UEBQ4724 Professional Practice II LECTURE 3

Interim Valuations
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(1) INTRODUCTION
As a precedent, when the value of contracts in UK was more than a few thousand pounds, it had always been normal practice for contractors to be paid sums on account as the construction work proceeded i.e. paid progressively. Why pay progressively??? It is generally recognized that it would be unreasonable to expect Contractors to finance construction operations without assistance from Employers. The expense of borrowing large sums, which otherwise would be involved, would add significantly to total costs which it is in the interest of Employers to minimize. *(J. Ramus-Contract Practice for Surveyors-Payment Requirement under HGCRA-UK) *(CIPAA-Malaysia)
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(1) INTRODUCTION
It is universally accepted that interim payments are approximate only, and, provided the amounts included for the various constituents are reasonable, no objection will be raised because they are not exact. *(Sample-Example Of Interim Valuations Calculation) *(Samples-Example Of Int Valuations Calc-rev Contract Sum) *(Samples-Example Of Int Valuations Calc-Sectional Compl) For this reason, the amounts shown in certificates are always round RM, as also are the sums in the main money column of valuations. * (Samples-Interim Valuation)

(A) FREQUENCY OF VALUATIONS AND 'VALUATION DATE'

PAM Form 2006 Edition (Clause 30) Employer to pay the contractor such sums as are stated to be due in Interim Certificates at the periods stated in the Appendix to the Conditions of Contract. In practice, this normally means monthly, commencing one month after the date on which the contractor takes possession of the site. *(Sample-Appendix to PAM 2006) The architect usually relies on the Surveyor to advise him as to the sum which should be stated as due in any such certificate. *(Sample-Letter for Interim Valuation no. 8) *(Sample-InterimValuation no. 8) In order to do this, the Surveyor prepares a valuation in accordance with the provisions of clause 30 of the PAM Form.
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(A) FREQUENCY OF VALUATIONS AND 'VALUATION DATE'

As an alternative to regular monthly certificates, the contract conditions may provide for 'stage payments', i.e. for payment to be made when certain defined stages in the construction work have been completed. Thus, the first payment may be due when the substructure is finished and ground slabs laid, the second when superstructure walls and upper floors are constructed, the third when the roof is finished, and so on. Stage payments are more appropriate to housing contracts than to more complex projects where the stages are often not so readily or satisfactorily definable. *(J. Ramus-Contract Practice for Surveyors-example of stages for stage payments method) *(Samples-S&P-PaymentSch) 5

(A) FREQUENCY OF VALUATIONS AND 'VALUATION DATE'

As the sum eventually certified as due for payment relates to work actually completed and unfixed materials and goods actually stored on site, it is necessary for the Surveyor personally to visit the site to see for himself both the completed work and the unfixed materials and goods and then to ascertain their total value. Where the contract provides for advances at regular intervals, it will be advantageous to decide from the start a fixed date in which month on which to do valuations. Although the Surveyor has no obligation under the terms of the PAM Form to notify the contractor when he proposes to visit the site for valuation purposes, nevertheless it is desirable as well as courteous to do so and even better if the Surveyor and the contractor's surveyor agree on a 'valuation date' in each month.
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(A) FREQUENCY OF VALUATIONS AND 'VALUATION DATE'

From the contractor's point of view, the exact position of the day in the month may well affect his cash flow as, e.g., his invoices for materials become payable at the end of the month. From the employer's point of view the 'valuation date' will affect his cash flow situation also. If the Employer is a public authority and it is necessary for payments to be approved by a finance committee, then the date of the committee meeting in each month may have a direct bearing upon when the valuation ought to be done, if payment is not to be delayed unduly. The Surveyor should give careful consideration to any such factors involved, including his own commitments in regard to other contracts already running.
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(B) GENERAL PROCEDURE

The proper way to prepare an interim valuation is to value, on each occasion, the amount of work which has been done since the beginning of the contract and the value of unfixed materials and goods on the site on the 'valuation date'. From the total value so arrived at, the total of previous payments on account, if any, will be deducted, leaving a balance due for payment. By following this procedure strictly, any under-valuation or overvaluation of either work completed or of unfixed materials on the last 'valuation date' will be automatically corrected. The surveyor should not attempt to value in isolation the work done and the materials delivered since the last valuation.

