Final Accounts and Settlement

1 month ago

Ashley

18 minutes

What Is a Final Account?

A final account is the definitive statement of the total cost of a construction project, prepared after practical completion. It reconciles the original contract sum with every financial adjustment that occurred during the works — variations, provisional sums, daywork, fluctuations, and claims — to establish the true amount due to the contractor.

The final account serves four purposes: it closes the project financially, settles all outstanding claims, provides an auditable record of expenditure, and triggers the final payment certificate that formally discharges the contractor.

Under JCT SBC/Q 2024, the quantity surveyor (or contract administrator) prepares the final account. The contractor submits supporting documentation, the QS reconciles and values the adjustments, and the contract administrator issues the Final Certificate. Under NEC4 ECC, no formal “final account” exists in the traditional sense — financial settlement is achieved through the Project Manager’s final assessment of the Price for Work Done to Date, incorporating all agreed compensation events.

This article walks through the final account process under both JCT and NEC4, including a full worked example with realistic figures, retention and defects liability mechanics, common disputes, and practical tips for getting it right.

Final Account Under JCT SBC/Q 2024

Contract Sum Adjustments

The JCT contract sum agreed at tender is adjusted throughout the project by six categories of item, each governed by specific clauses:

Adjustment Category	JCT Clause	Description
Variations	5.6	Changes in scope ordered by the architect via Architect’s Instructions (AIs)
Provisional sums	3.8	Items with uncertain scope or cost at tender, released at actual cost once defined
PC sums	—	Prime cost sums for nominated suppliers or specialists, adjusted to actual invoiced cost plus contractor’s profit
Daywork	5.7	Work that cannot be reasonably valued in advance, recorded on signed daywork sheets
Fluctuations	4.21	Price adjustments for changes in labour rates, material prices, or fuel costs (if applicable)
Loss and expense	4.20	Contractor’s recoverable costs arising from employer-caused delay or disruption

The QS’s role is to reconcile each category against the contractor’s submissions and supporting records, agree or determine the value of each item, and produce a final account statement showing the adjusted contract sum.

The Final Certificate (Clause 4.15)

The Final Certificate must be issued within the period stated in the contract particulars after both practical completion and receipt of the contractor’s final account submission. It states the total amount due to the contractor (or any deficiency) and, once issued, carries significant legal weight.

Under clause 4.15.3, the Final Certificate is conclusive evidence that the quality of materials and workmanship are to the reasonable satisfaction of the contract administrator, and that all adjustments to the contract sum have been correctly calculated. However — and this is critical — the conclusive evidence rule applies to valuation and cost, not to defective work. The employer can still pursue claims for defects discovered after the Final Certificate is issued, subject to the six-year limitation period under the Limitation Act 1980.

The case of John Laing v Arup confirmed this distinction: the Final Certificate bars challenges to the financial valuation but does not prevent the employer from claiming damages for defective workmanship discovered later.

Final Account Under NEC4 ECC

How NEC4 Differs from JCT

The NEC4 Engineering and Construction Contract takes a fundamentally different approach. There is no formal “final account” document. Instead, the financial settlement is built progressively through the compensation event mechanism, and the Project Manager issues a final assessment under clause 53 once all compensation events are determined and the Defect Correction Period has ended.

The amount due at each assessment is calculated as:

Amount Due = Price for Work Done to Date + Other amounts due − Previous payments

How the Price for Work Done to Date (PWDD) is calculated depends on the contract option:

Option	Pricing Model	PWDD Basis
A	Lump sum (activity schedule)	Completed activities from the Price List
B	Remeasurement (bill of quantities)	Measured quantities × rates
C	Target cost	Defined Cost + Fee (shared pain/gain against target)
D	Target cost (remeasurement)	Measured quantities for target, Defined Cost + Fee for payment
E	Cost reimbursable	Defined Cost + Fee (all actual costs)
F	Management contract	Cost reimbursement of subcontractor costs + Fee

Compensation Events as the Adjustment Mechanism

Where JCT uses variations, provisional sum adjustments, and loss-and-expense claims as separate categories, NEC4 consolidates all scope and cost changes into compensation events (clauses 60–65). Each compensation event is assessed for its impact on both cost and time, and the Prices and Completion Date are adjusted accordingly.

