BY
FASIPE, ENIAYEJU .O. (ARC/07/0958)
MAY 2013
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Valuation and certification are two processes that corroborate each other with respect to building construction project in Nigeria and to this effect they cannot be separated from each other because one process leads to the other. Valuations and certification are often times issued monthly in accordance to the progress of work on site. The focus of this paper is to examine some salient issues with respect to valuation and certification of building projects in Nigeria.
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TABLE OF CONTENTS
Title page 1
Abstract 2
Table of contents 3
1.0 Introduction 4
2.0 Valuation of building works
2.0.1 Accuracy
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2.0.2 Date
2.0.3 Extent of measurement
2.0.4 Preliminary items
2.0.5 Nominated subcontractor
2.0.6 Unfixed materials on site
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2.1 valuations on insolvency
2.2 valuations of variations
2.3 Interim valuations
3.0 Certification and payment
3.1 Certificate issue under building contract
3.1.1 Interim certificate `
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3.1.2 Practical completion certificate
3.1.3. Final completion certificate
3.2 Interim certificate and valuation
4.0 Conclusion and recommendation
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1.0 INTRODUCTION
Building construction project span across various discipline and profession such as
Architecture, Engineering, planning, surveying, project management, estate management and property valuation. It is an activity that brought together all building professionals to function under one umbrella industry known as the building construction industry. The building construction operation involves a lot of processes, procedures and activities of which valuation and certification happens to be part. Valuation is pre-requisite to certification especially when it relates to method of payment to main contractor and it is often done monthly or in stages as the case may be jointly by the quantity surveyor and the contractor by measuring physically work carried out on site and material supplied, then work done and material supplied are cost against the rate and schedule in the bill of quantities (BOQ). To this effect, the architect or the contract
Administrator issues a certificate known as the interim certificate for the amount due with respect to the main contractor’s payment. The issuance of the interim certificate (certification of work done so far for payment) is the certification aspect that comes after the valuation. In addition, methods of valuation and major certificate issued under building contract project will also be examined in this term paper.
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2.0 VALUATION OF BUILDING WORKS
As stated earlier, building valuation is jointly carried out by the quantity surveyor and the main contactor based on work done and service of labour engaged as well as material, plants and equipments supplied to the construction site either monthly or on basis of stages of work progress. In the cause of a major building contact, an Architect or contract administrator is invariably called upon to issue a series of certificate which must be issued in accordance with the provision of the particular contract. In so doing, the Architect is under a duty imposed by law to act fairly and impartially between the parties. Where a valuation certificate is required by the contract, and certainly under JCT 80, its issue is a condition precedent to payment. If the certificate is improperly withheld, particularly if the delay arises from any action by the employer, entitlement to payment may be enforced in the absence of the requisite certificate. In preparing valuation, there are some cogent items that must be put into consideration so as to achieve a realistic valuation. Such items include accuracy, date, and extent of measurement.
Others include preliminary items, nominated subcontractors, and unfixed materials on site.
2.0.1 Accuracy
The valuation for certificate should be made as accurate as possible. The contractor is entitled under the contract to value of the work done less a specified retention sum. If the valuation is kept low the retention sum is in effect excessive. To contractor having a number of contracts in hand, these excessive margins will mount up and demand additional capital. However, the client must be prompted against the possible insolvency of the contractor, when the client might have to meet extra expenses in employing another contractor to complete the work.
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2.0.2 Date
If, as is often the case, the contractor is entitled to certificate monthly, it will be found convenient to arranged the date at the beginning of the contract: say, the last Friday of every month. Sometime the date must be fixed to suit the client’s convenience, particularly when payment is to be passed at a board or committee meeting held at fixed intervals, as every effort should be made to reduce the interval between valuation and payment. It helps if the contractor submits a valuation statement, but the responsibility is that of the surveyor. Nominated subcontractors should be notified by the main contractor of the dates of valuation and be required to submit statement by those dates.
