Project Administration, Procedure No: 1 PROJECT COST CONTROL

SECTION 1 - INTRODUCTION
General
1.

Three distinct tasks are required to achieve effective cost control of a project. These are:a. Planning and Organising the project. b. Recording and Reporting Costs during the execution of the project. c. Taking Corrective action if the cost reports indicate such action is necessary. The greatest control of costs is achieved at the planning and organising stage of any project, more so if the design of permanent or temporary works is involved. Effective cost control is achieved at this stage by means of close analysis of alternative designs (permanent and temporary works), the realistic pricing of alternatives, analysis of alternative methods of construction, realistic pricing of these alternatives, detailed planning of the task, proper purchasing procedures, organising resources, etc, etc.

2. This procedure deals with the Reporting task involved in the project cost control process, and also covers some aspects of the Corrective Action task. 3. This procedure consists of the following sections : Section 1 This introduction. Section 2 Cost Code Numbering system and the Estimate Split Summary. Section 3A Labour (Manhour reporting). 3B Labour (Cost reporting). Section 4 Plant Cost Reporting. Section 5A Commitment Reports. 5B Historical Cost Reports. 5C Escalation. 5D Project Assessment & Summary. Section 6 Variations and Extras. Section 7 Exceptional items.
4.

This introductory section of the Project Cost Control procedure discusses the philosophy of the standard cost reporting system, but the details are covered in the other sections above. The system applies in principle to all types of contract, i.e., lump sum, schedule of rates and cost reimbursable, although the details and requirements will vary.

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Project Administration, Procedure No: 1 PROJECT COST CONTROL
5.

The procedure describes a manual method of project cost control reporting. “Company Name” objective is to use payroll data, financial and estimate figures for project cost control reporting system based on the manual method. This procedure has a number of draft report formats that "Company Name" intends to implement, and are attached to this procedure marked “Attachments”. For the purpose of putting in place the “COMPANY NAME”. Project Cost Control Procedure, it shall be refered to as the “manual method” where it may be necessary to set up the reports in appropriately designed spreadsheets to suit manual entry of data obtained through “COMPANY NAME”’s Financial and Payroll Systems.

Overview of Cost Control Reporting System
6.

In outline, the key elements of an effective cost control reporting system are:a. b.

Proper design of an effective cost code numbering system and correct allocation of alloweds into this system. Prompt accurate reporting of commitments and/or costs against alloweds, taking realistic account of escalation, variations, etc.

c. Intelligent analysis of reports leading to specific action plans for improvement. d. Implementation of the action plans. (Note that in effect items b, c and d form a continuing cycle.)
7.

The emphasis of the cost control reporting system is to report at the earliest stage of incurring cost. For many items, this can be achieved by reporting at the time of placing an order i.e. at commitment. For such a system to succeed it is essential that expenditure is not incurred without the issue of a properly costed order signed by an authorised person. However, with certain items it is impractical to report costs at the time of commitment. The cost control reporting system provides alternative methods for reporting these items, which include labour and miscellaneous materials etc.

Effective Cost Control Reporting
8.

The principles for effective cost control reporting are:a. Concentrate on the "critical few" rather than the trivial many.
b.

Make the system simple enough so that all project staff fully understands it, and realistic enough so that they believe in it, i.e. make provision for taking account of escalation, variations, etc. (Thus they are able to spot unsatisfactory performance and initiate corrective action without delay).
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Project Administration, Procedure No: 1 PROJECT COST CONTROL c. Be sure that like is compared with like.
d.

Differentiate between items with “ single- decision “ costs, e.g. supply of structural steel and those with “recurring-decision” costs, e.g. oxygen and acetylene. Identify "one off" items where cost reporting is ineffective and short term planning is the only effective way of controlling costs. Use "rule of thumb" estimates to check actual costs and seek explanations for those that do not check. It will often lead to errors in coding or incorrect allocation of costs.

e.

a.

Terminology
9.

Attachment 1A lists the terms and definitions that are relevant within the "Company Name" manual method in the context of cost control and reporting and financial aspects. Terms used within the reporting system must be consistent to avoid errors and misunderstandings. Abbreviated terms, particularly when used in reports, must be fully understood to avoid errors in reporting.

The System
10.

The cost control reporting system is based on two distinct types of reporting method:a. Reporting at commitment and b. Reporting using historical (invoiced) costs. At the stage of establishing the cost control report documents it is necessary to determine those items that are best reported at commitment and those that are best reported using historical cost. The items should be clearly separated and controlled accordingly.

11. Those items that are best reported at commitment include:

Major materials, the cost of which are known at the time of ordering and where the gain or erosion of margin can be predicted providing wastage is as expected. Thus after the initial "single-decision" the only effective control is on wastage. Subcontracts, the cost of which are known at the time of ordering and again the gain or erosion of margin can be predicted.
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Project Administration, Procedure No: 1 PROJECT COST CONTROL

Plant (including all hired items), where the hire rate is known at the time of ordering. In the case of Plant, however, the commitment can only be accurately assessed in most instances for the period that the plant has been on the project, and forecasting the commitment to completion is not as accurate as when assessing commitments for major materials and subcontracts. Thus Plant control is best based on a system that measures commitments to date rather than forecast commitments to completion. For this reason a different reporting system is proposed for Plant when the plant component of a contract is significant.

12.

Those items that are best reported using historical costs are:•

Minor materials, notably small tools, consumable, formwork, scaffolding (unless hired), temporary materials etc., where, because they are ordered piecemeal, it is virtually impossible to make a reliable prediction of the total final commitment and hence forecast the gain or erosion of margin. It therefore becomes necessary to review the costs for these items each month, and compare them with an assessment of alloweds for the costs recorded, as a basis for control action. Labour, where up-to-date accurate costs are known (from payroll) but reliable predictions of the total final costs are virtually impossible due to the usual uncertainties associated with labour. For the Labour component of a contract, measurement of performance, production rates, etc., becomes more important, and this often requires a more frequent rate of cost reporting than for other items controlled by historical cost means. For this reason a different reporting system for Labour is proposed when the Labour component of a contract is significant. Other items that are often included in historical cost control reporting methods are:

Small material and subcontract items, that although suitable for commitment type reporting can be more readily and satisfactorily reported by historical costs means. This is particularly so if these items are combined with other historical cost type items. Examples include subcontracts and materials for site establishment. Freight charges, office running expenses, items not normally covered by orders (e.g.. telephone accounts), Staff charges.

13. It is possible for any item to be reported by either the commitment or historical cost method. The final choice of method must be determined from the above guidelines and factors such as the administrative task involved, the value of any particular item, the likelihood of major variations or variances necessitating close control, and the availability of documentation such as orders.

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Project Administration, Procedure No: 1 PROJECT COST CONTROL

Production of Cost Control Reports
14. Commitment reports will generally be produced monthly giving details for each cost code. 15. Historical cost reports will similarly be produced monthly giving details for each cost code.
16.

For projects with a significant component of Labour requiring separate Labour reports it would be expected to produce Labour Manhour and Cost reports weekly to coincide with payroll closing dates.

17. For projects with a significant component of Plant necessitating separate Plant Cost reports it would be expected to produce Plant Cost reports weekly, or as required to suit the desired level of control.
18.

The relationship between the various reports that make up the cost control system is illustrated in the flow charts in Attachments # & #.

Treatment of Escalation
19.

The system is designed on the basis of comparing actual costs with escalated alloweds. The procedure for escalating the alloweds is detailed in section 5C.

Guidelines for analysis of cost control reports
20. Cost reports must be analysed as soon as as they are available and action taken as necessary.
21.

In Labour Manhour Reports it will usually be adequate to:a. Study each "critical few" item in depth. b. Scan other items to identify those where the variance exceeds a predetermined figure, say 10%.

22.

The Labour Cost Report must be studied to verify that actual manhour rates line up with current alloweds manhour rates. If they do not line up, the reason, e.g., excessive overtime, bonuses, must be sought and found.

23. In Plant Cost Reports, each "critical few" item must be similarly studied and reasons for variances determined. 24. For Commitment items the reports are more in the nature of a recording system than a principal cost control instrument. This is because if wastage (in the case of materials) is kept under control, the end result costwise is decided at the time of placing the order. Thus these cost reports are studied to detect
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materials not invoiced. etc. Call in assistance if required.Project Administration. For Historical Cost item. and acted upon. idle time. inefficient techniques. Are any other site factors holding down productivity? 28. The control of historical cost items. And starting with the critical item which is showing the worst variance. Is access and working space adequate and safe? g. 31. such as temporary materials and consumables is usually much more difficult and in most cases the solution lies in more detailed and effective planning. 29. The plan must be communicated to all concerned in an effective manner. The answers to the above questions will usually indicate at least one possible course of action. or better stores control. In the areas of wastage of permanent materials.The reports must be studied to identify significant variances. Is the actual method being used exactly what was intended? c. Generally it is in the area of labour and plant that the project staff are able to apply the most effective corrective action. why not? d. etc. October 2007 Page: 6 of 6 . Are plant breakdowns causing too much lost time? i. the cost reports do form a principal cost control instrument provided that adequate care has been taken with the calculation of alloweds used. Guidelines for development of corrective action plans 26. decided upon.e. i. If not. and recorded costs are up-to-date. and control of variations and extras on subcontractors. variations for which orders have not been placed. the corrective action is usually more readily seen. Procedure No: 1 PROJECT COST CONTROL anomalies. Is the Supervisor motivating his crew as well as possible? f. Has the cost coding of time sheets or invoices been correctly carried out? b. and thus provide the basis for a plan to be made. uncontrolled expenditure. Apply work study techniques to the method looking for the elimination of unnecessary work. 30. Are materials supplies adequate? h. the situation must be analysed as follows: a. 25. e.

