Construction Final Account: Variations, Deductions and Sign-Off With AI

Start from the original contract sum, replace each provisional and prime cost sum with its actual cost, add approved variations, deduct omissions and agreed credits, then subtract what you have been paid and show retention. Send it with a one-page cover letter and a sign-off form so the client agrees the number in writing.

A small job's final account fails for dull reasons: a variation agreed on site with nothing in writing, an allowance nobody reconciled, a credit the client remembers and you do not. The worked example below is built so every line carries its evidence. AI helps with the drafting and the arithmetic check. It cannot create an approval that was never given, and it should never be asked to.

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The job behind the numbers

A four-person building firm has finished a single-storey kitchen extension for a homeowner. Practical completion was certified last week and the snagging list is clear. The contract has these terms, which are examples to replace with your own:

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• Contract sum $120,000, paid in five stages: deposit 10%, then 20%, 25%, 25% and a final 20% on completion.
• Retention of 5% on every stage payment after the deposit, half released at practical completion and half after a six-month defects period.
• Four allowances inside the sum: electrical fittings, floor tiles, the kitchen supply and ground conditions.
• Variations to be priced and approved in writing before the work, which is the rule that did not always happen.

Stages 1 to 4 have been invoiced and paid. The fifth, the 20% completion payment, has not been invoiced, because the final account replaces it. Every figure is made up for illustration.

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The final account on one page

The account has two parts. The first adjusts the contract sum for everything that changed. The second turns the adjusted sum into what is actually payable now, which is where retention changes the answer.

Three things are worth reading off that page. The adjusted sum is $4,000, or 3.3%, above the original, and the client can see exactly which lines make up the increase. The amount payable now, $29,400, is not the adjusted sum less cash received ($32,200), because $5,600 of retention stays held and half of it is released. And retention applies to $112,000, not $124,000, because this contract takes none on the deposit; if yours takes it on everything, your figure differs.

Check the cash received line against your own records before anything else. Stage 1 was $12,000 with no retention. Stages 2, 3 and 4 were $24,000, $30,000 and $30,000 gross, with 5% held from each ($1,200, $1,500 and $1,500), so $4,200 retention is already being held and $91,800 reached your account. The remaining retention to hold from this final invoice is $5,600 − $4,200 = $1,400. The practical-completion paperwork that triggers the first release is covered in the practical completion certificate tutorial.

Build the variation list from messy site messages

Variations are where final accounts start to leak. The raw material is a pile of messages. Here is a realistic set, trimmed, with names as placeholders:

• 3 Aug, email: "Can we add two more double sockets by the island and a data point in the corner? Thanks, [first name]."
• 12 Aug, signed variation form: larger bi-fold door set, 3.6 m instead of 2.4 m.
• 19 Aug, text: "Yes go ahead with the thicker insulation in the roof, whatever it costs, within reason."
• 24 Aug, site note: "[first name] said OK on site to the bigger steel beam after the engineer's letter of 23 Aug."
• 30 Aug, text: "Don't bother with the outside tap and light."
• 2 Sep, email: "We've decided to leave the patio until next year."

From the messages below, build a variation log. Columns: Ref (V1, V2, ...) | Date |
What the client asked for, in their words | Type (addition or omission) | Source
(email, signed form, text, site note) | Approval evidence (Written, Text, Verbal, None) |
Gap (what is missing).
Rules: do not invent prices; the price column is mine. If a message gives approval
without a price, say PRICE NOT AGREED. If approval was only spoken, say VERBAL ONLY.
Do not merge two requests into one line.
[paste the messages]

A good reply gives six rows. V1 (email) and V2 (signed form) are clean. V3 shows PRICE NOT AGREED: the client said go ahead "whatever it costs, within reason", which is an approval of the work and not of a number. V4 shows VERBAL ONLY: the engineer's letter exists, but the client's consent is a site note. V5 and V6 are omissions that need credits calculated from your own build-up. You then add the prices from your pricing sheet: $390, $2,460, $840, $1,720, −$280 and −$1,675.

The two gaps are the useful output. Before the final account goes out, send the client a short message for each: for V3, "the extra roof insulation came to $840; please confirm in writing", and for V4, "you agreed the larger steel beam on site on 24 August after the engineer's letter; the cost was $1,720; please confirm". Catching variations while the job is running is easier than reconstructing them now, and the tutorial on pricing variations as they arise covers that routine.

