Final settlement
Final settlement refers to the resolution and closure of all financial matters and claims between contracting parties upon the completion of a construction project.
It typically involves:
- Agreement on the final cost of the project (final account), including all variations, adjustments, and claims. It covers the total amount due to the contractor, considering all works carried out, approved variations, and any other contractual adjustments.
- Any outstanding claims or disputes between the client and contractor. This includes issues related to delays, defects, and any additional costs incurred.
- The final payment due to the contractor. This amount reflects the final account and any deductions for liquidated damages, defects rectification, or other contractual penalties.
- Release of retentions, a portion of payments retained by the client to ensure completion of the works and remedy of defects. Upon final settlement, these retentions are typically released, often after a defects liability period has passed.
- The issuance of certificates, such as the Practical Completion Certificate and the Certificate of Making Good Defects, formally acknowledging that the project has been completed to the required standards and that any identified defects have been rectified.
Final settlement marks the end of the contractual relationship in terms of financial obligations, ensuring no further claims can be made post-settlement, provided no latent defects or fraud is involved. Final settlement is crucial as it ensures both parties have a clear and agreed-upon understanding of the project's financial outcome, providing financial certainty and closure.
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