2.0.3 Extent of Measurement
The extent to which measurement will be necessary in making valuation for certificate will depend on the nature of the job and the stage it has attained. It may very often be possible to take the priced bill, identify the items that have been done, and to build up a figure in that way. Some item will, of course be partially done, and in that case a proportion will have to be allocated. At a first valuation, for instance, there may be a little done beyond foundation, and to identify the appropriate items in the bill should not be difficult. If it is agreed that the foundation is two-third complete, then the amount can be easily calculated. When, however, it comes to the superstructure it may be necessary to take approximate measurement, floors and roofs. In some cases, to take measurements may involve excessive labour of the work, if it is practicable, to take a proportion of a section of the bill; for example half the plumbing bill or a quarter of the emulsion in the painting bill. When dealing with housing, where a large number of similar units
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are involved, it should be possible from the bill of quantities to arrive at an approximate value of one house at a various stage, for example
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Brickwork up to damp-proof course
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Brickwork to first floor level, with joist
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Brickwork to eaves
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Roof on
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Plastering and glazing complete
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Door hung
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Plumbing and fittings complete
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Decoration complete
The volume for different type of the same size of house will not be sufficient to make a difference for certificate purpose. The work done at any time can be valued by taking the number of houses that have reached each stage, and pricing out from the schedule, allowing some cases, perhaps, for half and quarter stage.
On project without firm bill of quantities the value of the work carried will be accessed through measurement of work on site or on a straightforward project, by proportion of the individual items on the tender summary.
2.0.4 Preliminary Items
Each valuation will take into account the pricing of the preliminary bill or preliminary items.
These may be a number of items separately priced, or there may be one total for the whole. They may show in addition an allocation between fixed and time-related cost. Each priced item should
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be considered and a fair proportion for each included. Site establishment/removal cost and time related cost should be considered separately. The prices for provision of offices, mess facilities and storage unit could be split up into delivery cost, weekly rent and removal cost, and valuation made accordingly.
2.0.5 Nominated Subcontractor
In building of a valuation from a priced bill, all prime cost sums for nominated subcontractors should be omitted and dealt with separately later. The subcontractors’ claims will be taken one by one and examined, and a suitable figure added for each. The surveyor should have received either direct or from the Architect a copy of the subcontractor’s accepted estimate. This may or may not be the same as that used for arriving at the prime cost sum when the bill was prepared. It a good practice to notify each nominated subcontractor of the amount included in the surveyors recommendation, though the Architect is required by to notify the subcontractors of the amount included on the certificate.
2.0.6 Unfixed Materials on Site
Besides the value of work done, most form of contract allow payment to be made to the contractor for unfixed materials brought to the site or where the standard form is used, stored ready for the contract, though possibly subject to a higher rate of retention. The surveyor should ask for a list to be submitted by the valuation date to be check on the site visit. On substantial contracts, the list can be certified beforehand by the clerk of works, who has the necessary date easily available.
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2.1 VALUATION ON INSOLVENCY
In the event of the contractor becoming insolvent, it is prudent to make a valuation of the work executed by taking the necessary measurement of the work up to the stage at which work cease or is continued by another contractor. The valuation prepared in this case will include unfixed materials and plant, which the architect, or the clerk of work on the Architect’s behalf, will be responsible for seeing that they are not removed from the site. The purpose of this valuation is to ensure that all parties may be aware of the financial position of some estimate of money outstanding to the insolvent contractor can be made.
2.2 VALUATION OF VARIATIONS
All variations, other than those for which a contractor’s schedule has been accepted under the terms of standard building contract (SBC) clause 5.3, should be valued by the quantity surveyor in accordance with the valuation rule of SBC clause 5.6. This clause prescribes five basic method for valuation of all work executed by the contractor as the result of architect/contract administrator’s instructions as to the expenditure of provisional sum and the execution of works for which an approximate quantity is included in the contract bill and variation.
The method of valuation to be adopted by the quantity surveyor depends upon the nature of and the condition under which it has to be executed. Each basic method of valuation and the nature of the work to be which it is to be applied are summarized in table1 below.