This means the NEC4 final assessment is largely the cumulative effect of all compensation events agreed or determined during the contract, plus the PWDD for the original scope. For cost-reimbursable options (C, E, F), the Project Manager must also verify the contractor’s actual Defined Cost records against the Schedule of Cost Components.

Clause 53: The Final Assessment

The final assessment under clause 53 is issued after the Defect Correction Period ends and all compensation events have been resolved. Unlike JCT’s Final Certificate, the NEC4 final assessment is not conclusive evidence of the financial position — either party can refer a dispute to adjudication or the tribunal even after the final assessment is issued.

The Project Manager has four weeks from the defects date to issue the final assessment. If the PM fails to do so, the contractor may notify the PM, and if the assessment is still not issued within a further two weeks, the contractor’s own final assessment is treated as accepted.

Worked Final Account Example

Project Overview

To illustrate the final account process, consider the following realistic example under JCT SBC/Q 2024 with Quantities:

Detail	Information
Project	Commercial office refurbishment, Central London
Employer	Commercial Development Ltd
Contractor	BuildCo UK Limited
Contract form	JCT SBC/Q 2024 with Quantities
Original contract sum	£2,850,000
Contract duration	18 months
Practical completion	15 February 2025
Rectification Period end	15 February 2026
Retention rate	5%

Original Contract Sum Build-up

Element	Amount
Structural works (preliminaries, labour, materials)	£450,000
MEP installation (mechanical, electrical, plumbing)	£650,000
Interior fit-out (partitions, ceilings, flooring)	£980,000
External works (façade, paving, landscaping)	£420,000
Risk and contingency (2%)	£95,000
Contractor’s profit and overheads (8%)	£255,000
Original Contract Sum	£2,850,000

Variations (Clause 5.6)

Four Architect’s Instructions were issued during the contract:

AI 01 — Upgrade to MEP ventilation system. The employer instructed an upgrade from standard to high-efficiency ventilation. The contractor’s quotation of £48,200 was assessed by the QS against similar ductwork rates in the original BOQ (Tier 2 valuation) and agreed. Addition: £48,200.

AI 02 — Demolition of additional internal wall. One additional non-structural wall in Phase 2 was removed, including reinstatement of the opening. Cost to remove: £12,000; reinstatement: £8,500. Addition: £20,500.

AI 03 — Reduction in external paving. The employer reduced the external paving scope for cost savings. Omission: 1,200 m² at £85/m² = £102,000, less preliminaries reduction of £18,000. Deduction: (£84,000).

AI 04 — Temporary works for adjacent occupancy. Temporary scaffold, hoarding, and dust suppression were required for six months to maintain access to an adjacent occupied building. Addition: £32,500.

Total variations (net): £17,200

Provisional Sum Adjustments (Clause 3.8)

Three provisional sums were included in the contract for work whose scope was uncertain at tender:

PS 1 — Structural remedial works (underpinning). Original PS: £120,000. The structural survey during construction confirmed pile underpinning was required to two load-bearing columns. Actual cost: £95,000 (piling) + £6,500 (testing) + £10,150 (profit and overheads) = £111,650. Adjustment: (£8,350) credit.

PS 2 — Lift installation. Original PS: £185,000. The specialist subcontractor supplied and installed the lift at a cost of £178,000, plus £4,200 testing and £8,500 preliminaries = £190,700. Adjustment: £5,700 charge.

PS 3 — Asbestos removal. Original PS: £75,000. Survey revealed asbestos in ceiling tiles and pipework. Removal: £52,000; waste disposal: £8,500; ceiling reinstatement: £18,000 = £78,500. Adjustment: £3,500 charge.

Total provisional sum adjustments (net): £850

Daywork (Clause 5.7)

DW 1 — Unforeseen structural repairs. Additional cracking discovered in load-bearing walls required immediate repair on a daywork basis. Four bricklayers for five days at £45/hour (eight-hour days): £7,200; materials: £1,850; plant (scaffold hire): £800; overhead and profit at 15%: £1,607. Total: £11,457.

