23 Questions on Project Settlement: Do You Really Understand Them All?

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This post was last edited by Hasty Passerby on 2018-9-14 at 21:50. 23 questions about project settlement – do you really understand them all? 1. After the completion of the project, Party B carried out the settlement based on the revised construction drawings; the settlement was still done using the bill of quantities method, with the settlement amount amounting to 12 million yuan. In addition, there were 2 million yuan related to changes agreed upon during the project (no as-built drawings or completion inspection reports were prepared for this project, and many changes in materials and methods were not documented with any signatures). During the audit of this project, the consulting company found that the settlement quote submitted by Party B did not match the contract price; moreover, the comprehensive unit prices used in the settlement did not align with those specified in the bid. In addition, there were significant changes in the construction drawings compared to those provided in the bid, which meant they no longer met the requirements outlined in the tender documents. Therefore, it was decided to conduct the audit using a fixed-amount pricing method, recalculate all the construction drawings for settlement, and also recalculate the cost of additional measures. The determined price is **lower than Party B’s settlement price. Meanwhile, Party B insists on settling the payment based on the prices listed in the schedule, on the grounds that those prices are specified therein, and refuses to adjust the comprehensive unit prices or the costs related to various measures. The two sides could not reach an agreement, and the negotiations reached a deadlock. How should such differences be determined? Answer: The focus of this issue is whether to use a fixed-price settlement method. Therefore, it is necessary to confirm whether there was an approval when both parties agreed to settle at a fixed price; if so, the price is correct regardless of its amount. If not, both parties need to re-determine the settlement method before proceeding with the settlement. 　　2. When settling accounts based on the bill of quantities, how should settlements be handled in cases of material price differences, adjustments to provisional estimates, or changes in the contents of the bill of quantities items? This is determined by the contract provisions. The prices resulting from material price differences and adjustments to provisional estimates can be determined in accordance with the contract terms. But what should be done in case there are changes to the contents included in the bill of quantities items, leading to increases or decreases? Additionally, if the client stipulates that prices for individual items cannot be adjusted beyond a certain limit, how can risks be mitigated? And should this clause apply to the adjusted prices resulting from changes in the bill of quantities contents? Answer: During settlement, material price differences and adjustments to provisional estimates should be handled in accordance with the contract provisions. There are two aspects to the changes in the list items: first, changes in the quantity of work; second, changes in the scope of work. The first type is adjusted entirely in accordance with the price limits for individual line items. The second depends on the specific requirements of the contract regarding design changes or visas. 　　3. For tender projects under the unit price listing method, several issues need to be addressed when handling the final settlement (the contract stipulates that settlement shall be based on the actual amount of work completed, without regard to whether it exceeds the limits specified in the list). First, if there are increases or decreases in the amount of work, the cost of each individual item can be calculated using the bid price; but does this mean that the costs related to measures specified in the original bid also need to be adjusted accordingly? Second, after adjusting the direct costs or the costs related to measures, do the fees specified in the original bid also need to be adjusted? Third, do the taxes also need to be adjusted as a result? Answer: When there are increases or decreases in the amount of work, the costs of individual items are adjusted accordingly. As for the costs related to measures, it is necessary to determine whether these changes are caused by variations in the amount of work; if so, it falls within the scope of claims as stipulated in the contract. Regardless of the reason for the change, fees and taxes are adjusted based on the settlement amount. 　　4. Regarding the pricing of new items in the settlement of tendered projects, should the material prices be based on those quoted by the construction contractor at the time of bidding, or should they be determined according to the actual material prices incurred during the project construction? For example, if the original bidding basis was a foundation with a base, and it was later changed to a full-floor foundation, does that require a reevaluation of the costs? Answer: In accordance with the specific requirements regarding settlement outlined in the contract, it is necessary to determine whether the material costs are fixed, and whether any changes in the items listed in the schedule lead to changes in the associated measures. If there are no specific requirements, the pricing should be based on the actual cost of the materials; if there are changes to the items in the list, the pricing must be adjusted again, but this must be approved by the project owner or the supervisor. 　　5. How should increases or decreases in the quantity of work resulting from errors in the quantities specified in the bill of quantities be handled during settlement? Answer: It should be handled in accordance with the specific provisions regarding settlement outlined in the contract. If not requested, it is necessary to analyze whether this type of contract is an open-ended or closed-ended contract; generally, the settlement is carried out through negotiation between the two parties, with additional detailed contract terms added prior to settlement. 　　6. There is a project currently under consideration, with pricing based on an itemized list. The contract is a variable-price contract. The final cost, excluding the materials provided by the client, amounts to 10 million. Additionally, there are 5 million worth of materials supplied by the client, and the client has agreed to cover 10% of the procurement costs for us. Now, those materials supplied by the client need to be returned. The question is: should these 5 million be included in the costs related to measures and fees? Also, should the 500,000 corresponding to that 10% procurement fee be included in such costs as well?