The dividing line between "plant" and "small tools and equipment". "Direct Cost" means a cost related to and readily identifiable with an item of work specifically required by the Contract. such as formwork and does not include work related to overhead items such as installation of services. 4. on an hourly or output basis. plant. (However. 6. should be treated as a sub-contractor). 5. and "temporary" materials is used to describe all other materials. "Labour" includes the workforce directly employed by "Company Name" plus the Supervisor plus any labour hired on an hourly basis from another employer (usually referred to as external labour). "Materials" includes all other items not covered by "labour".Project Administration. 3. in such a way as to provide effective control with minimum effort. October 2007 Page: 1 of 4 . e. 1.g. in a contractual context all externally hired labour. materials or sub-contracts. "Cost" means the amount in dollars that we are obligated to pay for labour. "Plant" includes the main items of plant and equipment hired by the project whether from "Company Name" or elsewhere and it could also include hired equipment such as buildings. Labour hired on an hourly basis is not considered as sub-contract.. is left to be defined by the Project Manager. Usually the work covered by a subcontract is permanent work. scaffolding and formwork if the estimate split and cost codes have been established accordingly. Note that labour hired on an output basis from another employer is treated as a sub-contractor. Procedure No: 1 PROJECT COST CONTROL ATTACHMENT 1A TERMS AND DEFINITIONS The following terms and definitions are relevant within the Group in the context of cost control and reporting and financial aspects. 7. "Indirect Cost" means a cost related to the overall running of a contract but not obviously identifiable to a direct work item. or closely related there to. "plant" or "subcontractors". 2. "Subcontracts" include all agreements whereby persons or firms undertake to perform specified work on the project site with or without related work off-site. labour-only Riggers/Scaffolders being paid an agreed amount per hour. which are treated as "historical cost" items. at the time of producing the estimate split and cost code system. "Permanent" materials are those materials required for the permanent works.

summaries. "Estimate" means the documents. i.. nominated in the tender. 19..Project Administration. "Commitment Control". Procedure No: 1 PROJECT COST CONTROL 8. e. costing sheets. 18. 17. rate etc". "Progress Payment Claim" or "Progress Claim" means a claim for a regular progressive payment in accordance with the contract conditions for work done Page: 2 of 4 9. etc". method or time of work specified in the contract or on the contract drawings.g. 14. rate. rate etc. (also known as "Committed Cost") refers to a control system in which the emphasis is on controlling materials and sub-contract costs (and other costs if desired) at the time of making the commitment.g. rather than using invoiced costs as prime data in the control system. "Variation" & "Extra" means a change to the specified quality. “Manhours Actual” means the amount in manhours that has been expended on an item of work. averaged out over a pay period. means the amount. or "manhour rate" as appropriate to the sense. 16. 12. changes solely in quantity in a Schedule of Rates contract are not included. shown in the estimate. quantity. "Variance" means the difference between the allowed and the actual for the same item or quantity of work. bonus and other on-costs and can be either "allowed" or "actual". 11. teabreaks) by each employee and includes the sum of such hours for several employees. allowed in the estimate (adjusted for any post tender negotiations included in the 'contract') for the quantity of work to which it refers. 15. 10. However. quantity. It includes the effects of overtime penalty rates. "Estimate amount. "Tender price. means the price. "Manhours" means the number of actual hours worked (inclusive of normal non-productive time. this is not necessarily so. Note that whilst normally these will be the same as those in the contract. e.g. "manhours actual". 13. "Actual" means "cost". method statements and quotations on which the tender was based. "Variation Submission" means a submission for approval of price for a Variation or Extra. quantity. placing the order. e. as relevant. rate etc. "Manhour Rate" means the average dollar cost per manhour. where post-tender negotiations are incorporated in the contract. quantity. "Allowed" means the amount in dollars or manhours. quantity. 20.e. schedules. nor are escalation amounts treated as variations.. October 2007 . programmes.

such reimbursement being calculated in accordance with the contract conditions. Head Office overheads and Group profit. 21. In relevant cases. Procedure No: 1 PROJECT COST CONTROL in an agreed period. October 2007 Page: 3 of 4 . Such claims may relate to progress payment and variation payment either separately or together. 25.Project Administration. "Estimate Split" is the activity of allocating allowed in the estimate to appropriate cost codes. It also is equal to the difference between contract receipts and contract costs. "Margin" means the amount of money added in an estimate to cover Branch overheads. "Variation Payment Claim" means a claim for payment in respect of the stated variations and extras. 26. "Retention" means an amount in dollars withheld from a payment claim. 22. it also includes material on site. "Estimate Split Summary" is the final document resulting from the estimate split and summarises the allowed dollars from the estimate that have been allocated to selected cost codes. 24. "Escalation Payment Claim" means a claim for payment as reimbursement of the effects of wage and materials price increases since the date of tender. 23.

The key framework around which cost control is built is the project Cost Code numbering system. Examine the Estimate. Check totals with estimate.Recurring. e. Insurance claims etc. The principles for effective cost control are stated in section 1 of the procedure. b. when approval should be obtained from the Branch/Division/General Manager. 1000 2000 3000 5000 6000 9000 . Determine cost code block names.Project Administration. This section covers the following steps involved in the design of the cost code numbering system and in splitting the estimate. The numbering system should comply with the following general standard unless strong reasons exist to the contrary.1999 . c. Provisional Sums.4999 .2999 . Each cost code on any project will have the same number of digits. Allocate alloweds from estimate to cost codes. Materials & Subcontracts. Select cost codes d. Review cost codes and estimate split Summary. Procedure No: 1 PROJECT COST CONTROL SECTION 2 –COST CODES & ESTIMATE SPLIT INTRODUCTION 1. g. h.5999 . a. Publish cost code list. Contingencies. 2.Non recurring. The following points must be taken into account when designing the system: a. October 2007 Page: 1 of 4 .8999 . The number of digits will be 4. Cost Code Numbering System 3. Prepare estimate split summary. b.9999 Indirect Costs . Labour Costs. Plant Costs. Indirect Costs . f.

After examination of the estimate. civil. mechanical. “COMPANY NAME”. 6.. list those items:a.g. Examining the Estimate 5.g. Where the risk of error (e. Procedure No: 1 PROJECT COST CONTROL 4. where the risk of error could cause significant variances. 8.5999 AS PLANT. Before selecting cost codes examine the estimate to identify the critical few that will determine the structure of the cost code system. Block names may reflect the physical nature of the project e. Examine the estimate and identify the temporary materials. i. TREATS COST CODES 3000 . “COMPANY NAME”. Building A. which have the largest dollar amounts alloweds. consumables etc. productivity. Examine the plant items of the estimate and. Building B.. THESE NUMBERS ARE USED TO SEGREGATE PLANT COST REPORTS FOR ALL PLANT USED ON A PROJECT.4999 AS LABOUR. where plant productivity depends on factors such as survey or inspection. Alternatively block names may be used to reflect the trade to which the cost codes apply e.. quantity. THESE NUMBERS ARE USED TO SEGREGATE LABOUR MANHOUR AND LABOUR COST REPORTS. In particular examine the labour items of the estimate and. which have the largest dollar amounts alloweds. manhour allocation. TREATS COST CODES 5000 . if the value of plant warrants the use of separate plant cost reports.) could cause significant variation. c. the Project Assessment Summary. c.e.e. I. building. that will be controlled on an invoiced cost basis. the next step is to determine names or titles for blocks of cost codes. etc. where the concentration of labour will be high. These block names will be those as reported in the final cost report i. list those items:a. b. etc. Examine the estimate and identify the major materials and subcontract items of the estimate that will be controlled on a commitment basis. TREATS ALL OTHER COST CODES AS EITHER (A) "COMMITMENTS" OR (B) "HISTORICAL COSTS" TYPE. October 2007 Page: 2 of 4 .g..Project Administration.E. b. 7. “COMPANY NAME”. Determining Cost Code Block Names 9. if the value of labour warrants the use of separate labour cost reports.

2999. the direct work can be split either by trade.Project Administration. A separate single cost code number should be allocated to each major supplier or subcontractor to facilitate comparisons between cost reports. 11. f. or by area (more applicable to engineering work). This is done by annotating the estimate to show the relevant cost code for every item. b. the system must cater for his requirements.5% of the contract value. Having named blocks of cost codes. As a guide any cost code should not represent less than 0. Cost codes should be kept to a minimum consistent with effective control. Refer to Attachment # for a typical "Estimate Split Summary" in order of cost codes. Having prepared a cost code system the next step is to split the estimate and allocate estimate alloweds against each cost code. Procedure No: 1 PROJECT COST CONTROL If the Labour and Plant reports are being considered then Labour and Plant block names will be required. Cost codes must relate to identifiable activities. controlled by invoiced cost method. (refer procedure Estimating and Tendering).e. Summarise the estimate in order of cost code numbers. d. controlled at time of writing order. the expression "estimate" is used to cover either the original estimate or a revised estimate as appropriate. the allocation of numbers should relate to the sequence used in the estimating check list. i.. Selecting Cost Codes 10. e. a list of cost codes should be prepared. Note that for the purposes of this exercise. A suggested standard cost code system is given in Attachment #. g. The following points must be taken into account when selecting cost codes:a.e. e. Within the series 1000 . forecasts and accounting documentation. Page: 3 of 4 October 2007 .g. c.9999. It is unlikely that the final list will be established first time and it will require revision as the estimate split progresses and cost control documents are finalised. (mainly applicable to building work). Cost codes must distinguish between those that are to be controlled as “commitment” items. i. and those that are to be controlled by “historical costs”. don't give them separate cost codes. Within the series 6000 . Splitting the Estimate and Preparing the Estimate Split Summary 12. If the Client requires cost reporting as for example in a cost reimbursable contract. if it is not simple for a Supervisor to decide how many hours a rigger has been erecting beams or erecting purlins.

The description against each cost code should contain both a brief title and some explanatory remarks as to what is included or excluded. etc. The original estimate split summary should be kept intact and any changes made on duplicate copies. Materials and Subcontracts. The published list must be reviewed regularly and updated to include any changes due to variations. October 2007 Page: 4 of 4 . A list of the cost codes allocated with their individual descriptions must be prepared and published for all project staff who are involved in cost reporting and recording or in financial forecasting. It is usually advisable to spend time with each member of the project staff to explain the system and as far as possible resolve ambiguities etc. In summarising the estimate for the non-critical items that have been grouped together under a single cost code (to minimise proliferation of cost codes). each estimate item should be shown separately even though they are grouped under one cost code. effects of method changes. Plant c. Labour b. Review all allocations to check conformity with the principles for effective cost control. A suggested format is given in Attachment #. 20. Publication of Cost Code Numbering System 18. It is also the document that will be regularly referred to as the contract progresses to establish value of work done. This will allow measurement of work done for each cost code to be more readily ascertained later. method changes etc. Having prepared the estimate split summary it may be necessary to review the cost code system to be sure that the requirements of para 11 above have been met. THE BASE DATA TOTALS MUST EQUAL THE TENDER/ESTIMATE TOTAL. 19. 17. Reviewing the Cost Codes and Estimate Split Summary 15. The list should have separate sections for:a. 16. Procedure No: 1 PROJECT COST CONTROL 13. 21. Check that the totals and sub-totals still conform with the tender estimate.Project Administration. The estimate split summary becomes the base document for the preparation of the various reports in the cost control system. and relevant Head Office personnel. 14. Again check that totals and sub-totals still conform with the tender.

allowances and oncosts Administration Costs .Establish and Remove Utilities and General Services 150* 151* 152* 153* 154* 155* 156* 16** 17** 18** 19** Establish and Remove Power Water Sewerage Air Heating and Air Conditioning Site Roads and Drainage Security Fences. Fees etc.Wages.Removal and Resettlement Costs Administration Costs . allowances and oncosts Supervision and General Labour . 1000 Non Continuous Costs 10** 11** 12** 13** 14** 15** Project Staff .Establish and Remove Camp and Housing .g. the numbers should as far as possible correspond with “COMPANY NAME” Administration . In many cases it will not be necessary to utilise all these numbers. including vehicles . "1500".Mobilise and Demobilise Special Services .Non recurring or Lump Sum (Spare) 2000 Continuing Costs 20** 21** 22** Project Staff .Non recurring or Lump Sum (includes Bonds. Insurance. in other cases it may be desirable to split further.Salaries.Removal add Resettlement Costs Supervision and General Labour . all "Utilities and General Services" could be grouped into one number. e. If the administration costs (22** series) are subdivided. signs and lights Special Temporary Works .Mobilise and Demobilise General Plant.cost code numbers.Project Administration PROJECT COST CONTROL Attachment #A SUGGESTED STANDARD COST CODES FOR INDIRECT COSTS The following sets out a standard cost code numbering system for indirect costs.) Site Buildings .Continuing Costs October 2007 page 1 of 58 .

