Last edited 12 Dec 2017

Valuation of interim payments

The Housing Grants, Construction and Regeneration Act stipulates that interim or stage payments are due to any party to a construction contract that has a duration of more than 45 days. Therefore, almost all constructions contain provisions for interim payments.

Contracts should also include clauses that detail:

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 for 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. This usually involves visiting the site and checking that the work has been carried out, either by measurement or by visual inspection.

Interim payments 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:

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:

Certain deductions might be made by the contract administrator when certifying the contractor's application for payment, such as:

The meaning of 'value', in the context of interim valuations, can be contested. According to the JCT Standard Building Contract with Quantities 2011, it refers to the 'total values of work properly executed by the Contractor'. Often the contractor's position is that they are entitled to payment for work done at the rates referenced in the bill of quantities, plus some of the preliminaries. This is the most common interpretation across the industry.

However, employers have argued that this is misrepresentative of the actual value of the work to them, which is the value of the whole contract less the cost of having to hire another contractor if the first contractor failed to complete the works. This is not a commonly accepted position.

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.

It is important to assess whether or not, within the terms and conditions of the contract, the anticipated final contract value will be sufficient to complete the remaining works. Low valuations will place unreasonable financial pressure on the contractor, whereas a high valuation will create a risk to the employer.

NB: The Housing Grants Construction and Regeneration Act sets out statutory procedures for making and withholding payments on construction contracts. See Pay less notice and Payment notice for more information.

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