Interim Valuations: DR Alice Lungu

INTERIM VALUATIONS
Dr Alice Lungu
PHD URBAN STUDIES (HW, UK), MSC ENV & DEV
(MAN, UK), PG DIP ENV PROTECTION (WARSAW,
POLAND), PG DIP CONST MGT (UNZA), BSC. BLDG
SCIENCE (CBU), REG Q.S., FSIZ, UNESCO Fellow
What is an Interim Valuation?
 Interim valuations (IVs)

– A feature of all forms of contracts
– Response to application Payment Claim (PC) for
part payment
– Required for Interim payments (IPs)
– Issuance of Interim Certificates (ICs)
– Preparation of an IV follows
 An agreed method
 And Time frame
 Valuations and payments are formal
contractual processes
 must be processed strictly in accordance
with the contract conditions.
 May be fortnightly, monthly, etc.
Nature of Interim Valuations
 IVs, IPs, and ICs are all provisional

– Valuer may adjust the IVs or ICs
– As Barrett (2008, p. 101) observes,
 “…the valuer may, unless the contract provides
otherwise, adjust interim valuations/ certificates by
omitting the value of work previously included and paid
for if it is subsequently discovered to be defective.”
– The adjustment is usually done in the subsequent
interim valuations/ or certificates.
Purpose of Interim Valuations
 Value the works taking account of:

– the physical work done on site;
– any extra work ordered by the client;
– the work of any specialist-nominated
subcontractors;
– the cost of running the site (the contractor’ s
preliminaries);
– the value of any materials delivered to site.
(Andrew Ross & Peter Williams, 2012)
Importance of Interim Valuations
 Control the contractor’s cashflow,

 Provide financial information, and
 Serve as information on the general progress
of the works
 (Harris, et al. 2013)
Interim Certificates
 Interim certificates (ICs) are issued to:

– establish the amount due, and to be paid in an
interim payment by the employer to the
contractor, during the course of the works.
– The employer must pay the stated amount, and
on time as stipulated in the contract.
– If employer wishes to pay less, he must inform the
contractor in writing – ‘notice to pay less’.
 Kathryn Coyne and James Pickavance (2015).
Nature of Interim Certificates
 Interim certificates (ICs) are:

– not finally binding – not definitive.
– Refer to some standard forms in the table below:
Standard Form Clauses
NEC 2013 50.5, 51.3
JCT Design and Build 2011 4.12
FIDIC suite 14.6
– Only the final certificate is conclusive

– But, ICs provide contractor with a right to payment.
 Kathryn Coyne and James Pickavance (2015).
Purpose of the Interim Certificate
 The purpose of ICs is summarised below:

– To certify the quantity of work done to date, on
which payment is made.
– To be used in the great majority of building
contracts as the Contractor should not have to
finance complete works.
– To ensure the Contractor is paid for work done at
regular intervals.
Process
 After receiving payment claim (PC), the QS

makes a site visit to:
– Evaluate the scope and value of works to
measure works done (method #1)
– Do physical measurements
 Visual inspection (method #2
Methods of Valuations
 Any one of the following:

– Activity schedules - in terms of percentage
achieved or completion of the activity.
– Milestones reached on a pre-agreed
programme.
– Measurement against a bill of
quantities.
– Stage payments against calendar dates
Measurement Method
 The IV is for all work completed – cumulative

value of works done.
 Certified interim payment (IP) is calculated by
subtracting the previous valuation from the
current valuation, less any deductions.
 Amount due to contractor = cumulative value
of works done – current valuation
Components of an Interim Valuation
 Gross valuation
– Preliminaries
– Main Contractors work (as billed)
– Variations
– Contractual claims
– Unfixed materials and goods
– Statutory fees and charges
– Nominated Sub- Contractors work
– Fluctuations (labour, materials and/or taxes, etc.).
– Retention
– Liquidated and ascertained damages
Retention, and its Management
 Retention:
– Is an amount of money retained on IV/ IP.
– It is a percentage (often 5%) of the amount
certified as due to the contractor.
 Employer keeps this money to ensure that
the contractor properly completes the
activities required of them under the contract.
 Retention can also be applied to nominated
sub-contractors
Retention (Contd)
 The main contractor may also apply retention

