UEBQ4724

Professional Practice II
LECTURE 3

Interim
Valuations
1

(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)
2

(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.
4

(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.

(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.

(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

10

(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)
12

(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
13

(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.

15

(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.
16

(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--JRamus(Notes
JRamus-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)

17

(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--JRamus(Notes
JRamus-Chapter12
Chapter12--InterimValuation)
(Sample - progress claim Clm17
Clm17))
18

(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--JRamus
(Notes
JRamus--Chapter
Chapter12
12--InterimValuation)
(PAM Form 2006 (wth Qty)Qty)- Pg
Pg15
15--Clause 11
11..9)
(Sample - progress claim Clm17
Clm17))

19

(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--JRamus(Notes
JRamus-Chapter12
Chapter12--InterimValuationInterimValuation-Pg
Pg177
177))
(Sample--Interim Val.
(Sample
Val. No.
No. 10
10))
20

(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--Interim Val.
(Sample
Val. No.
No. 10
10))

21

(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--JRamus(Notes
JRamus-Chapter12
Chapter12--InterimValuationInterimValuation-Pg
Pg180
180))

(Sample--Interim Val.
(Sample
Val. No.
No. 10
10))

22

(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--JRamus(Notes
JRamus-Chapter12
Chapter12--InterimValuationInterimValuation-Pg
Pg181
181))

(PAM Form 2006 (wth Qty)Qty)-Pg

Pg37
37--Clause 30
30..5)
(Sample--Interim Val.
(Sample
Val. No.
No. 10
10))

23

(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--JRamus(Notes
JRamus-Chapter12
Chapter12--InterimValuationInterimValuation-Pg
Pg183
183))

(PAM Form 2006 (wth Qty)Qty)-Pg

Pg36
36--Clause 30
30..1)

24

(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.
25

(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:: also samples of Interim Valuations and Interim Claims for
(See
the local projects given)

----- THE END ----26