LAW AND ENGINEERING VALUATION1*

Introduction:
Although each belongs to different branch of knowledge1 – one, Law, and the
other, applied science, the relationship between law and engineering both in
the theoretical and practical sense is age-long. Though an offshoot of
science2, engineering is more the practical application of science. Thus, it is
technology that is used, amongst several other purposes, to design and
produce products that improve the quality of human life. In other words,
engineering is the practical application of science to proffer solutions to
societal problems, in a safe, healthy, economical, socially acceptable and
environmentally sustainable manner. If technology is used to design and
produce products that improve the quality of human life, it is actually law
that regulates virtually everything that touches on human life, including the
deployment of technology to solve problems. Indeed, law pursues a host of
divergent purposes. They include: facilitating welfare-enhancing
transactions, corrective justice system, preventing injury and disease,
punishing crime, protecting human heritage – both natural and cultural,
and promoting useful work in the arts and sciences. For effects, these
divergent goals of law are developed and pursued in different institutional
domains such as the courts, legislatures, administrative agencies, and
private actors. Given the central position of law to every facet of human
endeavours, it is not strange therefore that there is legal aspect to virtually
everything that touches on human life. I am not sure if the same thing can
be said of other branches of knowledge. Is there, for example, technological
aspect to everything? Perhaps there is to some very limited essence,
particularly in the sense of what we often refer to as ‘technical-know-how’.
Having made a cursory clarification in the relationship between law and
engineering, it is now also important to state from onset what this note
seeks to do and what it does not seek to do. In this note, we will briefly
examine in specific terms, what engineering valuation means or entails. In
doing this, no attempt whatsoever will be made to examine in details what
engineering valuation is all about. That is an assignment for the experts in
that specialised branch of engineering. The focus here therefore, is basically
to examine what the laws of Nigeria in particular say about engineering
valuation and what implications there are, if any, for Nigerian engineers in
that special branch.

*Being a discussion note prepared by Misbau A. LATEEF, Ph.D. for the ENGINEERING EVALUATION PROGRAMME
1

(2019/2020) of the Department of Materials Science and Engineering, Faculty of Technology, Obafemi Awolowo University,
Ile-Ife, Osun State. This note is strictly for this program and should not be reproduced or distributed in any form or for any
other purpose without written permission of the author. Author’s contact for use or reproduction of the note:
malateef@oauife.edu.ng

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Engineering Valuation:
To start with, there is no definition whatsoever under the Nigerian laws for
engineering valuation. To define it therefore, we must turn to the
professionals on the subject. By professionals it is meant the engineering
valuers, estate surveyor and valuers, as well as other proximate
professionals. For the engineers, engineering valuation is said to be at
once a science and an art. As a science, it deploys existing scientific
knowledge to practical applications in technology and inventions
amongst others. As an art, it is judgemental and essentially depends on
field knowledge and practice than it does on mere academic tutoring.
More specifically, engineering valuation has been variously defined as
follows:
1) Engineering valuation is the art of estimating the value of specific
properties or assets where professional engineering knowledge and
judgment are essential. Examples of such properties are mines,
factories, building, machinery, industrial plants, engineering
constructions of all kinds, public utilities, plants, engineering
constructions of all kinds, public utilities, etc.

2) Valuation is defined as the art of estimating the fair monetary

measure of the desirability of ownership of specific properties/assets
for specific purposes, at a specific time.

Similarly, the Institute of Appraisers and Cost Engineers (IA&CE) in its

Principle of Valuation Practice and Code of Ethics (2003) stated the scope of
valuation to include the following:
a) Determination of the value of property/assets;
b) Estimation of the cost of production of a new property;
c) Replacement of an existing property by purchase or production of an
equivalent property, or
d) Reproduction of an existing property by purchase or production of an
identical property,
e) Forecast of the earning power of a property.

No doubt, the above definitions of valuation, in the view of the

engineers, are the major source of conflict with other professionals,
especially the estate surveyor and valuers. There are those who argue,
for example, that the competence of engineering valuer is limited to
assessment of technical or functional state of industrial assets,
whether real or personal, and that none of such role extend to or
constitute valuation from the perspectives of financial transactions or
investments in the sense that would have been expected of an estate
surveyor and valuer or a financial expert.