Answer: The materials supplied by the client and the costs related to measures are two separate types of expenses; there is no necessary connection between them. After the contract is signed, unless explicitly stipulated otherwise, the items related to measures cannot be changed; they represent costs that must be incurred to complete a qualified project. As for the materials supplied by the employer, upon return, the construction contractor only keeps the storage fee. Of course, as the settlement amount changes, the fees and taxes should be adjusted accordingly. 　　7. Under a construction contract, based on the total project cost as estimated initially, the labor insurance expense should be over 180,000 yuan; however, the parties agreed in the contract to fix this amount at 150,000 yuan. Later, the construction was halted due to funding issues on the part of the developer, and work could not resume for 18 months. When terminating the contract and settling accounts for the work actually completed, both parties should only incur labor insurance costs of 80,000 yuan, in accordance with the normal charging standards. The contractor believes that the contract stipulates a \"fixed-price\" arrangement, meaning that regardless of any increases or decreases in the scope of work, the cost remains fixed at 150,000 yuan with no further adjustments. The constructor, on the other hand, believes that since the labor and insurance cost specified in the original contract was reduced from 180,000 yuan to 150,000 yuan, the actual labor and insurance cost for the completed project should also be reduced by the same proportion. It should be reduced based on an amount of 80,000 yuan for labor and insurance costs. How should such situations be handled? In the aforementioned case, the total actual settlement amount for the project is much lower than the total price specified in the contract at the time of awarding the contract, and the cost related to temporary facilities has also been reduced according to the actual volume of work completed. However, the contractor claims that the cost of temporary facilities was incurred in one lump sum at the beginning of construction, based on the scale of the project. Moreover, due to reasons on the part of the client, the construction period for these temporary facilities exceeded what was specified in the contract, leaving little residual value for them. Therefore, the cost of temporary facilities should remain unchanged at the amount specified in the original contract budget. I believe the construction party’s argument makes some sense; I’m not sure, however, as per industry standards, how such situations should be handled. Answer: This issue relates to the method of settling accounts for work that has been completed after the contract is terminated. In principle, it should be handled in accordance with the provisions regarding settlement upon contract termination outlined in the contract. If there are no such provisions, the two parties should negotiate to determine a settlement method, but it must not be based on the methods used for normal project operations. Normally, settlement is done on a actual cost basis, so there is no issue of temporary facility costs being reduced proportionally. In addition, claims arising from the termination of the contract must also be taken into account. 　　8. If the general contractor subcontracts the waterproofing work to another party, and that party provides a detailed unit price breakdown (comprising material costs and labor costs), which is signed and approved by Party A. Therefore, when conducting the settlement, we included the costs based on the unit prices approved by Party A; however, the audit party agreed only to adjust the costs of the main materials, and refused to adjust the amounts specified for labor and other costs. The principle is the market price and fixed quantity set in 2001. How should this situation be settled? Answer: First, the settlement must be based on the terms of the contract; it doesn’t matter whether it is the general contractor who handles everything or not. The contract stipulates settlement based on the actual amount, and the party A’s signature represents acceptance thereof. If the contract clearly specifies that settlement shall be carried out according to a fixed rate, then evidence of a basis for changing this settlement method must be found, regardless of whether party A has signed or not; in the absence of such evidence, the change cannot be accepted. 　　9. In projects involving large-scale mechanical excavation, if the contract does not specify anything regarding this, nor are there any special requirements from the client, and the construction party uses retaining walls and sandbags to protect the slopes, should these costs be included in the final settlement? Answer: If the project was awarded through bidding, then the bidding proposal must include the use of retaining walls; in that case, such costs cannot be charged separately. If a different approach is used, approval from the project owner and the supervisor is required before making any changes. If there are corresponding approval documents, then these costs should be added; otherwise, they cannot be included. 　　10. This is my first time using a bill of quantities for settlement in actual work. Can the comprehensive unit price change due to variations in material prices or other practical circumstances? If there are no provisions in the contract, by how much can it change? For example, during earthwork excavation, if the distance of transportation increases or the equipment used changes, can the comprehensive unit price be adjusted? If so, what procedures need to be followed? Material prices can fluctuate significantly; for instance, the price of stone at the time of bidding was 65 yuan, but due to the longer duration of the project, the factory price of stone rose to 110 yuan. Can the comprehensive unit price be adjusted in such a case? Or what settlement method would be appropriate for both parties?
