Jacob Austin 00:00:00 Hi all, Jacob Austin here from QS.Zone. And welcome to episode 98 of The Subcontractors Blueprint, the show where subcontractors will learn how to insure profitability, improve cashflow and grow their business. Today's episode is about an essential but often dreaded topic. The final account, and specifically how cracking the final account can turn paperwork into profit for your subcontracting business. We're going to cover why the final account matters, how to structure it, and dive into the nitty gritty of handling variations that form part of it. I'll also be looking at some common pitfalls that subcontractors face in preparing their final account, with some real world examples, so that you don't make the same mistakes. Now, let's face it, construction projects can be a bit of a roller coaster from initial bid to the final handover and how you handle the final account. Essentially, the last financial reckoning of a project can have a huge impact on your bottom line. The final account is the amount you get paid for the project, including all adjustments and entitlements. So in other words, this is your last chance to claim everything you wrote.
Jacob Austin 00:01:29 If you mess it up or miss things, you could be leaving thousands of pounds on the table that you've earned with your own blood, sweat and tears on site. The final account, sum, is the most important piece of industry jargon to understand. It's the final amount you'll be paid forever, unless some extra work gets agreed after the final account, of course. So yeah. No pressure. So what exactly goes into it? You need to think of it as a grand tally that starts with your initial subcontract sum, and then adds or subtracts every approved change along the way. A well structured final account typically includes the original contract sum or subcontract sum, the baseline price you signed up for at the start. Variations or changes inevitable in construction. Any change to the work scope, design materials, or the schedule that affects cost should be accounted for here. Variations can increase or decrease the amount you get because yes, omissions can happen too. And we've spoken about variations several times on the podcast. If you want to hear more about pricing variations, I'll drop some links to episodes I've done covering that previously.
Jacob Austin 00:02:43 There should be provision or some adjustments. If your contract had provision or sums, essentially placeholders for undefined work by the end of the project. Those get resolved and in your final account. You omit any unused provisional sums and add back the actual cost of the work done instead. For example, if there was a £50,000 provision or some for unknown alterations to existing drainage, and it turns out the work needed just cost the £45,000, you'd be omitting the £50,000 provisional sum and adding back 45,000 as a variation. So a net effect of a -5000 adjustment, if it turned out, say, the work wasn't needed at all, then the £50,000 would be omitted and that would be that. Next we would have acceleration costs. Sometimes the main contractor begs you to speed up and finish earlier than planned, and that is acceleration. If you agree to accelerate, ideally with a written instruction and agreement on costs, then extra costs for overtime, extra management, working out of hours, etc. should be added in Lausanne. Expense claims are next.
Jacob Austin 00:03:57 If you suffered delays or disruptions that weren't your fault, for example, late site access and other trades holding you up and getting in the way. And if your contract allows it, you may have claimed loss and expense. Any agreed amounts that aren't already covered by variations go into the final account here. And this is where you'd be recovering. Prolonged site overheads or idle time costs due to others delays. Then we have fluctuations. These are really uncommon today as many contracts opt out of them. But if your contract does have a fluctuations clause, then this is where you would be including the indexed adjustments to your tender prices. Then your JCT contract has a catch all for any other amount, which under the contract may be taken into account in the final subcontract sum. This might be things like agreed bonuses. Say you agreed a completion bonus for finishing early, or a discount that you've agreed with the contractor, perhaps for payment terms. So when all is said and done, your final account statement will show the original sum plus all of these additions and less any omissions coming to a final account total.
Jacob Austin 00:05:12 Hopefully a number that makes you smile. It's crucial to present this clearly and logically. Where possible, I'd recommend you lay it out on one nice neat sheet with columns for item descriptions, amounts, references to either instructions or de worksheets, perhaps another column for the date of those instructions to help it get verified, and then any notes. You might also include a column to say whether a variation or a change has been agreed or not. The clearer you can make the presentation of your final account, the easier it will be to run through. When you sit down at a final account meeting. You want everything to be transparent. And for it to be easy for everybody to understand what you're referring to. Why does all this paperwork matter? Well, simply put, if you don't do it right, you might not get paid what you're owed. Main contractors are not charities. If you forget to claim something, they likely won't remind you of it. In fact, some will happily exploit the lack of documentation or a missed deadline as a reason to pay you less.
Jacob Austin 00:06:19 And I can say that from experience, having seen it happen, the final account is your last opportunity to protect your profit. As one subcontractor learned the hard way, treating the final account just like a regular monthly payment can be a big mistake. It's actually an entirely different mechanism, and you need to stay on top of the timeline and the requirements for final accounts. Which brings us to some legal framework under the contract. Under standard JCT terms, once your work is finished, as in practical completion is achieved. The clock starts ticking on the final account process. For example, the JCT Standard Building Contract 2016 says the subcontractor must submit all documents for final account within six months of completion. If you miss that six month deadline, the contractors Qes can give a one month warning notice. And if you still don't send in your final account, they can go ahead and finalize the account with the info that they have and draw a line under it. Once your documents are in, the contractor then has three months to issue a final account statement of what they think the contract should be.
