Professional Practice 2: Group Assignment

1. Report: Final Account & The Significance and Implications
of the Omission of Works
 Procedure of Final Account
 Adjustment of the essential elements in preparation of
Final Account
 In the Bills of Quantities
 Not allowed as Provisional Sums or Prime Cost Sums

2. Content Page no
1. Introduction 1
2. Definitions 2
3. Procedure of Final Account 3-4
4. Adjustmentof the essential elementsinpreparationof the Final Account 5-9
5. ComparisonbetweenProvisional SumsandPrime CostSums 10
6. Implicationsof Omissionof Provisional Sums
6.1 From the standpointof a Client 11-12
6.2 From the standpointof a Contractor 13-14
7. Conclusion 15

3. 1. Introduction
This report is briefly explaining the adjustment of the essential elements in
preparation of the Final Account. However, this report is prepared to identify the
significance and implications if some works are entirely left out in the Bills of
Quantities and also not picked out as provisional sums or P.C sums.
The conditions of the situation mentioned includes works like structural steel roof
trusses in which are shown on the drawings but not sufficiently designed for
measurement of quantities.
This report will cover the definition, procedure and adjustment essential element in
preparation of the Final Account. Besides that, it also defines and comparison of the
provisional and P.C sums relating to the situation presumed and later discuss on the
significance and implications from two points of view, consisting of the client and the
contractor. Lastly is the conclusion.

4. 2. Definitions
Final Account
According to SMM2 (Clause 30.10) defines the Contractor shall send all document
within 6 Months after the Practical Completion of the Work for preparing the Final
Account.
Provisional Sums
According to SMM2 (Clause A.8.1.a.) defines provisional sum as a sum provided for
work or for costs which cannot entirely be foreseen, defined or detailed at the time the
tender documents are issued.
P.C. Sums
According to SMM2 (Clause A.8.1.b.) defines prime cost sums as a sum provided for
works or services to be executed by a nominated sub-contractor, a government or a
statutory authority or for materials or goods to be obtained from a nominated supplier.
Such sum shall be deemed to be exclusive of any profits required and/ or attendance to
be provided by the main contractor and provision shall be made for the addition thereof
where applicable.

5. 3. Procedure of final account
Generally, Article 7 (ab) of PAM Contract 2006 defines Final Account as the
document showing the adjustment of the Contract Sum issued under Clause 30.10.
Clause 30.10 stated the Contractor shall send all document within 6 Months after the
Practical Completion of the Work for preparing the Final Account. The Final Account
must be completed within 6 Months from receipt of all the document from the
Contractor. All document including all documents relating to the accounts of
Nominated Sub-Contractors and Nominated Suppliers. Such document shall contain all
the latest construction drawings and details, details of all quantities, rates and prices
and any adjustment of the Contract Sum and additional payment or compensation
claimed by the Contractor under the Contract together with any explanation and
supporting vouchers, documents and calculations. If there is any delay by the
Contractor, the period for the completion of Final Account shall be adjusted. In the
event, the Contractor fail to submit all documents the Architect or Quantity Survey shall
nevertheless complete and issue the same based on the information available within the
Period to complete the Final Account stated in the Appendix. When the Final Account
is completed, a copy would need to be sent to both the Employer and the Contractor to
obtain their agreement.
Clause 30.10(a) Sometimes, they may not respond with any
agreement/disagreement to the Final account. In that event, this clause expressly
provides that if both the Employer and Contractor fail to notify any dispute on the Final
Account within 3 Months from the data of receipt of Account, the Final Account shall
be conclusive and deemed agreed by the parties.
Clause 30.10(b) If either party disputes the Final Account, the party disputing
the Final Account shall by written notice to the other party (with copies to the Architect
and Quantity Surveyor) set out any disagreement complete with particulars within three
(3) Months of the date of receipt of the Final Account from the Architect or Quantity
Surveyor.

6. The Architect or Quantity Surveyor within three (3) Months from the date of receipt
of the grounds of dispute shall either amend or not amend the Final Account. Any party
disagreeing with the amended Final Account or decision not to amend the Final
Account shall refer the dispute to arbitration under Clause 34.0 with three (3) Months
from the date of receipt of the amended Final Account or decision not to amend the
Final Account. Failure to refer the dispute to arbitration within the stipulated time, the
Final Account or amended Final Account shall deem to be conclusive and agreed by
the parties. To be more precise, it is a financial document indicating the final value of
the works executed by the Contractor and his NSCs and NSs.