Operate and Maintain Camp and Housing .Operate and Maintain 250* Power 251* Water 252* Sewerage 253* Air 254* Heating and Air conditioning 255* Site Roads and Drainage 256* Security fences.Operate and Maintain General Services .Operate and Maintain Special Services . signs and lights 257* General Supplies 258* General Transport Special Temporary Works .Project Administration PROJECT COST CONTROL 23** 24** 25** Site Buildings .Operate and Maintain General Plant.Continuing Costs (Spare) 26** 27** 28** 29** October 2007 page 2 of 58 . including vehicles .

chairs etc. 14 weeks 12 weeks 12000 13500 14 weeks 170 m2 560 Tonnes 1020 Tonnes for 24 weeks 10500 41040 15280 21845 12240 26600 15960 4950 Formwork 7000 (P) Foundation materials. Pipe slings Tools (Area1) Tools (Area 2) Labour 3010 Mobilise and demobilise offices etc. Prime Mover. 4 No.Project Administration PROJECT COST CONTROL Attachment #A ESTIMATE SPLIT SUMMARY Prelims and Overheads 1300 (A) Mobilise and demobilise site offices. Mobilise Demobilise Supervision. Construct foundations. Erect Steel Area 1 Erect Steel Area 2 Sheds. Area 1 Supervisor 16 weeks Area 2 Supervisor 18 weeks Crane operator. October 2007 Page 1 of 4 . Mobilise Plant Furniture Power Water Demobilise Plant 2200 (A) Office running cost (consumables) 2900 (A) Small tools & protective clothing. Concrete Mesh 7010 (P) Steel supply Area 1. Mobile crane. 7020 (P) Steel supply Area 2 1550 5720 Oil. 3400 51 m3 10% waste 170 m2 560 tonnes 1020 tonnes 4590 450 680 170000 306000 4500 4500 9000 7600 800 2000 3000 1000 800 3900 3200 2000 600 600 3060 25500 3070 4000 4100 4200 Plant 5000 5100 5200 Materials & Subcontracts 6000 (A) Concrete consumables.

Area 1 8030 (P) Design & Draftings S/C. Area 2 4 weeks 8 weeks 22900 41700 8500 17000 769435 90000 859435 Sub total Margin & Contingency TOTAL (A) = Actual Costs (Invoices) (P) = Committed (Purchase Order) October 2007 Page 2 of 4 . 560 tonnes 8010 (P) Protective Coating Area 2 S/C 1020 tonnes 8020 (P) Design & Draftings S/C.Project Administration PROJECT COST CONTROL 8000 (P) Protective Coating Area 1 S/C.

(A) (A) (A) PROJECT NUMBER: DATE: TOTAL $ ALLOWED 7600 3900 3200 4 WEEK 9000 25500 10500 41040 15280 21845 12240 26600 15960 4950 5720 306000 170000 56100 8500 25500 25500 0 0 769435 n/a n/a 01 n/a n/a n/a n/a n/a A A A A A A A A TENDER $ ALLOWED 7600 3900 3200 9000 QTY UNIT VARIATIONS ESCALATED UNESCALATED R&F FORMULAE COMMITS n/a n/a n/a ALLOWEDS A A A 25500 34 WEEK 10500 14 WEEK 41040 170m2 15280 560 TONNES 21845 1020 TONNES 12240 24 WEEK 26600 12 WEEK 15960 14 WEEK 4950 5720 170000 306000 22900 560 TONES 41700 1020 TONNES 8500 4 WEEKS 17000 8 WEEKS 769435 October 2007 Page 1 of 4 .Project Administration PROJECT COST CONTROL Attachment # PROJECT COSTCODE LISTING PROJECT: PROJECT MANAGER: COST DESCRIPTION CODE 1300 2200 2900 3010 3060 3070 4000 4100 4200 5000 5100 5200 6000 7000 7010 7020 8000 8010 8020 8020 MOBILISE &DEMOBILISE SITE OFFICES OFFICE RUNNING COSTS (Consumables) SHALL TOOLS & PROTECTIVE CLOTHING MOBILISE & DEMO & SITE OFFICES SUPERVISION CRANE OPERATOR FOUNDATIONS ERECT STEEL AREA 1 ERECT STEEL AREA 2 SHED HIRE CRANE HIRE PRIME MOVER HIRE CONCRETE CONSUMABLES FOUNDATION MATERIALS STEEL SUPPLY AREA 1 STEEL SUPPLY AREA 2 PROTECTIVE COATING SUB-CONTRACT AREA 1 PROTECTIVE COATING SUB-CONTRACT AREA 2 DESIGN & DRAFTING SUB-CONTRACT DESIGN & DRAFTING SUB-CONTRACT $ (A) .

The Labour Cost Report provides an overall comparison in dollars for total labour. labour on-costs or other factors affecting pay rates and thus in itself does not provide adequate overall control. This procedure covers the setting up and routine production etc. high bonuses or other factors. Reporting in manhours does not reflect the effects of excessive overtime. 2..e. It provides a safeguard against unwarranted (and dangerous) complacency in the situation where the Labour Manhour Report shows favourable trends but the Labour Cost Report shows an adverse dollar comparison. in manhours and then dollars. This report. bonuses. Labour Cost Report. Labour Manhour (productivity) report. Procedure No: 1 PROJECT COST CONTROL SECTION 3A – LABOUR ( MANHOURS) INTRODUCTION 1. firstly manhours in detail and then dollars in total. The comparison is between the actual labour cost in dollars and the alloweds dollar amounts. controlled and forecast by the staff having direct control of labour. of two reports. Details are reported in manhours because this unit is the most readily understood. Each of these reports provides a comparison between the actual expenditure. i. 5. such alloweds dollars amounts being adjusted to take account of escalation as explained later in this procedure. October 2007 Page 1 of 4 . read in conjunction with the Labour Manhour Report. measured. it is preferable to report labour in two stages. Whilst labour reports must ultimately be expressed in dollars. cost codes 30004999. b. due to the actual manhour rate being higher than the alloweds manhour rate for any reason. and the alloweds for the same amount of work done. 4. namely the Supervisor. will direct attention to excessive overtime. The purpose of the labour cost control reports is to control those components of the estimate that have been allocated to labour cost codes.Project Administration. namely: a. 3. The Labour Manhour Report provides a detailed comparison for each relevant cost code. 6.

Source of Data 11. change in work methods. miscellaneous sales. Procedure No: 1 PROJECT COST CONTROL LABOUR MANHOUR REPORT Initial Set-Up 7. Refer to Attachment # for details as to how to complete the Labour Manhour Report and the calculations required. 5. This information is recorded on Time Sheets and is usually summarised in the Labour Costing Report from the payroll. Also provision should be made in the form of a spare line for each cost code. This is the report layout as produced by “COMPANY NAME”. 8. however this should be avoided as any errors will compound over a period of time. If errors are found. and Base Data is entered into columns 1. 9. 4. further detailed checking is carried out until all errors are eliminated. or similar. This applies to direct hire labour and external hire labour also. Columns 3 and 7 must be checked against the estimate split summary. Data to produce the Labour Manhour Report is obtained from the following records which must be regularly maintained: a. The layout of the standard report form is shown in Attachment #. Actual manhours expended for each cost code. October 2007 Page 2 of 4 . insurance repairs etc. The tendency is to measure quantities for the period for convenience. either for the period or to date. A schedule of measured total quantities completed to date for each cost code. b.Project Administration. or additional pages. Completing the Report 12. 3. as explained later. are inserted on the form. for items such as variations.) In entering this information onto the form it is advisable to include provision for subtotals if required. (Refer Section 2 of Project Cost Control procedure. Once this base data is established there should be no need to change it except for the effects of variations. 6 and 7 from the estimate split summary. Standard Project Information such as the project name etc. 2. 10.

Such a change in plan could be a change in the construction method or a decision to use a subcontractor for some of the work instead of using direct labour. and 7 will have to be amended for each cost code affected and Cols. which thus shows the position for the contract work only.e. 21. 3 and 7. 16. 5. The Labour Manhour Report could become invalid as a relevant document if changes in plan are not reflected in the alloweds in the report. 22. 3. Preferably enter only those variations that have been approved to avoid unnecessary alterations at a later stage. Treatment of Back Charges and Insurance Work 19.. Procedure No: 1 PROJECT COST CONTROL Treatment of Contract Variations and Extras 13. When using manual control methods a very methodical approach is required when amending base control documents.” 20. Cols. 14.". 6 and 7 and the total and relevant subtotals shall be amended in Cols. 6 may require amendment. labour on reinstatement of damage for which it is intended to submit a claim under an insurance policy should be allocated to a cost code number or numbers entitled “Insurance Repair……. 15. 3.Project Administration. 12 and 13 respectively). 2. 5. Work done by “COMPANY NAME”. Regularly check totals and ensure that these are carried through to all other related control documents. 4. Work done by “COMPANY NAME”. Extras and Delays. alloweds can be made to equal actual (i.Variations. details shall be added in Cols. or vice versa. 3 and 7 for the total and relevant sub-total. Where a variation of extra is to be costed against new specially allocated cost codes. Also Col.. Refer to Section 6 of Project Cost Control Procedure . labour for subcontractors or others and for which we can charge them should be allocated to a cost code number or numbers entitled "Misc. The general procedure for reflecting such changes in all reports is outlined in Section 7 of this procedure. Where a variation or extra is to be costed against existing cost code numbers. 1. 18. Sales . Cols. Page 3 of 4 October 2007 ... To avoid negative variances distorting the Labour Manhour Report (and subsequently the Labour Cost Report). Treatment of Method Changes 17. These cost code numbers are grouped at the end of the report immediately after a subtotal.

