1. Professional Practice 2
QSB 3614
Lecturer: Sr. Lim Sek Cheon
Date: 30th October 2017
Name: Chin Weng Lok | 0323583
Hazim Bin Abdul Aziz | 0315773
Koh Wen Qi | 0323355
Leong Karr Khei | 0324362
Michael Chang Vui Loong | 0319198
Than Lek Mei | 0315538
2. Table of contents
Page No.
Question 1
Introduction 1
Definitions 2
Final Account Procedure 3
Adjustment of the essential elements in preparation of the Final Account 4-7
Implications of Omission of Provisional Sum 8
- From the Employer’s perspective 9
- From the Contractor’s perspective 10
Conclusion 11
Question 2
Final Account 12
Supporting Details of Final Account 13-14
Question 3
Question A 15
Question B 16
Question C 17
Question D 18
4. Page | 1
Introduction
This report briefly explains the procedures that are commonly involved in preparing a Final
Account for most construction projects, which includes adjustments on necessary elements that would
likely affect the overall contract sum.
The intention of this report is to determine the significance and implications to omissions in the
scenario where a Quantity Surveyor forgets to put in an item to be included in the Provisional Sum.
Generally, the scenario of the situation mentioned is that there were no details provided for the
apartment entrance arch with guardhouse despite the drawings that were included, in which the Contract
has already been awarded.
Furthermore, this report will also include the definitions, procedures, as well as the necessary
adjustments of the essential elements involved when preparing a Final Account.
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Definitions
Final Account
A Final Account is a financial document that states the final value of works done by the contractors and
nominated subcontractors. According to the PAM form 2006 under clause 30.10, it is a document stating
necessary adjustments to be made to the overall Contract Sum. Generally, after 6 months upon practical
completion of works of a project, the contractor would send all necessary documents to the architect and
consultant for the preparation of final account.
Provisional Sum
A Provisional Sum is basically the sum of money to be inserted into a tender document for works that have
not been specified yet during the tendering process. It plays a role as an allowance for unforeseen
circumstances.
Prime Cost sum
Also known as a P.C. sum, the prime cost sum is the sum of money provided in the tender document for
works or services to be done by the Nominated Subcontractor or Nominated Supplier.
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Final Account Procedure
The PAM form 2006 under clause 30.10 briefly defines final account as well as the essential
procedures involved in preparing the final account. Generally, after 6 months upon practical completion of
works of a project, the contractor would send all necessary documents to the architect and consultant, in
which they will be doing the necessities in preparing a final account. In this clause, it is further understood
that the final account must also include documents in relation to the accounts of the Nominated
Subcontractors and Suppliers.
In cases where there are delays that were presumably caused by the contractor, it is tolerable for
the period for the completion of final account to be adjusted. If the contractor fails to submit all the
necessary documents within the given time limit, Architect and Quantity Surveyor shall carry on with the
procedure of Final Account based on information in hand. It is important to note that the contractor is
required to submit his own final account, followed by the Nominated Subcontractors’ or Suppliers’.
Having said the above, the procedures involved in Final Account can be cumbersome as it is time
consuming. With this in mind, it is most sensible for the Quantity Surveyor to consider with the Contractor
a systematic programme and procedure for measurements so that it can be agreed upon gradually, in
order to avoid unnecessary disputes between both parties.
According to clause 30.10(a) of the PAM form 2006, it states that in cases where there is nothing
to dispute on between the Employer and Contractor, after 3 months from the date the final account was
received, it shall be deemed conclusive and agreed by both parties.
Moreover, according to clause 30.10(b) of the PAM form 2006, it briefly states that if there are
any disputes between the parties, the party disputing is allowed to set out the disagreement complete with
the particulars stating the details and reasons. It is to note that said disputes are to be set out within 3
months after the receipt date, and has to be in written form. Failure to settle the disputes to the arbitration
within the 3 months will result in the final account to be deemed agreed between both parties.
