Valuations are a significant part of Quantity Surveying. Throughout your career, you’ll need to know how to carry out and assess valuations. In this 3 part series we’re going to be looking into what valuations are and why they are required (Part 1), the practical steps on how valuations are carried out (Part 2) and the interim payment process including terms, deadlines and UK law (Part 3). This article, which forms part 1 of the series will look into what valuations are and why they are required.
The RICS provides the following definition for valuations.
“Valuation is the process by which the quantity surveyor arrives at the value. It normally involves visiting site and checking that the work has been carried out by visual inspection and/or measurement.”
The valuation of a construction project is important for many reasons. One of which is that it facilitates interim payments to be made to the contractor (these are known as external valuations). Another purpose, is for reconciling value against cost in the CVR (these are knownas internal valuations). In this video we’ll be exploring external valuations. External valuations are what interim payments are based on. Interim payments are vital for a construction projectswhich span over a longer duration as it enables on-going financing for the contractor, alleviating some of the pressure of finding adequate funds to maintain a positive cash flow. However, interim payments are not only just a convenience for the contractor who is carrying out the works, it’s also a requirement under UK law, something we will discuss more about in part 3.
For now we’ll delve a little deeper into valuations. In this example, we’re going to assume the payment method is based on assessment against a Bill of Quantities.
Usually, carried out on a monthly basis, the contractor’s Quantity Surveyor will carry out a realistic assessment of what work has been carried out on site to form part of the valuation. This is achieved using mixture of measurement and visual inspection. The quantities derived from this assessment are then multiplied by the agreed rates on the Bill of Quantities. The sum is then combined with a portion of the preliminaries to make up the external valuation.
Other payment methods will require a slightly different approach. For example:
· Activity schedule – where payment is made upon completion of certain activities, or
· Cost based contract, where the contractor gets paid for cost which is deemed allowable under the contract, or
· Fixed stage payments agreed at the start of the contract
The type of payment method utilised will impact how the external valuation is carried out. However, the principle is the same. It determines what amount the contractor believes is due to be paid from the employer.
The employer will then carry out their assessment on the valuation and follow this up with a payment notice/ certificate. It should be noted, the valuation is a reflection of the value from the start of the project up to the assessment date (not the value since the previous assessment date).
Why not check out our video on this subject?