http://www.isurv.

com

Overview - role of the surveyor

Construction contracts are generally for a defined period of time and, in certain circumstances,
for a duration of a number of years. The contractor will require monies during the course of the
works in order to remain financially secure.

The contract therefore requires a valuation to be made for the purpose of ascertaining the
amount due in an interim certificate from the employer to the contractor.

These notes are based upon the Joint Contracts Tribunal contract JCT 05 Private With
Quantities (JCT PWi Q). The general rules apply equally to other forms of contract. It is
prudent for the project surveyor to review the specific contract prior to undertaking the first
valuation. JCT PWi Q, and other contracts, are available from RICS Books.

Clause 4.9.1 of JCT 04 PWi Q states that:

'... the Architect shall from time to time as provided in Clause issue Interim Certificates stating
the amount due to the Contractor ...'

and clause 4.13.3 states:

'... the final date for payment pursuant to an Interim Certificate shall be 14 days from the date
of issue of each Interim Certificate'.

(Reproduced with kind permission of JCT. © JCT)

Employers may, and often do, amend this 14-day period to honour certificates, due to internal
procedures with regard to the processing of valuations and cheques within the finance
department.

When setting up the contract, it may prove beneficial to liaise with the employer with regard to
the timing of valuations. These may need to be back-to-back with financing arrangements.
Alternatively, the contract may require certificates to be issued at particular work stages.

It is normal practice for both the private quantity surveyor (PQS) and the contractor's surveyor
to undertake and complete the valuation following a site visit. Valuations offer an ideal
opportunity to develop the final account by allowing both surveyors to record site
measurements and agree rates.

Valuations take into account the following:

- work properly executed;

- materials on site;
- fluctuations in labour and material costs (if applicable).

Valuations may also include for materials stored off-site. Generally, employers are reluctant to
include monies for such items, as they can be stored many miles from site and are obviously
outside the employer's direct control. However, in certain circumstances employers are willing
to include monies for such items, and this is dealt with separately.

It should be borne in mind that the valuation prepared by a quantity surveyor is a

recommendation of the value of works completed. The interim certificate issued by the
architect is the legally binding amount to be paid. As such, the architect's interim certificate is
legally enforceable under the contract. The value of the interim certificate is not a final agreed
payment for the work, but it is an account payment, and may assist in the forecasting of final
costs and the final account.

Preparation

Page 1
http://www.isurv.com

Generally, the valuation will be based on the contract bills and will include the appropriate
proportion of the items completed at that date. However, it is prudent to bear the following in
mind.

- Bill items often include rates for composite items.

- The valuation is an approximate value of the work completed and is not a final
account - it is not necessary to undertake detailed measurement of the work for
each valuation.
- The architect must advise the quantity surveyor of any defective work to be
deducted from valuations or the interim certificate. This should be made in writing
and detailed as a separate item on the valuation or interim certificate.
- Addendum items should be noted within the quantity surveyor's copy of the contract
and taken into account.

Preliminaries

'Preliminaries' is the name given to works of a temporary nature, such as scaffolding, the
contractor's site management, welfare facilities, insurances, and so on. Preliminaries may be
time-related or fixed (and may be detailed as such in the contract bill) and are used when
preparing the valuation. It is important to value preliminaries only in relation to completed work,
bearing in mind the extent of the works still to be completed.

It is particularly difficult to value preliminaries that are not necessarily time-related, or where
the cost is related not to the value of the work completed, but dictated by the timing of the
expenditure by the contractor. Items such as insurance may be incurred at the commencement
of the works by the contractor, but the employer may be reluctant to pay the full cost, as he or
she will not necessarily receive any benefit for the early termination of the contract - for
instance, if the contractor was to go into receivership, the employer might incur insurance
costs twice, once with the original contractor, and then with a replacement contractor.

If a project is behind programme, then preliminaries costs should be adjusted accordingly. If a

project overruns, and even if an extension of time has been granted, the contractor is not
automatically entitled to additional preliminaries costs (see 2.29.13 of the JCT 05 PWi Q
contract, force majeure,or 2.29.8, exceptionally adverse weather conditions - to name but two
relevant events).

If a schedule of fixed or time-related preliminaries has been agreed at the outset between the
private quantity surveyor (PQS) and the contractor's quantity surveyor, then if the contractor
falls behind the contract programme, the preliminaries should be reviewed. In this instance, it
is simply a matter of reapportioning the time-related preliminaries as necessary.

No additional preliminaries costs should be paid unless prior agreement has been reached
with the architect or the employer.

Examples of fixed and time-related preliminaries are detailed below.

Fixed Time-related

Insurance Supervision/management

Removal of rubbish Security

Cleaning of the works Scaffolding

Final clean Hoarding

Lighting

Certain preliminaries can also be considered as:

Page 2
http://www.isurv.com

- initial cost (for example, erecting hoarding);

- ongoing cost (for example, maintaining hoarding); and
- final cost (for example, clearing away on completion).

Variations

Costs associated with architect instructions (AIs) that have been undertaken and completed
must be included in the valuation.

When the work is the subject of a site instruction, and an AI is awaited, the work should be
valued on a fair and reasonable basis, if it has been completed. It is not necessary for the
whole of the variation to be completed before monies are included in the valuation. If the
AI/variation is substantial, than the value of works completed should be included within the
valuation.