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Adjustment of the essential elements in preparation of the Final Account
Final Account is a financial document indicating the final contract value or final construction cost
of a project. There are various essential elements which constitute a complete Final Account. The
relevant elements are stated below:
1. Variation works (Clause 11.6)
2. Remeasurement of Provisional Quantities (Clause 11.6(f))
3. Omission of Prime Cost and Provisional Sum (Clause 30.11(c))
4. Adding-back of Nominated Sub-Contractor’s and Nominated Supplier’s final accounts (Clause
30.11(c))
5. Adjustment of Profit and Attendance for Prime Cost Sum (Clause 30.11(c))
6. Adjustment of Provisional Sum based on actual expended and omitted if not expended (Clause
30.11(d))
7. Additional Expenses Claims (Clause 11.7)
8. Loss and Expense Claims (Clause 24.4)
The first crucial element in the Final Account falls under Clause 11.6 in PAM Contract 2006,
which is variation works. The term “Variation” means the alteration or modification of the design, quality
or quantity of the works. It is important to know how to access the variation works. Firstly, it must fall
within the meaning of a variation contemplated by the contract under Clause 11.1. If the variation falls
under Clause 11.1, we can proceed to the Clause 11.6 of PAM2006 which is the six (6) rules to be
applied in 6 different situations.
Clause 11.6(a) states that contract rates and price shall be used for the variation under the
conditions the work must be of similar character; and it is executed under similar conditions; and no
significant change in the quantity of work.
In Henry Boot Construction Ltd v Alstom Combined Cycles (No.1) (2000), the English Court of
Appeal held that the rates and prices in the contract shall be given full effect notwithstanding that the
contractor has made a mistake in his tender. Only in cases of change in character or conditions under
which the work is been executed or significant change in quantity, then the rates and prices can be
adjusted under Clause 11.6(b) or (c).
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Clause 11.6(b) can be applied when the work is with similar character but it is not executed
under similar conditions or there is significant change in the quantity of work. This clause expressly
states that the contract rates and price shall be used but with fair adjustment to the rates for the
difference. If the original BQ price wrongly, we don’t take into consideration and just pay according to our
assessment for the difference.
Fair market rates and prices which determined by the quantity surveyor shall be used for works
of not similar character, under Clause 11.6(c). Works of not similar character means there are no such
item in the BQ. Contractor need to show the causal link and provide details of original cost against cost of
varied work. Contractor can use either cost-plus basis or fair market rate and price. Cost plus basis,
which is the cost obtained from the quotation plus few percentage of profit.
Clause 11.6(d) expressly states that daywork rates or actual cost plus 15% shall be applied
when the work cannot be properly measured and valued. The other situation when deals with works that
is omitted which includes reduction in quantities, contract rates and price can be used for omissions
according to Clause 11.6(e). If the omission substantially varies the conditions under which the remaining
works are to be carried out, the price of the remaining items shall be values under Clause 11.6(a), (b)
and (c). The last rule under Clause 11.6(f) states that provisional quantities in the bills shall be re-
measured based on the actual quantities executed and valued based on the BQ rates and prices.
Variation works is very time consuming due to many negotiations between the consultant QS
and contractor. So, it is better to be discussed periodically during the construction period but not wait until
the project ends.
In addition, remeasurement of provisional quantities is also one of the adjustment in
preparation of the Final Account under Clause 11.6(f) in PAM Contract 2006. Provisional quantities often
used when exact quantity cannot be measured, such as piling works and earthwork. In piling works, the
exact soil profile is difficult to be determined, so pile length is assumed initially. Remeasurement of the
provisional quantities is a must after received the as-built drawing.
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Prime Cost Sums are basically the sum of specialist works carried out by Nominated Sub-
contractors, such as mechanical and electrical works. Provisional Sum is the sum of work done either by
third party or main contractor with no detailed drawing provided, such as landscaping works. It is
important to noted that prime cost sums normally inclusive of profits and attendance whereas provisional
sum is not. Prime cost sums and provisional sum shall be omitted from the final account based on
Clause 30.11(c) in PAM Contract 2006. This is because the prime cost sums and provisional sum that
coated in the tender documents only act as estimated allowance, which are subjected to changes.