(B) GENERAL PROCEDURE

Experience will confirm that valuations are most conveniently set out on double billing paper, thus allowing for sub-totals to each section and subdivision being carried out over into the right-hand money column. Such sub-totals are often useful for carrying forward into subsequent valuations. *(Sample - Interim Valuation)

Joke for the Day

Stop Wiping with Cement Bags.docx

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(B) GENERAL PROCEDURE (a) Preparing the Valuation on Site

The surveyors first task on visiting the site for valuation purposes (having first made his presence known to the site agent), is to tour the Works, making notes as necessary of the extent of work done and listing the quantities of the various materials and goods stored on the site. He will then be in a position to get down to preparing a draft valuation in the site agents or clerk of works office (if there is no office for the surveyors exclusive use, as often there is not). It is highly desirable, if at all possible, that the valuation total be determined before leaving the site. The surveyor and contractors surveyor will usually agree to meet on site at a mutually convenient time on the valuation date in the month and will prepare the valuation together, although, of course, the responsibility for the resulting recommendation to the architect will be that of the surveyor alone. 11

(B) GENERAL PROCEDURE (a) Preparing the Valuation on Site

Thus, the total sum and its constituent amounts will normally be agreed before leaving the site and subsequent dispute will be avoided. Sometimes, the contractors surveyor is happy to leave valuations entirely to the surveyor and will accept whatever amounts the architect certifies). Some contractors prefer to prepare detailed applications for interim payments themselves which they submit to the surveyor a few days before the valuation date. The PAM 2006 form of contract has acknowledged this practice through clause 30.1, whereby a contractor is entitled to submit an application, to the surveyor, detailing what he considers the gross valuation should be. PAM Form 2006 Edition (Clause 30.1)
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(B) GENERAL PROCEDURE (a) Preparing the Valuation on Site

If a contractor wants a surveyor to consider his application it must be submitted at least 7 days before the date of the interim certificate. On receiving such an application the surveyor is obliged to carry out an interim valuation and if he finds he disagrees with the amounts in the contractors application he must provide the contractor with a statement detailing the area of disagreement. The surveyor is to provide the contractor with such a statement at the same time as he prepares his interim valuation. Where a statement of disagreement is provided it must be prepared to the same level of detail as was contained in the contractors original application.. This proviso should provide contractors with an incentive to produce reasonably detailed applications, if they wish, and should reduce payment disputes
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(B) GENERAL PROCEDURE (b) Inclusions in Valuation

Clause 30.2 of the PAM Form provides that 'the amount stated as due in an Interim Certificate shall be the gross valuation of specified constituent parts of the Works, less the Retention Percentage and the total of previous interim certificates. PAM Form 2006 Edition (Clause 30.2) In order to determine 'the gross valuation', the value of each of the constituent parts has to be ascertained. Those parts may be any or all of the following: Preliminaries. Main contractor's works (as billed). Variations. Unfixed materials and goods (material on site). Nominated sub-contractors' work. Nominated suppliers' goods. Retention. 14

(B) GENERAL PROCEDURE (b) Inclusions in Valuation (i) Preliminaries

Where there is a bill of quantities, the evaluation of the preliminaries will usually be less difficult than where there is not. In the latter case, it will be necessary, before the date of the first valuation, to make an apportionment of the contract sum to each of its principal constituents. The preliminaries constituent will then need to be broken down into separate amounts such as would normally be seen in the preliminaries section of a bill of quantities. This process will be very much easier and the results be more satisfactory, if there is a Contract Sum Analysis which shows the total of Preliminaries included in the tender.

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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (i) Preliminaries

The contractor will be able to produce his build-up of the tender and the individual amounts allowed in it for the main Preliminaries items. These amounts will then be available for valuation purposes - and later, for the adjustment of Preliminaries, if necessary, in the final account - just as if there had been a bill of quantities. Even where there is a bill, the situation may still present difficulties. The contractor may have put amounts against all, some, one or none of the priceable items in the Preliminaries section, having included the balance of their value, if any, in other parts of the bill. The surveyor can only take account, of course, of those items which have been priced, even though they may represent only part of the total cost of the Preliminaries.
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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (i) Preliminaries

It is not uncommon to deal with the total value of the Preliminaries as if the items were either all cost-related or all time-related. (UKs way of practice. (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuation) In local practice, the Preliminaries items are usually broken down to Initial cost, Recurring cost and Completion Cost. (Examples of Prelims - tutorial 1A)

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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (ii) Main Contractors Work (as billed)
The value of the work carried out by the contractor's own workforce will be readily ascertainable from the measured work sections of the bills of quantities or, in the case of lump sum contracts without quantities, from the Contract Sum Analysis (CSA), if provided, or from a schedule drawn up on the basis of an analysis of the tender. The prices contained in the bills of quantities, being 'the Contract Bills', must be used, of course, in the valuation of the main contractor's work, regardless of whether the contractor under-priced or over-priced the work when compiling the tender.. (Sample Tender Doc - Roman Cathalic Bungalow - CSA) (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuation) (Sample - progress claim Clm17 Clm17) )
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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (iii) Variations