Provisional and prime cost sums: swap the guess for the invoice

A provisional sum is a best-guess figure for work that was not defined well enough to price when the contract was signed; a prime cost sum is an allowance for work or materials from a supplier or specialist chosen later. Neither is expected to be paid as written. The usual approach is to take the allowance out and put the actual cost in, so the contract sum can go up or down. Each line therefore needs the allowance, the actual figure and the invoice that proves it.

Two of the four are credits, and including them matters as much as the additions. A client who sees $1,640 against a $2,000 tile allowance, and $880 against $1,500 for soft ground, is far more likely to accept the kitchen's $1,150 overspend than one who sees only the increases. Attach the supplier invoices for each actual, and for PS4 the record of what was found and removed.

A sign slip an assistant would catch

Suppose the first draft of this account is typed up by hand, and V6, the omitted patio, goes in as +$1,675 instead of −$1,675. The adjusted sum comes out at $127,350, not $124,000, an overcharge of $3,350 (twice the figure) on a line where the client has actually saved money. A plain instruction to an assistant is enough to catch it:

Recompute this final account from the schedule below, line by line, without rounding.
Show each running total. Then compare your adjusted contract sum with the figure I
typed and list every line where the sign or amount differs from what the description
implies (for example an omission shown as an addition).
[paste the schedule and your typed total]

The reply should flag the mismatch at line C and show the running total that results from the right sign. A spreadsheet total would catch it as well, if the omission column is signed correctly. The assistant is a second pair of eyes on the arithmetic, not the source of the numbers, so keep the schedule in a spreadsheet and let the assistant check it, not the other way round.

Deductions the client will expect to see, and the evidence for each

The word deductions covers several different things, and mixing them makes the account harder to defend. Keep them in separate groups and attach the right evidence to each.

In the example, D1 is an agreed credit of $150 for a damaged window sill the client preferred to keep, and D2 is $95 for a waste-container permit the client paid directly. Both are in writing. The client also claimed $900 for nine days of delay. That is not in the account. It is listed on a separate "not agreed" schedule with the firm's reasoning: the delay followed the client's late tile choice, recorded in two emails. Leaving a disputed claim out of the sum, and saying so, is far better than quietly netting it off.

Retention and the defects period, in the numbers

One reference on construction contracts puts the usual retention rate at often 5 per cent of each payment, released in two stages: half on certification of practical completion, and the remainder when defects have been made good at the end of the defects period, which typically runs six to twelve months. Your contract may differ, and some small domestic jobs have no retention at all, so use its terms. The final account just has to show the arithmetic clearly.

On this job, total retention is $5,600. Of that, $4,200 has already been held from stage payments and $1,400 more is held from the final balance. Half, $2,800, is released now and is part of the $29,400. The other $2,800 falls due at the end of the six-month defects period. Put both dates in the cover letter and in your diary, and treat the second as an invoice you are going to raise, not a gift you are waiting to receive. The retainage tracking tutorial sets up the reminders.

The defects period also gives the client a clear route for problems. If they list a defect in month three, you fix it, and the retention release stays on schedule. A client who understands that the second half of retention is their safeguard is less likely to hold up the first half over a minor snag. The snagging report tutorial covers the list that should already be cleared before this stage.

The cover letter: prompt, first draft and what to fix

The cover letter does one job: tell the client the number, show where it comes from and say what happens next. Give the assistant only the facts, and forbid what it likes to add.

Write a one-page cover letter to a homeowner to go with a final account. Use only these
facts: original contract sum $120,000; adjusted contract sum $124,000 (up $4,000);
$29,400 payable now within 7 days; retention of $5,600 is held, half ($2,800) released
now and half due at the end of the six-month defects period; the schedule attached shows
four allowance reconciliations, six variations and two agreed credits; one item, the
client's $900 delay claim, is not agreed and is on a separate schedule. Ask the client to
sign the agreement form or send queries by line number within 10 days.
Tone: polite, plain, firm. Use [first name] and [your name]. Do not apologise, offer
discounts, mention legal rights or add any fact I have not given.

The assistant's first draft is often warm and wrong in four ways. Here is an illustrative excerpt:

First draft: Dear [first name], I hope you are loving your new kitchen! I'm so sorry about the delays, which I know were frustrating. As we discussed, the larger steel beam was agreed verbally on site, and I'd be happy to look at a small discount if that would help settle things quickly...