(which will then appear as future credit to costs in the labour cost report).Project Administration. The Project Manager shall determine the required frequency of regular Labour Manhour Reports. is finally paid and labour costs have been credited with the due amount. Make allowance for any time extensions that may affect the duration of the cost code item. c.) b. The distribution will include the General Manager. Any other contingency items for unscheduled circumstances. (Productivity curves are sometimes useful here. Regular Production and Distribution 24. When forecasting manhours to complete. Refer to Section 7 for further details of administering Backcharges and Insurance Work. should be assessed at the Project Assessment stage. The preferred method is therefore to balance negative variances by forecasting negative manhours to complete. 26. 25. This will usually be weekly unless the labour component of the contract is minor and cannot significantly affect the financial outcome of the contract. The Project Manager shall determine the timing for the production of regular Labour Manhour Reports. Special care must be taken in forecasting manhours as with any other forecasting exercise. Procedure No: 1 PROJECT COST CONTROL This is technically incorrect however as backcharges etc. or claim. Assess the productivity rate to complete any item by reviewing the average productivity rate for the cost code item for the last period versus the productivity rate for the past 2-3 periods. and consider any factor that may influence production in the future. This distribution will usually be such that at least the senior Supervisors will receive those subsections of the report that cover their work. Completion of the report should be achieved within two days of the end of the pay week if the Report is to have any benefit to the users. When the invoice for backcharges. the respective cost code(s) should be deleted in its entirety from the Labour Manhour Report. such as possible industrial action. Make allowance for clean up tasks on completion if they have not been alloweds in another cost code. Any adjustments necessary between hours incurred and hours paid will be automatically taken care of in the Labour Cost Report. October 2007 Page 4 of 4 . The Project Manager shall determine the required distribution of the regular Labour Manhour Report. do not increase alloweds. the following points must be taken into account: a. but are normally credited to costs. 23. Project Accountant or Estimator (but this would not be usual).

summarised to show the total cost for each category of labour. and Base Data entered into col. This may achieve a more accurate picture of the cost of labour compared to the estimate but will give an inaccurate Project Assessment if totals using these fictitious factors are carried forward. 3 which is obtained from col. Procedure No: 1 PROJECT COST CONTROL SECTION 3B. Treatment of Escalation 6. 3. The number of categories of labour used in the Labour Cost Report should be as small as possible in order to minimise the workload. The layout of the standard form is shown in Attachment #. 2.LABOUR (COSTS) Labour Cost Report 1.Project Administration. There may be circumstances when an alternative factor is desirable that truly represents the cost increase in labour. Col. REQUIRES A MAXIMUM OF 4 CATEGORIES OF LABOUR. “COMPANY NAME”. Standard Project Information such as project name is entered on to the form etc. It will generally be sufficient to group all other labour categories into the one classification of "Other". 3) x Estimate alloweds dollars per manhour (Col. This is the layout as produced by “COMPANY NAME”. b. However if unusually highly paid tradesmen are a significant part of the labour force. THE FOURTH CATEGORY BEING "ALL OTHER LABOUR". The Weekly Labour Costing Report from the payroll. 7 should be the escalation factor as determined from the Head Contract escalation formula if there is one. Refer to Attachment # for details as to how to complete the Labour Cost report and the calculations required. The labour cost escalation factor entered in Col. a separate category should be established for them. The Labour Manhour Report. Completing the Report 5. Note that this report is a summary report and does not report against individual cost codes. Source of Data 4. Note that it is important to total the manhours (Col. A category of "Supervision" should always be used. Data to produce the Labour Cost Report is obtained from the following records: a. October 2007 Page: 1 of 3 . 6 is completed using the average dollars per manhour of the relevant category of labour as used in the estimate. 7 of the Labour Manhour Report. 6) to ensure that it equals the total alloweds dollars for labour as per the estimate split summary.

7 and keep the total escalation included in the alloweds under review against the contingency amount alloweds. the Escalation Factor shall be 1. However if any variation has been priced with an alloweds manhour rate that is not the same as the estimate alloweds manhour rate.Project Administration. These manhours are entered into Col. (The current average actual manhour rate should be Page: 2 of 3 October 2007 . No special treatment is required because the details have already been included in the totals transferred from the Labour Manhour Report. to check the alloweds manhour rates following any adjustments for method changes. No special treatment is required because the details have already been included in the totals transferred from the Labour Manhour Report. Treatment of Contract Variations and Extras 9. then the alloweds man hour rate in the labour cost report will have to be adjusted accordingly. Alternatively labour associated with variations could be costed separately.0. Forecasting 13. however. If an escalation factor other than that generated by the Head Contract formula is used it would be usual for the Project Manager to specify the basis of calculation of the factor in the form: Escalation 8. Forecasting of the final cost of labour is done using the Forecast Final Labour Cost Report. To forecast the final cost of labour the current average actual man-hour rate for each category of labour is used. Forecasting of labour manhours to complete the contract will have already been carried out in the Labour Manhour Report. No special treatment is required because the details have already been included in the totals transferred from the Labour Manhour Report. 3 of the Forecast Final Labour Cost Report. refer Attachment #. Treatment of Back Charges and Insurance Work 11. These items may be costed separately in the Labour Cost Report for the reason explained under Variations and Extras above. Procedure No: 1 PROJECT COST CONTROL 7. If a contingency amount was alloweds in the estimate to cover wage increases the Project Manager should follow para. Factor = Tender average rate + average Tender average rate increases If the contract makes no provision for adjustment of contract price on the basis of wage increases. 12. Treatment of Method Changes 10. It is important.

This will usually be only to the Project Manager himself but may also include the General Manager/Company Acountant. October 2007 Page: 3 of 3 . Regular Production and Distribution 14.) Refer to Attachment # for details of how to complete the Forecast Final Labour Cost Report and the calculations required. Procedure No: 1 PROJECT COST CONTROL carefully assessed and should not necessarily be based on the last payroll alone. The Project Manager shall determine the required distribution of the regular Labour Cost Reports. This will normally be the same as the frequency of the Labour Manhour Reports. 15.Project Administration. The Project Manager shall determine the required frequency and timing of regular Labour Cost Reports.

3. This is the report layout as produced by “COMPANY NAME”. i. 6. realising that the figures in Col. These time sheets are used to record hired plant on site for the period. 6 figures must not change at all. as inserted on the form. change in work methods or similar. 5. Intial Set-Up 4. 4.Project Administration... Page: 1 of 5 October 2007 . 3 should as far as possible be measurable units of work. or additional pages. not units of time. for items such as variations. and finally the cost for the period for hired plant for each cost code. Procedure No: 4 PROJECT COST CONTROL SECTION 4 – PLANT (HIRED ITEMS) PLANT Introduction 1. Data to produce the Plant Cost Report is obtained from the following records which must be regularly maintained: a. 5 and 6 from the Estimate Split Summary. Plant Cost Reports provide a comparison between the costs of plant used in doing work and the alloweds for the same amount of work done. The layout of the standard report form is shown in Attachment #. This section of the procedure covers the setting up and routine production etc. Adjustment should be made progressively for actual costs obtained from invoices and the Cost Ledger if these do not match the estimated costs recorded on the time sheets. estimated costs obtained from orders placed for the respective item of plant. The purpose of the Plant Cost Reports is to control those components of the estimate that have been allocated to plant cost codes. as explained later. This point should be checked before the entries in Cols. Note that the units used in Col. Also provision should be made in the form of a spare line for each cost code. (refer Attachment #). or from plant hire rate schedules. 2. cost codes 5000 5999. 3. In entering this information onto the form it is advisable to include provision for sub-totals if required.. 2. Once the base data is established there should be no need to change it except for the effects of variations. Refer Section 1 for the definition of what is included as "plant". miscellaneous sales. 4. 6 should not be changed substantially and that the total of all Col. Standard Project Information such as the project name etc. insurance repairs etc. and Base Data is entered into columns 1. 5 and 6 are finalised.e. Weekly Hired Plant Time sheets. Source of Data 8. 7. of Plant Cost reports.

15. Treatment of Method Changes 14. The Plant Cost Report is adjusted as above in respect of Plant alloweds etc. Extras and Delays. Col. A schedule of measured total quantities to date for each cost code. Regularly check totals and ensure that these are carried through to all other related control documents. 5 and 6 and the total and relevant subtotals shall be amended in Col. 16. Completing the Report 9. Procedure No: 4 PROJECT COST CONTROL b. When a variation is to be costed against new specially-allocated cost codes. or vice versa. Sales ". details shall be added in Cols. Refer to Attachment # for details on the method of completing the Plant Cost Report and the calculations required.Project Administration. 3. Where a variation is to be costed against established cost codes Cols. 6 will have to be amended for the total and relevant subtotals. 6. The Plant Cost Report could become invalid as a relevant control document it changes in plan are not reflected in the alloweds in the report. 11. for subcontractors or others and for which we can charge should be allocated to a cost code entitled "Misc. Treatment of Contract Variations and Extras 10. 1. Page: 2 of 5 October 2007 . Variations. Such a change in plan could be a change in the construction method or a decision to use a subcontractor for some of the work instead of using direct labour. Work done by plant owned. or hired. Treatment of Back Charges and Insurance Work 17. 12. The general procedure for reflecting such changes in all reports is detailed in Section 7 of of this procedure. 4. 5 may also require amendment. 13. Refer to section 6 of this procedure. by “COMPANY NAME”. The tendency is to measure quantities for the period for convenience however this should be avoided as any errors will compound over a period of time. When using manual control methods a very methodical approach is required when amending base control documents. 2. Preferably enter only those variations that have been approved to avoid unnecessary alterations at a later stage. 4 and 6 will have to be amended for each cost code involved and Col.

0. In other cases. or claim. forecast a credit to costs). c. 19.e. The Escalation Factor to be entered in Col. (Note that this applies both to Group plant and to external plant).. This may achieve a more accurate picture of the cost of plant compared to the estimate but will give an inaccurate Project Assessment if totals using these fictitious factors are carried forward. 20..0 throughout the contract. If however. as backcharges etc. There may be circumstances when an alternative factor is desirable that truly represents the cost increase in plant. do not increase alloweds.Project Administration. 9 should be the escalation factor as determined from the Head Contract escalation formula if there is one. Refer to Section 7 for further details of administering Backcharges and Insurance Work. Forecasting 23. When the invoice for backcharges. Escalation Factor 21. the Escalation Factor should be kept at 1. is finally paid and plant costs have been credited with the due amount. Cols. 18 and 19 for figures for Page: 3 of 5 . alloweds can be made to equal actual (i. The October 2007 Plant Cost report provides space in Cols. which thus shows the position for the contract work only. plant cost rises become significant. The preferred method is therefore to balance negative variances by forecasting negative costs to complete (i. the Escalation Factor should be applied to the relevant plant items and should be based on the actual increases in hire rates. b. 12 and 13 respectively). 22. Procedure No: 4 PROJECT COST CONTROL 18. To avoid negative variances distorting the Plant Cost Report. the forecast cost should be corrected back to zero value. 10 and 11 are completed using same figures as in Cols. if the majority of plant is hired at fixed rates. or where the plant cost content is relatively low. If a factor other than that produced by the Head Contract Formula is used the following guidelines should be used in arriving at a suitable factor: a. but are normally credited to costs.”. it will normally be acceptable to keep the Escalation Factor at 1.. In contracts of short duration. Work done by plant owned or hired by “COMPANY NAME” on reinstatement of damage for which it is intended to submit a claim under an insurance policy should be allocated to a cost code(s) entitled “Insurance Repair…. This is technically incorrect however.e. This will then automatically adjust the report for any variation between costs incurred and costs paid. These cost codes are grouped at the end of the report immediately after a subtotal.