DW 2 — Temporary hoarding reinstatement. High-wind damage to temporary hoarding (not contractor negligence). Three operatives for two days at £45/hour: £2,160; materials: £420; overhead and profit at 15%: £388. Total: £2,968.

Total daywork: £14,425

Fluctuations (Clause 4.21)

The contract included a fluctuation clause for labour and materials indexed to the Build Price Index. Over the 18-month contract period, the index rose from 125.0 (base date, January 2023) to 134.2 (practical completion, February 2025) — an increase of 7.36%.

Applied to the fluctuation-eligible base of £2,180,000 (labour: £1,200,000 + materials: £980,000), this produced a fluctuation adjustment of £160,448.

Fluctuations are often excluded from modern JCT contracts, but on longer-duration projects or in volatile economic conditions they remain significant. This example illustrates why — a 7% index movement on a £2.85M contract adds over £160,000 to the final account.

Loss and Expense (Clause 4.20)

Claim 1 — Employer-caused delay (8 weeks). The employer’s late decision on external cladding material delayed the programme by eight weeks. The contractor’s substantiated costs: extended site management (£33,600), plant hire extension (£20,000), welfare costs (£9,600), and loss of productivity (£25,000). Subtotal: £88,200.

Claim 2 — Disruption from late variations. Multiple variations issued late in the contract required rework and resequencing of trades. Rework costs: £18,000; productivity loss to MEP installation: £12,000; extended supervision: £6,500. Subtotal: £36,500.

Total loss and expense (agreed): £124,700

Final Account Summary Statement

Line	Description	Amount
1	Original Contract Sum	£2,850,000
2	Variations (net)	£17,200
3	Provisional sum adjustments (net)	£850
4	PC sum adjustments	£0
5	Daywork	£14,425
6	Fluctuations (labour and materials)	£160,448
7	Loss and expense (agreed)	£124,700
8	Final Contract Sum	£3,167,623
9	Less: Interim payments made	(£2,470,000)
10	Less: First retention release (at PC)	(£65,000)
11	Less: Second retention release (net of defects)	(£61,450)
12	Balance due on Final Certificate	£571,173

The final contract sum of £3,167,623 represents an 11.1% increase over the original £2,850,000. The principal drivers were fluctuations (£160,448) and loss-and-expense claims (£124,700) — the variations themselves were broadly net-neutral after the paving omission offset the additions.

Retention

JCT Retention (Clauses 4.18–4.19)

Retention is a percentage deducted from each interim payment and held by the employer as security against defective work. Under JCT SBC/Q 2024, the mechanics are:

Accumulation. Retention is deducted at the rate stated in the contract particulars (typically 3–5%) from each interim valuation. In the worked example, 5% of £2,600,000 in interim valuations produced a retention fund of £130,000.

First release. Half the retention (£65,000) is released at practical completion. This recognises that the works are substantially complete and the contractor’s exposure to defects liability is reduced.

Second release. The remaining half (£65,000) is held throughout the Rectification Period. At the end of the period — or once all notified defects have been made good, if earlier — the balance is released, less the cost of any defects the contractor has not rectified.

In the worked example, the Schedule of Defects at the end of the Rectification Period identified £3,550 of residual defects (minor finishes, door frame misalignment, roof gutter debris). The final retention release was therefore £65,000 − £3,550 = £61,450.

NEC4 Retention (Option X16)

Retention under NEC4 is not automatic — it applies only if Option X16 is included in the contract data. When it is, the mechanics are similar in principle: a percentage is withheld from each assessment, typically with a cap on the total amount retained. Release follows the same two-tranche pattern — half at Completion, half at the end of the Defect Correction Period.

One practical difference is that NEC4 retention tends to be more explicitly capped (e.g., retention at 3% with a maximum of 10% of total project value), which can improve the contractor’s cash flow compared to an uncapped JCT retention.

