Financial Aspects

Guarantee Account

On the signing of the contract or issue of a letter of intent whichever is earlier, the employer is to pay a sum equal to two months’ average payments (calculated in accordance with the tender) into a guarantee account in the joint names of the employer and contractor) This is to be used to pay the contractor.

On presentation of architect certificates the bank is to be instructed that it is a guarantee account and that disbursements may only be made to either party on the basis of an architect certificate authorising the payment. The signature of neither employer or contractor is to be necessary.

An alternative to the above provision is that the employer provides a certificate from his bank which will confirm that sufficient funds are available to meet the cash flow of the development and guarantee payment of the architect certificates presented by the contractor which remains unpaid after the period for honouring the same expires and they fall due.

Architect Certificates

The contract will provide for interim payments on foot of the architect’s certificate. At the relevant date a detailed progress statement is to be presented to the architect who is to certify the amount due based on the value of the work. The sum is payable within five working days.

The certificate is to include the amounts allowed in relation to subcontracts. The architect is to specify and show separately the amount in respect of each nominated subcontractor. The employer must honour the certificate within seven working days of presentation.

The architect is to give an explanation in respect of any difference between the amounts certified and the amount submitted on the progress statement if so requested.

Amount Certified

The amount to be certified is the total value of work done and materials delivered on-site for use up to the date of the certificate less the amount provided under the retention (and) less amounts already paid. The certificate is to include the value of materials reasonably brought on-site not brought on prematurely and adequately stored and protected against the weather and other risks.

Where unfixed goods and materials are intended for the works are  brought on-site, included in the certificate and the contractor has been paid, they become the property of the employer. They may not be removed other than for use on the works without the authority of the architect. The contractor retains responsibility and carries the risk in them.

The architect may allow in the certificate, the value of goods and materials before delivery provided they are intended for inclusion in the works. nothing remains to be done to complete the same up to the point of incorporation,  they have been specified at the premises where they have been manufactured or assembled or are stored and have been clearly and visibly marked individually or by codes so as to identify where they are stored on the premises, the employer, or in other cases the person whose order they are held and that their destination is the works.

Certain other conditions apply, including that at the relevant time above and the title is not to be retained by the supplier of the goods. The goods must conform with the contract and must be insured. The contractor must give the architect reasonable proof that the above conditions have been complied with.

Retention

The purpose of the retention fund is for the employer to protect himself against the contractor being unwilling or unable to remedy work. The architect has the power to require the removal of works that do not conform with the contract. The fund is potentially available for this purpose subject to various conditions. Similarly, retention protects the employer in the event of the contractor’s insolvency.

The amounts typically retained vary between 2% to 8% of the contract price depending largely on the scale and complexity of the contract.

The employer may be entitled to use the retention fund where he has a right to liquidated damages. The ownership of the retention fund is subject to the right of the employer to have recourse for payment to which he is entitled under the terms of the contract.

The amount to be retained by the employer on each payment is to be specified in the appendix. The total amount to be retained is not to exceed the specified limit of the retention fund if applicable.

After a certificate of practical completion has issued, the contractor is to provide a retention bond by a bonding agency to be approved by the architect, whose approval is not to be unreasonably withheld, in a specified format. Upon furnishing this retention bond the interim certificate releasing the retention fund in full may issue.

There are alternative provisions regarding dealing with the balance in the retained fund. Under the first alternative when the architect certifies that the works are practically complete, he is to issue a certificate of one-half of the amount in the retention fund and the monies must be paid within the normal time for honouring certs. The residue is included in the final certificate.

The alternative, which only applies if the above is deleted, provides that on application of the contractor the architect is to certify payment of the amount retained by the employer which is to be paid into a joint account in the joint names of contractor and employer. This is to be placed on deposit or as agreed between them. It is to be held on trust.

The amount is held on trust when the contractor, subject to the right of the employer to have recourse to amounts due as debts under the provisions of the contract arising from breach.On the issue of the certificate of practical completion one-half of the joint account retention may be  released.

