One of the changes in the 2023 edition of NZS 3910 is the introduction of a new Final Account mechanism for the agreement of the final Contract Price (as adjusted) before the final payment process under clause 12 is triggered.
By Brendan Cash (Partner), Madison Dobie (Senior Associate) and Miles Rout (Law Graduate) in Dentons’ Major Projects and Construction team.
The Final Account process was introduced to encourage the early and collaborative settlement of the Contract Price and to enable both parties to be clear on what remains outstanding at practical completion. So what does it mean for Contractors in practice?
What needs to be submitted and when?
Interim Final Account
The first step in the Final Account process is for the Contractor to issue an ‘Interim Final Account’. This is submitted to the Independent Certifier (IC) (with copies to the Contract Administrator (CA) and Principal) after Practical Completion, within a certain timeframe to be specified in the Specific Conditions (or a further time allowed by the IC). The standard time-frame is within three months after Practical Completion.
The Interim Final Account needs to propose a final Contract Price and include everything that is necessary to justify the proposed price, up to the date of Practical Completion. It needs to include:
• The (base) Contract Price set out in the Contract, and any amendments to it as agreed between the Contractor and the CA, or decided by the IC.
• Any claims for Variations, extensions of time, time-related Costs, or other Contract Price Adjustments.
• The value of any Cost fluctuations.
• Adjustments for Provisional Sums, Provisional Items, or Prime Cost Sums.
• The amount of any bonus for early completion.
• Any other claim of any nature in relation to the Contract to which the Contractor considers itself entitled.
• Any matter that has been referred to the IC, to alternative dispute resolution under section 13, or to adjudication under the CCA.
In other words, the Interim Final Account needs to be a comprehensive account of what the Contractor expects the Principal to pay, and why, including all its claims against the Principal. It also needs to be expressed in enough detail that the IC can assess and decide on the Contractor’s entitlement to any item that is not later agreed and the value of each such item.
Final Account
Within 20 working days after the Final Completion Certificate (or further time allowed by the IC), the Contractor must serve the ‘Final Account’ which must include a proposed final Contract Price based on the price included in the Interim Final Account plus any claims for Variations or Instructions occurring after Practical Completion.
Essentially, the Final Account is an update to the Interim Final Account that takes into account things that have come up between Practical Completion and Final Completion. Like the Interim Final Account, it needs to include all the items that justify the price proposed, including the items listed above, in sufficient detail.
Make sure you refer to all your claims
It is important to note that where the Contractor does not refer to a particular claim under the Contract, including Variations, extensions of time or claims of any kind which arise under the Contract, in the Final Account, it may risk losing its claim.
This is because of 9.11.6 which provides that the Final Account shall be conclusive evidence that the Contractor has no outstanding claim against the Principal other than those that are set out in the Final Account.
Even where a matter has been referred to dispute resolution under clause 13 or Adjudication, the Final Account should still refer to such claims.
The Final Account needs to be based on the Interim Final Account but updated to reflect claims related to anything post-Practical Completion. This means that to preserve the Contractor’s position, any claim it might want to make in the future relating to work done before Practical Completion needs to be included in the Interim Final Account, so that it can be referred to in the Final Account.
Agreeing the Final Account
The process for agreeing the Final Account is intended to be collaborative. The Contractor and CA should endeavour to agree in writing, as far as possible, on the Interim Final Account and the Final Account. When agreement is reached, the CA has 10 working days to issue an Instruction recording the agreement.
Sometimes some items will not be agreed. Any Variations, Contract Price adjustments, or other claims in the Interim Final Account that are not agreed may be carried over to the Final Account with the permission of the IC.
In the case of the Final Account, if there isn’t agreement within three months of its submission, either party can request that the Final Account be decided by the IC.
What happens if you do not submit?
If the Contractor does not submit the Interim Final Account or Final Account within the relevant timeframe, the IC may give written notice of that failure and require the Contractor to submit within a further 20 Working Days. If the Contractor still does not submit, the IC may decide the Final Account.
As the Final Account becomes the record of the final Contract Price (including claims), it is important that the Contractor submit its Final Account within the time required or it may risk losing its right to make valid claims.
Do you still need to issue a Final Payment Claim?
Yes. The Final Account expressly cannot be in the form of a payment claim under the Construction Contracts Act 2002 (CCA). The intention is that the Final Account process allows for the negotiation and settlement of the final Contract Price before the final payment claim process under the CCA goes ahead.
Once the Final Account is agreed (between the Contractor and the CA) or decided (by the IC), the Contractor needs to issue its final payment claim under 12.4.
Where the Final Account has been decided and the Contractor disagrees with the decision, it should make this known to the IC and include such disputed claims in its final payment claim.
How does this process differ from the process in NZS3910:2013?
In the 2013 edition, there was no Final Account process under the Contract. The Contractor needed to submit its final payment claim under 12.4.1 not later than 1 Month after Final Completion (or further time allowed by the Engineer).
This meant that final account matters were often not resolved until after Final Completion, with matters raised in the final payment claim sometimes coming as quite a surprise to the Principal. In practice, 12.4.1 was often amended to provide for submission of the final payment claim within a period of time after Practical Completion. However, these amendments were typically silent when it came to claims for Variations and Instructions arising between Practical Completion and Final Completion, which could be problematic.
Key takeaways
The Final Account process provides an opportunity for the Principal and Contractor to settle outstanding claims at the end of the Project and, ideally, make for a smoother final payment process.
It is important that the Contractor take note of the period within which it must submit its Interim Final Account and Final Account and ensure that it submits within that period.
You must refer to all its claims under the Contract in its Interim and Final Account; and issue a payment claim for outstanding amounts following the agreement (or determination) of the Final Account (including those amounts that remain disputed).
This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons does not accept any liability other than to its clients, and then only in relation to specific requests for advice. For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons on (09) 379 4196.
Keeping good records