Understanding The RICS Final Accounts Procedures For JCT Lump Sum Contracts

Introduction

The preparation, settlement, and agreement of a final account is an important part of any construction project. Whether it’s a JCT Lump Sum contract or other form of agreement, all parties involved must understand and follow the established procedures to ensure a successful outcome. The Royal Institute of Chartered Surveyors (RICS) provides guidance on the Final Accounts Procedures which can be used to assist both contractors and employers in the settlement and agreement of final accounts. In this article, we will explore the RICS Final Accounts Procedures and how they relate to JCT Lump Sum contracts. We will provide an overview of the process and highlight key points to help you understand the importance of the RICS Final Accounts Procedures.

What is a Final Account?

A Final Account is a document used to account for the total cost of a construction project, including all variations, changes, and any other costs incurred. It is used to establish a final adjustment to the contract price, meaning that it shows the employer how much they owe the contractor, or the contractor how much they owe the employer. The process of agreeing on a Final Account requires cooperation between parties and negotiation in order to ensure accuracy. The Final Account must be prepared according to the applicable rules and regulations, including the requirements set out in the RICS Final Accounts Procedures. It must also include any relevant documents for the adjustments to the Contract Sum, such as variations and/or claims.

Summary of the RICS Final Accounts Procedures

The Royal Institution of Chartered Surveyors (RICS) has established a set of procedures for final accountings between parties in construction projects. The procedures apply to a variety of forms of contracts and main procurement routes.

The RICS Final Account Procedures is a guidance note published by the Royal Institution of Chartered Surveyors (RICS). The first edition was released in December 2015 and became effective from 14 March 2016. The document was produced by the RICS QS and Construction Group, with James Garner FRICS from Gleeds as the lead author.

The document provides comprehensive guidance on the procedures for preparing, negotiating, and agreeing on a final account in construction contracts. It is relevant to the industry as it applies to the main forms of contract and main procurement routes, making it a valuable resource for quantity surveyors and other professionals involved in administering contracts with regards to final accounts.

The guidance note covers various aspects of final account procedures, including the structure of a final account, preparation of a statement for the final account, and the resolution of disputes that may arise during the process. It emphasizes the importance of cooperation, negotiation, and ethical behavior in the process of agreeing on a final account.

The document also includes an example statement of a final account, providing practical help to professionals in the industry. It is a crucial resource for ensuring that final accounts are prepared and agreed upon in a manner that is fair, reasonable, and in accordance with the relevant contractual and legal requirements.

Summary of JCT Lump Sum Contracts

Joint Contracts Tribunal (JCT) Lump Sum Contracts are a popular choice in the UK construction industry. These contracts are designed for construction projects where the contractor agrees to complete the project for a fixed price. The price is usually determined based on a complete set of drawings and specifications provided by the client.

JCT Lump Sum Contracts are favored for their clarity and simplicity. They provide a comprehensive framework that covers all aspects of the construction process, from the initial concept and planning stages through to completion and beyond. This includes provisions for dealing with changes, delays, and disputes that may arise during the project.

There are several types of JCT Lump Sum Contracts, each designed for different types of projects and procurement methods. Here’s a brief overview of a few main types:

Standard Building Contract (SBC): This contract is typically used for larger projects where detailed contract provisions are required. The SBC is suitable for projects procured via the traditional or conventional method where the design is completed before tenders are sought.

Intermediate Building Contract (IC): The IC is designed for medium-sized projects where more complex contract terms are needed than those provided by the Minor Works Building Contract, but not as complex as those in the Standard Building Contract. The IC is suitable for projects procured via the traditional or conventional method.

Minor Works Building Contract (MW): The MW is designed for smaller projects, typically those that are straightforward in nature and require only simple contract terms. The MW is suitable for projects procured via the traditional or conventional method.

While these contracts differ in their complexity and the types of projects they are designed for, the overarching final account process is similar across all of them. This process involves the preparation, negotiation, and agreement of a final account, which establishes a final adjustment to the contract price. The process requires cooperation between parties and involves a series of steps, including identifying and documenting relevant matters, preparing necessary documents, and negotiating and agreeing on adjustments to the Contract Sum. The final account process is a crucial part of all JCT Lump Sum Contracts, ensuring that the final price paid for the project is fair and reasonable.

Final Account Preparation Process

The process of preparing, negotiating, and agreeing on a final account is a crucial aspect of construction contracts. It is a systematic procedure that ensures all relevant costs, adjustments, and changes are accurately accounted for and agreed upon by all parties involved. Adhering to this process is not only essential for maintaining transparency and fairness, but it also plays a pivotal role in mitigating disputes. By following the due process, parties can proactively address potential areas of disagreement, foster a cooperative environment, and ultimately reduce the likelihood of disputes arising. This is particularly important in the context of construction projects, where the complexity and scale can often lead to misunderstandings and disagreements if not properly managed.

The negotiation process should be professional, calm and not personal. Both parties should engage in fair, reasonable, and ethical behavior. Preparation is key to successful negotiation. Goals should be clarified prior to the negotiation process. It is important to note that the negotiation process does not necessarily have to have a ‘loser’. Both parties can have different goals, and both can achieve a reasonable outcome.

Preparation for Final Account Settlement

The preparation of the final account is a critical process that requires detailed knowledge of the contract, its terms and conditions as well as the works that have been executed. It is the responsibility of the Contractor’s Quantity Surveyor (QS) to prepare the final account.

