Once you achieve practical completion under a construction contract, it is time to negotiate the “final account”. This is the total amount that will be paid for the contract and there are a number of commercial items that need agreeing before it can be settled. These final account negotiations can be the most challenging and complex aspect of a construction project. If not handled well or not completed successfully, they can lead to costly legal disputes.
So how can you ensure a successful final account agreement and avoid those legal bills? We take a look at some suggestions…
Firstly of course, and as always, records are critical. These records will form the foundation for successful negotiations. To demonstrate entitlement to payment of sums due under the contract, you will need good and accurate records. Especially if any matters are disputed.
This is one of the many areas which causes disputes and problems for contractors and clients alike. Without good record keeping, finalising the account will prove challenging. A helpful tip to remember when compiling your records is the three “c’s” clear, concise and comprehensive.
Changes from the original contract scope will inevitably lead to a change in price. You will need to negotiate these changes or variations, ideally throughout the contract. You will need to demonstrate your entitlement to these changes and as always, you will need good records.
If your contract includes a fluctuation provision this will need to be reviewed carefully. It will likely involve a complex calculation which can increase or decrease elements of your contract sum.
If your works have been delayed through no fault of your own, you may be entitled to claim for loss and expense. The contract will likely deal with notice provisions. But, it is likely that any loss and expense will be discussed at length in the final account negotiations. You should be prepared to revisit your claim and explain your entitlement, including what mitigation measures you put in place. Once again, good records are needed.
Again, something that is often neglected, it is critical to check what your contract says. Different contracts will have different requirements for the submission of final accounts, particularly in terms of the form they take and the dates at which it must happen. It is important to understand the difference between an interim final account and a final statement.
Under the standard JCT, for example, the finalising of the accounts statement will lead to the resolution of any disputes. Note that there is often a very short time from the issuing of a final statement and it becoming conclusive. Once finalised and that timeframe has passed, it will not be possible to dispute any sums due.
Something that is important to reiterate here is that not every contract will be the same. Not even every issue of the same contract will be the same from project to project. Some will have had changes and amendments made that may change the risk profile significantly. You should be alive to any adjustments that may have been made to what you might expect as the ‘norm’ in a contract.
Ultimately, final account negotiations are likely to be a matter of commerciality for both sides. But a well-prepared negotiation where you are in full possession of the facts, records, and documentation, will ensure the most probable chance of success.
Should you need any support or advice on the issues outlined in this article, just get in touch with Jason or Guy today.