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Table 1: Description of work and method of valuation
DESCRIPTION OF WORK METHOD OF VALUATION
1.
Additional and substituted work that can Measure in accordance with SMM7R. Value at properly be valued by measurement and the rates and prices for the work set out in the where the work is of similar conditions contract bill. as and does not significantly change the Allow for any percentage or lump sum quality of the work set out in the contract adjustment in the contract bills. bills. Allow for any addition to or reduction of
Work for which an approximate quality preliminary items of the type referred to in the is included in the contract bills and that SMM7R (standard method of measurementquality is reasonably accurate. review 7) section A except in the case of work
Omission of work set out in the contract resulting from an institution as to the bills. expenditure of a provisional sum in the contract bills for defined work
2.
Additional or substituted work that can As in 1 above plus fair allowance for the properly be valued by measurement and differences arising from work not being executed where the work is of a similar character under similar condition to and/or because the to work set out in the contract bill but is variation changes the quality of the work of not executed under similar conditions similar character in the contract bills thereto and or significantly changes the quantity thereof.
Work for which an approximate quantity is included in the contract bills and the
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quantity is not reasonably accurate.
Any work executed under changed under changed conditions as a result of a variation, compliance with an instruction as to the expenditure of a provisional sum or the execution of for which an approximate quantity is included in the contract bills.
3.
Additional and substituted work that can Measure in accordance with SMM7R, value at properly be valued by measurement and fair rates and prices where the work is not of similar character Allow for any percentage or lump sum to work set out in the contract bills adjustment in the contract bills.
Allow for any addition tvalue of the prime cost o or reduction of preliminary items of the type referred to in the SMM7R section A except in the case of work resulting from an institution as to the expenditure of a provisional sum in the contract bills for defined work
4.
Additional or substituted work that Provided that vouchers specifying the time spent cannot properly be valued by upon the works, the workmen’s names, the plant measurement and materials employed are delivered to the
Architect for verification not later than the end of the week following that in which the work is
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executed, value at the prime cost of such work calculated in accordance with the ‘definition of prime cost of day work carried in under a building contract’ issued by the royal institute of chartered surveyor and the confederation or the electrical contractors’ association, as appropriate and current at the base date together with percentage additions to each section of the prime cost at the rate set out in the contract bills.
5.
Work other than additional, substituted, A fair valuation or omitted work or liabilities directly associated with a variation that cannot reasonably be valued by any other method.
Source: adapted from Aqua group Guide to procurement, tendering and contract administration
2.3 INTERIM VALUATION
Prior to the architect issuing an interim certificate, it is usually necessary for the quantity surveyor to prepare an interim valuation. The main items to be considered when valuing the work are:
I.
Measured work, including preliminaries
II.
Value of variation and extra
III.
Value of nominated subcontractors’ and suppliers’
IV.
Fluctuations where applicable
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V.
Retention sum and
VI.
Previous payment.
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3.0 CERTIFICATION AND PAYMENT
Certification of work carried out on site by the Architect or contract administrator comes immediately after the valuation has been prepared by the quantity surveyor basically to cushion the payment of the amount due to the contractor based on the work done to that effect. The interim certificate is a typical replica of the statement stated above.
There are other certificates issued with respect to building project such as practical completion certificate, making good defects certificate, final completion certificate to mention but few. If the architect is administering the contract he or she will issue a certificate at various stages in the construction, which will normally trigger client payments to the contractor. Typically these are:
Interim Certificates is the one that confirms that work has been carried out to the architect’s satisfaction, as determined by visual inspection. These certificates will be used as authorization for the next tranche of payment for the works (and will sometimes identify an amount of retention from the full amount).
Practical Completion Certificate transfers possession of the building to the client, and the
Making Good Defects Certificate trigger the release of the retention. The architect conduct an inspection to ascertain the readiness of building to be handed over and as well generate a snag list which includes defective works, outstanding works and testing of all electrical and
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mechanical works. On correction of all snags, the certificate of practical completion is issued by the architect.
