Final account of construction contract is a financial statement that is produced upon project completion that sets out the final contract sum of the project including the amount due and payable between the parties. In an earlier article entitled ‘Final Account of Construction Contract – Commercial Perspective’ published in this website, some of the practical considerations during preparation of final account were highlighted, including reasons why such financial closure can be highly contentious. Therefore most standard forms of contract provide a certification regime associated with finalisation of account so as to provide some orderly structure to this process. This article is part 8 of a series of articles comparing the main contract standard conditions of the SIA form published in 2016 and the PSSCOC published in 2020. The next few sections of this article will compare and contrast the certification process stipulated under these two contract forms to help readers navigate  such process effectively. 

A good grasp of the final account certification process is important for both contracting parties including the consultants administering the contract. This is especially so where the claims that may be included in the final account consist of contentious issues e.g. disputed variations, loss and expense claims, remedial works cost etc. Unlike monthly progress payment certification which are interim by nature, final accounts certification are generally penultimate in that it represents the final opportunity for settlement and payment under the contract. Most contract forms provide opportunities either for corrections or modifications to be made for previous progress payment certificate due to the fact that the calculations therein are done on a cumulative basis. By way of example, if parties disagree over whether the concrete works were indeed carried out to the level that was claimed under certain month’s interim progress payment, there are opportunities available in following month to review the quantity in issue in conjunction with the other newly completed works. This is assuming the contractor is reluctant to pursue its statutory rights under Security of Payment Act given the need to preserve a harmonious working relationship. By contrast, there are no further progress payments opportunities beyond the contractual closure of final account. In many cases parties are expected to confront all issues including disputed claims that may have been deferred for a considerable period of time, within a defined window of opportunity. From the contractor’s perspective, it is of paramount importance to understand the expected level of supporting documentations to be submitted to facilitate the assessments of its claim including any repercussions in case of belated disclosure. On the other hand, the Employer and its consultants have to be mindful of the absence of contractual recovery mechanism of any payment made in case of potential latent defects surfacing after closure of final account. There is always possibility of future dispute arising beyond the closure of final accounts.

As the PSSCOC is meant for public sector projects whereas the SIA form are commonly used for private sector projects, there is a noticeable difference in respect of the manner in which final accounts are handled. The following sections will illuminate some of these differences.

Final Account Claim vs Final Payment Claim

The final account assessment process commences with the submission of final claim by the contractor. The terminologies used under the SIA form and PSSCOC for such final claim differs. Clause 31(9) of the SIA form refers to ‘Final Account Claim’ whilst Clause 32.4 of the PSSCOC refers to ‘Final Payment Claim’. Despite the difference in terminology used, these final claims are substantively similar in that these are penultimate claims from the contractor upon achievement of practical completion. There are also no provisions for further submission of claims by the contractor after its final claim. 

Given the finality of such claim, it is in the contractor’s interest to ensure that its submission is not just swift (for the sake of its cashflow) but also comprehensive.  In this regard the content and timing of issuance of such final claim differ significantly under these two contract forms. Under Clause 31(9) of the SIA form, the burden is on the contractor to derive and consolidate the final account for the project consultants’ assessment. On the other hand, under Clause 32.4(2) of the PSSCOC it is incumbent upon the Superintending Officer to measure and derive the amounts due under the final account. The contractor is given an opportunity to witness and verify such measurements undertaken by the Superintending Officer. The contractor is only required to submit its best estimates of the relevant measurements and amounts due in the event that the Superintending Officer fails to complete such measurement pursuant to Clause 21.1. Under such Clause 21.1 the Superintending Officer shall give adequate notice to the contractor if he decides to measure any parts of the works. As the SIA form and PSSCOC referred to in this article are lump sum contracts, these measurements primarily refer to variation claims where changes were made to the original scope of works, thus the need to determine quantity of varied works. The contractor under the SIA form sends its final claim directly to the Architect with a copy to the Quantity Surveyor whereas the PSSCOC stipulates that such final claim is sent to the Employer with a copy to the Superintending Officer. This difference in formality may be indicative of the fact that the Superintending Officer assumes control and oversight of the project financials throughout the construction period, including cost implications of any of the instructions he issued. 

As mentioned earlier, the contractor under the SIA form is responsible for deriving and consolidating the final accounts which meant that the burden is on the contractor to ensure that its final claim is comprehensive. If it is established subsequently that contractor had missed certain claims after the stipulated deadline say due to emergence of new information e.g. belated claims from subcontractors and suppliers, such omission may amount to the contractor’s breach. Clause 31(9)(b) and 31(9)(c) of the SIA form set out at length the level of granularity of the final claim. These particulars include (a) details of all quantities, rates and prices, (b) adjustments of the contract sum (c) additional payments or compensations under the terms of the contract. The contractor may also include in its claim any explanations and supporting vouchers, documents or calculations, including documentations relating to designated or nominated subcontractors and suppliers that is necessary for the finalisation of account. It is interesting to note that under subsequent Clause 31(9)(d) of the SIA form, it is stipulated that ‘non submission’ of the Final Account Claim by the contractor shall be taken as a waiver of rights by the contractor for the final account. Some may argue that final claim that lacks the required level of particularity may not strictly qualify as Final Account Claim. In other words, a contractor that submits a final claim that is lacking in the necessary detail to support its claim may be construed as ‘non submission’ of Final Account Claim. Such contractor may be hard pressed to argue for a belated inclusion of further details since the contractor is deemed to have waived such right by virtue of Clause 31(9)(d). 

