How a Quantity Surveyor tests an alleged overpayment

The shape of the claim

An overpayment claim is usually framed as two numbers: what was paid, and what the works were worth. The difference is claimed back. Both numbers need testing, and in practice the first is almost as contentious as the second. Payments made outside the certification process, direct payments to suppliers, deductions for retention that may or may not have been released, and refunds that were netted off all confuse the picture.

The claim also arrives with a method already chosen. Perhaps a later contract administrator has re-valued the whole account; perhaps a few periods have been picked out because the shortfalls look large. Part of the expert's role is to ask whether the method actually answers the question.

Step one: fix the payment side

Before valuing anything, establish what was paid, to whom, when and under which certificate or application. The sources are the certificates or payment notices, the bank statements, and the contractor's and employer's ledgers. Where they disagree, bank evidence is primary. On a recent instruction, reconciling bank exports against applications removed duplicate entries, confirmed the gross payments to within a pound of the pleaded figure, and showed that one deduction had been treated as a positive charge. None of that was visible from the ledgers alone.

Retention needs the same care. A review of the certificates shows what retention was held at each stage and whether a first-half release was certified. An assumption that retention remains held when the certificates show it released will overstate the overpayment by that amount.

Step two: fix the valuation basis

The contract determines how the works should have been valued, and therefore what "worth" means:

• Under a lump sum contract, the measured works at contract rates, plus or minus variations, plus any loss and expense, less deductions for defects and incomplete work.
• Under a prime cost or cost-plus contract, the cost properly incurred and supported by records, plus the fee. The question becomes one of evidence: is each cost supported, is it within the contract, and has the fee been applied once rather than twice?
• Under NEC, the Price for Work Done to Date under the relevant Option, with compensation events assessed in accordance with the contract.

Two errors recur. The first is applying a fee percentage to a figure that already includes it, which inflates or deflates the account by the full fee. The second is comparing a later re-valuation against the contractor's applications rather than against the certificates actually paid, so the difference measures the certifier's generosity rather than any overpayment.

Step three: choose the testing approach, and say so

On a large account a line-by-line re-valuation may be disproportionate. The alternatives are a whole-account reconciliation at category level, category testing (for example all subcontract accounts, or all plant), or sampling across periods. Each has limits:

• Whole-account reconciliation explains the total difference but may not identify the cause of every line.
• Category testing gives strong evidence for the categories tested and none for the rest.
• Sampling is only reliable if the sample is representative. Periods selected because they show the largest shortfalls are not a sample; they are the claimant's best examples, and should be described as such.

The approach should be agreed with those instructing before the work starts, and the report should say what was tested, what was not, and what that means for the conclusion.

Step four: classify the differences

Once the two sides of the account are on a common basis, the differences fall into a small number of kinds, and each needs a different treatment:

• Unsupported items. Costs or quantities for which no record has been produced. These are not necessarily wrong, but the burden of showing them lies with the party relying on them. The report records what was requested and not provided.
• Supported but differently valued items. Both parties accept the work was done; they disagree on the rate, the measure or the treatment of overheads. These are matters of opinion and the expert gives one, with reasons.
• Duplicated or misallocated items. The same invoice in two periods; a quotation treated as an invoice; a supplier statement that overlaps an itemised account. These are matters of fact and are usually decisive once found.
• Items outside the contract. Work on another property, costs excluded by the contract, or charges after termination. Often small, but they test the reliability of the rest of the account.

It is important to look in both directions. A claimant's re-valuation that excludes items the contractor can support is as much an error as a contractor's application that includes items it cannot. An independent report records both.

Step five: present a bridge

The output that tribunals and parties find most useful is a bridge: one schedule that starts at the sum paid, moves through each category of adjustment with a reference to the supporting document, and arrives at the assessed value and the resulting overpayment or underpayment. Residual differences that cannot be traced are shown as residual, not absorbed into the nearest category. The schedule is supplied as a working spreadsheet with the formulae intact.

What the report should not do

It should not decide questions of law: whether a certificate is final, whether a claim is time-barred, or whether a notice was valid. Those belong to the lawyers and the tribunal, and the expert's job is to give figures on each alternative so the decision can be applied. It should not present a balancing figure as proven loss. And it should not omit the findings that help the other side; an overpayment report that only finds overpayments is not evidence, it is advocacy.

This article is general information for professionals and the public, not legal or professional advice, and does not create a client relationship. The law and procedure described are those of England and Wales as understood at the date of publication. Take advice on your own facts before acting.