Answer: In general, billing based on a bill of quantities involves fixed unit prices, with a certain level of risk built into the comprehensive unit prices. As long as the scope of work remains unchanged, material prices should not be adjusted. Whether an adjustment is possible depends on the provisions regarding settlement terms in the contract; if nothing is specified, the matter should be resolved through negotiation between the two parties. 　　11. In the case of a tendered project, when the final settlement is made and there are changes in the volume of work, can certain portions of the bid document be recalculateled, or should only the changed portions be considered? Can the material prices specified in the bid document be adjusted at the time of final settlement? (A contract with adjustable prices was signed.) Answer: It depends on the terms of the contract; generally, only the changed portions can be calculated according to the provisions of the contract. As for material prices, they still need to follow what is stipulated in the contract. If nothing is specified, then only the changed portions can be settled based on the actual costs, and the portions outlined in the bid document should not be adjusted. In case of special circumstances, the two parties shall resolve it through consultation. 　　12. The project contract is a fixed-price contract, with the unit price calculated based on the use of granite mortar for paving. It was agreed through negotiation to use imported microcrystalline adhesive instead. During settlement, the construction party increased the original quantity of work as well. My colleagues, is it permissible to change the quantity of work?
Answer: It depends on the provisions regarding changes in the contract. In this case, if the contract does not specify anything, since it involves two different items in the bill of quantities, the revised item should have its price re-calculated and approved by the client; therefore, it is allowed to change the quantity of work. 　　13. For contracts with a fixed total price, how should the construction contractor submit the settlement documents upon project completion?
Answer: It’s very simple. If there are no changes whatsoever, the contract amount is equal to the settlement amount. As for any changes, it depends on whether adjustment is permitted according to the contract terms; if adjustment is possible, the associated change costs will apply. Secondly, claim costs must be increased in accordance with the contract provisions. 　　14. Are there any provisions in current laws and regulations regarding the settlement of project costs? Specifically, once a project is subject to bidding, must the settlement be calculated based on the bid price plus any visas and changes? If the parties agree to settle the amount according to the actual volume of work completed, can additional amounts be added for those tasks and items that were omitted from the initial bid price but were actually completed? 　　Answer: To be precise, laws and regulations do not explicitly stipulate which settlement method must be used. If it is agreed between the two parties that settlement shall be based on the actual amount of work completed, this can serve as a supplementary condition to the contract and have legal validity; additional work and items that were omitted from the bid quotation can then be included. 15. For the earthwork project related to the construction of bored piles, the work is contracted out without the supply of materials. The contract stipulates that the amount of earthwork to be done shall be calculated based on the actual volume; in cases of soil collapse, the amount involved in such collapses will be calculated separately. Currently, the client’s representative and the supervisor, due to their dissatisfaction with the client, issue approvals arbitrarily, resulting in a significant increase in the amount of earthwork required as well as the amount associated with soil collapses. How should the client proceed with the settlement? Answer: This is an issue related to the client’s internal management. If both the client’s representative and the supervisor approve such approvals, then the construction company should be paid accordingly. If Party A discovers negligence on the part of its internal staff, it shall provide sufficient evidence or pursue legal action. 　　16. There has been ongoing controversy regarding how the materials provided by the client should be refunded in the settlement process. I would like to ask for your advice. Answer: The handling of these client-provided materials should be agreed upon between the two parties. Generally, after normal settlement, the materials provided by Party A are deducted at the settlement price. The difference between the market price and the settlement price of the materials supplied by Party A shall be resolved by Party A itself; during the deduction process, Party B may charge a storage fee for those materials. 　　17. Our company has recently completed a project and is currently carrying out the final settlement procedures. The contract price for this project was very low, and nearly one-third of the work involved materials supplied by the client or tasks subcontracted by them. The contract stipulates that the settlement amount should be calculated based on the 01 quota and relevant fees, with an additional 10% reduction applied. However, there were significant reductions resulting from negotiations (the client’s engineers indicated in the visas that since some of these negotiations were proposed by our side, they should not be counted as part of the economic changes, yet such reductions were still taken into account). If the reduction amounts are calculated according to the contract provisions, it will result in substantial losses for us. In my opinion, the contract price for this project is already very low, and a large portion of the work consists of materials supplied by the client or tasks subcontracted by them – these amounts are essentially fixed. Therefore, any reductions should only apply to our actual workload, excluding the materials supplied by the client and the tasks subcontracted by them. I request that clear guidance be provided on this matter. 　　