Cash flow issues: We’ve been paid for it in the interim payment; you can’t knock it out from my final account!
Within our industry, on construction contracts with small margins, maintaining a healthy cash flow is important to all contractors. On some projects that we have worked on, particularly the larger ones, the contractor has made more money from maintaining a healthy positive cash flow than the actual construction works themselves (with all the risk that brings).
Sometimes this is done by beating up on the poor subcontractor and /or “overvaluing” the clients’ account by, for example over-measuring and over-valuing items within the interim valuations.
The trouble starts when the client within its final account valuation, then reduces sums previously paid to the contractor, who as ever, has not within his internal profit and loss reporting allowed for any “overvalue”; it’s almost as if the client is taking back the contractors profit! How dare he!
The contractor typically shouts and problems ensue. But can the client do this?
Typically interim payments (the clue is in the name) are only payments on account of the final sum due, in so much that they represent an approximate value of the work completed and are not (in the absence of an express provision to the contrary) conclusive or binding on the client as to the quantity or quality of work done.
Yes that right, quality of the work. So even if a sum has been paid for the completed work, this does not constitute acceptance (unless expressly stated so) and the client is free to set off any damages that he incurs if the work is later found to be incomplete or badly done.
But, it’s not all bad news! Conversely if the contractor, god forbid, has undervalued an item in an interim valuation, he is free to re-value it upwards in his final account!