Reconciliation with Project Cost Ledger 26. 18 and 19 will be the same. Col. 19 is the Project Manager's forecast of the cost required to complete the cost code item. This provides a more up-to-date report than having to wait for actual costs from the Project Cost Ledger. Regular Production and Distribution 28. since data is obtained from the Weekly Hired Plant Time Sheets which record commitments as a result of orders for hired plant. due to a variety of reasons. Actual costs can differ from commitments recorded on the Weekly Hired Plant Time Sheets. 29. This will usually be weekly unless the plant component is minor and cannot dramatically affect the financial outcome of the contract. 12) and the forecast to complete (col.Project Administration. • • 25. Allow for clean up tasks on completion if they have not been alloweds in another cost code. 24. In the case of the Plant Cost Report. 19). The Project Manager shall determine the required distribution of the regular Plant Cost Report. however. Page: 4 of 5 October 2007 . The Project Manager shall determine the required frequency of regular Plant Cost Reports. The forecast final cost is the total of the actual dollars to date (col. It is therefore necessary to periodically reconcile the plant costs recorded in the Project Cost ledger with the costs recorded in the Plant Cost Report and may any necessary adjustments. 18 is the total outstanding alloweds calculated by multiplying the alloweds quantity yet to be completed by the alloweds rate escalated by the current escalation factor. The distribution could include the General Manager. (Productivity curves are sometimes useful here). This distribution will usually be such that at least the senior foremen receive those subsections of the report that cover their work. 27. Col. when forecasting the following points must be taken into account: • Assess the productivity rate to complete any item by reviewing the average productivity rate for the cost code item for the last period with the productivity rate for the past 2-3 periods and consider any factor that may influence productivity in the future. Special care must be taken in determining the forecast plant cost as with any other forecasting exercise. Allow for any time extensions that may affect the duration of the cost code item. If the outstanding work can be completed as estimate then cols. The Plant Cost Report is a form of control by commitments. This total is carried forward to the Project Assessment. Accountant or Estimator (but this would not be usual). Procedure No: 4 PROJECT COST CONTROL forecasting the costs to complete each cost code item.

Finally in the right hand column actual costs as per the project cost ledger are recorded. together with additional commitments due to variations. changes in alloweds due to variations plus any change in alloweds due to escalation. and Base Data from the estimate split summary is entered in location 1. and escalation due on the commitment.. Initial Set Up 4. 2. placing the order.e. (refer later). 3. A Commitment Allocation Record is established for each appropriate cost code. Space is provided at the bottom of the record for forecasting calculations. commitments (i. purchase orders) are recorded.e. i. space is provided to record current alloweds. (and can be similarly identified in the estimate split summary). including the original alloweds as per estimate. The purpose of the commitment reports is to control those components of the estimate that have been allocated to cost codes other than for labour and plant. Where it is impractical to determine from the estimate the specific alloweds dollars for any item for which an order is placed. October 2007 . The total of all alloweds entered into the commitment records must Page: 1 of 4 5. The record is divided into three broad areas.e. 6. Commitment reports provide a comparison between the recorded commitments (orders placed) and the alloweds for the same goods and services covered by the commitments. is entered on the record. Alternatively each cost code is entered on the alternative layout as per Attachment #. then the items concerned should be controlled by historical cost reports.. which then can be directly compared with any commitment made in respect of that item.. Commitment reports are set up in the form of a Commitment Allocation Record for each cost code and the layout of this record is shown in Attachment #. On the left. 7. the original alloweds for the cost code item.. To the right of the record the alloweds committed corresponding to each purchase order are recorded together with the proportion of escalation due on the committed alloweds. If a manual method of cost control is employed a Spreadsheet record as per Attachment # may be preferred. This is the layout as produced by “COMPANY NAME”. Standard Project Information such as the project name etc.Project Administration. and also are appropriately controlled at the time of commitment i. Procedure No: 1 PROJECT COST CONTROL SECTION 5A – COMMITMENT REPORTS Commitment Reports Introduction 1. Commitment reports should be maintained for those cost code items where the alloweds dollars can be specifically identified in the estimate. In the centre.

date. If any purchase order (commitment) is subject to an escalation formula. vendor description of services. Source of Data 8. 12. 15. total value of order. are entered into the Commitment Allocation Record. Treatment of Contract Variations and Extras 10.Cost Code Split (refer section 6) and entered into the Commitment Allocation Record under alloweds. This is calculated as follows: Page: 2 of 4 October 2007 . the project are entered into the Commitment Allocation Record. Details of the change in alloweds for any particular cost code due to a variation is obtained from the Variations . 14. If manual cost control methods are being used it is normally impractical to adjust the alloweds by spreading the changes generated by the Head Contract escalation formula over all the appropriate cost codes. The Estimate Split Summary to identify the alloweds corresponding to the commitment made. The corresponding proportion of total escalation due on alloweds committed to date is entered at location 20. Treatment of Escalation 13. The corresponding amount of alloweds for each change order is entered into the alloweds committed column.under commitments. Location 18 on the Commitment Allocation Record will therefore remain blank in manual control systems. b. The method of calculating escalation on commitments is discussed later in Section 5c. Completing the Commitment Allocation Record 9. If an error is found further detailed checking is carried out until all errors are eliminated. The method of calculating escalation is covered in detail later in this Section of the procedure. 11. Purchase orders identifying purchase order number. Refer to Attachment # for details as to how to complete the Commitment Allocation record. or for. A system must be maintained to ensure all orders written on.Project Administration. Details of additional commitments due to variations. Data to complete the Commitment Allocation record is obtained from the following records: a. Procedure No: 1 PROJECT COST CONTROL be checked with the estimate split summary. such as change orders. the escalation due is entered under commitments at location 19. Instead it is easier to include such changes in alloweds as a single line entry in the final Project Assessment Summary. Refer to Attachment # for details as to how to complete the Commitment Allocation Record to account for variations.

Refer to Attachment # for details of how to complete the record when forecasting. The Commitment Allocation Records are adjusted in respect of the estimate alloweds for each cost code. The monthly totals are totalled at Loc'n 22. In the case of Commitment Allocation Records the actual costs recorded have no significance except that total actual costs should not exceed the total commitments (loc'n 13). Treatment of Method Changes 17. Reconciliation with Project Cost Ledger 20. The Commitment Allocation Record provides space for figures for forecasting the final commitment for each particular cost code. The Commitment Allocation Records could become invalid as a relevant document if changes in plan are not reflected in the alloweds. commitments paid but not accounted for under The reason must be investigated and corrective action taken as appropriate. Incorrect cost code allocation of costs. 18. 23. Special care must be taken when forecasting as with any other forecasting October 2007 Page: 3 of 4 . 21. b. Forecasting 22. Escalation on commitments. The Record provides for recording monthly Cost Ledger amounts to compare actual costs with current commitments. Procedure No: 1 PROJECT COST CONTROL Alloweds committed to date (locn 11) ------------------------------------------Total all'ds inc. d. var'ns (locn 9) x Escalation on all'ds (locn 18) 16.Project Administration. If the total actual cost does exceed the total commitment it could be due to one or many of the following reasons: a. Commitments not recorded. The accounting month and Cost Ledger amount is entered at Loc'n 21 (refer Attachment #). c. Such a change in plan could be a change in the construction method or a decision to use direct labour instead of a subcontractor. The subtotals and totals are recalculated. Variations paid but not recorded under commitments. 19. The general procedure for reflecting such changes in all reports is outlined in Section 7 of this procedure.

b. October 2007 Page: 4 of 4 . for delays. When forecasting outstanding commitments on the Commitment Allocation Record the following points must be taken into account and included in the forecast yet to complete: a. Any items included in the alloweds that have yet to be committed. likely from a supplier or subcontractor. As discussed earlier Commitment Allocation Records are not an effective control document.. for which an allowance has been calculated in the alloweds. Further distribution is not required except in exceptional circumstances. Their main purpose is to assist in forecasting the financial result of the project. d. Procedure No: 1 PROJECT COST CONTROL exercise. Any commitments yet to be made in respect to variations shown on the record under alloweds. c. 25.g. Commitment Allocation Records should be updated monthly and should be reviewed monthly by the Project Manager.Project Administration. Any as yet undocumented future claim e. Any future forecast escalation due on a purchase order or subcontract shown under commitments. Regular Production and Distribution 24.

Data to complete the Cost Allocation Record is obtained from the following: • The Estimate Split Summary to assess value of alloweds completed for each period. 5. Historical cost reports are set up in the form of a Cost Allocation Record for each cost code. manual method of cost control a spreadsheet is employed to record data as per Attachment # accepted layout required. THE COST ALLOCATION RECORD SPREADSHEET HAS IN THE BOTTOM RIGHT HAND CORNER A SUMMARY OF THE ESTIMATE SPLIT FOR THE PARTICULAR COST CODE FOR EASY REFERENCE. Using the “COMPANY NAME”. The purpose of the historical cost reports is to control those components of the estimate that have been allocated to cost codes other than for labour and plant. Page: 1 of 4 . YOU HAVE TO IDENTIFY THE COST CODE AS A COMMITMENT TYPE (P) FOR PURCHASE ORDER OR HISTORICAL COST TYPE (A) FOR ACTUAL COSTS. and/or costs are incurred without orders necessarily having been placed (e. 4.Project Administration.. Historical cost reports provide a comparison between the recorded costs from the Project Cost Ledger. and the alloweds for the same goods and services covered by the costs. YOU SHOULD CREAT THE SAME RECORD FOR BOTH COMMITMENT ALLOCATION RECORDS AND COST ALLOCATION RECORDS. Historical cost reports should be maintained for those cost code items where the alloweds dollars corresponding to an order cannot be specifically identified in the estimate. The method of completing the record is exactly the same as for the Commitment Allocation Record except as detailed below. Procedure No: 1 PROJECT COST CONTROL SECTION 5B – HISTORICAL COSTS REPORTS HISTORICAL COSTS REPORTS 1.g. Initial Set Up 3. Source of Data 6. • October 2007 The Project Cost Ledger to obtain recorded costs for each cost code for each period. 2. WHEN SETTING UP EACH COST CODE FOR PROJECT COST CONTROL. (and similarly cannot be identified in the estimate split summary). The Cost Allocation Record is identical to the Commitment Allocation Record. telephone charges). IT SHOULD BE TITLED COMMITMENT/COS.T ALLOCATION RECORD. THESE SHOULD BE SHOWN ON ALL THE REPORTS. and are not suitable for controlling by means of commitment reports.

Refer to Attachment # for further details as to how to complete the Cost Allocation Record. The alloweds for each period must be assessed taking into account the effects of any variation. Note that Project Cost Ledgers usually record the costs as at one month prior to the time that the record is updated. 11. Any increase in cost. corresponding to the costs recorded for that period. The variance between alloweds and costs is then calculated. The alloweds for the period is assessed on quantity. and whether or not the variation has been paid for and the costs included in the Cost Ledger. THE SPREADSHEET SHOULD ALSO AUTOMATICALLY CALCULATE THE ESCALATION DUE ON THE ALLOWEDS COMMITTED AT LOCATION 20 (REFER PARA 14 SECTION 5A FOR METHOD OF CALCULATION). or time. or percentage of work done. However with manual control methods any escalation due under the Head Contract formula will not be entered under the alloweds section of the record. Escalation is treated exactly the same way as in the Commitment Allocation Records. AND ENTER IT AT LOCATION 18.Project Administration. The method is identical to completing the Commitment Allocation Record except as follows: • • No details of purchase orders are entered into the commitment section of the record. Refer to Attachment # for details as to how to complete the cost Allocation Record. Treatment of Contract Variations and Extras 9. or similar. of historical costs cost code items will show up as actual costs in the Cost Ledger. Variations and extras are treated exactly in the same way as in Commitment Allocation Records. Procedure No: 1 PROJECT COST CONTROL Completing the Cost Allocation Record 7. Also since commitments are not recorded there will be no entry for escalation on commitments. Treatment of Escalation 10. Treatment of Method Changes October 2007 Page: 2 of 4 . not alloweds and commitments as with the Commitment Allocation Record. This must be taken into account when assessing the alloweds. due to escalation. A negative variance will result which will be balanced by any revenue from the Head Contract formula when entered in the Project Assessment Summary. For each period an amount is entered in the alloweds committed section of the record. THE SPREADSHEET SHOULD BE SET UP TO AUTOMATICALLY CALCULATE THE PROPORTION OF THE TOTAL CHANGE IN ALLOWEDS DUE TO ESCALATION THAT IS ATTRIBUTABLE TO A PARTICULAR COST CODE. • 8.

