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Overview of Construction Project Settlement
What is project settlement?
Construction project final settlement is the process of determining the actual value of a construction project after completion, including the compilation, verification, and confirmation of all costs incurred during the construction process. This is the final and most important step to:
- Determining the actual value: Accurately summarizing the construction investment costs.
- Basis for payment: Between the investor and the contractor
- Completing legal procedures: Putting the project into operation.
- Basis for accounting: Recording fixed assets
The importance of project settlement
Project settlement plays a crucial role in construction investment management:
- Legally: It is a mandatory condition for the project to be officially put into use.
- Financially: Accurately determine the investment capital as a basis for accounting for fixed assets.
- From a management perspective: Evaluate investment effectiveness and draw lessons for future projects.
- Regarding payment: The legal basis for terminating contracts with contractors.
Construction Project Settlement Process from A to Z
Preparing for final settlement
Time: 15-30 days
- Collect completion documents.
- Review the contract and its appendices.
- Summary of generated volume
- Prepare payment documents.
1
Prepare settlement documents
Time: 10-20 days
- Prepare the AB settlement report.
- Calculate the settlement value.
- Complete the application package.
- Signed by all relevant parties
2
Auditing the final accounts
Time: 20-45 days
- Submit the application to the verification agency.
- Coordinate work with the inspection team.
- Explanation and supplementary documentation
- Receive audit report
3
Approve the final accounts.
Time: 15-30 days
- Submit to the competent authority for approval.
- Received the approval decision.
- Announcement of approved financial statements
- Archiving settlement records
4
Contract termination
Time: 7-15 days
- Reconcile accounts payable between parties.
- Pay the remaining balance.
- Sign the contract termination agreement.
- Refund guarantee (if applicable)
5
Settlement Documents and Forms
List of documents for project settlement
- Legal documents
- Decision to approve the project
- Decision to approve the design
- Building permit
- Construction contract
- Construction contract
- Technical documentation
- As-built drawings
- Acceptance Report
- Construction log
- Quality inspection report
- Material Certificate
- Payment records
- Summary of quantities
- Settlement value table
- VAT invoice
- Payment voucher
- Expense statement
- Expense statement
- Settlement report
- AB Settlement Report
- Summary of final accounts
- Explanation of the final accounts
- Explanation of the final accounts
Important settlement forms
| No. | Form name | Code | Purpose of use | Note |
|---|---|---|---|---|
| 1 | AB Settlement Report | Form 01/QTAB | Summary of settlement values | Obligatory |
| 2 | Summary of quantities | Form 02/BTKL | Details of the work volume | Obligatory |
| 3 | Unit price analysis table | Form 03/PTDG | Details of the unit price components | When adjustments are made |
| 4 | Acceptance Report | Form 04/BBNT | Confirm completed volume | Obligatory |
| 5 | Material list | Form 05/BKVT | Details of materials used | As requested |
Settlement of AB with the Investor
The concept of AB settlement
The AB settlement is the process of determining the final payment value between the investor (Party A) and the contractor (Party B) after the project is completed. This serves as the legal basis for:
- Pay the remaining amount of the contract.
- Handling unforeseen expenses during construction.
- Termination of the contract between the two parties.
AB settlement details
1. Original contract valuec
- The value of the original contract signed
- Amendments (if any)
- Adjusted value
2. Volume of work performed
- Contract volume
- Increase/Decrease in Volume
- Actual quantity accepted
3. Payments and Accounts Receivable
- Amount advanced
- Amount paid
- The remaining amount to be paid.
Important notes when settling AB accounts.
- A handover report confirming the completed work volume must be prepared between both parties.
- Any additional quantities must be approved before final settlement.
- The applicable unit price must be appropriate for the time of execution.
- Payment documents must be valid and legal.
Settlement of AB with the Investor
Purpose of final audit
The purpose of auditing project final accounts is to:
- Verify accuracy: Of the settlement figures
- Assessing compliance: Regulations on construction investment
- Error detected: During the settlement process
- Here is a suggestion: Adjust and refine
Audit content
- Material Costs
- Legality of the project
- Investment procedures
- Bidding process
- Contracts and appendices
- Check the weight
- Compare with the design drawings.
- On-site inspection of the construction project.
- Verify the generated volume.
- Assess reasonableness
- Check the value
- Applicable unit price
- Cost estimates
- Taxes and fees
- Other expenses
Audit process
- Audit planning: Define the scope, content, and timeframe.
- Gathering documents: Project documents, payment documents, final settlement reports
- Check the details: Each item, each expense
- Prepare the audit report: Clearly state the findings and recommendations.
- Discussions with relevant parties: Agree on a course of action.
Construction Cost Optimization Strategy
Construction Cost Optimization Strategy
Problem: There are additional work items that have arisen during construction but have not yet been approved by the investor.
Solution: Prepare a report for approval of additional work volume, along with a confirmation document from the supervising consultant and the investor, before final settlement.
Problem: Some expenses have been incurred but lack valid invoices or supporting documents.
Solution: Request the supplier to reissue the invoice or create a debt confirmation document signed by all relevant parties.
Problem:The actual cost of materials is higher than the contract price due to market fluctuations.
Solution: Apply a price adjustment clause in the contract or create an addendum to the contract to adjust the price.
Problem: The investor and the contractor disagree on the scope of work to be completed.
Solution: Hire an independent appraisal firm or request an expert assessment.
Dispute resolution process
- Direct negotiation: Both sides reviewed and agreed on a plan.
- Third-party mediation: Seek independent advice or expert opinion.
- Commercial arbitration: Resolved according to the terms of the contract.
- Court: The last resort when other measures are ineffective.
Download the Settlement Form
Construction project settlement form templates according to the latest regulations.
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