Possible errors, which may arise in the course of using the for- mula method, are listed in Rule 5a of the Formula Rules. They are (a) arithmetical errors in the calculation of the adjustment; (b) incorrect allocation of value to work categories or to work
groups;
(c) incorrect allocation of work as Contractor’s Specialist Work; and (d) use of an incorrect index number(s).
If any such error has occurred, then the surveyor is required to correct it. Rule 5c requires that, when making the correction, the same index numbers be used as used when the original calculation was done, except that firm index numbers, if available, should be substituted for provisional ones.
Rule 5b provides for the contractor to be granted access, if he so requests, to the ‘working documents’ which show the calculations of the fluctuations included in an interim certificate for payment, so that he may satisfy himself that errors of the kind referred to above have not been made.
Errors in preparing a valuation
The Formula Rules make no provision for the retrospective cor- rection of errors made in the course of preparing an interim valu- ation. Such ‘errors’ include the valuation of provisional items of work at the quantities given in the bills which upon remeasure- ment are found to be different.
The Users Guide advises that valuations should be as firm and accurate as possible, as these will not normally be reassessed at a later date.10The Quantity Surveyors (Practice and Management) Committee of the RICS has stated the view that, if errors have occurred in the preparation of a valuation, they should be corrected but that, once firm index numbers have been substituted for provi- sional ones, the facility for such correction will no longer exist.11
When errors of this kind are corrected in the manner envisaged by the RICS Quantity Surveyors Committee, the correction will be effected in the same way as described for ‘mechanical’ errors, that is, as set out in Rule 5c.
Any further corrections, which may remain to be made after firm index numbers have been applied, however, may be dealt with in the same way as the value of work included in interim cer- tificates issued after Practical Completion (see above). In other words, adjustment of the errors may be made on the basis of the average of fluctuations over the whole of the contract period.
Examples
The following examples relate to the contract of which particulars are given in Appendix A. The application of the Formula Method, using work categories, is shown as it would have applied had the fluctuations provision been based on Option C. The Base Month would then have been stated in the Contract Particulars as July 2005. For the purposes of the example, Valuation No. 12 in the examples given at the end of Chapter 10 has been used. The indices used are the 1990 Series (Series 3).
Note: Published indices for May to August 2006 were not avail- able at the time this Chapter was being prepared, consequently a series of ad hoc indices have been created to enable the formula calculations to be demonstrated.
It was necessary, prior to Valuation No. 1, to make preparatory calculations. The calculation proformas are based upon examples produced by the Department of the Environment12 and require the following work to be executed
(a) to ascertain from the bills the value of work in each of the appropriate work categories and this was done on Form A (exclusions are preliminaries, provisional sums, builder’s work
in connection with plumbing and builder’s work in connection with electrical installation);
(b) to calculate the balance of adjustable work, as shown on Form B; and
(c) to enter on the form for the ‘Calculation of Gross Fluctuations for Interim Valuations’ the published Base Month index num- bers for all the work categories involved.
The foregoing information was then available for use when each valuation was done.
When Valuation No. 12 was carried out on 14 September 2006, it would have been necessary to prepare a much more detailed valu- ation than the example provided in Chapter10. Where formula fluctuations are to be calculated, it is necessary to be able to iden- tify all the relevant work categories within the valuation. This would mean for example, that the drainage work that was valued at £16,004 would have to be broken down into its various work cat- egories (i.e., excavation and disposal; filling: hardcore, concrete, brickwork; accessories: cast iron and pipes: clay) and a value placed against each category. Therefore, it can be seen that where a pro- ject is operating under the formula fluctuations option, a surveyor will have to take much more care and time in preparing the interim valuations. However, time spent in preparing a detailed valuation will be amply rewarded when it comes to calculating the subse- quent fluctuations. To make the fluctuations task even easier, it is possible to create the forms in a spreadsheet programme and pre- pare a number of templates containing the appropriate formulae and functions.
The following procedure was followed with reference to valu- ation 12.
(a) The gross value of the work executed to date, which could be allocated to work categories was entered in column 2 on the calculation form (see p. 179). Any extra work ordered through variations that has been priced at bill rates must also be analysed and allocated to the appropriate work categories (to simplify the example this step has been ignored, as has the need to adjust the value of work by the 2.395% tender adjust- ment). The gross value of work that had been completed previously was extracted from valuation 11 and the values entered in column 3. By deducting the values in column 3 from
the values in column 2, it was possible to determine the value of work the contractor had executed for the valuation period. The resulting value was entered in column 4. In column 6, under the heading ‘Provisional’, the index numbers for August for the relevant categories were entered. In column 7 was entered the fluctuation allowance for each category using the expression
where
V value of work executed in the work category during the valuation period;
Iv index number for the work category for the month dur-
ing which the mid-point of the valuation period occurred; Io the work category index number for the Base Month.
(b) The total of items assigned to work categories included in the valuation before adjustment and the amount of the adjust- ment were then entered at Q and R on Form D (see p. 180). The total value to date of the balance of adjustable work was cal- culated from the valuation and entered on Form D and from this the balance of adjustable work for Valuation No. 12 was calculated by deducting the amount included in Valuation No. 11. The gross adjustment on the balance of adjustable work was then calculated, as indicated on Form D, and the amount entered in the space beneath the amount in respect of the work categories total. The sum of these two amounts (£8,427.23 was the total of fluctuations for Valuation No. 12 using the provi- sional index numbers.
(c) At the same time as provisional index numbers for August became available, firm index numbers were published for May and so the fluctuations total included in Valuation No. 9, car- ried out on 14 June 2006, calculated on provisional index num- bers, could then be adjusted. Accordingly, the calculation form, used to record the provisional fluctuations calculation for each work category, was then filled in under the column heading ‘Firm’ (see p. 181). The firm index numbers for May were entered in the ‘Index for Valuation Period’ column and, in those cases where they differed from the provisional numbers, the
V I I
v o
o
revised amount of ‘gross valuation including VOP’ was calcu- lated. Where there was no difference, the figures were simply carried over from column 7 to 9. The revised amounts, as appropriate, were then entered on Form D (see p. 182) along- side the provisional ones and the difference in the totals at ‘Y’ and ‘Z’ (£95.14) was entered in the last space on the form as an addition for inclusion in Certificate No. 12.
It will be obvious from the foregoing, that it is essential that the record of calculations on the calculation form and Form D should be carefully filed away after each valuation, along with Forms A and B.
The calculations described above are shown in Figure 8.3.