After nominated sub-contractors or nominated suppliers are awarded, only adding-back the
nominated sub-contractor’s and nominated supplier’s final accounts. Every nominated sub-
contractors and nominated suppliers need to submit their final accounts together with the pro-rata
amount for profit. It is important that all quantities shall be obtained from the as-built drawing.
The next adjustment is profit and attendance for prime cost sums. Profit is normally in
percentage basis where the more work we done, the more profit we can get. It can be adjusted based on
the amount of final work done. However, attendance is a fixed amount or lump sum amount to coordinate
the nominated sub-contractor’s works. Examples of attendance are general lighting, general hoisting
material and general power supply. No matter the price is high or low, the lighting, hoisting material and
power supply still need to be provided, so attendance is not subjected to changes.
Furthermore, a complete Final Account should include adjustment of Provisional Sum based
on actual expended and omitted if not expended, under Clause 30.11(d) in PAM Contract 2006.
Provisional Sum is for works that lack of design, details, specifications but still need to be carried out
within the project. Adjustment of provisional sum during the Final Account is essential because the sum
that coated in Contract Document is not accurate. It should be measured based on all the actual
expended of Provisional Sum by the Contractor. For the unexpended Provisional Sum, such amount
shall be deemed to omit from the BQ.
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The following essential element of the Final Account is additional expenses claims which
stated under Clause 11.7 in PAM Contract 2006. The objective of this clause is to enable the Contractor
to be compensated as part of the cost of variations, for the additional expenses he has incurred carrying
out the Variation and for which he would not be compensated under Clause 11.6. On the other hand,
contractor can claim loss and expenses for Variations under Clause 24 of PAM Contract 2006. These
two clauses are similar but need to take note that double claim is not allowed.
Last but not least, loss and expense claims under Clause 24.4 in PAM Contract 2006 is also
one of the important element in preparation of final account. When there is default by the employer and
contractor incurred loss, contractor has the right to claim for loss and expense under this clause. If both
employer and contractor agreed to the amount of loss and expense, it will be added under contractual
claim in final account but it will not be subjected to retention sum.
However, there are three (3) elements which shall be excluded from the Final Account
based on Clause 30.11(e) to (g) in PAM Contract 2006. The first element is any liquidated damages
imposed under Clause 22.1. The second element is set-off by the Employer under Clause 30.4 and lastly
is interest payable by either of the party to the other party under Clause 30.17. These three elements are
contractual issues between employer and contractor, so employer is the one who make decision, we as a
quantity surveyor only certify work done. These three elements are not work carried out so they are not
part of the Final Account.
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Implications of Omission of Provisional Sum
Before implicating the omitted items in the Provisional Sum, it is important to note the conditions as below;
- The omitted work is regarding the provisional sum for the apartment entrance arch with
guardhouse
- The drawings were included
- However, the details of the drawing were not provided
- Works were presumably excluded from the Bills of Quantities
- Such work was not included in the provisional sum
- Various assumptions were made
It is also important to consider the viewpoints of each party on the matter and the remedies or course of
actions that are available.
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From the Employer’s perspective
There are many ways to implicate omissions of provisional sum, however it all depends on the scenario
and timing. From this, we can divide said scenarios into two, which are during the pre-tendering phase and
the phase on which after the contract has already been awarded.
Pre-tender Phase;
During the pre-tendering phase, if the Quantity Surveyor unintendedly omit some items that make
up to the provisional sum, say for example, the provisional sum for entrance arch with
guardhouse, it is implying that said particular sum is not included in the overall contract sum.
This, in turn, will somewhat defect the cost estimate and cost control process of the project, as
the estimate is now inaccurate, which leads to further adjustments and delays. This would also
affect the client’s decision on whether to proceed with the project.
Post-contract Phase;
If the omission were only discovered much later, say, during the phase after the contract has
already been awarded, the employer has two options in order to overcome this situation. The first
option is to enter into a separate contract, where the omission will be included there instead.
However, it is also important to note the drawbacks on using this option as a remedy, as it is time
consuming and costly.