To record every one as a Commitment would be an onerous administrative task. Refer to Commitment Allocation Records. 14. claims. 17. To treat Historical Costs in a similar fashion to Commitments. Allow for any likely increase in costs of goods and services that are not covered by any Head Contract Escalation formula. record all orders placed.Project Administration. Make allowance for any time extensions to the contract that may affect the duration of the cost code items. that will affect the final cost. The Cost Allocation Record provides space for calculating the forecast final cost for each cost code. Project Cost Ledgers are a historical document in so far as they are produced at least one month after an order is placed. When forecasting the final cost to complete a historical costs cost code the following must be considered: • Assess any trends that can be determined from an analysis of costs over the past say 2-3 periods compared to the average cost for all periods. is impractical as Historical Costs normally consist of a large number of small orders. Allow for any other foreseen item. Special care must be taken when forecasting as with any other forecasting exercise. such as variations. Refer to Attachment # for details of completing the record when forecasting.e. • • • Regular Production and Distribution 15. i. and assess any factors that may affect trends in the future. ALTERNATIVE METHOD FOR HISTORICAL COST REPORTS 16. above). (It may be worth perusing orders placed and not yet paid for to identify exceptional orders that could upset trends established in a. One solution is to collect all the orders for historical cost items for a period. October 2007 Page: 3 of 4 .. Therefore the Cost Allocation Records do not provide as accurate a report as do Commitment Allocation Records. add them together and show them as a single line entry in the form:"Miscellaneous orders for the month of …… " 18. As for Commitment Allocation Records. Forecasting 13. Procedure No: 1 PROJECT COST CONTROL 12.

A system of this nature therefore requires very strict administrative controls which experience has shown are difficult to achieve. are subject to a blanket order at the commencement of the contract and a separate order is not written out for each delivery. October 2007 Page: 4 of 4 .Project Administration. Totals of invoices are calculated for each cost code and entered into the Historical Cost record under commitments as a single line entry in the form: "Invoices for miscellaneous items for month " The Historical Cost record is then completed in a similar manner to the Commitment record.. The difficulty with this concept however is that it requires every miscellaneous purchase to be covered by an order and every order must be priced.g. Many items e. 20. ALSO IF EITHER OF THE ABOVE TECHNIQUES ARE USED A VERY METHODICAL APPROACH TO THE COLLECTION AND RECORDING OF ORDERS OR INVOICES MUST BE ADOPTED. fuel. By this means the problem of using historical data is overcome and the records present a more accurate picture of the current situation. Procedure No: 1 PROJECT COST CONTROL The Historical Cost record could then be completed in the same manner as a Commitment record. IF EITHER OF THE ABOVE TECHNIQUES ARE USED THEN AS FAR AS “COMPANY NAME” IS CONCERNED HISTORICAL COST RECORDS ARE THE SAME AS COMMITMENT RECORDS. EACH HISTORICAL COSTS COST CODE SHOULD BE IDENTIFIED AS A COMMITMENT TYPE (P) FOR PURCHASE ORDER). 19. Another alternative is to record invoices for the period before passing them on to accounts for payment. Experience shows that this is impractical.

is: Factor for adjustment to Contract Value for period = Indices (for labour and materials) for period -------------------------------------------Indices as at date of tender The indices used are normally calculated (for labour) or as published by the ABS (materials). 3. Many contracts provide for adjustment of the contract value as the cost of labour and materials increase during the course of the contract.Project Administration. October 2007 Page: 1 of 3 . MI(1). In the above 10 represents the fixed portion of the contract value not subject to an escalation factor. Escalation due under the Head Contract Formula is calculated using a calculation sheet shown in Attachment #. Hence a typical rise and fall formula would appear as:Factor for adjustment of contract value for period = LI(period) MI(1)(period) 35---------+ 25 ----------------LI(tender) MI(1)(tender) MI(2)(period) ) + 30 ---------------. “COMPANY NAME” CALCULATES ESCALATION BASED ON THE ABOVE FORM OF FORMULA. MI(2) etc. Procedure No: 1 PROJECT COST CONTROL SECTION 5C . Adjustment to the contract value is usually calculated using a formula defined in the contract documents. ETC. 35.) 2. This formula has been referred to as the Head Contract Escalation Formula throughout this procedure. e. This calculation sheet is as produced by “COMPANY NAME” and is called the Escalation Detailed Listing. represent the indices for various categories of labour and material. are the proportions of the contract value corresponding to the particular indice.+ 10 ) / 100 MI(2)(tender) ) LI. labour. 30 etc. material and fixed. Calculation of Escalation due under Head Contract Formula 4. Furthermore the formula usually splits the contract into categories.ESCALATION ESCALATION 1.. MATERIAL(1). IT WILL ACCOMMODATE A FORMULA WITH UP TO 10 ELEMENTS WHERE AN ELEMENT IS LABOUR. and applies a different indice for each category. Escalation formula come in many forms but the most common. expressed in its most simple form.g. (Also known as Rise and Fall formula. MATERIAL(2). price variation formula etc. 25.

This forecast is done using the indices for the last period. or commitments. (Note that certain items in the Head Contract may not be subject to escalation. Spreading Escalation over Cost Codes 7. THE SPREADSHEET IS SET UP WHERE IT SPREADS OVER EACH APPROPRIATE COST CODE THE TOTAL ESCALATION CALCULATED FROM THE ESCALATION DETAILED LISTING (TO DATE AND BALANCE). OR THE PROJECT ASSESSMENT SUMMARY AS IN THE CASE OF LABOUR AND PLANT. such as project name etc. Refer to Attachment # for further details of completing the Escalation Detailed Listing and the calculations required. THIS CAN BE VALUABLE ON A MANAGEMENT TYPE CONTRACT TO ASSIST THE CLIENT IN DETERMINING FUTURE CASH REQUIREMENTS IF ESCALATION IS A MAJOR FACTOR. formula elements. THIS TOTAL ESCALATION IS SPREAD IN PROPORTION TO THE CURRENT ALLOWEDS FOR EACH COST CODE (INCLUDING VARIATIONS IF DESIGNATED AS SUBJECT TO ESCALATION). Other Head Contract Formula October 2007 Page: 2 of 3 . Procedure No: 1 PROJECT COST CONTROL 5. having included in them the effects of escalation. is entered on the sheet. THE PROVISIONAL INDICES ARE ADJUSTED LATER WHEN PUBLISHED. IT IS POSSIBLE TO FORECAST ESCALATION USING FORECAST INDICES. (subject to escalation by the Head Contract formula). These must be excluded in the contract value amount. For concise cost reporting it is ideal to be able to spread the escalation due under the Head Contract Formula over the cost code items that are covered by the formula. THESE PORTIONS OF THE ESCALATION APPEAR IN THE COMMITMENT/COST ALLOCATION RECORDS. proportions. With manual cost control methods this is impractical due to the nature of the task. and payment for the period entered. Base Data including formula base date.. THIS IS DONE BY ENTERING PROVISIONAL(P) INDICES FOR FUTURE PERIODS AND FORECASTING CONTRACT VALUES FOR EACH FUTURE PERIOD. and payment. for the period). and base indices are then entered. No attempt is made to forecast future indices. Standard Project Information. Attachment # also shows the calculation of escalation due on the balance of the contract at any particular period. The indices are updated for each period and the contract value. BY USING A SPREADSHEET SPECIFICALLY SET UP THE CALCULATION OF ESCALATION EASY.Project Administration. Instead the escalation will appear as a single line entry in the Project Financial Summary and will be balanced by negative variances in each cost code due to the costs. or may be subject to a different escalation formula as in the case of nominated subcontracts. Forecasting using the Frozen Indices Principle 6.

If there are other Head Contract Formulae for items such as nominated subcontracts a separate Escalation Detailed Listing is maintained for each formula. AGAIN THE REPORT SHOULD AUTOMATICALLY CALCULATE RESULTS INTO THE APPROPRIATE COMMITMENT ALLOCATION RECORD. THE FACILITIES FOR COMMITMENT ESCALATION FORMULAE ARE SIMILAR TO THOSE FOR THE HEAD CONTRACT FORMULA. such as a major material order or subcontractor. The calculations etc. The values of escalation for each commitment (to date and balance) are entered into the Commitment Allocation Record as shown in Attachment #. are exactly as above except that the contract value and payments for any period would relate to only those items of the estimate covered by the particular formula.Project Administration. is subject to escalation an Escalation Detailed Listing must be maintained for each separate order or subcontract. 10. Escalation on Commitments 9. Procedure No: 1 PROJECT COST CONTROL 8. October 2007 Page: 3 of 3 . If any particular commitment. Providing the escalation formula for the commitment is similar to the form of the Head Contract Formula the procedure is exactly as above except that the contract value and payment for the period relates to the value of the order or subcontract.

If costs have been recorded accurately and allocated correctly. 2. October 2007 Page: 1 of 4 . Refer to Procedure # for details on the Costs and Claims Forecast. Forecast Final costs. it will indicate that one or more of the above conditions has not been met and thus investigation is needed to identify and remedy the cause of the discrepancy. the information shown on the Project Assessment Summary should be mutually consistent. I 5. Codes as defined earlier. of the Project Assessment Summary. d. Forecast Final completion times/dates. Most data entered in the Project Assessment Summary comes either directly from the cost reports (labour and plant) and the commitment and historical costs allocation records. The following relates to the preparation etc. Sundry other summaries. The two page Project Assessment summary provides data relevant to: a. Forecast Final contract value. ) b. It is part of the Group's standard reporting system that the following two financial reports are submitted by each project each month: • • Project Assessment Summary.Project Administration. Project Assessment Summary 3. e. f. Procedure No: 1 PROJECT COST CONTROL SECTION 5D – PROJECT ASSESSMENT Project Assessment Introduction 1. If. 4. if progress claims have been lodged in the maximum permissible amounts and if the forecasts to completion have been carried out realistically. some of the information is discordant with the rest. if all commitments have been recorded and the corresponding alloweds correctly assessed. if quantities of work done have been properly evaluated. Costs and Claims Forecast. including labour and plant if used. The remainder comes as explained in the following. Forecast Final margin. c. ) ) ) For each block of cost codes as defined earlier. however. One of the requirements of the cost control system is to produce a financial summary that gives Group management an accurate forecast of the final financial status of the contract.

it is good practice to review it as follows to be sure that there are no inconsistencies that throw doubt on the accuracy of the document. This interim step involves the collection of data from the Commitment and Cost Allocation Records and sub-totalling into cost code blocks. Have the alloweds to commit changed since the last reporting period? If they haven't then commitment records have not been kept up to date. either no orders have been placed or the commitment records are not being maintained. On completing the Project Assessment Summary. and before distributing it. If this is not done the contract value can be exaggerated as the contract progresses especially if the Client does not use the contingency. Refer to Attachment # for additional details required to be submitted as part of the Project Assessment Summary (page 2). or provisional amounts for work that may not be done. Do the variations allow for future known costs for Client provisional sums and provisional amounts? If not the final contract value will be underestimated particularly since such provisional sums often occur towards the end of the contract. may be preferred where manual methods of cost control are used. Reviewing the completed Assessment Summary 10. An alternative format. A record lay out identical to the Project Assessment Summary can be used for this purpose. The format of the Project Assessment Summary is as per Attachment #. Procedure No: 1 PROJECT COST CONTROL 6. 7. to complete the Project Assessment Summary. depending on the number of cost codes used. 8. The method of completing the financial aspects of the Project Assessment Summary (Page 1) is noted in detail in Attachment #. should be balanced by a negative variation at the start of the contract and progressively introduced as variations if and when the Client issues the appropriate variation order. (Refer attachment J). Has there been a significant change in any of the totals since the last reporting period? Such changes may have a straightforward explanation. This format is as produced by “COMPANY NAME”. • Have any Client contingencies or provisional amounts been included in the current alloweds? As explained in Section 7 Client contingencies.Project Administration. Page: 2 of 4 • • • • October 2007 . An interim step may be necessary. on the other hand it may show up an error in forecasting or similar. Additional Summary Information 9. Has the actual commitment to date changed since the last period? If it hasn't.

