Valuing preliminaries in an interim

Preliminaries cover the cost of running the site rather than building anything: site management, accommodation, scaffolding, temporary services, plant, insurances, and the rest. They are priced as a separate section of the bill and they typically run to a tenth of the contract sum.

Then they are valued as a percentage of measured work complete, which is wrong for almost every item in the section.

Three different shapes

Preliminaries items do not accrue on one curve. Broadly there are three.

• Fixed, at the start. Site set-up, hoarding, temporary services connections, mobilisation. Incurred in the first weeks, largely regardless of how the works proceed.
• Time-related. Site management, accommodation hire, insurances, welfare. Accrue evenly per week the site is open.
• Fixed, at the end. Demobilisation, cleaning, making good, removal of temporary works.

Valuing all three as a percentage of measured work gets the first group badly wrong at the start and the third group wrong at the end, and only approximates the middle group by accident.

Why it matters more than it looks

Because the divergence is largest exactly when the job is in trouble. On a delayed contract, measured work stalls while time-related preliminaries keep accruing at full rate. Valuing them on the works curve under-certifies a contractor that is genuinely incurring the cost.

The opposite happens on a job running early, where a percentage approach over-certifies preliminaries that have not yet been incurred.

How to do it properly

Split the preliminaries section into the three groups at the outset, ideally at tender when the contractor is pricing them anyway. Then value the fixed-start items on completion of those activities, the time-related items on elapsed programme time, and the fixed-end items when they happen.

It takes an hour once and removes a monthly argument.

Where extensions of time come in

An extension of time moves the completion date. It does not, by itself, entitle the contractor to more preliminaries. Additional time-related cost comes through loss and expense, which requires a relevant matter, not merely a relevant event.

That distinction is the reason preliminaries should be identifiable in the valuation. If the time-related element is buried in a percentage, there is no basis from which to assess prolongation later, and the claim gets built from scratch out of accounts that were never intended for it.

The check

At any point in the job, ask what proportion of the programme has elapsed and what proportion of the time-related preliminaries has been certified. If those two numbers are a long way apart and there is no reason for it, something is wrong in one direction or the other.