It apologises for something the firm does not accept, claims "as we discussed" for the one variation with no written approval, offers a discount nobody authorised, and buries the number. The fixed version:

Edited: Dear [first name], please find enclosed the final account for the kitchen extension. The adjusted contract sum is $124,000, which is $4,000 above the original $120,000. The attached schedule shows every adjustment: four allowances reconciled to invoices, six variations and two agreed credits. After the payments already received and the retention held, $29,400 is payable now, within 7 days. Retention of $5,600 is held under the contract: half, $2,800, is included in that figure and the other half falls due at the end of the six-month defects period. One item, your claim for nine days of delay, is not agreed and is listed on a separate schedule with my reasons. Please sign the enclosed agreement form, or send me your queries by line number, within 10 days. Yours sincerely, [your name]

It runs to about 150 words, states the number in the second sentence and contains nothing the firm cannot back up. Read the figures in the final version against the account one by one, because assistants copy numbers confidently and occasionally swap two of them.

The sign-off checklist for the client meeting

Sit down with the client, or send the pack in this order, so each item is settled before the next. Most of these are paperwork you either have or do not, and the sign-off is easier when the physical job is visibly finished and documented.

1. Practical completion certificate signed and dated.
2. Snagging list cleared, or remaining items listed with dates.
3. Handover pack delivered: certificates, guarantees, manuals, keys and any as-built information (the handover pack checklist covers it).
4. Final account schedule attached, every line numbered, with the approval record for each variation.
5. Allowance reconciliations backed by supplier invoices.
6. Agreed deductions each backed by a written record.
7. A separate "not agreed" schedule, listing each disputed item with both positions.
8. Retention: the amount held, the amount released now, the amount and date of the second release.
9. Payment due date and method, with the bank details the client should use.
10. The agreement form, signed and dated by the client and by you, with a copy for each.

The agreement form can be short. Something like the following, to be checked by a solicitor before you use it:

Agreed: the adjusted contract sum is $[ ] as set out in the attached schedule dated [ ], excluding the items on the "not agreed" schedule. Client: [signature, date]. For [firm]: [signature, date].

Whether to add "in full and final settlement" wording, and what that would waive on each side, is a question for a solicitor, because it changes the position on anything that surfaces later. Designing Buildings Wiki, the reference I used, says that on formal contracts it is preferable for the contractor to sign off a draft final account "in full and final settlement" before it is issued, and that the final certificate which follows is conclusive that adjustments are agreed and claims settled. That is why the wording deserves a professional's eye before you copy it.

When the client queries a line: three piles and a reply

Expect questions. When they come, sort every line into one of three piles: agreed, agreed in principle (needs a document or a small correction), and not agreed. Ask for payment of the agreed pile straight away. Holding agreed money hostage to a dispute over $900 is how a small disagreement becomes a large one. Give each query a name and a date, and keep the whole record on one page.

A concrete example. The client queries V4, the steel beam, at $1,720. The firm's evidence pack is simple: the engineer's letter of 23 August changing the beam size after opening-up, the supplier invoice showing the $1,090 difference between the specified beam and the larger one, 14 labour hours at $38 ($532), lift hire of $98, and photographs from 24 August. The build-up adds to $1,720 exactly. An assistant can draft the reply from that pack, with a check on the first attempt:

First draft: As you confirmed verbally on site, the larger beam was approved, so the cost of $1,720 is due.

Edited: The engineer's letter of 23 August required a larger beam once the opening was cut. You were on site on 24 August when it was discussed and asked us to proceed. The cost is $1,720: $1,090 supplier difference, $532 labour (14 hours) and $98 lift hire, with the invoice and photographs attached. I'd like to confirm that approval in writing now, so we have the same record. Could you reply to this message to confirm?

The first draft leans on a spoken agreement and gives the client an easy "I never said that". The edit gives the evidence first and asks for the missing confirmation without accusing anyone. Ask the assistant for two or three likely queries before the meeting, such as "why is the kitchen over the allowance?" and "why was the patio credit not bigger?", and have the answer and the evidence ready for each. If your contract sets formal payment notices and deadlines for disputing a sum, a queried line has a clock attached as well as a figure, and the payment notice tutorial covers how to check those deadlines.