In particular. actual commitment (which equals actual cost in the case of historical cost codes and commitments in the case of commitment cost codes) should equal the forecast final cost. materials and subcontracts actual costs) cannot be entered until a few weeks after the close of the relevant accounting period. but those relating to forecasts should be rounded off to the nearest $1. 1)? If not. or instead acceleration costs if necessary? Do the current original alloweds (col. project managers should schedule their time so that the work of forecasting the final situation is done at a time clear of the pressures of end-of-month reporting. Have time extension costs been alloweds in the forecasts.000. or alloweds being incorrectly assessed. 12. Procedure No: 1 PROJECT COST CONTROL • Has the forecast final cost changed during the past period? If not when did it last change? Is this because the forecast hasn't changed or is it because a proper forecast hasn't been done for some time? Does the calculated final commitment vary substantially from the forecast final cost? If it does a reasonable explanation is required particularly if the contract is say more than 50% complete.. the effects of learning curves etc. Even though some detail (e. The Project Assessment Summary is a key document in “COMPANY NAME”’S control system and thus it warrants careful attention. Any discrepency can only be due to commitments not being recorded. As the contract progresses. much of the detail can and should be entered earlier in the month. Figures relating to firm data shall not be rounded off. Does the claim to date less the costs to date confirm the forecast final margin? At the start of the contract this is unlikely due to establishment costs. Note that a system based on commitments should minimise the risk of such surprises and should facilitate forecasting of final results. or alternatively claims may be inflated due to claim items being front loaded. why not? • • • • Timing and Distribution 11.g. 2 Attachment #) equal the original contract value (col. October 2007 Page: 3 of 4 ..Project Administration. the effects on the forecast final figures can still be brought in at the last moment. In respect of manual cost control systems all dollar amounts in the Project Assessment Summary should be in full. Is the percentage complete by time comparable to the percentage complete by alloweds? If the percentage complete by time is greater than the percentage complete by alloweds it suggests that the project is behind schedule. If the actual costs of materials or subcontracts contain any surprises. However as the contract progresses the claim less costs figure should start to confirm the final margin as forecast by the Project Manager.

October 2007 Page: 4 of 4 . As the contract progresses. actual commitment (which equals actual cost in the case of historical cost codes and commitments in the case of commitment cost codes) should equal the forecast final cost. Any discrepency can only be due to commitments not being recorded. Procedure No: 1 PROJECT COST CONTROL 13. Does the calculated final commitment vary substantially from the forecast final cost? If it does a reasonable explanation is required particularly if the contract is say more than 50% complete.Project Administration. or alloweds being incorrectly assessed.

extras and delays to any contract be recognised. Claiming and obtaining Client approval. Hence the alloweds for a submitted variation. j. this procedure may need to be modified accordingly. Procedure No: 1 PROJECT COST CONTROL SECTION 6 – VARIATION. b. This section of the cost control procedure sets out the standard method of controlling variations. General 4. c. The other factor that influences the method of control is whether of not the October 2007 Page: 5 of 4 . During this process any variation can have the following status:a.Project Administration. Cost control. Submitted to Client for approval but not yet approved by him. 5. claiming etc. Not yet submitted (but costs may well be being incurred). f. priced. Pricing. Measurement. 3. h. 2. d. claimed. e. Identification. It does not cover aspects of pricing. nor aspects relating to extensions of time. As discussed in the procedure on administration of variations the action steps in processing a variation are: a. Notification of Intention to Claim. However it is important to identify within the control documents the status of a variation since until such time a variation is approved the final value is not known. It is vital that variations. approved and paid for with minimum delay. Obtaining Client recognition. measured. c. In cases where the Client specifies detailed control procedures for the handling of variations. The method of control of a variation does not vary according to its status. both of which are covered in other procedures. b. Payment. This is necessary to preserve a proper profit situation and proper cash flow. EXTRAS & DELAYS Introduction 1. may have to be adjusted when the variation is finally approved. g. EXTRAS & DELAYS VARIATIONS. Filing and recording. i. Treatment of escalation. Approved. extras and delays. and included in the control documents.

it will usually be stated as being one of the following:a. monthly. if costs are not being October 2007 Page: 6 of 4 .". plant. In addition to the factors normally considered during design of a cost control system. Details of minor variations should be transferred on a regular basis. Foremen. small variations may be lumped together under a code termed "miscellaneous variations".. the Project Manager shall decide whether the difference is of sufficient significance to warrant adjustment of cost control documents. 10. c. Note that this form also makes provision for recording the amounts finally approved by the Client. details of a major variation shall be transferred immediately before costs are to be incurred even though it may still have a status of not submitted. materials and subcontracts involved will be costed to new specially-allocated cost codes or to numbers within the established system. However. If these are different from those submitted. 6. As soon as a variation has been identified. incl.Cost Code Split" should be transferred to the relevant cost control documents at the time appropriate to the maintenance of proper cost control. subject to escalation with effect from the same date that is used for calculation of escalation under the Head Contract escalation formula. or c above are preferred. The split of estimate as entered on the "Variations . plant. Accounts and other associated personnel must be advised when a new cost code is raised. 9.Cost Code Split". For example.g. The labour dollars alloweds should be based on the estimate labour rate and these amounts are those to be allocated to each cost code number as relevant. account must be taken of the expected amount of backup information that the Client may require in substantiation of the claim for the variation. 11. not subject to escalation. The choice between the above three must take account of the Client's stated requirements if any. a decision must be made as to whether the labour. When a variation is priced and submitted. materials and sub-contract cost codes as decided in accordance with the above. The difference between the above labour dollars alloweds and the amounts in the labour part (at current rates) of the estimate of the variation should be shown in the column "Escal. subject to escalation with effect from the date of the submission of the price for the variation. From the point of view of convenience in cost control either a.Project Administration. e. etc. The split of this estimate into its various cost codes together with margin and total is then entered on the form as per Attachment 6A "Variations . 8. b. 12. Procedure No: 1 PROJECT COST CONTROL variation is subject to escalation. When the estimate of a variation has been completed it shall be split into the alloweds for the relevant labour. To avoid a proliferation of cost codes. Cost Control 7.

16. it is preferable not to transfer variations to the cost control documents until they have been approved. A VARIATION IN “COMPANY NAME”. Reporting Variations in the Project Assessment 15. When controlling variations it is essential to be realistic as to the amounts that the Client is expected to approve. USE ACCORDING TO THEIR STATUS. Procedure No: 1 PROJECT COST CONTROL incurred in the meantime. Extra over margin generated by variations must be added to the original contract margin in the Project Assessment Summary. or are subject to escalation as per the Head Contract. When variations and extras become numerous. Variations subject to a different basis of escalation must be calculated separately and included separately in the Project Assessment Summary if of significance. PROJECT COST CONTROL AND VARIATIONS 17. This minimises the effort of having to update the documents in the event that the approved variation does not equal the submitted variation.All costs incurred (labour. ESCALATION CALCULATIONS. there may be a need to keep a record of the changes made to the value of each cost code. b. THIS DOES NOT INFLUENCE THE METHOD BY WHICH THE VARIATION IS CONTROLLED BUT GIVES THE ABILITY TO PRINT VARIATION REPORTS FOR THE CLIENT.COST CODE SPLIT" STAGE.sheet 2. Leave these for comment by the Project Manager in the space provided at the end of the Project Assessment Summary . Once variations data is transferred into the cost control documents their influence on the contract value etc. VARIATIONS SHOULD SHOW THE STATUS OF APPROVED. SUBMITTED OR NOT SUBMITTED. OR THE PROJECT'S. Escalation on variations must be carefully examined if of significance. Each item on the "Variation . A system is suggested in Attachment # which can also be used as a summary to date of the project's alloweds. VARIATION DATA IS FED INTO PROJECT COST CONTROL AFTER THE "VARIATIONS . It is important to ensure that those responsible for writing and check in time sheets fully understand what cost codes are to be used. 13. October 2007 .Cost Code Split". PROJECT COST CONTROL SHOULD BE IDENTIFIED AS BEING EITHER FIXED OR SUBJECT TO ESCALATION AS PER THE HEAD CONTRACT FORMULA. will automatically flow through to the Project Assessment Summary except as follows:a. or extra material and subcontract) in carrying out a variation shall be debited against the cost codes used in the "Variations . then inclusion of the variations in the payment for the period as per the Escalation Detailed Listing will effectively allow the correct escalation amount in the Project Summary. 19. or any other similar forms of claim. When variations are not subject to escalation. 14.Cost Code Split" shall be ticked when transferred to the cost control documents. Do not include contentious claims for variations. in the control documents.Project Administration. THE Page: 7 of 4 18.

Project Administration. Procedure No: 1 PROJECT COST CONTROL SPREADSHEET DESIGN SHOULD BE SUCH THAT THE VARIATIONS ARE AUTOMATICALLY CALCULATED AS DATA ON ESCALATION IS FED INTO THE SYSTEM PROVIDING THE PAYMENT FOR THE PERIOD CONCERNED INCLUDES THE APPROPRIATE VALUE OF VARIATIONS INCLUDED IN THE PAYMENT. THE CONTRACT MARGIN SHOULD BE AUTOMATICALLY ADJUSTED WHEN VARIATION MARGIN IS ENTERED AFTER THE “VARIATION COST CODE SPLIT’ STAGE October 2007 Page: 8 of 4 . 20.