7. 4. Adjustment of the essential elements in preparation of the Final Account
A well prepared Final account is able to establish the final construction cost of
project. There are a few essential elements which constitute a complete Final Account
and the relevant elements are as per stated below:
• Variation works (clause 11.6)
• Remeasurement of Provisional Quantities (clause 11.6 (f))
• Omission of Prime cost and Provisional sum (clause 30.11 (c))
• Adding-back of NSC’s and NS’s Final Accounts (clause 30.11 (c))
• Adjustment of Profit and Attendance (clause 30.11 (c))
• Adjustment of Provisional Sum based on actual expended and omitted if not
expended (clause 30.11 (d))
• Additional Expenses Claims (clause 11.7)
• Loss and Expenses Claims (clause 24.4)
The first essential element in preparing final account is variation works under
clause 11.6. The valuation of variation and work executed by the contractor for which
a provisional quantity is included in the contract and the expenditure of provisional sum
shall be based on 11.6(a), (b), (c), (d), (e) & (f). Clause 11.6(a) stated the rates and
prices in the Contract Documents shall be the basis of valuation where the Variation
work is similar in character to, and is executed under similar conditions set out in the
Contract Documents, and where there is no significant change to the quantity of work
indicated in the Contract Bill.
Clause 11.6(b) the rates and prices in the Contract Documents shall be the basis
of valuation, and shall include a fair adjustment in the rates to take into account same
cost differences where the Variation work is of a similar character to, but is not executed
under similar conditions set out in the Contract Documents. Similarly, the rates and
prices shall also be appropriately adjusted where the Variation work is of a similar
character and is executed under similar conditions, but there is a significant change in
the quantity of work as compared to the quantity indicated in the Contract Bill.

8. Clause 11.6(c) stated the Contractor shall be entitled to a fair valuation which
will not give the Contractor more than his actual cost, reasonably and necessarily
incurred, plus similar allowance for overhead and profit. Clause 11.6(d) stated the
Contractor can applicable ‘where work cannot be properly measured and valued.’ The
Contractor has to comply with the procedure when recording the day works, and should
have it verified by the Site Staff and progressively sent to the Architect and Consultant.
Clause 11.6(e) stated that the rate and prices in the Contract Documents shall
determine the valuation of items omitted. If omissions substantially vary the conditions
under which any remaining items of work are carried out, the price of such remaining
items shall be valued under Clause 11.6(a), (b) or (c). Clause 11.6(f) if the Works have
been measured on a Provisional basis, the Works shall be re-measured based on the
actual quantities executed, and the rates and price in the Contract Documents shall be
the basis to arrive at a Final Account.
This shall exclude the work for which a tender had been accepted under clause
27.14 – Contractor permitted to tender for P.C Sums. For example, variation may occur
in situation such as the architect gives instruction to change the floor layout. If there is
no provision for variation, the employer may need to get the agreement of contractor
and the contractor may negotiate for higher price. This variation clause is to allow
changes to be made and subsequently adjust or amend the contract sum. Besides, the
valuation rules can be applied where the works are carried out by the contractor for
which the provisional quantities and provisional sum had been included in the contract
bills.
Besides that, remeasurement of provisional quantities is also an important
element according to clause 11.6(f). In respect of Provisional Quantity, the quantities
stated in the Contract Document shall be re-measured by the Quantity Surveyor based
on the actual quantities executed. The provisional quantities are estimated quantities
only, for instance the quantities for excavation works, piling works and infrastructure.
It is not possible to know the actual quantities for the works mentioned at the early stage
and thus, the quantities shall be remeasured by Quantity Surveyor in-charged based on
the actual Works that completed. The quantities are subjected to changes but the rates
priced in the Contract Documents will remain constant.