If the dispute is over a larger sum, or the client stops responding, stop drafting and take advice. Mediation or a professional quantity surveyor is often cheaper than the argument. The assistant's job ends at drafting, checking and organising. The commercial decision, and any step that could affect legal rights, stays with you and an adviser.

Questions about agreeing a final account

How soon after completion should I send the final account?

As soon as the variations are settled, ideally within days of practical completion, and sooner if your contract sets a deadline. Memories fade and goodwill cools quickly after handover. The best defence is to keep the variation log current during the job, so the final account is a matter of compiling it rather than reconstructing it from texts and emails.

Can I include a claim for delay or extra cost in the final account?

Only if the contract allows it and you gave any notice it requires at the time. Otherwise the claim belongs in a separate, documented discussion. Ask a solicitor or quantity surveyor before you include or drop one. An assistant can draft the narrative from your records, but it cannot tell you whether you are entitled to the money.

What if the client will not sign?

Separate what is agreed from what is not. Ask for payment of the agreed part now, list each disputed item with its evidence and each side's position, and keep talking. For anything large, take advice or consider mediation before withholding documents or taking any step against the client. Do not use the handover pack as a bargaining chip without advice.

Do I have to show the client my cost build-up for variations?

Not unless the contract says so. Show the price basis the contract uses, whether an agreed price, daywork rates or a measured rate, plus enough evidence to make the figure checkable: supplier invoices, hours worked and the rate list. Your margin calculation can stay private unless the contract requires open-book pricing.

Further reads

• General Contractor AI: Turn Site Messages Into Change Orders — Turn site messages into change orders during the job.
• AI in Construction Accounting: Job Costs, WIP and Retainage Checks — Check job costs and WIP so the final account matches the books.
• Construction Cash Flow Forecast: Build One in a Spreadsheet With AI — Forecast when the final balance and retention actually arrive.
• AI for a Painting Business: Snag Lists and Final Walkthrough Sign-Off — Another trade's snag list and walkthrough sign-off.
• Chasing Unpaid Invoices With AI: Polite Reminders for Trades — Polite reminders once the agreed figure is due.
• AI Construction Contract Review Software: What Builders Should Test — Test AI contract review on an old subcontract with an answer key and planted changes, then read payment, retention, damages and indemnity yourself.
• Tradify for Builders: Set Up Quotes, Variations and Stage Payments — A step-by-step Tradify set-up for builders: staged quotes, variations priced before the work, deposit and progress invoices, and what SmartTools add.
• AI Automation for Construction Companies: Daily Logs to Invoices — Six paperwork steps from dictated daily log to progress invoice, one tool each, with a ten-person firm's costs, sums and who signs what.
• AI Tools for Contracting Businesses: Subcontracts and Change Orders — A small contractor's routine for AI on subcontracts and change orders: a clause comparison, a date tracker, a priced draft and what a lawyer still reviews.
• Asphalt Paving Proposal Template: Scope, Exclusions and Weather Terms — A copy-ready asphalt paving proposal: scope, base condition assumptions, exclusions, weather terms and payment, drafted with AI and checked by you.
• Bathroom Renovation Scope of Work: Draft Room-by-Room Lines With AI — How to turn site notes into numbered scope lines for each bathroom, with exclusions, allowances and client-supplied item rules that prevent disputes.
• Builder Invoice Template: Stage Payment Requests Written With AI — How to turn a contract's payment schedule into stage payment requests and a four-step polite reminder sequence with AI, keeping the figures and tax lines yours.
• CIS Deduction Statement Template: Fill It From Your Payment Sheet With AI — The fields, the 14-day deadline and a payment-sheet method for a CIS deduction statement per subcontractor each month, with AI doing the checking.
• Electrical Change Orders Written With AI: Ask for Extra Work Clearly — How to write an electrical change order with price, time impact and a clear approve-or-decline line, and how AI drafts it from rough site notes.
• Pay Applications for Subcontractors: Schedule of Values With AI — Build the schedule of values, report percent complete, add stored materials and retainage, then use AI to check the package against the contract.
• AI Tools and AI Development: The Complete 2026 Guide — the AI hub, including every tutorial in the AI-for-business series.

Sources: Designing Buildings Wiki entries on the final account, retention in construction contracts (often 5 per cent, released in two stages), provisional and prime cost sums, and the defects liability period (typically six to twelve months).