The Final Completion Certificate will only be issued when the architect is satisfied that there has been full compliance with the contract. Soon as is practicable but before the expiration of the period the length of which is stated in the Appendix from the end of the Defects Liability Period
(also stated in the said Appendix) or from completion of making good defects under clause 15 or from receipt by the Architect of the documents referred to in clause 30.5.2 whichever is the latest, the Architect shall issue the Final Certificate. The Final Certificate shall state:- a.
the sum o f the amounts paid t o the Contractor under interim certificates and the amount named in the said Appendix as Limit of Retention Fund and b.
the Contract Sum adjusted as necessary in accordance with the terms of these
Conditions, and the difference (if any) between the two sums shall be expressed in the said certificate as balance due to the Contractor from the Employer or to the Employer from the Contractor as the case may be and subject to any deductions authorized by these
Conditions, the said balance shall as from 28 days after the issue of the said certificate to be a debt payable as the case may be by the Employer to the Contractor or by the
Contractor to the Employer.
However, few small-scale domestic projects will use the type of building contracts which require all of the above certification.
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3.2 INTERIM CERTIFICATE AND VALUATION
At the period of interim certificates named in Appendix, the Architect issue a certificate stating the amount due to the Contractor from the Employer, and the Contractor shall be entitled to payment thereof within the period for honouring certificates named in the Appendix.
If the Employer fails to honour an Architects certificate within the period stated in the Appendix usually 28 days, the Contractor notwithstanding his other rights and remedies under this contract, shall be entitled to receive additional payments stated in the Appendix for the period during which the certified amount remains unpaid. The amount stated as due in an interim certificate shall, subject to any agreement between the parties as to stage payments, be the total value of the work properly executed and of the materials and goods delivered to or adjacent to the Works or stored in any other location approved by the Architect in consultation with the Employer for the use thereon less any amount which may be retained by the employer (as provided in clause
30.3 of standard form of building contract in Nigeria) and less any installment(s) previously paid under these Conditions.
Provided that such certificate shall only include the value of the said materials and goods as and from such time as they are reasonably, properly and not prematurely brought to the Works or any other approved location and then only if adequately protected against weather or other casualties.
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4.0 CONCLUSION AND RECOMMENDATION
At the early consultation and ideas stage, it is notoriously difficult to attach an accurate estimation of what the construction costs will be for any but the simplest building projects.
Market conditions may change, and in an area of, or at a time of, high demand for good builders, tenders can come back much higher than originally forecast. Therefore the need for valuation and certification of building work should be taken with a sense of seriousness by all the parties involved since it is an important aspect that cannot be ruled out under building contract administration.
RECOMMENDATION
Architects, quantity surveyor and contractors are expected to exercise reasonable skill and care when carrying out their work. This means that they should be suitably qualified, have adequate resources to meet the project’s requirements and the necessary proficiency to fulfil their instructions satisfactorily. They should ensure they are informed and up-todate with guidelines and statutory requirements relating to the project. A failure to exercise reasonable skill and care is not necessarily an indication of either professional misconduct or incompetence.
Christopher J. Willis and Allan A. (1994): practice and procedure for the quantity surveyor.
London, united kingdom. Blackwell scientific publications.
Ivor H. Seeley (1984). Quantity surveying practice. Houndmills,Basingstoke and London. The
Macmillan press LTD.
Mark Hackelt, Ian Robinson and Gray Statham (1990): The Aqua group guide to procurement, tendering and contract administration. Davis Langdon. Blackwell publishing.
Nigerian Institute of Architects. (1990): Standard Form of Building Contract in Nigeria. Lagos,
Nigeria
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Emmanuel Adesanya TAIWO. (2010): Building laws, Contracts and Administration. Osun state,
Nigeria. Oyweck publishers.
Omotayo M. Babalakin. (2013): building contract administration-a paper presented to NIA PPE
(lagos zone).
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