Interim Payment Valuations

Section 1

Purpose

Note on JCT editions: JCT has published the 2024 Edition. This guidance cites JCT SBC/Q 2016 clause references; the commercial and payment mechanisms are substantively unchanged in the 2024 edition, but specific clause references should be verified against the contract edition in use on any given project.

Interim payment valuations are the monthly financial assessments of the value of work completed under a building contract. They give rise to interim certificates and payment notices that obligate the employer to pay the contractor within a defined period. Under the Housing Grants, Construction and Regeneration Act 1996 (as amended), all qualifying construction contracts must provide for interim or periodic payments — a statutory right that cannot be contracted out of.

The QS's role is to assess the value of completed work objectively and accurately, reflecting the true state of progress. This requires a site visit before each valuation — the QS must not certify work that has not been inspected. Each component of the valuation (measured works, preliminaries, variations, materials on site, retention) must be assessed independently and documented. The valuation is both a management tool and a legal document: errors that lead to overcertification give the contractor cash it has not earned, and errors that lead to undercertification may trigger adjudication.

JCT SBC/Q 2016 Clauses 4.9–4.13 set out the payment mechanism: the valuation date (as stated in the Contract Particulars), the due date (7 days after the valuation date), the final date for payment (14 days after the due date), and the contractual timescales for Payment Notices (issued by the QS within 5 days of the valuation date) and Pay Less Notices (issued by the employer at least 5 days before the final date for payment). These statutory deadlines are strict — a missed Payment Notice deadline means the contractor's application becomes the notified sum.

Section 2

Key Principles

RICS Interim Valuations and Payment (2nd edition, 2015): full valuation procedure; components of an interim valuation; disputed valuations; materials on/off site pre-conditions; retention administration; the QS's obligation to visit site before certifying.
Housing Grants, Construction and Regeneration Act 1996, ss.109–113 (as amended by LDEDCA 2009): right to interim payments; payment due date; final date for payment; payment notice obligations; pay less notice obligations; right to suspend for non-payment; right to adjudication — all implied into qualifying construction contracts.
JCT SBC/Q 2016, Clauses 4.9–4.13: valuation date; due date (7 days after valuation date); final date for payment (14 days after due date); QS issues Interim Payment Notice within 5 days of valuation date; employer may issue Pay Less Notice not less than 5 days before final date for payment.
RICS Retention in Construction Contracts (current edition): retention is held as trust money — it does not belong to the employer; retention percentage (typically 3–5%) applies to each interim payment; one-half released at Practical Completion; one-half released at end of Defects Liability Period.
JCT SBC/Q 2016, Clause 3.17 — materials on site: three pre-conditions for inclusion: (i) materials must be properly stored, protected from damage and theft; (ii) the employer's title to the materials must be vested (materials become employer's property on payment); (iii) materials must be insured for their full value.
JCT SBC/Q 2016, Clause 4.13 — off-site materials (listed items): additional requirements — items must be uniquely marked; bond may be required; RICS off-site materials checklist must be satisfied before payment is certified.

Section 3

Practical Application

Step 1

Plan: at contract start, confirm valuation dates in the Contract Particulars and set calendar reminders for all key deadlines — valuation date, Payment Notice issue date (5 days after valuation date), final date for payment (14 days after due date), and Pay Less Notice deadline (5 days before final date). Agree the valuation format with the contractor's QS.

Step 2

Pre-valuation: one week before the valuation date, review the contractor's advance application. Identify areas where the contractor's assessment differs from your estimate. Arrange a site visit — the site visit must be completed before the valuation is certified.

Step 3

Site visit: walk the site systematically by work section or trade package. Record the percentage complete for each major section. Note any areas of defective or non-compliant work — these must not be certified. If you cannot access an area, do not certify it.

Step 4

Assess measured works: apply percentage complete to the contract BQ rates for each section. The measured works figure is the primary component of the valuation. Do not apply a single overall percentage to the contract sum — assess each section separately to reflect the uneven progress of different trades.

Step 5

Assess remaining components: (i) Preliminaries — assess fixed charges as a lump sum (if incurred) and time-related charges as a proportion of the contract period elapsed; (ii) Variations — include agreed variations at agreed values and assessed variations at your assessed value; (iii) Materials on site — confirm the three JCT 3.17 pre-conditions are met; (iv) Loss and expense — include only if assessed in principle and supported by documentation.

Step 6

Apply deductions: deduct retention at the contract rate (typically 3–5%) from the gross valuation. Deduct any previously certified amount (to give the incremental certificate value). Note the cumulative retention total as a separate line for the cost report.