Answer: Settlement should first deduct the materials provided by Party A and the subcontracted work designated by Party A from the budget; the remaining amount constitutes the contract price. Then, any additional project work is calculated in accordance with the terms of the contract (with a discount as agreed). 　　18. The settlement project I am working on at present is conducted through a bidding process based on a bill of quantities. When there is a discrepancy between the quantities provided by the client during the bidding process and the actual quantities completed, according to local regulations, the excess quantities should not be deducted, and the settlement shall be made based on the winning bid price for those quantities as listed in the bill of quantities. For items that were omitted or listed in insufficient quantities, the settlement shall be carried out in accordance with the pricing guidelines and standards issued by the competent construction administration authorities. The problem I’m facing now is that the quote for the distribution box installation item in the budget we were awarded is too low; this is mainly due to the excessively low price assigned to the distribution boxes in the budget, and according to the rules, no adjustments can be made. But if some distribution boxes are omitted from the quantity listed by the client at the time of project assignment, should I calculate the settlement amount based on the comprehensive unit price for similar distribution boxes as specified in the winning bid budget, or should I use the actual cost of those devices and calculate the settlement according to the new comprehensive unit price? Answer: Generally speaking, construction drawings, construction plans approved by the client, on-site approval forms, technical verification documents, project change orders, and valid completion documents can all serve as bases for settlement. However, some clients require that the documents to be used as a basis for financial settlement be specially approved and bound; to avoid disputes during settlement, it is advisable to clarify these matters in the contract. 　　19. The contract stipulates that the basis for settlement shall be the construction drawing budget, design changes, and on-site visas. During the settlement process for this project, the construction contractor proposed that the concealed works documents could be used as a basis for settlement. Is that acceptable? Answer: The concealed works can serve as a basis for design changes or on-site visas, but design change orders and on-site visa forms must also be provided. 　　20. When the prices of cables and wires increased significantly, I requested that the client adjust the price difference for us during settlement, but the client refused to do so, stating that this had been stipulated in the contract and that risk factors were already taken into account. I think such a risk is too high; I was wondering if we could ask the client to make adjustments for us. Also, I’m not sure if there are any regulations regarding the increase in copper prices – whether there is a certain range within which no adjustments are allowed, or if it’s within a certain range that adjustments must be specified in the contract but can still be made. Moreover, what methods can I use to get the client to adjust the price difference for me? 　　Answer: As stipulated in the contract, if nothing is specified therein, the issue can only be resolved through negotiation between the two parties. 　　21. If the description in the bill of quantities does not match the construction drawings, and there are on-site visas during construction, can the settlement price be adjusted under a fixed total price arrangement? 　　Answer: In accordance with the settlement provisions regarding changes and variations in the contract, if there are clear guidelines, those shall be followed. If it is not explicitly stipulated, settlement shall be carried out after the two parties negotiate and determine the settlement method for the changes and visas. 　　22. The project tender documents and contract stipulate that the prices of main materials shall be calculated based on the prices listed in local official publications for settlement purposes. However, during construction, both parties agreed on a price for these main materials that was significantly higher than the prices stated in the local official publications, and the supervision unit also approved this price. How should the audit department handle such a situation? Answer: If the contract contains relevant provisions, those provisions should be followed first. Also, the supervision unit needs to sign; it is necessary to determine whether the construction unit will give its approval as well. Some contracts stipulate that the supervision unit’s responsibilities are limited to monitoring the site conditions, while any expenses related to this must be approved by Party A. If Party A also gives its approval, then it can be considered supplementary settlement documentation and should be included in the cost calculation. 　　23. The project bidding documents and contract stipulate that the prices of major materials for settlement should be calculated based on the prices listed in local official publications. However, during construction, the two parties signed a supplementary agreement according to which the price of these materials for settlement is the amount stated in the local official publications plus transportation costs, with separate fees agreed upon for secondary transportation. These transportation and secondary transportation costs are significantly higher than market rates. How should the audit department handle this situation?
Answer: If Party A has approved the supplementary agreement, and the audit reveals that such costs are unreasonable, the audit department should inform Party A again. But if Party A agrees or provides special reasons for this, then the settlement should be carried out in accordance with the supplementary agreement (**except in cases of audit)