9. In addition, Prime Cost sums and Provisional Sums are also part of the essential
elements in Final Account. Basically, Prime Cost sums are the sum of the specialist
works carried out by the sub-contractor which normally inclusive of profits and
attendance whereas Provisional Sums are the sum of work done that can be identified
but with no detailed drawing provided and thus, the sum cannot be itemized in bills of
quantities (BQ).
The question worth to be raised up is that, why is there a need to allow
provisional sum in the BQ since adjustment is to be made at the final stage? Let’s take
guard house as an example and the possible reasons are as stated below:
• For instance, contractually, a guard house is to be built but with very limited details
of drawings. In this case, the provisional sums need to be added into BQ so that
client will be aware of the budget of the project as it allows an approximate
contract amount for the purpose of cost control.
• Contractor needs to include the provisional sum works in order to plan his work
program and to finish the works on time. It will easily cause disputes if
provisional sum is not added into the contract document. In this case, contractor
can easily claim for extension of time (EOT) as architect will have to issue
Architect’s Instruction for variation works which are against the requirements
as per agreed in contract document, for instance, guard house.
Prime cost sums and provisional sums with related profit shall be omitted
from the final account based on clause 30.11(c). This is because the prime cost sums
and provisional sums are just estimated sum and act as estimated allowance but both
prime cost sums and provisional sums are subjected to changes. Since the prime cost
sums and provisional sums with related profit are omitted from the final account, the
nominated sub-contractors’ and nominated suppliers’ final account shall be added
back. Every Nominated Sub-Contractors and Nominated Suppliers need submit the
Final Account together with the pro-rata amount for profit. In short, the adjustment is
made after completion of works and final cost is ascertained.
Provisional sums and prime cost sums that are not being used shall be deducted
out from the contract sum. The profit shall be adjusted basedon the amount of final
account whereas for attendance shall be remain unchanged. This is because the
attendance is a fixed amount or lump sum amount and it is provided for supervision

10. works and hence, it is not subjected to changes. However, for profit it is based on a
certain amount of percentage, for instance 2% of the total cost of project. The reason of
charging of profits and attendance by main contractor is because the main contractor is
required to provide the general lighting, general hoisting material and general power
and many more for sub-contractors to work.
Furthermore, the other essential element of Final Account is adjustment of
Provisional Sum based on actual expended and omitted if not expended stated
under clause 30.11(d) in PAM Contract 2006. Adjustment of Provisional Sum is
basically for the things which did not have any design, details, specification, but needed
to construct within the project. The Provisional Sum needed to adjust during the Final
Account because there is no accurate sum that Contractor place at the Contract
Document. Basically it means any adjustment of Provisional Sum will be measured
based on all the actual expended of Provisional Sum by the Contractor. If some
Provisional Sum is not expended, such amount shall be deemed to omit from the
contract bill during the Final Account.
Next, the Additional Expenses claims shall also be considered in the Final
Account which is stated under clause 11.7 in PAM Contract 2006. The objective of this
clause is to enable the Contractor to be reimbursed as part of the cost of variation, for
the additional expenses he has incurred carrying out the Variation, and for which he
would not be compensated under Clause 11.6. However, the Contractor is allowed to
claim for the additional expenses in accordance to the clause 11.7 (a) provided the
contractor shall give written notice to the Architect of his intention to claim for such
additional expenses and the contractor shall send to the Architect and QS complete
particulars of his claim clause 11.7 (b). Eventually, the additional expenses claim will
be added into the Final Account. The final essential element of Final Account is Loss
and Expense claims which stated under clause 24.4 in PAM Contract 2006. The clause
explains that any Loss and Expense incurred by the Contractor which complying with
Clause 24.1, the Architect and Quantity Surveyor shall make certain and include such
amount of loss and expenses into the Final Account. The words “shall ascertain” stated
in the clause basically means that the Architect or the Quantity Surveyor must access
the claim based on particulars and calculations submitted by the Contractor but not
merely rely on a general assessment before including the amount into the final account.