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Nature of the Property or Assets for Valuation:
At law, properties are basically classified into real and personal. A real
property, otherwise technically known as realty, is basically a land and
anything growing on, attached to, or erected on it, excluding anything
that may be severed or detached from it without injuring the land.
Furthermore, a real property can either be corporeal – soil and
buildings on it, or incorporeal – an interest in the land owned by
another person, consisting in the right to use or control the land, or an
area above or below it, for a specific limited and definite purpose such
as for mining or crossing it for private or public purpose (incorporeal is
also technically referred to as easement). A personal property, otherwise
technically known as personalty, on the other hand, is any movable or
intangible thing that is merely attached to land and is subject to ownership
but not classified as real property. In other words, personal property
includes everything (capable of ownership) except real property. Personal
property includes factories, industrial plants, machineries, tools, bank
deposits, proceeds from the sale of real property, notes, bonds, cars, and
many more.
In line with the foregoing clarification at law, a line is often drawn, therefore,
between the nature of the property or an asset that an estate valuer - a
realtor - and an engineering valuer is competent to evaluate. Thus, an estate
valuer is generally said to have competence to evaluate the value of a real
property (estate) such as land and the buildings on it, while an engineering
valuer is generally said to also have competence to evaluate personal
property such as industrial plants, machineries and equipments. According
to C.J Schwingle, a professional engineer and a former President of the
prestigious American Appraisal Company, the real property (estate) over
which an estate valuer may exercise competence is basically an ‘income real
estate’ while the personal property that an engineering valuer may put value
on is basically industrial property. According to him, income real estate
entities such as land or building are freely exchanged 3 in the market based
on what is often regarded as their “open market value”. Industrial properties
such as plants and machineries, on the other hand, are generally not so
freely or easily exchanged on the market. Thus, they are often evaluated
based on what is regarded as “fair market value” which typically requires
rigorous collation of data and an in-depth analysis of value chains.
Consequently, only a trained engineering valuer or valuation engineer can
undertake such a task. And for much of income real estate valuation
exercise, according to Schwingle, management skills and service or product
differentiation have minimal significance in the establishment of value, when
compared to their pre-eminence in the establishment of value for industrial
properties.

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However, it must be noted that while the above distinction between real and
personal property is basic, it does not really mean that the role or expertise
of an engineering valuer of industrial assets or property is restricted only to
personal property while that of an estate surveyor valuer is restricted only to
real property. There is fluidity in these roles and classifications even though
only trained engineers have the expertise and legal competence to put value
on industrial plants, machineries and equipments.4 For example, mines,
buildings and public utilities are form of real property over which only
engineering valuers have sole, if not shared, expertise to evaluate. It follows
therefore that the legal competence and expertise of engineering valuers, as
we shall see, cut across both the real and personal form of property or
assets.

Legal rights in Property:

Another aspect of valuation of property that is often glossed over and which
is very important for professional valuers to understand is the issue of legal
rights in the subject property. At law, the issue of legal right in or over
any property raises the issue of title and ownership over the subject
property. That is, the question of who owns what or has the right in law
to lay claim to the property. After all, it is only the owner or whoever
he legally authorises that can lay claim to or dispose of a property as
may become desirable. Thus, while it is tempting to always assume that
valuation is all about the nature, physical features, size or quantum, and
condition of the property, the issue of legal right in the property is as much
important as those other considerations. For example, a defective title in a
property is definitely an issue that goes to the value of the property and the
benefit or loss of one party against another.
It is therefore this understanding that underscores the claims that
perhaps the discipline of valuation of plant, equipment and machinery
is at best a multi-disciplinary exercise that goes beyond the
conscription of both the estate surveyor valuers and engineering
valuers. Consequently, it is imperative that professional property
valuers must also necessarily have background legal and commercial
knowledge to decipher the nature and quantum of the relevant
property as well as modalities for translating the inherent rights into
figures.