Release of Retention

The release of the balance is to be authorised by the architect on the issue of the final certificate. Interest earned is to accrue to the contractor. The bank is to be instructed that it is a joint account and that monies may only be released on the authority of the architect.

Within three calendar months of the date of practical completion the contractor is to furnish the architect with all documents necessary for the computations required, including accounts of nominated subcontractors and nominated suppliers.

On the required documentation being furnished, the works are to be measured and valued within the period for final measurement provided for in the conditions. The contractor is to be supplied with a copy of the bill of variations where the bill of quantities forms part of the contract.

Final Certificate

Within 10 working days from the end of the defects liability period or from completion of the making good of defects or all terms of work or supply or from the period of final measurement (where the bill forms part of the contract), the architect is to issue the final certificate. This may be delayed where notice of arbitration is received from the employer within 10 working days.

The final certificate is to be conclusive that the works have been properly carried out and completed under the terms of the contract. Other than as above, the certificate of the architect is not to be conclusive evidence that any works, materials, or goods of themselves are in accordance with the contract. The general rules and legal provisions in relation to breach of contract apply.

Anything which requires an adjustment to the final sum is deemed to have taken place unless the amount mentioned in the final certificate is erroneous by  reason of fraud, dishonesty or fraudulent concealment relating to the works or any matter covered in the final certificate or defects in the work or any part thereof which reasonable inspection or examination at any reasonable time during the carrying out of the works would not have disclosed.

Interest falls due at specified rate if the sums due are not paid by the employer when due. Similarly, if the architect fails to issue a final certificate when due, interest commences to accrue.

The architect is bound to act impartially in the issue of his certificates. His certificates are effectively conclusive in terms of liability to pay the sums due as the contract progresses. The employer may not deduct sums until there has been a determination in relation to the matter (e.g. defective of work). A right of set off is not allowed.

An account may be prepared by a quantity surveyor if retained. In practice, the timeline for the calculation of the final sum is frequently breached.

The architect gives notice of his proposal to issue a final certificate. The employer has an opportunity during this period to refer the matter to arbitration.

Price Variation clauses.

For reasons set out in other sections, the price of a building contract may be susceptible to change due to factors arising under the terms of the contract. The work may not be wholly specified. Unanticipated works may arise. In this instance the apparently fixed price may be varied.

Clause 36 of the RIAI contract provides for a general variation of the price based on the changes in underlying costs and age variation. The provision is commonly deleted as it is a pure price variation clause, in contrast to the above types of price variation, which derive from changes in the works.Employers are sometime willing to accept it on the basis that they may be entitled to claim a downward adjustment in costs in a depressed market.

The contract sum is deemed to be varied where the clause is applicable in the following manner. The RIAI,  the Construction Industry Federation and the Society of Chartered Surveyors may publish supplements giving effect to the clause. The most recently issued supplement is to be deemed incorporated in the contract.

Where the clause applies, the prices in the schedule of rate or bill of quantities are deemed to be based on wage rates, expenses payable by the contractor at the date designated in the agreement. Similarly, insurance costs and certain indirect labour expenses are deemed those applicable at this date.

If the relevant wage rates, expenses, or other labour costs are increased or decreased after the designated date, this change is deemed to vary the contract sum upwards or downwards. There is a similar provision in relation to goods and materials necessary for the execution of the works. They are deemed to be based on the market prices current at the designated date.

The contractor must submit a list of those prices to the architect. If during the progress of the works, the market price varies, the contract sum is to be increased or decreased as the case may be. The contractor is to order the goods and materials expeditiously, but before doing, he shall if required submit the prices to the architect.

The price of contractor’s plants and equipment necessary for the works are deemed fixed at the designated date. Once again, the contractor may be required to submit a list of the costs to the architect.

The contractor is, within a reasonable time of first becoming aware of any substantial increase in the price of materials, goods, etc. to give written notice to the architect. The contractor may include details of the variations in the applications for interim certificates.