Advanced payment & Valuations

Question 1

886 What are advanced payments?

Answer 1

Payments issued to the contractor in advance of completing the work or procuring materials.
The usual rationale is for this payment to assist the cash flow required to cover initial expense. A typical example would be procurement of items with long lead times
This is money that is usually given to the contractor to place orders for long lead items. Usually done early in a project and is done to avoid delays while not financially disadvantaging the contractor.

Question 2

887 What are the key disadvantages?

Answer 2

• Puts the Clients money at risk if the contractor goes into liquidation
• Effects the Clients cash flow
• An advanced payment bond is often required
• The contractor not being able to fund the purchase may indicate potential cash flow, poor credit or other financial issues

Question 3

887 What are the key disadvantages?

Answer 3

• Puts the Clients money at risk if the contractor goes into liquidation
• Effects the Clients cash flow
• An advanced payment bond is often required
• The contractor not being able to fund the purchase may indicate potential cash flow, poor credit or other financial issues

Question 4

888 Assuming the employer is happy to proceed with the advanced payment, what measures could you put in place to protect the employers commercial risk?

Answer 4

• An advanced payment bond should be requested
  If the advanced payment is being given to the contract to help out with a large start-up cost, then the terms of the repayment of this need to be written into the contract

Question 5

889 What is an interim valuation?

Answer 5

This is a document that is put forward by the contractor which contains their progress against each of the work elements. The interim valuation involves a revaluation of the whole work, not the work done since the last interim certificate or payment notice was issued. The document acts as a precursor to issuing the next interim payment certificate.

Question 6

890 What are the main elements for an interim valuation?

Answer 6

*JCT - Loss and expense, adjusted provisional sums, EOT and acceleration

Question 7

891 How would you assess the interim valuation?
Visit site and check the work that has been claimed for is complete. Depending on the type of contract being used check that it is defect free. Also depending on the contract check the defined cost records to make sure they match the costs claimed. Check for materials on and off site. Remove any costs that are disallowable under the contract/framework. When this is done discuss the recommendation with the contract administrator.

Question 8

892 What are the implications of overvaluing or undervaluing the works?
Overvalue: You expose the Client to undue financial risk. If you pay for works that are not yet complete and the contractor goes bankrupt it may be difficult to get the money back.
Undervalue: You may put the contractor under undue financial strain. If they contractor is actually due the money. Under NEC they may be able to make a claim for the interest lost on the late payment of the money so could end up costing the Client more money.
In either case I could expose myself to a professional negligence claim. I am obliged to act impartially and make a realistic assessment.

Question 9

890 What are the main elements for an interim valuation?

*JCT - Loss and expense, adjusted provisional sums, EOT and acceleration

Answer 9

Question 10

893 What would you do if the contractor claims for paint in their first valuation?

Answer 10

Assuming the project is a new build property I might suspect the contractor is frontloading. I would check during my site visit if any painting has been carried out and adjust my valuation accordingly.

Question 11

894 What should you consider prior to valuing materials offsite?

899 What is a variation?
This is a change to the scope of the works as defined in the contract by either way of addition, change or omission. Under NEC this is referred to as a project managers instruction to change the scope (NEC4) under clause 60.1.(1)

Answer 11

Subject to contract requirements
* Request a vesting certificate
* Check that insurances is in place until the materials reach site
* Ask for evidence that materials (stored off site) are clearly marked for the project and are set apart from other materials
* Check if a material offsite bond has been provided

Question 12

895 What needs to be in place to make a payment for materials Onsite?

Answer 12

Adequately protected, covered by the project insurance, are onsite within a reasonable period from when they are actually needed.

Question 13

896 What is a vesting certificate?

Answer 13

This is a certificate or agreement for goods or materials in letter form that confirms ownership of the goods or materials will be transferred from one party to another when payment has been made.

Question 14

897 What does the term “payment on account mean” (374)

Answer 14

This refers to a payment for an item of work (or materials) for which no instruction has been issued but one is anticipated.
This is also used by QS for any item in a valuation that cannot be agreed under contract rules but both sides agree that some payment is due.

Question 15

898 Can you explain the term “daywork”?

Answer 15

This is work that is carried out on a value per day basis. It is used for smaller items of work where it is unclear about the duration the work will take. The amount of labour, plant and material is recorded and paid accordingly.

Question 16

899 What is a variation?

Answer 16

This is a change to the scope of the works as defined in the contract by either way of addition, change or omission. Under NEC this is referred to as a project managers instruction to change the scope (NEC4) under clause 60.1.(1)

Question 17

900 What is the information normally shown on a payment certificate?

Answer 17

Question 18

901 What happens if the employer fails to pay the amount due on the payment cert before the final date for payment?

Answer 18

Under the Local Housing Grants Construction and Regeneration Act 1996 and later the Local Democracy Economic Development and Construction Act 2009 the contractor may:
* Issue a notice to the Client that they will suspend the works in 7 days if payment is received
* That any reasonable cost incurred because of the stoppage is recoverable from the Client
* If the contractor suspends the works that it also suspends his obligations under the contract
* Interest may be due for the late payment

Question 19

902 What is a payless notice?

Answer 19

The purpose of a payless notice is to give the paying party the right to pay less than/ withhold all or part of the notified sum.

Question 20

903 What are the employers’ obligations if they wish to withhold the notified sum but fail to issue a pay less notice.

Answer 20

In this situation the employer must make the payment against the notified sum. Even if they have a valid challenge to the amount

Question 21

905 What is the timeline for payment under NEC4?

Answer 21

On an unamended contract:
* Day 0 – Assessment date
* Day 7 – Interim certificate issued
* Day 21 – Final date for payment

Question 22

906 What are the usual components of a final account?

Answer 22