the tender
drawings but which the surveyor, for example, deems will form an integral part of the completed works.

Architect's instructions
During the course of the works, architect's instructions (AIs) will be issued. These record changes to the
tender drawings. They may simply detail a small item, or alternatively, may comprise a drawing issue
which may, on occasion, change a complete element.
When the AI concerns a prime cost (PC) sum, provisional sum or provisional item, the item is first
entered in the AI section of the final account, with a cross-reference to the appropriate section. Cost
values are not included against the AI section, but in the section concerned.
Upon receipt of the instruction, an approximate value should be established and entered at the bottom
of the sheet. The approximate value of the AI will be established by measuring approximate quantities to
establish an estimated value. The value should be entered onto the Financial Report AI Summary Sheet
for Financial Report Purposes.
As the contract progresses, the instruction or variation should be measured and priced accurately, as
soon as possible after receipt. Ideally, this should be no later than immediately after the work is actually
executed on site. The value will be agreed with the contractor's quantity surveyor or the private quantity
surveyor (PQS) and entered on the sheet as 'AGREED'.

Anticipated architect's instructions (AAIs)

During the course of the contract, information that may be considered as a possible variation, such as a
letter, sketch, drawing, minute of a meeting, conversation or site instruction, may arise. Initially, this
information may not be confirmed in an AI. However, it is best practice to be aware of such potential
variations and to undertake due assessment of the financial reports prepared and issued to the
employer by the private quantity surveyor (PQS) or the contractor's surveyor.
The process for valuing or costing such variations is identical to that outlined above for AIs.
When undertaking and completing a final account, it may be necessary to seek AIs for items of works
undertaken by the contractor, but not necessarily instructed. During the course of the works, the
contractor will issue contract variation instructions (CVIs) or requests for information (RFIs) directly to
the architect. This procedure is adopted to facilitate the audit trail for the contractor and allows
information to be sought from the design team, perhaps through the clarification of a particular detail or
specification.
However, it is best practice to request that the architect issues formal AIs to cover all such variations.

Provisional and cost sums

Prime cost sums

The use of prime cost sums (PCSs) is less now than in the past, due to the limited adoption of the
nomination process of sub-contractors and suppliers on the part of the client's team or the design team.
At the commencement of the contract, each prime cost sum (PC sum) should be identified, including
allowance for profit and overheads, general attendance and other attendance relating to the PC sum.
An architect's instruction (AI) will be necessary to authorise the expenditure of the PC sum. The AI will
state the name of the nominated sub-contractor (NSC) or supplier and the value of the order.
If variations occur to the NSC package, it will be necessary to make further adjustments. Nominated
suppliers or sub-contractors generally issue final accounts for the package in question. Variations will
need to be checked and priced in the same manner as that detailed for AIs and anticipated architect's
instructions (AAIs) above. It will also be necessary to adjust for profit and to consider adjusting the
'attendance and builders' work' item. Invoices should also be checked for discounts.

Provisional sums and provisionally measured items

Provisional sums fall into two categories - defined and undefined. General Rule 10 of the Standard
Method of Measurement for Building Works (7th edition) (SMM7) clarifies the distinction between the
two in the following way.
A Provisional Sum for defined work is a sum provided for work which is not completely
designed but for which the following information shall be provided:
(a) The nature and construction of the work.
(b) A statement of how and where the work is fixed to the building and what other work is
to be fixed thereto.
(c) A quantity or quantities which indicate the scope and extent of the work.
Defined
(d) Any specific limitations and the like identified in Section A35.
Undefine A Provisional Sum for undefined work is a sum provided for work where the information
d
required in accordance with rule 10.3 cannot be given.
Again, it is best practice to list these on separate sheets, as with the prime cost (PC) sum.
It is often useful to produce a schedule of every set of provisionally measured items (see Remeasures),
cross-referencing these to the relevant bills of quantities (BQ) items and ensuring that there are no
sums or items hidden in obscure places in the BQs, such as preliminaries.
Expenditure of the sum or item is generally via a site instruction or architect's instruction (AI). As the
contract progresses, work carried out must be measured and recorded, with the resulting value included
in the cost report and adjusted as necessary.
The amount included in the final account must be completed on the basis of the agreed information.

Additions
Claims
Formal claims are less prevalent than previously in the construction industry. This is a direct result both
of the Egan Report - Rethinking Construction- and the ethos of partnering.
If a claim is to arise, or seems a possibility, allowance for the cost associated with it must be included in
the cost report. Allowance should be made for a significant potential claim only after discussion with the
architect in order to ascertain its appropriateness and effect upon the contract.
The word 'claim' elicits a very emotional response in construction. Often, people become defensive with
regard to their position on claims, sometimes to the detriment of the project as a whole. For this
purpose, claims should be approached and dealt with as a team, with the involvement of the architect,
engineer and employer, and not made solely the responsibility of the quantity surveyor. The quantity
surveyor, however, will value the claims upon agreement of the issues involved.
It is advisable to consider claims as a separate issue for final account statement purposes.

Dayworks
Dayworks are used to value and agree works (such as architect's instructions - AIs - and so on), which
cannot be valued by other means. Dayworks are, in effect, a timesheet signed by the clerk of works or

the architect to verify that the items stated are the actual hours worked or the materials and plant
utilised.
The RICS Definition of Prime Cost of Daywork Carried Out Under a Building Contractis used for
establishing the appropriate rate. This is usually subject to an adjustment, a percentage addition to the
daywork sheet. The percentage adjustment includes an element of profit and overheads on the prime
cost (dayworks).
For final account purposes, a schedule of dayworks will be maintained and referenced against the
relevant AI.

Fluctuations
Generally, construction contracts are now fixed-priced for the duration of the contract, with the contractor
allowing for price increases in labour or materials or plant (and so on) in his or her tender. The risk for
such increases lies with the contractor.
On larger construction projects, that will take a number of years to complete, fluctuations may apply.
Indices such as the DTI Price Adjustment Formula indices (previously the NEDO indices) are used to
agree price increases due to inflation.

Value added tax

The final account shall be exclusive of value added tax (VAT), unless the contract directs otherwise.
Generally, the contract sum will also be net of VAT.

Internal audit of the final account

For best practice, it is recommended that an internal audit of the final account is undertaken on
completion.