Nigerian Law on Engineering Valuation:

Before examining what the Nigerian laws say or entail on engineering
valuation, it is important to first point out that it is the municipal laws of
individual country that regulates engineering valuation in that country.
Thus, there are no international laws in this regard. Even if there are, no
international multilateral agreement will have any force of law in Nigeria

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until such agreement has been domesticated in the country as provided
under section 12 of the 1999 Constitution (as amended). Although there is a
body called the International Valuation Standards Committee (IVSC) which
seeks to set the minimum standards or valuation requirements, the actual
standard of practice of valuation of industrial and infrastructural assets is
still generally an exclusive preserve of each country’s legislations.
In Nigeria, the legislative competence to enact laws on engineering and
constructions generally are within the concurrent legislative list under
the Second Schedule of the 1999 Constitution (as Amended) of the
Federal Republic of Nigeria. Therefore, both the Federal and the States
Governments5 have the legislative competence to legislate on engineering
and constructions matters generally. However, with respect to the specific
issue engineering valuation in Nigeria, only Federal legislations seem to have
touched on the matter. Even at that, none of the existing Federal legislations
makes any elaborate provisions on the subject. At best, there are extracts of
laws which merely recognise industrial plants and the role of engineers,
among other professional, in valuation exercise generally. In other words,
there is really none of the existing laws which specifically defines and
assigns roles to definite professionals.6

1) Engineers (Registration, etc.) (Amendment) ACT CAP 110 LFN

1992 (Formerly Decree No. 27 of 1992)

This is the enabling Act for the registration of engineers in Nigeria. The Act
defines “practice of engineering” as including any professional service or
creative work requiring the application of special knowledge of mathematics,
physics and engineering in form of construction, invention, discovery,
valuation, research and teaching in recognized engineering institutions,
planning, operation, maintenance, supervision of construction and
installation involving advising, operating, evaluating designing, specifying,
laying and directing, constructing, commissioning, inspecting or testing in
connection with any public or private utilities, structures, buildings, plants,
machines, equipment, processes, works or projects.

2) The Industrial Inspectorate Decree

The main Federal legislation that deals substantially with engineering

valuation is the INDUSTRIAL INSPECTORATE DECREE NO. 53 OF 1970
now INDUSTRIAL INSPECTORATE ACT CAP 18 LFN 2004. The Act
establishes the Industrial Inspectorate Department under the Ministry of
Industry. Although the Act does not define what engineering valuation
is, it does refers to engineering valuation as one of the duties of the
Inspectorate.

According to provisions of section 2(1)–(3) of the Act, the duties of the

Industrial Inspectorate as spelt out by the Act are:

S. 2(1) It shall be the duty of the division generally to carry out

investigations into any proposed, new and existing undertaking involving

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any proposed capital expenditure, and in particular, for the purposes of
determining the investment valuation of the undertaking, that is –

(a) the actual capital (whether foreign or local) employed or

proposed to be employed in the undertaking;
(b) the actual valuation of buildings, plants and other
machinery employed or proposed to be employed in the
undertaking and any addition thereto.

(2) The division shall also obtain necessary information on

economic trends in the country and for this purpose the division
shall‐

(a) prepare and keep detailed records of matters relating to any

undertaking investigated by it;

(b) as far as possible prepare and keep records of all industrial

plants and equipment in the country, their value and the
value of similar plants and equipment in other countries.

The subsidiary regulations/scheme of service outlines the qualifications of

the Director and Inspectors that legally constitute the department. They
must be engineers and engineering technologists. What this clearly suggests
therefore is that only engineers, and not estate valuers, are recognized by
this Law for the purpose of valuation of industrial properties.

3) Companies and Allied Matters (Amendment) ACT CAP C20 LFN

2004

Generally, this law (CAMA) regulates the incorporation and winding up of

corporate bodies (companies) in Nigeria. In section 37 of the Act,
engineers are generally recognized also as professional valuers in
relation to the valuation of assets of a company. Section 137(6) of CAMA
provides thus:

For the purposes of this section “valuer” means an auditor, a

valuer, a surveyor or engineer or an accountant not being a
person in the employment of the company nor an agent or
associate of the company or any of its directors or officers.