11. Any claim under common law is outside the jurisdiction of the Architect and Quantity
Surveyor, and the Contractor has to resolve this with the Employer.
However, there are 3 elements which shall be excluded from Final account
based on clauses 30.11(e) to (g). The first element to be excluded is any liquidated
damages imposed by the Employer as stated in the clause 30.11(e). Secondly, set-off
by the Employer shall also deem to exclude from final account under the clause 30.11(f).
Lastly, Interest payable by either Employer or Contractor shall also be excluded from
Final Account under the clause 30.11(g). The main concern is that, why are the 3 items
mentioned above are to be solved separately between employer and contractor? Why
are the 3 items excluded from Final Account? This is due to the following reasons:
• Architects are certifiers and they certify work done only and not the parties to the
Contract. They need to be fair and independent and it is not their duties to
determine the party who is in dispute and hence, these 3 items are to be excluded
from the Final Account.
• Disputes may easily arise from either party with such elements being included in the
Final account, causing the final account hardly to be completed at the end of the
day. The main intention is not to delay the timely conclusion of the Final
Contract and it simply means without a final account, the Architect and QS
cannot be discharged.

12. 5. Comparison between Provisional Sums and Prime Cost Sums
Basically, as defined in SMM2, Provisional Sums is of the supply of materials with
profits and attendance also labour cost whereas the Prime Cost Sums only consists of
the supply of the materials.
Common examples of Provisional Sums consist of landscaping, piling, earthworks
or scaffolding. Common examples of Prime Cost Sums are supply of cook tops and
ovens, sanitary wares, furniture or floor coverings.
In this case, the structural steel roof trusses are provisional sum as the works will
include the supply of the steel roof trusses and the installation which takes into account
the profits and attendance. Other than that, the situation clearly shown that drawings
are available to identify sum of works to be carried out but the later states that no details
for measurement shows that the sum cannot be itemized in the Bills of Quantities, hence
allowance of Provisional Sums should be given.

13. 6. Implications of Omission of Provisional Sums
Having the condition as below,
(a) The works omitted is the structural steel roof trusses
(b) Shown on drawing but not sufficiently designed for measurement of quantities
(c) Works entirely left out in Bills of Quantities
(d) Not allowed as Provisional or Prime Cost Sums
(e) Using the PAM Contract 2006(with quantities)
(f) Variable assumptions made accordingly
6.1 From the standpoint of a client
(f) At pre-tender stage
Should the quantity surveyor omitted the steel roof trusses, which is
supposed to be an allowance as Provisional Sum, this means that the Contract
Sum excludes the works of the structural steel roof trusses.
When the works are not included in the estimates, this would affect the
cost control process due to omission of works and the budget established will
not be accurate. The client will rely on the budget estimates to derive the
approximate contract sum. Client might tend to spend more on other works such
as specifications relating to the quality of the building if the estimates shows a
budget lower than anticipated. This would cause disputes arising in the future
when the actual contract sum is way too high over the clients’ budget.

14. (f) After contract awarded
Clause 11.1(a) defines the term “Variation” as the alteration or
modification of the design, quality or quantity of the Works including the
addition, omission or substitution of any work. In this case, the Variation will
be regarding the omission of the structural steel roof trusses.
Upon awarding of Contract, provided if the parties are still unaware of
this omission, the works would be left out. When discovered, this means that
the client has the options whether to enter a separate contract which only
consists of the structural works of steel roof trusses or the client would have to
treat this part of omitted work as variation according to clause 11.2 in PAM
Contract 2006 that the Architect may issue an AI ordering or sanctioning the
variation in order for the contractor to carry out all the variations with due
diligence and expedition.
If the client goes for option 1, it might be time-consuming and the
overall cost will be higher due to the lengthy tender process and sudden
involvement of works. However, option 2 is also not as good as 1 due to the
instruction of AI to variation may give the contractor a ground to claim for EOT
which is in accordance with clause 23.8(g) and meaning that the client would
have lesser imposed liquidated damages.

15. 6.2 From the standpoint of a contractor
(f) At tender stage
If the contractor found out the part of structural steel roof has been
omitted in the tender document, the Contractor may inform the quantity
surveyor and upon confirmation of the omission, there might be a revised tender
or tender amendment. This would be better as it prevents disputes arising in the
future.
(f) Provided if the contractor is to carry out the works due to AI of variation clause
11.2
The omission of provisional sum would affect the contractor’s master
work programme which would also affects the completion date of the project.
The contractor, unaware of the works of provisional sum at the early stage
would have to submit a new master work programme and this would cost more
to the contractor if he had insufficient plants and machinery or even experience
to carry out the works.
Insufficient experience in specified works (here is the supply and
installation of steel roof trusses) may cost higher due to unfamiliarity with
market prices and suppliers causing higher material costs. Moreover, contractor
would have to bear the defects within the Defects Liability Period which would
cost more to a contractor to rectify the defects should the works carried out
contains defect.

