Settling a Final Account: The Lines That Decide the Last Payment

A construction final account is the sum of a dozen separate settlements. What each line contains, what moves it, and the order to settle them in.

A final account is not a negotiation about one number. It is a set of separate accounts that have to be agreed individually: measured work, variations, provisional sums, fluctuations, claims, damages, retention and the securities. Settling them in a sensible order, with the easy ones first, turns a single large argument into a short list of real disagreements.

What this number does and does not include

This covers the commercial lines that make up a final account on a building contract, what drives each one and how it is closed. It assumes the works have reached practical completion and that the contract provides a period for the submission and assessment of the account. Periods, procedures and the effect of the final certificate differ between contract forms and are revised over time, so read the relevant clauses and confirm the current position with your adviser before relying on any timetable.

Remeasurement of the measured works

Where the contract is remeasured or contains approximate quantities, the measured work has to be finally measured and valued at the tendered rates. This is arithmetic rather than argument where joint measurement happened monthly, and forensic archaeology where it did not. It is usually the largest line and the one most sensitive to record keeping.

• Pushes it up: Measurement left to the end, work concealed before it was measured, and disagreement about the method of measurement.
• Brings it down: Monthly joint measurement signed on site, with each element closed as it completes.
• How to control it: Close measurement element by element during the works, so the final account inherits agreed figures rather than open questions.

The variation account

Every instructed change, valued and agreed. The size of this line is not the problem; the number of unagreed entries is. An account arriving at completion with dozens of open variations will take months to settle, and the contractor negotiating position improves as the owner need for closure grows.

• Pushes it up: Variations valued late, no agreed rates for valuing change, and instructions issued without a basis of valuation.
• Brings it down: Agreeing each variation within the month it was instructed, and maintaining a schedule of agreed rates for recurring items.
• How to control it: Report the number of unagreed variations monthly as a leading indicator of how long the final account will take.

Provisional sums expended and omitted

Each provisional sum is deducted from the contract sum and replaced by the value of the work actually instructed. The line can move in either direction and is often misunderstood as a saving when the work has merely been deferred. Where a sum was never instructed, it is omitted entirely.

• Pushes it up: Sums defined poorly at tender, so the expended value bears no relation to the allowance.
• Brings it down: Well defined sums based on a real estimate, instructed at a planned point in the programme.
• How to control it: Track each provisional sum separately as allowance, instructed and forecast throughout the works, so the final position is already known.

Fluctuations and price adjustment

Where the contract contains a fluctuation or price adjustment mechanism, the adjustment has to be calculated on the stated basis, usually using published indices with a defined base date. The calculation is mechanical once the mechanism is understood, and it is frequently calculated wrongly by both parties because the base date or the applicable index is misread.

• Pushes it up: A long programme, a complex formula, and disagreement about which index or base date applies.
• Brings it down: A simple index linked mechanism applied monthly during the works rather than once at the end.
• How to control it: Calculate the adjustment monthly as the works proceed, so the final figure is a total rather than a new exercise.

Claims for loss and expense

Prolongation, disruption and other claims where entitlement and quantum are both in issue. This is normally the most contested line and the one that determines whether the account settles or goes to a formal dispute. It is also the line where the quality of the contemporaneous records decides the outcome rather than the force of the argument.

• Pushes it up: Claims submitted globally, late notices, poor records, and entitlement questions left unresolved during the works.
• Brings it down: Claims particularised and determined as they arose, with the accepted elements already reflected in the account.
• How to control it: Determine claims during the works rather than storing them for the final account, where they dominate everything else.

Delay damages or extensions of time

The time position has to be concluded before the money can be, because damages and prolongation cost both depend on it. An account presented while the extension of time applications remain undetermined cannot be settled, and the pressure of the account tends to produce a time decision made for commercial reasons rather than on the analysis.

• Pushes it up: Multiple undetermined applications, concurrency arguments, and a programme nobody accepted.
• Brings it down: Contemporaneous determination of each application as it was submitted.
• How to control it: Close the time position first and record it, then settle the money lines against the agreed dates.

Defects, incomplete work and concessions

Outstanding defects, work left incomplete and any concessions granted for accepted deviations all have a value in the account, whether as deductions, agreed allowances or commercial adjustments. Items accepted informally during the works with no record are the ones that cause arguments here.

• Pushes it up: An open non conformance register at completion, concessions granted verbally, and a long list of incomplete items.
• Brings it down: A closed register, written concessions with agreed adjustments, and incomplete work either finished or formally omitted.
• How to control it: Carry the non conformance and concession registers into the account as schedules, with a value against every open item.

Retention, securities and the final certificate

Release of the remaining retention, return and cancellation of bonds and guarantees, and issue of the certificate that closes the contract. Administratively simple and frequently left undone for months, which costs the contractor money and costs you nothing except goodwill and your reputation as a client.

• Pushes it up: An unresolved account, unrectified defects, and instruments with wording that makes release conditional on something nobody has done.
• Brings it down: A clean defects position and an agreed account, so release is a single administrative step.
• How to control it: Hold a closing checklist with an owner and a date against each release, and complete it within weeks of agreement rather than months.

Costs that never appear on the first page

• The cost of the account process itself, in commercial staff time on both sides over several months.
• Financing cost of the balance while it remains unsettled, which falls on whichever party is out of pocket.
• The cost of reconstructing measurement or records that were never closed during the works.
• Loss of institutional knowledge as the project team disperses, making every open item harder to resolve.
• The commercial consequence of settling an unprovable item to achieve closure, which sets a precedent on the next project.
• Bond and insurance extension charges accruing while instruments remain outstanding after completion.

Keeping the budget honest

Settle the lines in order of difficulty, closing the mechanical ones first: remeasurement, provisional sums, fluctuations and retention. That produces an agreed figure for most of the account and isolates the real disagreement, which is usually the claims and the time position. Negotiating the whole account as one number invites trading between unrelated lines, which obscures what was actually agreed and leaves nothing on the record for next time.

• At each monthly valuation during the works, where most of the final account is actually settled.
• At practical completion, when the account period starts and the time position should already be closed.
• On submission of the contractor account, when the gap between the parties is first visible in full.
• At the end of the defects liability period, when the defects lines can finally be closed.
• Before the final certificate, when the effect of issuing it should be confirmed with your adviser.

Domira builds and supervises projects across Saudi Arabia, and the commercial discipline above is how its projects stay inside their budget and their programme. Send the drawings, the contract or the site and Domira will tell you where the risk actually sits.