Dayworks

If authorised and properly monied out, and signed by the clerk of works or the architect to
verify that the hours stated are correct, then costs associated with the relevant dayworks
should be included in the valuation.

Materials on site

Clause 4.16.2 of JCT 05 Private With Quantities states that materials on site will be included in
an interim certificate, provided that they are:

- not prematurely brought to site;

- protected from weather and damage;
- within the site area; and
- for incorporation into the permanent works.

When undertaking the valuation, the private quantity surveyor (PQS) and the contractor's
surveyor will agree the quantities of materials stored on site, paying particular attention to
items of a large quantity or high value. A price for the materials will then be agreed, based
upon the current list price of such materials, or invoices if available. Reference can also be
made to the 'list of basic prices' that forms part of the contract or form of tender.

Materials on site will not form part of the valuation at practical completion, unless partial or
sectional completion of the works is agreed.

Materials stored off-site

Materials off-site are included in valuations only in exceptional circumstances. This is due to
the fact that materials may be stored many miles from site, outside the direct control of either
the employer or the contractor.

However, if the employer agrees to make payment for materials off-site, then such materials
must be:

- intended for the works;

- complete;
- set aside and properly marked to identify the employer, or at least the contractor,

Page 3
http://www.isurv.com

stating their destination as the works;

- adequately insured against damage, loss, and so on;
- subject to an agreement between the supplier or sub-contractor and employer that
upon payment of the monies due on an interim certificate by the employer, title in the
goods passes unconditionally to the employer;
- in accordance with the contract;
- subject to the provision of reasonable proof by the contractor to the architect that the
property of the materials is with the contractor (or sub-contractor).

If the architect or employer agrees to include monies in an interim certificate, the contractor
must complete a statement confirming compliance with the contract conditions regarding
materials kept off-site.

It is then necessary for the private quantity surveyor (PQS) and the contractor's surveyor to
arrange for the architect to inspect the materials wherever they are stored. The architect
should verify that the materials are ready for incorporation into the works and advise that they
are free of defects.

Upon instruction from the architect, the PQS will include the value of goods in the next
valuation, shown separately as 'materials stored off-site'. The process will be repeated if
necessary, for subsequent valuations, until the materials are delivered to site.

Fluctuations

When a contract is not based upon a fixed price, the contractor may be entitled to claim
additional costs or price increases arising from the effects of inflation on labour or material (or
both).

No monies should be included in valuations without supporting documentation, which, when

checked, should indicate that the contractor has incurred and paid the additional costs.

Claims

The assessment of loss and expense claims is a subject in its own right. It is unlikely that a
surveyor will finalise such claims without guidance from his or her peers in the company.

The RICS Valuation Form does not include provision for separately stating the value of such
claims. It is necessary to refer to any monies included within the valuation in the covering letter
enclosing the Valuation Form.

Defective work

The value of defective work should not be included within valuations. It is not the responsibility
of the quantity surveyor to identify defective work, but that of the architect.

It is best practice for the surveyor to:

- inform the architect of all future valuation dates at the outset of the project;
- request the architect to notify in writing, prior to the valuation date, of any defective
work, or work not properly executed, which is of concern;
- request the architect to confirm to the contractor that defective work has been
undertaken and that monies will not be included within the interim certificate.

If this procedure is adopted, the value of defective work should not be included within the
valuation.

Page 4
http://www.isurv.com

When valuing defective work, it is necessary to include any remedial costs of putting the work
right. It is possible that these costs will be higher than the original value of the work included in
the contract.

Retention

Retention is the retaining of money by the employer until all defects on the project have been
made good, following completion of the actual construction phase. The defects liability period
will be stated in the contract, but is normally six or 12 months.

Retention, traditionally 3% or 5%, is deducted from the gross valuation. It is held by the
employer, who has a fiduciary interest in the money. However, the money is not the
employer's, but rather is held in trust on behalf of the contractor until practical completion is
achieved. Half the retention fund (one moiety) is released upon practical completion, with the
remainder being realised on the issue of the making good defects certificate by the architect.
Certain trades (lifts, piling, and so on) now offer retention bonds in lieu of the deduction as
standard terms of business.

Although retention is shown in the valuation as a lump sum, retention on nominated

sub-contractors or suppliers is stated individually on the statement of retention. However, the
JCT 05 Private With Quantities (JCT PWi Q) contract states, at 4.16, that retention is not held
as detailed in clause 4.16.1.2.1

Other items are excluded from the imposition of retention. The surveyor should take care to
familiarise him or herself with the contract.

Liquidated and ascertained damages (LADs)

If the contract is not completed by the due date, and an extension of time has not been
granted, then the employer may be entitled to deduct liquidated and ascertained damages
(LADs) from interim certificates.

The value of LADs will be stated in the contract. However, for the employer to deduct LADs, a
certificate of non-completion must first be issued by the architect.

The surveyor should not deduct LADs from the valuation. Rather, it should be noted in the
covering letter that the employer has the contractual right to deduct LADs accrued between the
note of the certificate of non-completion and the date of the valuation certificate.

LADs are a field in themselves, and their deduction should not be entered into lightly. The
surveyor is advised to seek further guidance on this issue, should it arise.

Final calculations

All calculations should be arithmetically checked prior to issuing the valuation or interim
certificate.

Value added tax (VAT) included on invoices should be deducted prior to inclusion in any
calculations forming part of the valuation

Page 5