16. (f) Provide the contractor unknowingly did the part of works
If the contractor is to make a contractual claim, Clause 11.7 under
variations, provisional and prime cost sums will entitle the contractor to claim
additional expenses other than provision in clause 11.6 provided the contractor
has meet the procedural condition stated in the contract. The contractor has to
give a written notice to the Architect regarding his intention to claim for such
additional expenses together with an initial estimate of his claim duly supported
with all necessary calculations within 28 Days from the date of AI or CAI which
is a condition precedent for his entitlement to claim. Within 28 Days of
completing such variation, the contractor has to send his actual claim together
with complete particulars and all necessary calculations to substantiate his
claims. Should he failed to do so within the time stated or within the period
agreed by the Architect, the contractor has deemed to waived his rights to any
additional expenses.
According to Clause 11.9, as soon as the Architect ascertained the
amount claimed by contractor under Clause 11.7, the amount will be added to
the Contract Sum.
However, if the contractor unknowingly supplied and installed the steel
roof trusses which are not included in the Contract and he did not follow the
procedural contractual claim as per Clause 11.7, this might cause the contractor
to seek for extra-contractual claim where the claim is made under quantum merit.
This is a claim where a reasonable sum is claimed for work is done where the
contract is silence on how the work is to be paid.

17. 7. Conclusion
There are essential elements needed to adjust during the Final Account.
However, owing the presence of provisional sums due to the error made by the
quantity surveyor would imply consequences to both the client and contractor.
Moreover, the quantity surveying consultant firm would also suffer loss in both
monetary and accountability. This report mainly focuses on implications to the
client and the contractor involving the project.

18. DECLARATION OF AGREEMENT
We, the undersigned, hereby confirmed our agreement to the attached Final Account
as follows:
1. That the Final Account is correct and is in accordance with the Conditions of
Contract.
2. That the Final Contract Value of RM 31,060,000.00 is correct.
3. That we have no further claims whatsoever against each other.
Employer Contractor
Date: Date:
Witness Witness
Date: Date:

19. Question 3(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.
Answer:
Diagram 1.0: Items that should be priced based on daywork rates
PAM Contract 2006 (With Quantities), Clause 11.6(d) stated that, where work cannot
be properly measured and valued in accordance with 11.6(a), (b) or (c), the Contractor
shall be allowed to claim based on daywork rates in the Contract Documents for labour,
material and plant as agreed at the site meeting. Based on this scenario, the items that
should be priced based on daywork rates are the removal of the timber door, sealing up
of the door opening and making of a new opening for the timber door.
For the removal of the timber door, making of a new opening for the timber door and
installation of the timber door, the labour rates shall be priced in accordance with the
general labour rate provided in the schedule of daywork rates. While for the sealing up
of the door opening, the labour rates shall be based on bricklayer, plasterer and painter.
Items that should
be priced based on
daywork rates
Removal of the
timber door
Labour:
General labour
Making of a new
opening for the
timber door
Sealing up of the
dooropening
Labour:
Bricklayer,
plasterer and
painter
Materials:
bricks, sand,
cement and paint
(refer to the
breakdown rate
provided in BQ)

20. Apart from that, QS shall refer to the breakdown rate provided in Bill of Quantities as
a basis to derive the new rates for the material used in sealing up the door opening such
as bricks, sand, cement and paint. In this case, there is no payment for plant due to no
plant is needed to execute the variation works.
Contractor should prepare a daywork record in order to claim for daywork. The
daywork record shall include the time spent daily upon the variation works, the
worker’s details, scope of works, materials used, transportation as well as other
necessary evidence. The daywork record shall be signed by the client’s representative
or Site Agent and verified by the Site Staff for validation purpose. Then, the document
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.