It must however be noted that engineers were not listed in the original
provision of the Act when it was first promulgated as a Military Decree in
1990 (CAMD No 1 of 1990). It was therefore at a subsequent amendment
that engineers were included in the definition of professional valuers. This
was achieved as a result of the petition by the Nigerian Society of Engineers
(NSE) in March 1989, on the Report of the Consultative Assembly on the
Reform of Companies Law. Thus, Sec. 137 of the original Decree was
subsequently amended by CAMD (Amendment) Decree No 46 of 1991. This
made for the inclusion of Engineers in the definition of valuers.

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Furthermore, while Section 554 of CAMA clearly stipulates the conditions of
issuing experts’ statement in a company’s prospectus (to guide
investors/subscribers), subsection 3 (s. 554(3)) also includes the engineers
in the list of experts that are competent to issue such statements. Also on
the issue of reconstruction, merger or take-over of companies, section 603
clearly mandates the expert report and this invariably include the engineers.
In all, engineers have rightly relied on the foregoing provisions of CAMA
amongst other to assert competence or relevance of engineering valuation in
portfolio management, in acquisition analysis and in corporate finance.

4) Estate Surveyors and Valuers (Registration, Etc.) Decree No. 24 of

1975, now CAP E. 13 LFN 2007.

Although this legislation is the enabling Act for the registration of Estate
Surveyors and Valuers7 in Nigeria and therefore really has nothing to do
with the engineers, it is also the major source of the perennial conflicts
between the Nigerian Institution of Estate Surveyors and Valuers (NIESV)
and the NSE through the Institute of Appraisers and Cost Engineers (IACE).
The NIESV have consistently relied on the provisions of the law to assert
competence, if not to challenge, the engineers on whose exclusive role it is to
put value on assets generally, whether industrial plants or not.

The legislation established the Estate Surveyors and Valuers Registration

Board of Nigeria (ESVARBON) as the regulatory body for the profession.
Specifically, section 1(2)(d) of the Act vests the Board with the following
responsibility (amongst others): “(d) regulating and controlling the
practice of estate surveying and valuation (in this Act referred to as
“the profession”) in all its aspects and ramifications.”

Consequent upon the above, the Board has stated the following as the roles
of Estate Surveyors and Valuers in valuation of property generally. That is:

1. Determining the value of all description of property assets (Corporate and

incorporated, movable and unmovable, real and personal) embracing land
and buildings, plant and machinery, furniture and fittings/equipment and
all other business assets.

2. Determining the condition of building and their services and advising on

their maintenance, alteration and improvement.

3. Determining the economic use of property asset and its associated

resources by means of financial appraisal.

4. Selling, buying or letting as an agent, real or personal property or any

other interest therein.

The Institute of Appraisers & Cost Engineers (A division of the NSE)

It is glaring that there is little or no help in the above Nigerian legislations or
any other existing law for that matter concerning specific definition of terms
and specification of roles in engineering valuation practice. However,

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whatever lacuna in the laws would seem to have been adequately catered for
by the NSE through the establishment of the Institute of Appraisers & Cost
Engineers as one of its major divisions. At any rate, it is submitted that
engineers do not necessarily need express statutory provisions of the law to
prove or establish the relevance on their subject. However, an express
statutory provision of the law will be more than desirable to claim
professional exclusivity over any area of expertise.

