Interim valuation is a pre-cursor to the issue of an interim certificate (which in turn allows an interim payment to be made). It is a detailed breakdown, generally prepared by a contractor. that constitutes an application for part payment of work undertaken since the last valuation. It is checked and signed off by the client's contract administrator who often delegates the task to a cost consultant.
Interim payments are generally used on larger projects to ease the contractor ’s cash flow. on the premise that project finance is cheaper for the client than it is for individual contractors.
The basis of the contractor ’s interim valuation (application for payment) will vary depending on the type of contract being used. Calculations can be based on:
- Activity schedules assessed 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.
Or a combination of the above.
The detailed build up of the valuation will show all work and entitlement up to the date of the interim valuation and will comprise:
- Works packages .
- Variations . These elements should only be paid after the work has been undertaken based on additional costs actually incurred, avoiding duplicate payment of concurrent costs or resources.
- Extension of time (EOT) and / or loss and expense . Payment entitlement is only due upon delay that is solely caused by the client or items of risk that fall to the client (see relevant events for more information). Concurrent delay where the contractor has part liability may lead to an extension of time and relief of liquidated and ascertained damages but not entitle the contractor to additional payment.
- Preliminaries . Set up and dismantling costs (only incurred once) and running costs such as insurance and electrical consumption (that will occur regularly), as well as staff and management costs, overhead and profit (which can amount to 50% of the overall cost of preliminaries ).
- Special payments for off-site goods and materials . Such payments might apply on large items of manufacture prior to site installation but only when such payment has been pre-agreed. Such items
might include transformers, chillers. lifts, prefabricated units or expensive cladding systems. The application must be accompanied by evidential proof (sometimes photographic), or a factory visit by the client ’s representative, a certificate of client ownership and appropriate identification labelling on the items of completed manufacture, stored separately in the factory from other materials. See Off-site goods and materials for more information.
- Acceleration costs. Sometimes acceleration agreements can be negotiated as an addendum to the contract in lieu of extensions of time caused by elements constituting client ’s risk. Such agreements will stipulate the payment provisions.
- Provisional sums . These are the substitution of agreed costs for any items in the contract documents that were provisional and therefore subject to negotiation and resolution after further and better particulars were available upon which to fix a price.
Certain deductions might be made by the contract administrator when certifying the contractor ’s application for payment, such as:
- Retention . As set out in the contract.
- Liquidated and ascertained damages . These can only be levied after the completion date has expired.
- Set off costs. The client ’s right to deduct costs it has incurred through the contractor ’s negligence such as a successful claim by an adjacent property owner for subsidence due to failure of temporary bracing of a party wall .
- Substandard or rejected work. Occasionally a client might agree a reduction in payment to reflect diminution of value rather than insisting on replacement.
The interim valuation is for all work completed, not for the work completed in that period. This means that the certified interim payment is calculated by subtracting the the previous valuation from the current valuation, less any deductions. The resulting total and retention figure are then included in the interim certificate issued to the client for payment by the contract administrator.
Under management contracts the works package contracts will be administered and valued by the management contractor or the construction manager to which the management staff costs and fee will be added prior to onward transmission to the client after sign off by the client ’s certifying authority.
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