Other than that, the second option the employer has in order to overcome this situation where the
omission were discovered after the awarding of the contract, is to treat said omission as a
variation, in which it can be with regards to clause 11 of the PAM form 2006. However, going with
this option, the employer will also experience some drawbacks, in which the contractor is able to
claim for Extension of Time, as well as the employer not being able to impose liquidated damages.
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From the Contractor’s perspective
Tender Phase;
During the tender stage where the contractor might have gone through the document had then in
some way, noticed that there were some omissions in the Provisional Sum, the contractor may
shortly inform the Quantity Surveyor on the matter. After consenting, the Quantity Surveyor may
consider coming up with a revised version of tender. It is important to prevent such omissions
from occurring as it will affect the overall duration of the project.
The omission of the apartment entrance arch with guardhouse or other similar elements from the
Provisional Sum will impact the work program and completion dates, especially, the entrance
arch, as it plays a big role in the aesthetic aspects of the project.
If, say, the contractor is to make a claim, having recognized that he did the works unknowingly,
he will be entitled to claim for Additional Expenses, which can be related to clause 11.7 of the
PAM for of contracts 2006. Although, he is required to give a written notice regarding his intention
to the Architect. According to the PAM form clause 11.9, the amount will be added to the overall
Contract Sum, as soon as the architect ascertained the claim.
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Conclusion
Adjustment of the eight (8) essential elements mentioned above in preparation of the Final
Account is a must. After these steps are followed, only the final contract value in Final Account can be
established accurately.
Besides, it is important to capture all elements into the tender document including items where
no details were provided. This is to avoid any consequences to both employer and contractor. Moreover,
the quantity surveying consultant firm which make mistake like the situation in question 1 may suffer loss
not only in monetary but also reputation.
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Project:
Employer:
Contractor:
Original Contract Sum
Less: P.C & Provisional Sums
Total Builder's Works
Add: Variation Works (V.O Nos. 1-4)
Total Additions
Total Omissions
Net Additions
Add back: NSC's final account
Lift Services
Air Conditioning Services
Electrical Services
Provisional Sums: Entrance Porch
Profit and Attendance:
a. Profit @2% of RM5,650,000.00
b. Attendance
Contractual Claims:
Additional Expenses: Insurance premium
FINAL CONTRACT VALUE 46,318,000.00
224,000.00
10,000.00 10,000.00
5,650,000.00
113,000.00
111,000.00
40,434,000.00
1,500,000.00
1,000,000.00
1,050,000.00
5,650,000.00
2,100,000.00
39,830,000.00
FINAL ACCOUNT
RM RM
47,700,000.00
7,870,000.00
1,800,000.00
1,196,000.00
604,000.00 604,000.00
224,000.00
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Project:
Employer:
Contractor:
Variation Orders
Main Contractor
i. Changes of toilet layout to suit
Employer's requirements
ii. New lift lobby at entrance
iii. Changes from premix roads to
precast concrete paver blocks
iv. Omission of glass partitions
SUPPORTING DETAILS OF FINAL ACCOUNT
Description Addition Omission Net Value
RM RM
400,000.00
200,000.00
(96,000.00)
300,000.00
400,000.00
1,100,000.00
200,000.00
900,000.00
96,000.00
RM
604,000.001,800,000.00 1,196,000.00TOTAL
100,000.00
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Project:
Employer:
Contractor:
Nominated Sub- Contractor works
i. Lift Services :
Profit @ 2% 30,000.00
Attendance as item 34,000.00
ii. Air Conditioning Services :
Profit @ 2% 20,000.00
Attendance as item 24,000.00
iii. Electrical Services
Profit @ 2% 42,000.00
Attendance as item 32,000.00
Provisional Sums : Entrance Porch
Profit @ 2% 21,000.00
Attendance @ 2% 21,000.00
Contingency Sum
SUPPORTING DETAILS OF FINAL ACCOUNT
1,700,000.00
34,000.00
34,000.00
1,200,000.00
Description
1,500,000.00
1,000,000.00
Original P.C & Provisional Sums NSC's final account
RMRM
2,100,000.00
5,874,000.00
1,050,000.00
1,920,000.00
1,270,000.00
7,870,000.00
1,600,000.00
32,000.00
24,000.00
24,000.00
32,000.00
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Question 3.