The preparation of the final account should start as soon as the works are completed, or before in some cases. The Contractor’s QS needs to identify and document all the relevant matters that will affect the final account. This typically includes, but is not limited to:

  • Variations: All variations that were instructed by the Employer or the Architect/Contract Administrator.
  • Claims for Loss and Expense: Any claims for Loss and Expense that are due to the Employer’s instructions, delays or any impediments, prevention or defaults by the Employer, the Architect/Contract Administrator, the Quantity Surveyor or any Employer’s person.
  • Work Executed for which an Approximate Quantity is not a reasonably accurate forecast: Any work that was executed for which an approximate quantity is not a reasonably accurate forecast.
  • Other Matters: Any other matters that could affect the final account such as weather, labour disputes or any other unforeseen events.

The Contractor’s QS must then gather all supporting documents such as certificates, invoices, measurements and other relevant documents. This should be done in a timely manner, as late submission of documents can lead to disputes.

The next step is to establish the value of the works that have been executed. This is done by applying the variation valuation methods defined in the contract and determining the value of any variations.

Once the value of the works has been established, the Contractor’s QS needs to prepare all documents necessary for the adjustment of the Contract Sum. These documents should be compiled and presented in an eligible structure that will allow for easier assessment and fewer disputes. At Multiproject we always bundle list and save documents in relation to the instruction or event they relate to.

The preparation of the final account should not be done later than 6 months after the issue of the Practical Completion Certificate or last Section Completion Certificate. This timeline is important to ensure that the final account process is completed in a timely manner.

Settlement

Once all the relevant matters have been identified and documented, the Contractor’s Quantity Surveyor and Project Quantity Surveyor will then move to the final account settlement stage. Here, they will discuss and negotiate any adjustments to the Contract Sum based on the statement which was prepared by the Project Quantity Surveyor. This negotiation process should involve a thorough review of all the matters mentioned in the previous step to make sure the final account is accurate and that any disputes or disagreements are resolved. Once these have been addressed, both parties should agree on the final adjustments to the Contract Sum.

The negotiation process should be professional, calm and not personal. Both parties should engage in fair, reasonable, and ethical behavior. Preparation is key to successful negotiation. Goals should be clarified prior to the negotiation process. It is important to note that the negotiation process does not necessarily have to have a ‘loser’. Both parties can have different goals, and both can achieve a reasonable outcome.

Agreeing the Final Account

After all disputes or disagreements have been resolved, the final account needs to be agreed upon by both parties. The contractor’s Quantity Surveyor (QS) and the Project QS must agree on the final adjustments to the Contract Sum. This agreement should be based on the statement prepared by the Project QS.

The Project QS then prepares the Final Certificate. This certificate should outline the Contract Sum, adjusted in accordance with the contract terms. It should also include the sum of amounts that have already been stated as due within Interim Certificates, as well as any advance payments, Payment Notice amounts, and any other costs. The difference between the two sums should be stated in the Final Certificate as a balance due to either the contractor or the employer.

Once the Final Certificate has been prepared, both the contractor’s QS and the Project QS review the document to ensure that it accurately reflects the agreed adjustments to the Contract Sum. Any errors or discrepancies should be corrected before the Final Certificate is issued.

The Project QS must then issue the Final Certificate no later than 28 days after the end of the Rectification Period in respect of the Works, or the date of issue of the certificate of making good or the date on which the Architect/Contract Administrator sends to the contractor copies of the statement and any ascertainment.

It is important that all amounts are properly calculated and agreed upon prior to the Final Certificate is issued. Failure to do so can result in disputes or disagreements arising at a later date. If any issues arise, parties can enter into dispute resolution. This could involve adjudication, mediation or conciliation.

Dispute Resolution

Dispute Resolution provisions under the JCT forms of contract will be covered in a separate article, however, the following summary may be useful:

If a final account cannot be settled amicably, parties may be required to enter into dispute resolution. Most construction contracts have provisions for dispute resolution, and statutory adjudication procedures are governed by specific laws.

The first formal step is often adjudication, but alternative options such as mediation and conciliation are available. Mediation or conciliation can be beneficial if a resolution cannot be reached, as a third party can help provide perspective. If no resolution is reached, adjudication requires both parties to submit all their information to the adjudicator in a timely manner. Proper record-keeping is crucial. Agreement on a final account often involves cooperation and negotiation. There may be outstanding items that need to be agreed upon.

Conclusion

The preparation, settlement and agreement of a final account is an essential component of any construction project that uses a JCT Lump Sum contract. It is important for all parties involved to understand the RICS Final Accounts Procedures for these contracts in order to ensure a successful outcome for the project.

The preparation of a final account involves cooperation between the contractor’s Quantity Surveyor and the project Quantity Surveyor. It is important for both parties to gather all relevant documents and to understand the terms of the contract in order to accurately assess the value of the works executed. The process ahold be a fact finding exercise not an argument. This will enable the parties to prepare a statement for the final account and to identify any necessary adjustments to the contract sum.

Disputes can sometimes arise during the final account process. In such cases, it may be necessary to seek advice or clarification from the Architect/Contract Administrator or other relevant parties. If no resolution can be reached, parties may enter into a dispute resolution process such as adjudication, mediation or conciliation. It is important to remember the principles of fairness, reasonableness and ethical behavior when negotiating a final account agreement.

Overall, the preparation and agreement of a final account is a critical step in the successful completion of any construction project that uses a JCT Lump Sum contract. Understanding the RICS Final Accounts Procedures for these contracts is essential for ensuring that the process runs smoothly. A successful final account process will ultimately benefit all parties involved, making it easier to complete the project on time and within budget.