A further difficulty with Schedule of Rates contracts is that the schedule is usually much condensed compared to the estimate. plant. As the work proceeds the estimates of quantities become firmer and firmer. Confusion sometimes occurs in Schedule of rates contracts due primarily to the fact that at the start of the contract quantities of work required are not firm (in contrast to the situation in a Lump Sum contract). When initially setting up the labour. commitment and miscellaneous costs reports. true variations can occur in a Schedule of Rates contract. that require either a modified cost control procedure. usually involving changes from the original estimated quantities. True variations on a schedule of rates contract are treated in accordance with Section 6 of this procedure. a. enter the original contract quantities and related alloweds as if these were firm. use units and quantities which appear in the Schedule. for items such as explosive and drill October 2007 Page 1 of 6 . Such changes are not variations in the accepted contractual sense. etc. For example. and particular contract items. This section of the procedure discusses different types of contracts. 5. The following general approach is described as a guide to the Project Manager who shall detail the procedure to be used taking account of the particular characteristics of the project including any unbalancing of tender rates and inclusion of establishment items. In other words. Wherever practical. steels. changes in one schedule item will usually require changes in several of the project cost code items. 3.Project Administration. For example changes in rock excavation quantities will influence not only direct. 4. Procedure No: 1 PROJECT COST CONTROL SECTION 7 – EXCEPTIONAL ITEMS EXCEPTIONAL ITEMS Introduction 1. When preparing the Estimate Split Summary a more detailed summary is required to record the various cost code items to which each schedule item has been allocated and the corresponding alloweds. as for example when the specified quality of work is altered or changes in method are necessitated as a result of a requirement or action by the Client or if the Client changes the programme logic or schedule timing requirements. Also the Indirect Costs and margin amounts included in the tender amount for rock excavation will be affected. A format similar to Attachment # "Variations .Cost Code Split" would be appropriate for the purpose. labour and plant involved but also miscellaneous costs for explosives. SCHEDULE OF RATES CONTRACTS 2. or a method of control that has not been discussed in detail in the previous sections. However. b.

calculate the forecast final income. The Project Manager shall decide when to adjust the "total quantity alloweds" figures and the relevant dollar amounts. the adjustment should be made. The fee is often a lump sum. iii. Note that if the quantities of work done exceeds the original quantities alloweds. supervision. this should merely be noted at this stage and the actual quantities should be used in the cost reports. e. Alternatively a percentage complete based on the ratio of total claim to date to final contract value may be appropriate. Thus it is necessary to carry out a separate assessment of the overall situation. broadly as follows: i. c. how predictable quantities are. This applies particularly to items where the quantity of work done can be accurately identified. in general. This will depend on the details of the work. Based on the same quantities as above. Review the above to ensure that like is being compared to MANAGEMENT CONTRACTS (PROJECT AND CONSTRUCTION) 6.Project Administration. However. or a guaranteed maximum price based on a budget etc. or provisional amounts for subcontracts. etc. calculate the quantities of work still be performed and estimate the costs of doing this work using up to date productivity information. when the final quantity for a particular item is known fairly definitely. This approach should identify areas where productivity rates are below estimate. This sum can vary significantly. It may be desirable to include explanatory notes in the description column. iv.. ii. as orders Page 2 of 6 October 2007 . e. Operate the cost reporting system as normal as far as possible. or based on a percentage of the direct cost. typically. Based on the latest forecast of final quantities. Add the recorded costs to date to the above estimate to complete. Procedure No: 1 PROJECT COST CONTROL steels which depend on rock excavation quantities.g. including escalation. like. Where cost code items cannot be readily associated with specific work items. it will usually be adequate to devise and use a percentage complete type assessment of "alloweds" based on realistic groups of specific work items. A sum for direct costs in the form of a budget. use the rock excavation unit and quantity against explosives and drill steels. The majority of Project Management and Construction Management contracts consist of: • • A fee for management. variations. d. it will not provide much indication of the forecast final result. etc. Whilst the above should provide a regular spotlight on current performance. or at least the items within the sum can.

00 per m3. Any changes to the fee resulting in a change in the scope of the direct work should be fed into the control documents as variations. If not there may be cause for a variation. i. To control these types of contracts separate control documents should be prepared for the fee and the direct costs.e. As discussed earlier in this procedure major material supplies should be controlled by means of Commitment reports. • If the wastage varies from the 5% then a variation should be made to the dummy Page 3 of 6 October 2007 . Procedure No: 1 PROJECT COST CONTROL are progressively placed. • The estimate alloweds for 1000 m3 of concrete at a price of $75. MAJOR MATERIALS WITH WASTAGE 8. The total commitment of $73.000 + 3650)). $3. Providing wastage is controlled.750 (1050 m3 x $75).650 (50 m3 x $73). Project Costs Ledgers should be similarly maintained as if they were two separate contracts. for the various items in the contract. • From now on control should be centred on ensuring that wastage is kept within the 5% alloweds.. 7.(73.000 is recorded. Most contracts of this type require all direct work to be subcontracted so it is relatively easy to identify subcontract packages and control them accordingly. and providing quantities supplied match quantities measured and paid for. This is where the foreman's daily record of concrete pours is relevant.750 . • An order is placed on a supplier for 1000 m3 of concrete at $73 per m3. Thus the variance assuming no wastage occurs is +$5. The estimator also assumed 5% waste and hence alloweds for a total of 1050 m3 to be supplied.750. Also as the contract proceeds progressive totals of concrete placed should be compared to the estimate quantities to ensure that they are the same. or budget estimates. The technique is illustrated by the following example of concrete purchased for a contract. or it may show up as an error in the estimate. The variance including allowance for wastage is now + $2100 (78. no further control is required. The direct cost component of the contract should be similarly controlled with the alloweds being the provisional sums. The total alloweds is $78. A Commitment Allocation Record is established for the supply of concrete. The fee component of the contract is controlled in the normal manner. 9. A second dummy order is entered under commitments for concrete wastage.Project Administration.

) 10. Sometimes they are in the form of provisional quantities that have had to be priced at the tender stage. An example of this type is "Disconnection and removal of uncharted services encountered during excavation . appear in contracts in a variety of forms. The exact value of the nominated subcontract is not known at the time of tender and a provisional sum is nominated in its place.Project Administration. Such contingencies should not be considered as part of the Final Contract Alloweds until such time they become a variation. A dummy negative variation should then immediately be generated equal to the value of the contingency. unlike some other forms of provisional sums. If the actual quantities vary from those alloweds in the estimate a variation order should be placed on the supplier. Contingencies should not be put into alloweds as they become buried. and their original purpose forgotten. One common form of provisional sum is for nominated subcontracts. Other provisional sums often allow for items that may never be carried out under the contract. lost. amounts. The description of the provisional item in the contract must be studied carefully to determine how best to treat it in the control documents as described below. This will avoid the contingency being carried forward into Project Assessments and inflating the Final Contract Alloweds. They are included in the original alloweds in the control October 2007 Page 4 of 6 . 13. CONTINGENCY (CLIENT) 11. is required at the time of doing the work. Provisional sums. quantities etc. The Client usually specifies a contingency in a contract to cover unforseen costs and to provide money for likely variations. to be carried out under separate contract". The method of controlling these provisional sums. Even though it is a provisional sum the feature of this type of provisional sum is that there is no doubt that the work covered by the provisional sum will be done. PROVISIONAL SUMS. 14. The alloweds (provisional) amount is subsequently adjusted when the Client issues a variation order when the nominated subcontract is finalised. Client contingencies should be included in the original estimate alloweds to ensure that the alloweds balance with the tender." With this type of provisional sum a variation order. or Client instruction. is the same as for Client contingencies. Any contingency alloweds in the estimate should be highlighted as margin until such time the contingency is used up through costs occurring for the reason that the contingency was there in the first place. if required. or quantities. AMOUNTS. An example might be "Allow the provisional sum of $x for dewatering. This form of provisional sum is treated like any other alloweds in the control document. CONTINGENCY (“COMPANY NAME”. Procedure No: 1 PROJECT COST CONTROL order for waste concrete. They are in fact another form of contingency for specific items that may or may not eventuate. QUANTITIES 12. In both cases the variance should be adjusted accordingly.Provisional Quantity 10 No.

not as an increase in alloweds. New cost codes should be allocated for backcharges etc. This avoids the Final Contract Alloweds being over-inflated as the contract draws to a conclusion due to the provisional items having been overlooked. 17. plant reports and commitment. PC SUMS 15. As costs are incurred for October 2007 Page 5 of 6 . miscellaneous sales and insurance work as a credit to costs. The usual accounting procedure is to treat revenue for backcharges. The reports or records are maintained in the usual manner. and inserting all items in a. They will have to be supplied eventually. METHOD CHANGES 16. Procedure No: 1 PROJECT COST CONTROL documents to balance with the tender. PC sums are normally the subject of some form of variation order which contains details of the precise item to be purchased. PC sums are often nominated in the contract for items which had not been completely specified at the time of tender. is equal to or less than the total cost in b. They should then be negated by dummy variations. Items subject to PC sums are not normally subject to being deleted from the contract. If and when the work is eventually done the alloweds are adjusted by the variations that the Client should issue for such provisional items. b. The PC sum is included as an alloweds in the control documents and is subsequently adjusted as result of the variation order if the change in value warrants such adjustment. costs records modified or established accordingly. They are another form of provisional sum although contractually they are sometimes interpreted differently. and adjusting totals and relevant subtotals.Project Administration. and labour. c. BACKCHARGES. Make an estimate of the changed method and allocate cost codes (new or existing as considered most appropriate). List the items in the various reports and records which are redundant due to the adoption of the changed method. Amend the various reports and records by deleting all items listed in b. it is just a matter of what price is finally paid for them. Check that the total cost in a. and if relevant decide whether to treat the difference as extra margin or to show it somewhere in the cost reports as a contingency. d. MISCELLANEOUS SALES AND INSURANCE WORK 18. The general procedure for reflecting such changes in all cost reports is: a. The various reports and records in the cost control procedure could become invalid as a relevant control document if changes in plan are not reflected in the alloweds in each report. Such a change in plan could be a change in the construction method or a decision to use a subcontractor for some work instead of using direct labour or vice versa.

the forecast yet to commit/spend for each cost code is adjusted back to zero value. Two alternative methods are possible for control of this type of cost. a credit). Adjusting the alloweds to equal the costs to date will overcome the distortion of to-date and period reports due to negative variances. When invoices for backcharges. or claims for insurance work. Procedure No: 1 PROJECT COST CONTROL backcharges etc. This is the preferred method since it correctly reflects the situation of costs being incurred resulting in negative variances. these being by the adjustment of alloweds. 19. and monies paid will then be automatically taken care of. October 2007 Page 6 of 6 . and monies paid will then be automatically taken care of. hence variance. When invoices for backcharges. ultimately offset by revenue that reduces the cost. 20. If in the meantime. however. the alloweds for each cost code has to be adjusted back to zero value. or the forecast cost. Any difference between monies invoiced.e. are finally paid and credited to each respective cost code.. negative variances will result which will distort the period and to-date reports and records. are finally paid and credited to each respective cost code. without adjustment of the alloweds. Any difference between monies invoiced. instead of adjusting the alloweds. the alloweds have been carried forward to the Project Assessment the final contract value will be incorrectly overstated. or claimed. Alternatively.Project Administration. the negative variances can be "corrected" by forecasting a future negative cost (i. or claims for insurance work. or claimed.

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