21. Question 3(b)
Omission of the need to provide computer equipment in the Preliminaries section
but item was left unpriced, i.e. BQ item was left black in the rate/amount column
in the contract document.
Answer:
Computer equipment in the Preliminaries is left unpriced, it shall be deemed that the
Main Contractor has included such item in his tender with a Lump Sum price. Therefore,
the Consultant Quantity Surveyor shall identify the price of the computer equipment;
and the Employer has the rights to omit the price of the computer equipment as stated
in Architect’s Instruction if necessary.
According to PAM Contract 2006, in Clause 11.6, the valuation of Variations and work
executed by the Contractor for which a Provisional Quantity is included in the Contract
and the expenditure of Provisional Sums (other than for work for which a tender had
been accepted under Clause 27.14) shall be made in accordance with the following rules:
Clause 11.6(c), where work is not of a similar character to work as set out in the
Contract Documents, the valuation shall be priced at current fair market rates and prices
are to be determined by the Quantity Surveyor. Therefore, in this scenario, the
Consultant Quantity Surveyor has the rights to omit the price of computer equipment
based on fair market rate. Besides that, the Consultant Quantity Surveyor may obtain
the rate of the computer equipment from previous contract documents of a similar
project.

22. Question 3(d)
Mistake was made in rate for 50mm thick concrete blinding is RM 10 per m3.
Item was not rationalized during contract documentation. However, original
quantity in BQ is 100 m3 but re-measured quantity is 2,000 m3.
Answer:
According to case law Henry Boot Construction v Alstom Combined Cycles Ltd [2000]
BLR 247, the Court of Appeal found that the relevant variations had to be priced using
the contract bill rate, notwithstanding the apparent mistake which meant the Contractor
was likely to receive a windfall profit. In another manner, it also meant that if the
contractor priced a lower rate, he most likely would receive a windfall lost.
PAM Contract 2006 (with Quantities) Clause 11.6(b) had stated that “where work is of
a similar character to work as set out in the Contract Documents but is not executed
under similar conditions or is executed under similar conditions but there is a significant
change in the quantity of work carried out, the rates and prices in the Contract
Documents shall be the basis for determining the valuation which shall include a fair
adjustment in the rates to take into account such difference”, therefore, the contractor
can claim for the re-measured quantity of element with a fair adjustment in rates that
stated in the Contract Documents.
Based on the above scenario, the contractor will faced a windfall lost due to the
irrationalized rates priced during the contract documentation, this is because the final
account rates will follow the rates that initially priced in the agreed contract document
between two parties. As for the re-measurement quantity, contractor have the rights to
claim for a fair adjusted rates of the elements due to the mistakes done by the consultant
team in preparing for drawings and taking-off.
By following the price of RM10 per m3 for the 50mm think concrete blinding using the
initial quantity of 100m3, the total cost will be RM 1,000, whereas in the new quantity
of 2,000 per m3, the new total cost will be RM 20,000, and the different is RM 19,000.
Consequently, the contractor can only claim an additional of RM 19,000 for the total
cost of the 50mm thick concrete blinding.

23. Project: ApartmentProject Appendix 1
Employer:Eddie SdnBhd
Contractor : TaylorsBuilderSdnBhd
FINALACCOUNT
RM RM
1.0 Original ContractSum 29,160,000.00
2.0 Less: P.C & Provisional Sums 4,660,000.00
Total Builder'sWorks 24,500,000.00
3.0 Add: Variationworks(V.O.Nos1-4)
Total
Additions 2,050,000.00
Total
Omissions 1,000,000.00
NettAdditions 1,050,000.00 1,050,000.00
4.0 Add:
NSCs'final
account
LiftServices 1,500,000.00
AirConditioningServices 1,200,000.00
Electrical
Services 2,300,000.00
5,000,000.00 5,000,000.00
5.0 Constractual Claims:
5.1
Additional
Expenses 10,000.00
5.2
Loss and
Expense 500,000.00
510,000.00 510,000.00
FINALCONTRACTVALUE 31,060,000.00

24. Project: ApartmentProject Appendix 2
Employer:Eddie SdnBhd
Contractor : TaylorsBuilderSdnBhd
STATEMENT OF FINALACCOUNT
Final ContractValue 31,060,000.00
Deduct: Amountpreviouslycertified 29,160,000.00
BALANCEDUE TO CONTRACTOR 1,900,000.00