Explain the basis on how the following variations may be finalised and priced during the Final Account
stage:
A. Relocation of an already installed timber door including sealing up the wall opening. Agreed at
the site meeting for Contractor to claim based on Dayworks for labour, material and plant.
Regarding the scenario given above, it is an additional Variation Works of relocation of an
installed timber door in accordance to Clause 11.1(a). According to Clause 2.1, the Contractor shall
subject to Clauses 2.2 and 2.3 forthwith comply with all instructions issued to him by the Architect in
regard to any matter in respect of which the Architect is expressly empowered by these Conditions to
issue instructions.
As it was agreed at the site meeting that the Contractor is entitled to claim based on Dayworks
for labour, material and plant, the valuation rules to be used for this addition works shall be Clause
11.6(d).
Hence, the labour, material and plant cost shall be evaluated using the daywork rates in the
Contract Documents in accordance to Clause 11.6(d)(i). Clause 11.6(d) further states that the Contractor
shall record the time spent daily upon the work and the workers’ names and the machine used. This record
shall be signed by the Site Agent and verified by the Site Staff and shall be delivered to the Architect and
Quantity Surveyor at weekly intervals with the final records delivered not later than fourteen (14) Days after
the work has been completed. If there are no such daywork rates in the Contract Documents, at the actual
cost to the Contractor of his materials, additional construction plant and scaffolding, transport and labour
for the work concerned, plus fifteen (15) percent, which percentage shall include for the use of all tools,
standing plant, standing scaffolding, supervision, overheads and profit in accordance to Clause 11.6(d)(ii).
This addition of items shall later be included in Final Account. Any adjustment made to the
Contract Sum shall be included in Final Account in accordance to Clause 30.11(a).
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B. Contractor need to provide computer equipment in the Preliminaries section but item was left
unpriced, i.e. BQ item was left blank in the rate/amount column in the contract document.
Subsequently, this item was omitted by the Architect.
Generally, when an item is left unpriced in the Preliminary section in the contract document, it shall be
deemed that the contractor has included the expenses of that item elsewhere. Hence, the employer has
the right to omit out the item of the computer equipment as per Architect's Instruction (AI). According to
PAM Contract 2006 (With Quantities) clause 11.6(e), omission of BQ items is allowed and the rates in the
Contract Documents shall determine the valuation of items omitted.
Since the computer equipment are left unpriced in the Preliminary section in the contract document
upon the agreement of contract. Thus, this situation can be referred to clause 11.6(c) if the Employer wants
the Contractor to provide computer equipment. Clause 11.6(c) states that where work is not of a similar
character to work as set out in the contract documents, the valuation shall be at fair market rates and prices
are to be determined by the Quantity Surveyor. Meaning to say that the item of the computer equipment
that should be provided by the Contractor shall be omitted and the cost of the computer equipment shall
be determined by the Quantity Surveyor with the fair market price or agreed rates by both the Employer
and the Contractor.
As for this computer equipment item, which is not priced in Preliminary Section and omitted by the
Architect, will be an additional item as a variation as defined in Clause 11.1(a). The price of this particular
item shall be determined by fair market rates and prices determined by the Quantity Surveyor in
accordance to Clause 11.6(c).
However, since the computer equipment item has omitted by the Architect, meaning to say the
Employer no longer require the Contractor to provide such computer equipment. Thus, there will be no
additional Variation Works.
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C. A wash trough as required and priced in the Preliminaries section was not constructed due to
site constraints imposed later by the Employer. However, the vehicles leaving the site during
construction were always kept clean including the public roads using water jet washing and full-
timed workers.
In this case, assuming that the Contractor has received Architect’s Instructions (AI) on omitting
wash trough due to site constraint, the Contractor has to comply with the AI issued in accordance to PAM
Contract 2006 (With Quantities) Clause 2.1.
Omission of work which falls under Clause 11.1(a), the omission of wash trough complies with
the definition of Variation. Since the price of the wash trough is priced in the BQ of the Contract Documents,
the valuation rules to be used for this omission work shall be Clause 11.6(e). Clause 11.6(e) states that
the value of wash trough that will be omitted shall be the same as the price stated in the Contract
Documents.