Whilst some may take the position that to bar any advancement of additional details beyond a certain deadline appears onerous, it should be noted that similar restriction also exist under the PSSCOC. Under Clause 32.4(2) of the PSSCOC such waiver of rights is only applicable within the confines of particulars relating to loss and expense claims. The provisions above underscore the importance for contractor to be aware of the significance of relevant final account deadlines. Apart from ensuring timely financial closure for project concerned, such deadlines also play a key role in signifying the transition of the project from construction period to maintenance period. 

In general, the final claim is due for submission upon achievement of project completion but the devil is in the finer details for both the SIA form and PSSCOC. Under Clause 32.4(1) of the PSSCOC, the contractor is to submit its final claim within 90 days of the Date of Substantial Completion (or the latest date of substantial phase completion as the case may be). As such date refers to the one indicated in the substantial completion certificate issued, it can be tricky if such certificate is issued belatedly or that the existence of such certificate is in dispute for a variety of reasons. Occasionally the alleged certificate may be a subject of dispute due to non compliance with the necessary procedures leading to its issuance, unauthorised party issuing such certificate etc. This can have a consequential effect on the said 90 days due date and any associated waiver of contractor’s rights on final account as mentioned earlier. It is also not uncommon for the Employer to request for additional works after certain deemed substantial completion date resulting in difficulty to ascertain the due date of the final claim. This is because the Employer cannot on one hand instruct additional works beyond the stipulated due date but on the other hand takes issue when the final claim which should encapsulate all variations is submitted beyond the deadline. 

Under Clause 31(9)(a) of the SIA form, the timeline for final claim submission appear broader. The contractor is only required to submit its final claim before the expiry of the Maintenance Period but after the achievement of completion or after issuance of the last statutory instrument by the relevant authority whichever is later. As regards the latter, there are instances where parties define practical completion as the date on which the statutory authority issues Temporary Occupation Permit. The absence of reference to practical completion certificate avoids the difficulty associated with dispute over the existence of  completion certificate as properly defined under the contract. However the flexibility with which final claim is interpreted as due for submission may ‘encourage’ more additional works instructed after practical completion and consequently an ‘open ended’ final account duration. 

Interim Final Account

As highlighted in an earlier article entitled ‘Final Account of Construction Contract – Commercial Perspective’, the duration taken to prepare, negotiate and agree on a statement of final account can be considerable given the need to assess various issues e.g. disputed variations, extensions of time, loss and expense etc. In an effort to expedite the settlement of final account, at least for the non contentious issues, the PSSCOC implemented an ‘Interim Final Account Certificate’ which is a form of draft final account that is provisional but binding. This certificate is unique to PSSCOC and not available under the SIA form. In essence under Clause 32.5(1)(a) of the PSSCOC, the Superintending Officer shall issue such Interim Final Account Certificate within 21 days of receiving the Final Payment Claim from the contractor. This Interim Final Account Certificate which is accompanied by a Payment Certificate shall be subject to Security of Payment Act. As the timing for issuance for such Interim Final Account Certificate is triggered by the receipt of Final Payment Claim from the contractor, what happens if the contractor fails to submit its Final Payment Claim? According to Clause 32.5(2)(a), the Superintending Officer is still bound to issue its Interim Final Account Certificate except that it is now within 150 days from the Date of Substantial Completion (or the latest thereof in case of phase completions). Under this scenario, the Superintending Officer is only required to follow up with a Payment Certificate within 30 days of the issuance of Interim Final Account Certificate. This payment certificate shall not be subject to the Security of Payment Act presumably because of the absence of payment claim (or in this case the final claim) from the contractor. The said 30 days intervening period serve as a window of opportunity for the contractor to dispute such Interim Final Account of which the Superintending Officer may amend its assessment if necessary. As the process of preparing and agreeing final account may at times be contentious, it is possible for a complete breakdown in working relationship in an acrimonious manner resulting in an alleged failure of the contractor to submit its final claim. Therefore another reason for implementing the Interim Final Account is provide certain contractual structure that may help to facilitate an orderly closure of project finances even when parties are in dispute. 

One of the reasons why the Interim Final Account is not implemented under the SIA form is because the contractor is only required to submit its final claim no later than the expiry of the Maintenance Period. By contrast the PSSCOC attempts to have the final claim submitted at the inception of its Defects Liability Period (its equivalent of Maintenance Period). The upfront processing of project finances is also enabled by the fact that the Superintending Officer plays the principal or lead role of measuring and deriving the amounts due as opposed to the contractor, as alluded to earlier.  Therefore with the Employer led initiative of closing out project finances, the financial discipline that follows provides clarity to the construction costs, which is perhaps more of a necessity where the utilisation of public funds are concerned. 