Retention Deposit Scheme

The UK government has proposed a Retention Deposit Scheme requiring retention funds to be held in a joint account or escrow, protecting the contractor if the employer becomes insolvent. As of 2026, the RDS remains proposed but not yet mandatory. However, some public-sector clients and professional bodies (RICS, RIBA, ICE) already recommend trust-based retention arrangements. QS professionals should monitor their client’s retention policy and, where possible, negotiate protected retention arrangements.

Defects Liability

JCT Rectification Period (Clauses 2.35–2.38)

The Rectification Period under JCT begins at practical completion and runs for 12 months (unless varied in the contract particulars). During this period:

The architect inspects the works and instructs the contractor to rectify any defects — that is, any work not in accordance with the contract. The contractor must make good defects at no cost to the employer (unless the defect arises from employer-caused damage). At the end of the period, the architect issues a final inspection and the QS prepares a Schedule of Defects listing any items not yet rectified. The cost of outstanding defects is deducted from the retention fund.

After the 12-month period, the contractor’s contractual liability for patent defects generally ends. However, latent defects — those not apparent at practical completion — can still be pursued under the general law for up to six years from the date of breach (or the date the defect ought reasonably to have been discovered). The case of Sutcliffe v Playstation confirmed that contractors cannot rely on the Rectification Period to exclude liability for hidden defects.

NEC4 Defect Correction Period (Clauses 44–46)

The NEC4 Defect Correction Period is typically shorter than JCT’s — commonly 13 weeks, though the contract data can specify a different period. The Supervisor (not the architect) notifies defects and sets a deadline for correction.

At the end of the Defect Correction Period, any uncorrected defects are assessed by the Supervisor and the cost of correction is deducted from the final payment. This is a cleaner mechanism than JCT’s — the cost is simply deducted, and the contractor is discharged. For latent defects discovered after the period, the employer’s recourse is through the general law (Limitation Act: six years from breach).

Building Safety Act 2022

The Building Safety Act 2022 introduced extended liability for defects in higher-risk buildings (residential buildings over 18 metres or seven storeys). For projects caught by the Act, the limitation period for defects in health-and-safety building elements may be extended, and retention may need to be held for longer if building safety defects are identified. QS professionals working on higher-risk buildings should factor this into their final account timelines.

JCT vs NEC4: Summary Comparison

Aspect	JCT SBC/Q 2024	NEC4 ECC
Settlement document	Final Account and Final Certificate	Final Assessment (clause 53)
Prepared by	Quantity Surveyor	Project Manager
Adjustment mechanism	Variations, provisional sums, daywork, fluctuations, loss and expense (separate categories)	Compensation events (single mechanism for all changes)
Conclusive evidence	Yes — Final Certificate is conclusive as to valuation (clause 4.15.3)	No — final assessment can be disputed after issue
Retention	Automatic (clauses 4.18–4.19), typically 3–5%	Optional (Option X16), often capped
Defects period	Rectification Period — 12 months	Defect Correction Period — typically 13 weeks
Defects notified by	Architect	Supervisor
Time for final certificate	Within period stated in contract particulars after PC and contractor’s submission	Four weeks from defects date
Latent defects	Claimable for 6 years under Limitation Act	Claimable for 6 years under Limitation Act

Common Disputes and Pitfalls

Late Submission

One of the most frequent final account disputes arises when the contractor submits their account well outside the contractual timeframe — sometimes 12–18 months after practical completion. Under JCT, the Final Certificate cannot be issued until the contractor’s submission is received, which creates a tension: the employer wants financial closure, but the contractor may delay to maximise their claim. QS best practice is to set a clear deadline for submission (typically six months post-PC), confirm receipt in writing, and issue a draft QS assessment to prompt engagement.

Incomplete Records

Claims for daywork, loss and expense, or productivity loss are routinely challenged where supporting records are incomplete. Daywork sheets lacking a supervisor’s signature, variation costs without material invoices, or time records reconstructed months after the event all weaken the contractor’s position. The QS should insist on contemporaneous documentation throughout the contract — not just at final account stage.