However, the additional work of using water jet washing for cleaning purposes also is a variation
work according to Clause 11.1(a). The water jet washing is required to maintain the cleanliness of vehicles
and public roads due the absence of wash trough. In accordance to Clause 11.2, Architect may issue an
AI sanctioning any Variation made by the Contractor. The valuation rule stated in Clause 11.6(d) where
work cannot be properly measured, daywork rates in the Contract Documents shall be allowed (Clause
11.6(d)(i)).
The labour cost shall be evaluated using the daywork rates in the Contract Documents in
accordance to Clause 11.6(d)(i). Clause 11.6(d) further states that the Contractor shall record the time
spent daily upon the work and the workers’ names and the machine used. This record shall be signed by
the Site Agent and verified by the Site Staff and shall be delivered to the Architect and Quantity Surveyor
at weekly intervals with the final records delivered not later than fourteen (14) Days after the work has been
completed. If there are no such daywork rates in the Contract Documents, at the actual cost to the
Contractor of his materials, additional construction plant and scaffolding, transport and labour for the work
concerned, plus fifteen (15) percent, which percentage shall include for the use of all tools, standing plant,
standing scaffolding, supervision, overheads and profit in accordance to Clause 11.6(d)(ii).
These omission and addition of items shall later be included in Final Account. Any adjustment made
to the Contract Sum shall be included in Final Account in accordance to Clause 30.11(a).
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D. Mistake was made in the price for excavation through rocks at RM 15 per m3. Item was not
rationalised during contract documentation. However, original quantity in BQ is 100 m3 but re-
measured quantity is 2,000 m3. The Contractor submitted a claim for revised rates of RM 150 per
m3 for the total quantity of 2,000 m3.
It is assumed that the quantity for rock excavation is provisional. Entitlement of the claim on loss
and expenses referring to PAM Contract 2006 (With Quantities) Clause 24.1, where the regular progress
of the Works or any section of the Works has been or is likely to be materially affected by any of the matters
expressly referred to in Clause 24.3. Whereas in Clause 24.3(k) states that Provisional Quantity in the
Contract Bills which in the opinion of the Architect is not a reasonably accurate forecast of the quantity of
work required. This clause complies with the case as the original quantity in Contract Bills has 1900 m3
difference with the re-measured quantity. The Contractor would require additional cost for transportation
of materials, rescheduling of work programme and etc. Thus, the Contractor is entitled to claim on loss and
expense.
Firstly, the Contractor shall give written notice to the Architect of his intention to claim for such
loss and/or expense together with an initial estimate of his claim duly supported with all necessary
calculations in accordance to Clause 24.1(a) & (b). According to Clause 24.4, the amount of loss and
expense shall be ascertained by the Architect or Quantity Surveyor and then added to the Contract Sum.
Any adjustment to the Contract Sum shall be included in Final Account in accordance to Clause 30.11(a).
According to Clause 11.6(f), it states that re-measured actual quantities shall be valuated based
on the rates and prices in the Contract Documents. Hence, the Contractor will not be entitled to claim 100
m3 with the revised rate according to Clause 11.6(f). Furthermore, in accordance with Clause 13.1, that
any errors in prices and rates shall be rationalised before signing of the Contract. The Employer and the
Contractor shall agree on all the rates and prices in the Contract Bills upon signing of the Contract.
The additional 1900 m3 of rock excavation shall be a variation in accordance to Clause 11.1(a).
Clause 11.6(b) allows for adjustment in the rates but it is not suited for this case as this clause does not
take account in error of rates not being rationalised. In order to claim for the revised rate, the Contractor
may claim for additional expense according to Clause 11.7, provided that the Contractor fulfils the
requirements stated in Clause 11.7(a) & (b).
The variations and additional expenses claims submitted by the Contractor for the additional 1900
m3 of rock excavation shall be added to the Contract Amount as stated in Clause 11.9. This adjustment of
Contract Amount shall be part of the Final Account in accordance to Clause 30.11(a).