to domestic sub-contractors.
 Half of retention – first moiety, is released to
contractor at practical (substantial)
completion.
 Last half (final moiety is released upon
certification of making good defects – final
completion
First Interim Valuation
After Several Valuations
Appendix to I.V. No. 9
 Under the New Engineering Contract a
contractor’s inability to provide on time a first
programme of works could result in the
Project Manager retaining 25% of the amount
due (NEC: ECC Clause 50.3) (Harris, et al.
2013)
 Differences exist between the different forms of
contract as to which of the parties is responsible for
the preparation of interim valuations.
 Under the New Engineering Contract (NEC: ECC
1995) the responsibility for preparing such interim
valuations is placed on the Employer’s appointed
Project Manager (Clause 50.1).
 The Project Manager’s valuation takes account of
any application for payment made by the contractor.
The valuation also considers the current forecast of
Actual Cost (which represents the direct cost of
materials, labour and plant to execute the project) for
 These interim payments are of such critical
importance to a contractor’s cash flow that no major
contractor would be content to leave an interim
valuation to the client’s representative, even when
the contract permits this. Thus, contractors are faced
with undertaking interim valuations usually at
monthly intervals, although this can vary.
 The importance of these valuations is that they:
– Control the contractor’s cash flow;
– Provide financial information;
– Serve as information on the general progress of the works.
 The elements in a valuation may include:
– Preliminaries;
– Insurances;
– Measured works;
– Dayworks;
– Variations;
– Unfixed materials;
– Statutory fees;
– Nominated subcontractors;
– Price adjustments;
– Claims;
– Retention;
 The importance of each of the above elements
varies with different forms of contract.
 The New Engineering and Construction Contract, for
example, makes provision for method-related and
timerelated charges, which is helpful in valuing work
done under Preliminaries (Clauses 50.2, 50.3 and
52.1). However, in all forms of contract the largest
cash flow is likely to be derived from the measured
works.
 There are three types of site measurement:
– Measurement of work contained in the bill items;
– Measurement of activities;
 Retention Clause 50.3
 Interim payments made to the contractor are
subject to the deduction of retention as
detailed in Option P of the NEC: ECC
Document. The limit of retention is not
specified but it is common practice to have
five per cent of the amount due to the
contractor retained by the employer until a
reserve shall have accumulated in the hands
of the employer up to a limit equal to 3 per
 The amounts to be included and subject to
retention are the value of:
– Main works and variations;
– Materials and goods delivered or off-site if
authorised by the architect;
– The above items with respect to nominated
subcontractors;
– The contractor’s profit, etc. on the nominated
subcontracts.
 Other items included but not subject to
 Retention (Clauses 30.4 and 30.5)
 The contract will state the amount, which is
normally five per cent (5%) on contracts up
to £500 000 or three per cent (3%) on larger
contracts.
References
 Harris, F. & R. McCaffer 2013 Modern Construction
Management, 7e. London: Wiley.
 Barrett, K. 2008 Defective Construction Work: and
the Project Team. West Sussex: Wiley-Blackwell
 Ross, A. & P. Williams 2012 Financial Management
in Construction Contracting, West Sussex: Wiley-
Blackwell.
 Kathryn Coyne and James Pickavance 2015
“Payments on account in respect of disputed sums”
Construction Law, pp. 26-28

Interim Valuations: DR Alice Lungu

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Interim Valuations: DR Alice Lungu

Uploaded by

Copyright:

Available Formats

INTERIM VALUATIONS

 Interim valuations (IVs)

 IVs, IPs, and ICs are all provisional

 Value the works taking account of:

 Control the contractor’s cashflow,

 Interim certificates (ICs) are issued to:

 Interim certificates (ICs) are:

NEC 2013 50.5, 51.3

JCT Design and Build 2011 4.12

FIDIC suite 14.6

– Only the final certificate is conclusive

 The purpose of ICs is summarised below:

 After receiving payment claim (PC), the QS

 Any one of the following:

 The IV is for all work completed – cumulative

 The main contractor may also apply retention

You might also like