Jacob Austin 00:07:31 Then a final certificate must be issued within two months of either the end of the defects period or the issue of that final account statement, whichever one happens first. The final certificate states the final contract sum and the total price paid so far. the date of the final certificate is basically the due date for final payment, meaning that final payment starts becoming due then. Then the final date for payment of that will be the few weeks later as set out in your contract. Now that's the standard JCT procedure. And remember that your contract may well be edited. And it may well bring forward or push back that deadline, depending on what the contractor is trying to achieve. In fact, some JCT contracts the main contractor might have up to eight months after receiving your final account to produce their final account statement or their own assessment. And I had a friend who was a groundworks subcontractor who, not realising this when the contractors, QTS, asked if this was his final account when he'd sent in his latest application, he innocently said yes.
Jacob Austin 00:08:39 And that triggered the final account timeline. Suddenly, the main contractor had eight months to settle it, and of course they took their time with it. They didn't actually take the full eight months. But when two weeks later, my friend was wondering, where's my money? The contractor was sitting there thinking, it's not due for months. To add insult to injury. He hadn't included all his variations in the final application because some of the early changes had fallen off the radar. So it actually locked in a lower final account sum than he could have been entitled to. Ouch. So learn the lesson. Know your contract's final account timetable, and don't say it's final until you're sure it's complete. You typically have a window. It might be two months after finishing work in subsub contracts. And during that window, you must submit your final account. Use that time wisely to compile everything. Inevitably, variations will be the biggest part of the final account. So this is where you're going to want to either spend the most amount of time, Or alternatively, as the job unfolds, you can get your account in order to make life easy for you when it comes to showing up at the end.
Jacob Austin 00:09:53 So the sensible thing to do here is right at the start of the project, set up a simple variation log. It could be an Excel sheet, or it could be a page on the notes on your phone. When there's a hint of a change, you add it to the log. Extra work in sealing void or change of spec of certain doors to a wipe down. Easy clean finish. Whatever it is. Make a note of it. Make a note of the date and who requested it. Track them. Submit your price for it and add further details when you get them. Example site instruction 15. Received 12th of March to change 17 doors to different spec. Keeping a log. Make sure nothing slips through the cracks until it's resolved. This can both then form the basis of your variation page in your applications, and for a two for one, you can reuse a version of it for your final account. I'm not going to go too much detail on variations, but remember the golden rules of keep adequate records.
Jacob Austin 00:10:56 Records are your best friend. When you get to the back end of the job, and you need to prove your entitlement, follow the valuation rules from the contract. If you've got work of the same character and conditions, then the bill rate should apply. If there are different conditions or substantial quantity changes, then a pro-rata can apply. If you've got no comparable work, then agree. Fair prices are rates and only if it doesn't make sense. Then we deviate to day work. And day work should be agreed as a form of valuation with the contractor up front. Both clients and main contractors often dislike day work because it's essentially an open cheque, meaning you can be as inefficient as you want and still get paid for it within reason. I always recall being on a site several years ago and looking out the window from the top floor of a new building with my boss at the time, and we were looking at three fellows who were all staring down a hole, and my boss said to me, what are those fellas doing? I sort of scratched my head and looked a bit closer, thinking, I haven't got a bloody clue.
Jacob Austin 00:12:03 And as I looked back at him, he had a big grin on his face and he's saying, the answer's obvious. And I'm there trying to think what was there below the ground that they could now be looking at. And I eventually gave up and said, I didn't know. And he eventually put me out of my misery and said, it's day work. And this is the perception that day work has got John. The rake stands there holding the rake, doing nothing useful, and then gets paid for the privilege. So contractors will try and catch your operatives out on day works, particularly if the hours don't look right and they often will only sign off doing De works. If there doesn't seem to be a fair way to come up with a price. So if you do end up with a day work instruction, make sure your records are bulletproof on it. If you're being efficient when you're collating day works along with variations, then the best practice would be to include agreed or even pending variations in your interim applications as you go, which makes a sort of a rolling final account.