Conclusion:
Having regard to the totality of the foregoing, while there is no doubt that
professional engineers have exclusive expertise over the physical or
condition value estimation of plant, equipment and machinery (industrial
property), it is very doubtful, at least under the laws of Nigeria, whether
such exclusivity extends to economic or financial valuation of such property.
Indeed, this uncertainty is the major source of conflicts between engineers
and proximate professionals, particularly the estate valuers and surveyors.
It is therefore in this context of uncertainty that the lingering conflicts
between members of the Nigerian Society of Engineers (NSE) and the
Nigerian Institution of Estate Surveyors and Valuers (NIESV) over
whose responsibility it is to put value, and what nature of value, on
industrial properties should be understood. What is however certain is, until
relevant laws are reviewed and duties and roles are properly defined and
assigned, if possible, neither of the conflicting parties may have any greater
claim on valuation expertise than the other.
In the end, it must be stressed that based on the extant laws, and
particularly the failure of those laws to provide a clear-cut definition or
assignment of definite roles to professionals, it is very difficult to conclude
that any profession has a total exclusivity over the practice of valuation in
the country. At best, there should be collaboration among all the professions
recognised by law to practice valuation. The implication of such synergy will
definitely be beneficial to all stakeholders and the country as a whole.

References:
Ashaolu TA. A need to re-define the status of professional valuation:
The Nigerian perspective In Laryea S, Agyempong SA, Leiringer R,
Hughes W, (Eds.), Proceedings of WABER Conference, 24 – 26 July,
2012, Abuja, Nigeria, 313 – 328.

Ezema I, Oluwatayo A, Adewale B, Aderonmu P, Professional training

of real estate students: A study of academic curricula of three
Universities in Nigeria, 24th IBIMA Conference; Milan, Italy 6-7
November; 2014.

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Otis A. The Nigerian engineer in valuation and cost engineering
practice” Keynote Address to the 2010 Conference of the Institute of
Appraisers & Cost Engineers (Division of the Nigerian Society of
Engineers), ABUJA, 1st July; 2010.

Otis A. Nigeria Society of Engineers Comments on NIESV Submission to

APBN Titled: Valuation of Special Assets or the Estate surveyor and
valuer: Ref. Esv/Adm/11/Vol. 1 of 21st May 2001. Available:
http://www.iacenig.org/NIESV.ht ml. Accessed on 28/11/2016.

Schwingle C.J. (1962). Problems of Economic Valuation of Industrial

Assets. The Engineering Economist, Vol. 7, Iss. 2: 23-30.

Endnotes

1
It should be noted that there is really no consensus on how some academic disciplines should be classified.
For example, there is no consensus as to whether law stands alone or belongs to the humanities or social
sciences. Similarly, the issue of whether anthropology and linguistics are discipline of social sciences or fields
within the humanities is still a subject of debate.
2
Given that Science is basically the systematic way of acquiring knowledge through observation and
experimentation.
3
For example, it is much easier to put a value to a 3 bedroom apartment (an ‘income value estate’) at Lagere or
Parakin Estate, both in Ile-Ife, Osun State, based on the differential ‘open market value’ of their locations as
against the actual conditions of the apartments themselves. Or, an apartment in Ikoyi area of Lagos Island
which is an elitist neighbourhood with another apartment at Ajegunle area of Lagos mainland which is a non-
elitist neighbourhood. In all of these comparison of properties based on their ‘open market value’ the indices
for value assessment is often based on their locations and not the properties themselves. In contrast,
industrial properties by their very nature are often assessed based on the conditions, worth or cost of
replacement of the properties themselves. For example, the value of a mine or a marine vessel will not
necessarily be based on any ‘open market value’ but on the very condition and value worth of the assets
themselves. No doubt, only an expert, a trained engineering valuer, can put a value to such industrial assets,
whether real or personal property.
4
Note again the lack of consensus on whether the value chain here relates only to the physical engineering
condition of the assets or commercial or financial worth as well.
5
An example of a State Law in this respect is the Building and Civil Engineering (Construction) Materials Law of
Lagos State, 2015. Even this State Law does not define or assign definite engineering valuation roles to the
Engineers.
6
This may be contrasted with situation in other professionals. For example, the Legal Practitioner Act saddles
only qualified lawyers with capacity for legal practice just as the Medical Practitioner Act does to medical
practitioners.
7
Much the same way the Engineers (Registration, etc.) (Amendment) ACT CAP 110 LFN 1992 (Formerly
Decree No. 27 of 1992) is the enabling Act for the registration of Engineers in Nigeria.