The valuation cycle, and the cost of moving it

Interim payment can be structured several ways, and the choice is usually made at tender by someone who will not be doing the valuations. It is worth understanding what each choice costs the person who will.

The three common structures

Periodic valuation

A valuation on a stated date each month, valuing work properly executed to that date. The default on most JCT contracts and the most flexible, because it copes with remeasurement, variations and partial progress without amendment.

Its weakness is administrative: it requires a measured assessment every cycle, on time, whatever else is happening.

Stage payments

Payment on completion of defined stages. Lower administrative load and highly predictable, provided the stages are defined precisely enough that completion is not arguable.

The failure mode is a stage that is 95 per cent complete for two months. Under a strict stage payment regime nothing is due, which is a poor outcome for a contractor doing the work and a source of pressure that comes back as claims elsewhere.

Milestone or activity based

Payment on completion of activities from an agreed schedule, as under NEC Option A. The clarity is attractive and the granularity is everything. Too coarse and cash flow becomes lumpy and adversarial; too fine and it becomes an administrative burden the parties abandon informally, which is worse than either.

Picking the date

Three practical considerations, in order of how often they are ignored.

Your own workload. A practice with eleven live jobs all valued on the 25th has one impossible week each month and three quiet ones. Staggering valuation dates across a portfolio is the single cheapest improvement available to a small practice, and it can only be done at contract stage.

The client's payment run. A final date for payment that lands the day after the client's monthly run means every payment waits a further month in practice, whatever the contract says.

Month end. Dates near the end of the month behave badly. The 30th does not exist in February and the 31st does not exist in four other months, and a contract that says "the 31st of each month" has created an ambiguity for no benefit. Pick a date between the 5th and the 25th.

What happens when the cycle slips

This is the part that matters most and gets the least attention.

Every statutory deadline on the job is derived from the due date, which is derived from the valuation date. If a valuation is done three days late, the surveyor has a choice, and both options have consequences.

• Keep the contractual dates. The due date, payment notice deadline and final date are unchanged. You have simply lost three days of your own notice period. This is almost always the correct answer.
• Treat the cycle as having moved. Every derived date moves with it. This is not something a surveyor can decide unilaterally; the valuation date is a contract term.

After practical completion

Many contracts change the interval after practical completion, commonly to two months or to valuations only when there is something to value. Check the particulars, because a surveyor who continues monthly out of habit is doing unnecessary work, and one who stops entirely may miss the release of retention.

What to fix at set-up

• The valuation date, avoiding month end and the same date as your other jobs
• The interval, and whether it changes after practical completion
• The rule deriving the due date, written down rather than inferred
• Whether the client has a payment run that the final date should sit before
• Who covers the valuation when the usual surveyor is away, because the cycle does not pause

That last item is the one practices consistently omit, and it is the reason most missed notices happen in August.