It should also be noted that the Architect appears to have additional responsibilities under the SIA form as compared to the Superintending Officer under the PSSCOC. These responsibilities relate to subcontract final account for nominated subcontractor and/or designated subcontractor. Under Clause 31(10)(e), the final assessments of the Architect in respect of final account shall also state separately the final amounts for these subcontractors and suppliers. This could explain why there appears to be more latitude in time frame for the submission of final claim under the SIA form. The final claim is expected to have certain clarity in respect of certain subcontract sums to enable the Architect to discharge its functions pursuant to Clause 31(10)(e).

Final Account vs Final Account Certificate

There are two further documents that are unique to PSSCOC which are not available under the SIA form for the purposes of finalisation of account. These are ‘Final Account’ and ‘Final Account Certificate’ as provided for under Clauses 32.5(3) and 32.5(6) respectively. Firstly, ‘Final Account’ is issued by the Superintending Officer within 30 days after the expiry of Defects Liability Period of a draft statement reflecting closure of project finances and any amount due and payable between the parties. Upon further 30 days of receipt of such Final Account, the contractor may dispute any amounts therein by issuance of its disagreement or dispute in writing, expressly setting out the ground for such dispute. According to Clause 32.5(4), the contractor shall be deemed to have accepted the Final Account in the absence any such ground of dispute. This shall then be final and binding on the contractor. In response and within a further 30 days duration from receipt, the Superintending Officer  who acquiesced may issue a notice of amendment to reflect the revision to the Final Account. Where the Superintending Officer disagrees with the contractor’s ground of dispute and decides not to proceed with any notice of amendment, the contractor shall be informed accordingly as well. 

The Final Account Certificate is a certification by the Superintending Officer that reflects his final position on any disputes or amendments to Final Account. It is therefore a certificate that signifies closure to the process of finalisation of account. This certificate shall be issued within 30 days from the date on which the Superintending Officer either agrees or disagrees with any contention raised by the contractor. Any unresolved dispute that remains after the issuance of Final Account Certificate shall be referred to Clause 35 of the multi-tiered dispute resolution provision. The Final Account Certificate can only be amended under Clause 32.5(8) purely for any error or accidental inclusion or exclusion of any construction costs. It is unlikely that this amendment is allowed for any fundamental or substantive alteration based on any merit of assessment. In other words, the Superintending Officer’s authority is significantly curtailed in respect of assessment of final accounts once Final Account Certificate is issued.

Final Certificate vs Final Completion Certificate

Final Certificate is unique to the SIA form whilst the Final Completion Certificate is provided for only under the PSSCOC. Whilst these two certificates appear fairly similar in its description or label, each of these have different contractual functions. Under Clause 34 of the PSSCOC, Final Completion Certificate signifies the expiry of Defects Liability Period and any defects had been satisfactorily rectified by the contractor. In other words, it is specific to the physical status of the project and is not issued for the purposes of final account. 

On the other hand, Final Certificate provided for under Clause 31(10)(a) of the SIA form is issued for the purposes of final account in that it represents the Architect’s financial assessment or measurement of the final claim. The expiry of maintenance period including satisfactory defects rectification is signified by the issuance of Maintenance Certificate as provided for under Clause 27(4) of the SIA form. In other words, the Final Completion Certificate under the PSSCOC is similar with Maintenance Certificate under SIA form. 

As a matter of prudence, closure of project finances and expiry of maintenance period (or defects liability period) are usually scheduled to occur close to one another. This is to preserve financial leverage so as to incentivise the contractor to rectify any final outstanding defects quickly. In this regard, the Architect under Clause 31(10)(a) of the SIA form shall issue its Final Certificate within 84 days of receipt of final claim or its issue of Maintenance Certificate whichever is later. In other words, if the contractor takes an unusually longer period of time to rectify outstanding defects resulting in delay in issuance of Maintenance Certificate, this will correspondingly delay the timeframe for its settlement of final account. There is also a similar mechanism under the PSSCOC in this regard. Under Clause 32.5(9) of the PSSCOC, the Superintending Officer shall not be obliged to issue its Final Account Certificate before the Final Completion Certificate. In other words, the Superintending Officer is not required to close the project finances and settle the amount due and payable until the defects are fully rectified. Even if the Superintending Officer had issued the Final Completion Certificate, it does not relieve the contractor from its obligations and liabilities arising from Defects Liability Period.

Conclusion

Whilst the process of concluding a project final account appear to be a fairly regimented certification process with strict timeframes, expected format of submission and method of assessment, it should also be noted it is often subject to commercial negotiation and settlement. Final account is one of the rare contractual mechanism that has a balance of both commercial and contractual elements. It is not uncommon for parties to settle on a final figure not necessarily based on merit of their case but rather what is expedient and what may bode well for future business relationships. Having said that, one can only be in a good negotiation position if it had fully complied with the necessary contractual obligations to fully preserve its rights. If you are not ready to walk away, you are not ready to negotiate.




Koon Tak Hong Consulting Private Limited