Very few projects, if any, have no variations. On some jobs they number in double or even treble figures. They present a difficulty in the context of interim valuations for several reasons. (Notes(Notes -JRamus JRamus-Chapter Chapter12 12-InterimValuation) (PAM Form 2006 (wth Qty)Qty)- Pg Pg15 15-Clause 11 11. .9) (Sample - progress claim Clm17 Clm17) )

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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (iv) Unfixed materials and goods (material on site)
Clause 30.2 of the PAM 2006 Form requires the inclusion in the amount of an interim certificate of materials and goods delivered to the site for incorporation in the Works. (PAM Form 2006 (wth Qty)Qty)-Pg Pg36 36-Clause 30 30. .2) In order to value unfixed materials and goods, the surveyor will need to be satisfied that the materials and goods are actually on the site and to ascertain approximately how much of each material or good there is. It is not necessary to know the exact quantities because by the time the next valuation is done, most or all of the materials will have been incorporated into finished work which will then be valued as such. (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuationInterimValuation-Pg Pg177 177) ) (Sample(Sample -Interim Val. Val. No. No. 10 10) )
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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (v) Nominated sub-contractors' work
PAM Nominated Sub-contract spells out in detail what should be included in respect of sub-contract works. It is common practice for NSCs to make application from time to time, through the main contractor, for the amounts on account to which they consider they are entitled. (Notes-JRamus (NotesJRamus-Chapter Chapter12 12-InterimValuation InterimValuation-Pg Pg179 179) ) (Sample(Sample -Interim Val. Val. No. No. 10 10) )

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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (vi) Nominated suppliers' goods
The value of goods and/or materials supplied by nominated suppliers should be included in in valuations on the same basis as those supplied by non-nominated suppliers, namely, that the goods or materials are properly protected and stored whilst still unfixed and are not damaged or defective. Amounts should be inclusive of the proper discount for cash, also for packing, carriage and delivery. Amounts should be exclusive of any trade discount allowed. (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuationInterimValuation-Pg Pg180 180) ) (Sample(Sample -Interim Val. Val. No. No. 10 10) )

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(B) GENERAL PROCEDURE (b) Inclusions in Valuation (vii) Retention

It is a common provision in all the standard forms of building contract for a percentage of the valuation total to be deducted. Thus, the sum of money deducted is said to be 'retained' by the Employer and is called 'the Retention. The percentage used to calculate the amount of the Retention is called 'Percentage of Certified Value Retained' (see PAM Form clause 30.5). (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuationInterimValuation-Pg Pg181 181) ) (PAM Form 2006 (wth Qty)Qty)-Pg Pg37 37-Clause 30 30. .5) (Sample(Sample -Interim Val. Val. No. No. 10 10) )

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(C) NOTIFYING THE ARCHITECT

When the Surveyor has completed his valuation, he must inform the architect as soon as possible of the amount of the payment recommended. In JCT Form, the period for architect's certification is 7 days from the valuation date, but PAM 2006 Form allows for 21 days from the date of receipt of the Contractors application. (Notes(Notes -JRamusJRamus-Chapter12 Chapter12-InterimValuationInterimValuation-Pg Pg183 183) ) (PAM Form 2006 (wth Qty)Qty)-Pg Pg36 36-Clause 30 30. .1)

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(D) LIQUIDATED AND ASCERTAINED DAMAGES (L.A.D.)

It should be understood that no deduction should be made from the amount of a valuation for L.A.D. because of failure on the contractor's part to complete the Works on time. Even though the Surveyor knows that the Employer is entitled to such damages, there is no provision in the PAM Form for anyone other than the Employer himself to make deduction from any sum due to the contractor. The Employer, if he so wishes, waive his right to LAD, in which case he will make no deduction. It may, however, be prudent for the PQS to remind the architect that the damages are due to the Employer - and even how much - so that the architect may be in a position to advise the Employer accordingly.
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(D) LIQUIDATED AND ASCERTAINED DAMAGES (L.A.D.)

*(Sample-Letter for Interim Valuation no. 8) *(Sample-InterimValuation no. 8) *(PAM Form 2006 (wth Qty)-Pg23-Clause22.1, 22.2) *(PAM2006-Appendix-filled)

(E) EXAMPLES OF INTERIM VALUATIONS

(See: Contract Practice fo rSurveyors(See: rSurveyors-Page220 Page220 onwards) (See: (See : also samples of Interim Valuations and Interim Claims for the local projects given)

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