Final account (final settlement)
The final account is drawn up once the work has been completed and handed over. Its purpose is to bring the accounts to zero: you take the total actually executed (the sum of all progress billings and quantities built), subtract the payments already made, any advance still pending recovery, the retainage to be released or applied, the liquidated damages for delay, and any other deduction. The result is the final balance, which can be in favor of the contractor (a last payment) or in favor of the owner (a refund).
The final account is not the same as the delivery-and-acceptance certificate or as termination of the contract, though the three are linked: first the work is accepted, then it is settled (the accounts are closed), and finally the contract is formally terminated. The final account also decides the fate of the retainage accumulated as a guarantee fund: if the work passed, it is returned; if there are defects or latent flaws, it can be applied to repairing them or backed by a latent-defect (warranty) bond.
On public projects, public procurement laws and their regulations govern the final account: they set deadlines to prepare it after the work is received, the duty to notify the contractor, and the minimum content (the credits for and against each party). Once the balance is signed and paid, the contract is settled and only the warranty obligations backed by the latent-defect bond remain in force.
Formula
Example
Work executed for $10,000,000. $9,200,000 has already been paid in progress billings, $0 of the advance is left to recover, $500,000 of accumulated retainage is released, and $100,000 of liquidated damages is applied for 10 days of delay. Final-account balance in favor of the contractor = 10,000,000 − 9,200,000 + 500,000 − 100,000 = $1,200,000.
Frequently asked questions
What is the difference between the final account and the delivery-and-acceptance certificate?
The delivery-and-acceptance certificate documents that the physical work was received to the owner's satisfaction; the final account is the close-out of the financial accounts (balances, retainage, penalties and deductions) prepared after the work is accepted. They are separate, consecutive documents.
What does a construction final account include?
It includes the total actually executed, the payments already made, any advance still pending recovery, the release or application of retainage, the liquidated damages for delay, other deductions, and the final balance in favor of the contractor or the owner.
What happens to retainage in the final account?
Retainage accumulated as a guarantee fund is released to the contractor if the work passed; if there are defects or latent flaws, it can be applied to fixing them or backed by the latent-defect (warranty) bond delivered at settlement.