Jacob Austin 00:13:08 This can avoid a massive stack of changes sprung at the end, which then can often lead to protracted haggling and makes the process all the more difficult. So the final advice on variations is to deal with them progressively, so that the final account becomes more of a formality. In reality, of course, some items might only get resolved at the end, but the fewer they are, the better. Now let's talk about some classic pitfalls that catch subcontractors Contractors out time and again during final accounts. Pitfall one is probably the most obvious and the easiest to avoid missing deadlines. So you finish the job and you think, I'll get around to the final account when I have time, and then months slip by. By the time you actually submit your final account, you've missed the contractual deadline. The contract said two months and you took five. Now the main contractor claims you're too late, and maybe they've even issued their own version of your account without your input. Which surprise, surprise, omits a bunch of your entitlements, which you hadn't got on the table yet.
Jacob Austin 00:14:19 This immediately puts you on the back foot, and it's harder to negotiate up than it is to negotiate down in this situation. So you need to mark the dates. It pays to be earlier than the deadline, and it's a disaster to be after it. So to avoid it, don't wait until the end of the job to start compiling it. Have a draft ready. Use your interim applications to inform it that way. The moment you reach practical completion, you can fine tune your final account and submit it well within time. Also understand the timescale for responses. If the main contractor is supposed to issue a final payment notice or a schedule and they don't, then follow it up. Don't miss your deadline to dispute or respond to the main contractor's final account or certificate. For instance, under some JCT contracts, if you don't contest the final account certificate within 28 days, it becomes conclusive. If a similar provision is cascaded down to your subcontract, then you can't afford to snooze. So be prompt and proactive with final account submissions and those required responses.
Jacob Austin 00:15:31 Pitfall number two. Working on verbal instructions and not confirming them in writing. Let's say a site manager says we need to extend that slot drain by 20m. Can you do it? We'll sort out costs later. You being the helpful contractor, crack on with it. No paper trail. Come the final account. You list extra drainage. £2,000. The main contractor looks at it and says, well, we've got no record of instructing this. It's not a change. We can't pay you for that. A new protest or John on site told me to get on with it. And typically John doesn't work there anymore. Or he's on another job and he's had a bout of amnesia. You're now stuck trying to prove verbal conversation that happened some 8 to 10 months ago. And the avoidance of it is simple, really. Get it in writing. Even if you are told to do something verbally, send an email or present what's known as a CV. Confirmation of verbal instruction. You can present that to the site manager whilst he still remembers about it for him to sign and you're away.
Jacob Austin 00:16:42 So if the answer's that simple, it's really easy to protect your back on it. So your email. As per John's request, we've excavated and laid an additional 20m of channel drain. The contractor then has a period of time to either refute the instruction or that email becomes a valid record and you can claim against it. It's a tiny effort to prevent you having to eat the cost of that change later, and it's far more reliable evidence than John's assertion of of course you'll get paid for it. Just crack on with it, okay? Remember, people's memories can fade, but paper and email doesn't. Pitfall number three is not tracking, drawing, revisions and scope changes. During the project, the architect inevitably issues revised drawings, new drawings with additional details, different finishes and so on. The site team might hand these out to you casually, and you just carry on building to the latest information, because that's what your professional lads on site will do. You don't specifically flag it as a variation. After all, it came from the architect, so it must be part of the job, right? What if it's wrong? What if that new design is more expensive to build than the original? Well, that's a change in scope.
Jacob Austin 00:18:02 By the time the final account comes around, you've noticed that you've spent extra thousands of pounds on changes and finishes. So you claim it. But the main contractor then says, well, where's your notification that this was extra? You should have told us at the time. They might argue that it's too late to claim, or that if you told them it was an extra, they'd have changed it back. So to avoid this, every time you get a new drawing or document that alters the work, you have to ask yourself, does this change our cost, our time? If it does, then you need to treat it like a potential variation. Don't assume your main contractor will automatically adjust your contract some. Often they won't unless you flag it. So this needs to be included in your record of variations. Compare the old drawing to the new drawing. Quantify the differences. Formally notify the contractor. Example drawing revision. B add scope. That wasn't in our subcontract. We now consider this a change and this will incur additional cost of x.
Jacob Austin 00:19:06 Please issue an instruction to confirm the variation even if the contract requires you to proceed. You've put them on notice and it helps to protect you getting paid. If you speak up early when design changes happen, then the contractor has the time to either try and investigate it, try and change it back. Try and find a different way around it, or just allocate some of their contingency before they've spent it all on everything else. If it's left until final account and their pockets have run dry, then they're likely to be even more defensive about agreeing it. Pitfall for unclear or incomplete variation pricing. Let's say you submit a variation quote for additional plastering. Extra plastering £10,000. It's a one liner with no breakdown. The main contractor never formally approves it, but you do the work anyway because somebody gives you the nod at the final account. The shows scrutinize it, saying, what's this, ten grand for plastering? How did he get that? It's too high. I can't allow it. I'll give you six.
