Other things to consider when preparing a final account

Fluctuation is the adjustment of the contract sum as a result of compliance with the appropriate contract clause. In the JCT Form it is Clause 4.21 which in turn is dealt with by Schedule 7. (The example structure specifically excluded any adjustments with regards to fluctuations.)

The clause enables the contract sum to be adjusted due to take account of such matters as changes in:

1. Option A – Contribution, levy and tax – i.e. only adjustments as a result of legislative changes will be considered;
2. Option B – Labour, materials and tax changes – rates of labour, cost of materials and legislative changes will be considered but based only on the submissions made by the contractor. Such increases are based upon the net difference between the rates included in the tender and the amended rates as agreed between the contractor and the quantity surveyor
3. Option C – Formula adjustment – adjustment of elements of construction subject to any limitations as noted in the contract by using published indices for all construction works. The contractor and the quantity surveyor will agree the application of the indices to the monthly valuations and such computations will be added into the resultant final account as monies properly due to the contractor due to increased (could be decreased as well) costs of construction.

Note that unless the contract period is exceptionally long most contracts are entered into as 'fixed price' which means that the fluctuations clauses are struck through. In these instances no adjustment is made due to increased costs and the risk of price rises is passed over to the contractor. In practice this does not mean that no allowance is made, instead the contractor will be required to include a sum to cover for any possible increased costs. This puts the risk onto the contractor.

If a contract is intended to be 'fixed price' only then there is a clear obligation to state this within the tender documents and strike out the relevant clauses (JCT 4.21) in any contract.

Legislative changes

In circumstance where the rate of VAT has changed then, even if the contract is deemed to be 'fixed price', this would not include any legislative changes to the rate of VAT. If applicable VAT should be added to the contractor's invoices and recovery based upon the rate prevailing at the date of invoice.

Other changes to duty, for example on fuel, are more usually at the risk of the contractor on a 'fixed price' contract sum. On a contract where Clause JCT 4.21 has not been struck out then as a minimum all legislative changes to levy, contribution and taxes would be recoverable within interim valuations and ultimately within the final account.

Damages for non-completion

It is only the client who can deduct damages from any monies due. The contract administrator or quantity surveyor can and indeed should advise the client that they are able to deduct damages. The contract administrator should advise the client of the correct procedures to follow if damages are to be deducted. Failure to observe the strict contract conditions of deduction could subsequently prevent or at least complicate the matter of damages deduction.

The final account is always the final adjustment of the contract sum and must stand the test of audit as being the monies properly due to the contractor for the works correctly undertaken. Therefore the final account must stand alone as the agreement between the contract administrator or quantity surveyor and the contractor and the signed statement of final account is the document that confirms this agreement.