Variation Valuation Disagreements

Where the JCT clause 5.6 valuation hierarchy cannot easily be applied — for example, where variation work is of a different character from anything in the original BOQ — the QS and contractor may disagree significantly on the fair rate. The case of Crown Estate v John Mowlem confirmed that the QS must exercise professional judgement and can reference market rates, cost-plus-profit approaches, or rates for comparable work. Where possible, agreeing rates before work starts (the “agreeing the price before the work” principle) avoids post-completion disputes.

Conclusive Evidence Disputes

Employers sometimes assume the Final Certificate bars all further claims. As noted above, the conclusive evidence rule under clause 4.15.3 applies to financial valuation, not to defective workmanship. Any suspected latent defects should be noted in writing before the Final Certificate is issued, and the employer should reserve their position expressly.

Provisional Sum Scope Creep

Where the actual scope of work covered by a provisional sum far exceeds what was assumed at tender, disputes arise over whether the additional work is within the PS or constitutes a variation. The case of Hosier & Dickinson v P&M Kaye established that a provisional sum covers work whose nature and extent are uncertain — once determined, it is released at actual cost. The lesson for QS professionals is to define PS scope assumptions clearly in the contract documents (e.g., “underpinning: two columns, assumed depth 4 m, rock presumed absent”), so that work outside those assumptions triggers a formal variation.

Practical Tips for QS Professionals

Keep Contemporaneous Records

The single most important discipline for a smooth final account is maintaining records at the time events occur, not reconstructing them afterwards. Weekly site notes should log all instructions, variations, delays, and supply issues. Daywork directions should be issued in writing before work starts, and daywork sheets should be signed by the supervisor on the day the work is done. A variation register linking each AI to its date, scope, QS assessment, and agreed rate provides the backbone of the final account.

Agree Rates Early

The JCT contract permits the QS to request a quotation from the contractor before variation work commences (clause 5.6). Use this mechanism actively: request quotations at AI stage, assess against benchmark rates, negotiate within a week, and issue the instruction with an agreed price. This removes the largest source of final account disputes — retrospective valuation disagreements.

Reconcile Monthly

Rather than leaving the final account as a single post-completion exercise, reconcile the financial position monthly. Each interim valuation should be cross-checked against the variation register, provisional sum tracker, and daywork log. Issue a monthly reconciliation letter to the contractor summarising the cumulative position and flagging any outstanding items. This surfaces disputes early, when records are fresh, rather than months after practical completion.

Coordinate the Timeline

A well-managed final account follows a structured timeline: request the contractor’s preliminary submission three months before PC; begin the QS review one month after PC; issue the draft final account six months after PC; complete the final inspection and Schedule of Defects at the end of the Rectification Period; and issue the Final Certificate shortly afterwards. This parallel approach — running the final account concurrently with the defects period — avoids delays in financial closure.

Manage Disputed Items Iteratively

Where specific items are disputed, document your assessment clearly and invite the contractor’s response. Treat the negotiation iteratively: issue your assessment with reasons, receive the contractor’s counter-arguments, reassess where new evidence is provided, and work towards an agreed position. A clear audit trail of what was offered, challenged, and ultimately settled protects both parties and reduces the risk of adjudication.

Key Case Law

Crown Estate v John Mowlem [2001] BLR 85 — established that the QS must use professional judgement to determine a “fair” rate for variation work where no direct contract benchmark exists, supporting the cost-plus-profit approach under Tier 3 of the JCT valuation hierarchy.

John Laing v Arup / Ove Arup v Mirant — confirmed that the JCT conclusive evidence rule applies to financial valuation only and does not prevent claims for defective workmanship discovered after the Final Certificate is issued.

Sutcliffe v Playstation [2005] UKHL 41 — held that latent defects not discoverable at practical completion can be claimed within six years of discovery, and the contractor cannot rely on the Rectification Period to exclude liability for hidden defects.

Hosier & Dickinson v P&M Kaye [1972] 1 WLR 146 — established that provisional sums cover work whose nature and extent are uncertain, and once determined, the cost is released at actual value without a cap at the original provisional estimate.