Jacob Austin 00:20:14 Well, now you're in a fight trying to justify that price after the fact with no backup. Ready? Or equally bad. Perhaps you didn't specify whether that 10,000 included certain extra related costs. And then the contractor says, well, we thought that price included this as well. So to avoid this, when pricing variations, you need to be clear and detailed. Provide a breakdown, protect yourself with that breakdown. Extra plastering 500m² at £20 a square metre equals £10,000, including labour plant materials excluding prelims. Assume at the moment this can be completed within the subcontract period. Assume surface is ready for plaster. No additional prep included. The more detail you provide, the harder it is for someone later to arbitrarily knock it down or misunderstand what's included. Best practice would be to try and get your variation prices agreed in writing in advance of completing them. But it isn't always possible, and the contract doesn't require that either. But by providing a detailed estimate, you stand yourself in the best stead for protecting yourself and for securing your entitlement.
Jacob Austin 00:21:32 Pitfall number five letting the final account drift. The job's done. You submit that final account, and then nothing. Weeks pass. Months pass. The main contractor hasn't issued a final account statement or a certificate, and you haven't chased them because you got too busy on the next project. Suddenly you realize that retention or final payment still isn't in your bank. So you start inquiring and you get some excuses. Oh, we're still reviewing it and the client hasn't settled with us yet. You've lost momentum and the urgency is gone. And the contractors side since the project is finished. So to avoid this. Treat the final account with the same energy you treated getting the job. Proactively follow up your submission. Request a final account meeting with a reasonable time, perhaps a few weeks after you've you submitted it. If the main contractor is dragging, remember your rights under the Construction Act. They can't delay payment indefinitely. The final payment usually has a due date and a final date for payment. So if that date passes and no payment has been received, then send a notice of non-payment.
Jacob Austin 00:22:45 Or a friendly but firm letter or email referencing your rights and that you require payment of the notified sum. Use your contacts if you can't get hold of the shows, that might be a site manager, contracts manager, even a contractor's director if you know them. Be the squeaky wheel that gets the grease. Pitfall number six neglecting defects and retention. Let's say you agree the final account and get paid only to realize six months after that, half the retention was never released because you didn't formally request it, or because you didn't finish your outstanding defects. Effects. Perhaps there was a small defect that you forgot about, and the contractor withholds a chunk of money to allow for the completion. To avoid this, incorporate retention release into your final account plan. If the contract says half the retention is released at PC and half at the end of the defects period, then diaries those events at final account stage confirm the status. We expect X amount of retention release now and X on this date at the end of the defects period.
Jacob Austin 00:23:54 On the other side of the coin, you also need to make sure that you go back and fix defects in a timely fashion, or formally agree on a value for them if you can't. Otherwise, the contractor may pay somebody else to fix a problem that you've left behind and then recover that from your account. So don't be the subcontractor that forgets the retention and the defects. It's easy to focus on the big money Any variations and forget that money that you've already earned sat in the retention pot. Don't leave it behind because it's your money. Final pitfall not to learning from the experience. This one is a bit more meta, but let's say you go through a rough final account. You maybe lose some money due to one of the issues I've mentioned above. The next project. You do the exact same things. You fail to improve your process. That's a huge pitfall and avoiding it is simple. Do a simple post-mortem after your project. What went well for you? What items cut you off guard? Were you missing some records? Did you have any disputes that you could have handed off? Use that information to tighten your system.
Jacob Austin 00:25:11 Perhaps you want to introduce some better tracking of your variations. Maybe you want to get your SHS involved in the job earlier. Maybe you did almost everything you should have done. You just did it too late. Whatever the issues you encounter, you can learn from them. Refine your contract admin practices so each final account becomes smoother. So it might sound like there's a lot that can go wrong. But here's the thing. All of these pitfalls are avoidable with good practices, and avoiding them can be the difference between a job being profitable or one that isn't. I also want to emphasize a positive. A well-managed final account can actually strengthen your relationship with a main contractor and even the client. It shows your professional and you're on top of things. I've had clients tell me in the past that they've appreciated a clear and well substantiated financial account. It saved everyone time and it avoided any arguments and bad blood. You want to be the subcontractor that's known for the same for no nonsense fare. Final accounts. Then you become a preferred partner for future work, and you get all the money that you've earned, which is the whole point of it.
Jacob Austin 00:26:27 And with that, we've cracked the final account. Hopefully you feel more equipped to turn that end of the job paperwork into a real profit. And thanks for tuning in. If you found this episode helpful, then I'd love it if you'd share the show and pass that knowledge on to someone else who might need it, and help me help the million SME contractors working out there in our industry. And don't forget, if you want to learn more, then you can find us at www.QS.Zone or on any of your favourite socials. Again at @QS.Zone. Thanks again and see you for next week's episode! I've been Jacob Austin and you've been awesome.
