Welcome to the next module of our course, “Fundamentals of Capturing Costs in Construction Projects.” In this topic, we will delve into the final stages of the construction project lifecycle: the preparation and settlement of the final account. The final account is required after contract completion, which is usually around 3 months after practical completion. This period will allow the contractor to collate all project associated costs. Within this period, the client will have the opportunity to carry out their own snagging and assessment of the completed works. The final account settlement is a crucial step in ensuring all costs are accounted for and that the project is financially closed out correctly. Let’s explore the key concepts and steps involved in this process.

Why is Final Account Preparation and Settlement Important?

Final account preparation and settlement is essential for several reasons:

1. Financial Closure: It marks the financial completion of the project, ensuring all costs are accounted for and settled. This will also include any applications and assessments of changes and additional works allowing a comprehensive view of outturn costs and total contract value.
2. Contractual Compliance: It ensures that all contractual obligations are fulfilled and documented. This will include the contracted works and any additional works or changes. The contractual obligations that extend the contract completion will include but not be limited to;
   • Defects liability period, this is typically 12 months post practical completion. The contractor will be obliged to remedy all defective works for the contracted period.
   • Release of retention, the retention is an agreed amount to be retained by the client post work completion, part to be released upon contractual completion part to be released after the defects liability period.
   • Release of any escrow accounts.
   • release of any collateral warranties
   • handover of the works/site back to the client.
3. Profitability Assessment: It allows for the assessment of the project’s profitability and financial performance. The costs and sales are reconciled to appreciate and release profit into the organisation. Risk allowances are released and amalgamated within the profits.
4. Client Satisfaction: It enhances client trust and satisfaction by demonstrating transparency and financial diligence. This will predominately be dependant on budget and programme control, however communications and relationship building will be achieved by the Final Account process.

Key Concepts in Final Account Preparation and Settlement

1. Understanding the Final Account:
   • Definition: The final account is a statement of the total project value, including all variations, adjustments, and settlements. It will also includes a brief detail of the works delivered and the programme as to when the works commenced and completed.
   • Components: It includes the original contract sum, reference to the main contract, key dates, extended terms (defect liability period, retention release etc) and a signature from but Contractor and Client.
2. Steps in Final Account Preparation:
   • Review of Contract and Variations: Review the original contract and all approved variations to ensure they are accurately documented and included. Ensure that all works and variations are claimed within the Final Application.
   • Verification of Completed Works: Verify that all work has been completed to the specified standards and that all deliverables are met.
   • Measurement and Valuation: Measure the final quantities of work done and value them according to the contract rates.
   • Compilation of Costs: Compile all costs, including direct and indirect costs, variations, and claims, into a comprehensive final account statement.
3. Final Account Settlement:
   • Negotiation and Agreement: Negotiate with the client and contractors to agree on the final account values. This may involve discussions to resolve any discrepancies or disputes.
   • Final Payment Certificate: The client will issue a final payment certificate, which outlines the agreed final amount to be paid to the contractor.
   • Release of Retentions: Arrange for the release of any retention monies held back as per the contract terms, ensuring that any defects liability period obligations are met.
4. Documentation and Record-Keeping:
   • Detailed Records: Maintain detailed records of all transactions, variations, and communications related to the final account.
   • Archiving: Properly archive all documents for future reference and audit purposes. If the contract is executed as a Deed then these documents must be retained for 12 years, if it is executed as a title then this period is reduced to 6 year, unless stipulated within the contract.
5. Common Challenges and Solutions:
   • Discrepancies in Measurements: Address discrepancies through remeasurements and discussions with relevant parties. A joint site measure will resolve any measure discrepancies
   • Delayed Settlements: Mitigate delays by maintaining clear and proactive communication with all stakeholders. Any extensions of time can be claimed and agreed during the Final Account Settlement.
   • Disputed Variations: Resolve disputes by referring to the contract terms and any supplementary agreements or documentation. The variations must be agreed in principle, the values thereof can be negotiated at this stage.
   • Delayed Settlements: Mitigate delays by maintaining clear and proactive communication with all stakeholders. Any extensions of time can be claimed and agreed during the Final Account Settlement.

Practical Steps to Prepare and Settle the Final Account

1. Review the Contract and Variations:
   • Thoroughly review the original contract, all approved variations, and any supplementary agreements to ensure all changes are accounted for.
2. Verify Completed Works:
   • Conduct a final site inspection to verify that all work has been completed as per the contract specifications and quality standards.
3. Measure and Value Work Done:
   • Measure the final quantities of work completed and value them according to the agreed contract rates. Use accurate and detailed records to support these measurements.
4. Compile the Final Account Statement:
   • Compile a comprehensive final account statement that includes the original contract sum, variations, remeasurements, and any claims or compensations.
5. Negotiate and Agree on the Final Account:
   • Engage in discussions with the client and contractors to review and agree on the final account statement. Address any discrepancies or disputes through negotiation.
6. Issue the Final Payment Certificate:
   • Once the final account is agreed upon, issue a final payment certificate outlining the final amount to be paid to the contractor. Ensure all parties sign off on this document.
7. Release Retention Monies:
   • Arrange for the release of any retention monies held back, ensuring that all defects liability period obligations have been met.
8. Maintain Detailed Records:
   • Keep detailed and organised records of all transactions, variations, communications, and final account statements. Properly archive these documents for future reference.

Final Account Statement Template:

Summary

Final account preparation and settlement is a critical step in the post-construction phase. By following a systematic process, including reviewing contracts, verifying work, measuring and valuing completed work, and negotiating settlements, quantity surveyors can ensure that all costs are accurately accounted for and that the project is financially closed out correctly. Remember, detailed documentation and proactive communication are key to successful final account settlement.

Through careful and systematic management, you ensure the financial closure of the project is smooth and transparent, enhancing client satisfaction

This comprehensive and engaging content provides a solid foundation for understanding the final account preparation and settlement process. Be sure to review the concepts and examples provided, as they will form the basis of your knowledge and the quiz questions for this module.