Step 7

Issue the Payment Notice: prepare the Interim Payment Notice with a full breakdown of all components. Issue within 5 days of the valuation date. The Payment Notice must state the sum that the payer considers due and the basis for its calculation. If you are issuing on behalf of the employer, confirm you have authority to do so.

Step 8

Pay Less Notice: if the employer has a legitimate deduction from the notified sum (overpayment in a previous certificate, set-off for defects, deduction of LADs), a Pay Less Notice must be issued at least 5 days before the final date for payment. The Pay Less Notice must state the sum the employer proposes to pay and the basis for any deductions. Without a valid Pay Less Notice, the employer must pay the full notified sum.

Section 4

Common Mistakes to Avoid

Missing the Payment Notice deadline — if no Payment Notice is issued within 5 days of the valuation date, the contractor's application becomes the notified sum by default under the HGCRA. The employer must then pay the full application amount, even if it is inflated, unless a valid Pay Less Notice is issued before the final date for payment.
Certifying without visiting site — the QS's professional obligation is to certify the value of completed work; certifying from the contractor's application without site inspection is negligent and exposes the employer to overpayment and the QS to professional liability.
Including materials on site without checking all three JCT 3.17 pre-conditions — materials that are not properly stored, not vested in the employer, or not insured should not be included in the interim valuation.
Applying a global percentage to the contract sum rather than assessing each work section separately — different trades advance at different rates; a global percentage assessment systematically overcertifies slower trades and undercertifies faster ones.
Not tracking cumulative retention carefully — retention is trust money and must be accounted for accurately; errors in the retention calculation compound over multiple valuation cycles and create disputes at Practical Completion.

Section 5

APC Competency & Quick Reference

APC Competencies: Contract Administration (L3) | Cost Management (L3) | Legal & Regulatory Compliance (L2) | Commercial Management (L2)

What are the Payment Notice and Pay Less Notice deadlines under JCT SBC/Q 2016?

Payment Notice: issued by the QS (as agent for the employer) within 5 days of the valuation date. It states the sum the employer considers due and the basis of calculation. Pay Less Notice: issued by the employer not less than 5 days before the final date for payment. It states the sum the employer proposes to pay and the basis for any deductions. The final date for payment is 14 days after the due date (which is 7 days after the valuation date). If no valid Pay Less Notice is issued, the employer must pay the full Payment Notice amount by the final date for payment.

What are the three pre-conditions for including materials on site in a JCT SBC/Q valuation?

Under JCT SBC/Q 2016 Clause 3.17: (1) The materials must be intended for incorporation in the works — they must be on site for that purpose, not stored there for another project. (2) The employer's title must be vested in the employer — property in the materials passes to the employer on inclusion in a certificate (the contractor warrants title free from encumbrances). (3) The materials must be adequately stored and protected against damage, weather, theft and deterioration, and must be insured by the contractor for their full reinstatement value. If any pre-condition is not met, do not certify.

What is retention and what is its legal status under English law?

Retention is a percentage (typically 3–5% under JCT contracts) withheld from each interim payment as security against the contractor's failure to remedy defects. It is released in two tranches: one half at Practical Completion and the remaining half at the end of the Defects Liability Period (typically 12 months after PC). Retention is held by the employer as a fiduciary (trustee) — it does not belong to the employer and should not be used as working capital. In the event of employer insolvency, ring-fenced retention funds are protected; funds mixed into the employer's general account may be lost to the contractor.

Section 6

Interim Payment Valuations Checklist

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Valuation dates confirmed at contract start; calendar reminders set for all HGCRA deadlines

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Site visit completed before each valuation; defective/incomplete areas excluded

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Measured works assessed by work section (not global percentage of contract sum)

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Preliminaries assessed as fixed charges (lump sum) + time-related charges (pro-rata)

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Variations included at agreed or assessed values with instruction references noted

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Materials on site checked against three JCT 3.17 pre-conditions before inclusion

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Retention deducted at contract rate; cumulative retention total recorded separately

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Payment Notice issued within 5 days of valuation date with full breakdown

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Pay Less Notice issued (where required) at least 5 days before final date for payment

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Valuation record retained in project commercial file with supporting site notes

Section 7

CPD Learning Outcomes

Apply the HGCRA 1996 payment framework — valuation date, due date, final date for payment, Payment Notice, and Pay Less Notice — within the JCT SBC/Q 2016 payment mechanism, ensuring all statutory and contractual deadlines are met.
Assess each component of an interim valuation (measured works, preliminaries, variations, materials on site, retention) independently and with reference to the contract pricing document and site inspection evidence.
Identify the legal status of retention as trust money, apply the correct retention deduction and release sequence, and advise the client on the risks of failing to ring-fence retention funds.

Section 8