Interim Valuations Explained: How Stage Payments Work on a Building Project

On most building projects of any size, the contractor is paid in stages as the work goes on. Those stage payments are usually based on interim valuations. If you are a client, understanding how valuations work helps you plan your funding, check you are paying fairly for progress, and keep the project moving.

Here is a plain-English guide to the process.

Why stage payments exist

Building projects tie up a lot of money in labour, materials, plant and subcontractors before the job is finished. Paying in stages means the contractor is paid for work as it is done, and the client is not asked to pay large sums up front for work that has not yet happened. It is fair for both sides when it is done properly.

In the UK, construction contracts are also subject to legislation that gives parties a right to interim payments on longer projects and sets out rules for payment notices. The details depend on the contract and the type of project, and residential occupiers are treated differently in some respects. Your contract should set out how payments work on your job.

What is an interim valuation?

An interim valuation is an assessment of the value of work completed up to a particular date. It typically includes:

• Work done to date, measured against the contract price, often broken down by element or stage.
• Materials on site, which have been delivered but not yet built in, depending on the contract.
• Agreed variations carried out so far.
• Less retention, if the contract allows a percentage to be held back until completion.
• Less previous payments, so the amount due is only for the new period.

The result is the amount due for that period.

How the process usually works

1. The valuation date arrives. This is often monthly, but could be at agreed milestones.

2. The contractor prepares an application. This sets out the value of work done, materials on site and variations, with enough detail to be checked.

3. The valuation is reviewed. On larger projects, the client's QS or contract administrator reviews it, sometimes with a site visit, and agrees or adjusts the figures. On smaller jobs, the client may review it directly.

4. Payment notices are issued, where the contract requires them, confirming the amount to be paid.

5. Payment is made within the agreed period.

What clients can do to make valuations smooth

Agree the method up front. Know whether payments are monthly or at milestones, and how work in progress will be valued. A simple stage-by-stage breakdown of the contract price makes valuations much easier to check.

Walk the site. If you are reviewing valuations yourself, visit the site around the valuation date. Seeing the work makes the numbers make sense.

Ask questions early. If something does not look right, raise it as soon as you see the application, not weeks later.

Keep track of variations. Agreed variations should appear in valuations. If you have your own record of what has been agreed, checking is straightforward. Where those changes sit in the wider cost path is covered in how a building contractor manages project costs.

Plan your funding. If you are funding through a lender, find out how and when they release money. Many lenders release funds in stages after their own surveyor inspects. Lining up the contract payment stages with the lender's process avoids cashflow gaps.

Pay on time. Timely payment keeps the site resourced and suppliers happy. Late payment can slow a project down for everyone.

What a good contractor provides

You should expect a clear, itemised application that ties back to the contract price, shows what has been done since the last valuation, and lists variations separately. You should be able to see how each figure was reached.

At Crescent Builders, we would rather a client asked a question about a valuation than paid something they did not understand. Clear valuations build trust.

Retention

Retention is a percentage of each payment held back as security against defects. Part is usually released at practical completion and the remainder at the end of the defects period. If your contract includes retention, make sure the release dates are clear.

The short version

Interim valuations let the contractor be paid fairly for progress while protecting the client from paying ahead of the work. Agree the method and stages up front, review applications promptly, track variations, align with your lender and pay on time.

Stage payments on a house extension should be set out the same way. The same preparation applies to structural alterations.