Post Contract Cost Control

End of Term Assignment

John Power
R00080635
CA.CS3.E
Colin Donoghue

Post Contract Cost Control 2021.

Table of Contents

Question 1:........................................................................................................................................................3

What is Clause 36?......................................................................................................................................3

PQS Facilitation of Deletion of Clause 36:................................................................................................3

Question 1 (Continued):..................................................................................................................................4

Contractors Facilitation of Deletion of Clause 36:...................................................................................4

Question 2:........................................................................................................................................................5

Question 2 (Continued):..................................................................................................................................6

Reasons to be Timely & Efficient in Progress Applications:...................................................................6

Question 2 (Continued):..................................................................................................................................7

Question 3:........................................................................................................................................................8

Question 3(Continued):...................................................................................................................................9

Question 3(Continued):.................................................................................................................................10

Question 3(Continued):.................................................................................................................................11

Appendix:........................................................................................................................................................12

Post Contract Cost Control 2021.

Question 1:
“Clause 36 of the RIAI form of contract outlines the contractual arrangement for dealing with Wage and
Material price increases.”

Outline the process involved from both a PQS and a contractors’ perspective to facilitate the deletion
of Clause 36 from the Contract Conditions.

What is Clause 36?

Clause 36 is a Clause in the RIAI Construction Contract. The purpose of the Clause 36 is to deal with price
variations Post-Contract. It is not uncommon to see Clause 36 removed from a Contract. When tendering for
the project, all costs are based on the rates given at a Designated Date. As projects can have long durations,
the costs can fluctuate massively. This may be due to numerous factors such as changes in excise duties,
increase of taxes, additional transportation costs, a change in Government legislation, or a Union increase in
labour. If Clause 36 in included in a Contract, this gives the Contractor the right to recover the increase in
costs after the Designated date, onto the Client. This provides Cost uncertainty for the Client, which is not a
Clause that is favoured by the Client. On the other hand, the Contractor would look favourably on Clause 36
as it creates an option for the Contractor to recover certain losses. This gives the Contractor the option to
inflate the cost increase before passing it onto the Client. This is not an uncommon practice here in Ireland.
It also gives the Contractor the option to hide additional costs within the items covered in Clause 36. All
submitted costs will have to be approved by the Architect. As this is a Clause that is not favoured by the
Client, it is common practice for the Client & Contractor to come to a mutual agreement to remove Clause
36 from the project contract. Clause 36 is a big talking point in the Irish Construction Industry

PQS Facilitation of Deletion of Clause 36:

The PQS will be highly in favour of removing Clause 36. This is done at Tender Stage. This clause does not
suit the Client as it creates cost uncertainty. If this Clause is not removed from the Contract, the Client will
not know the definitive Cost of the project until project completion. This provides issues in relation to
funding and capital for the project. It also causes additional work for the PQS. The PQS will have to review
all the Contractors claims in detail to spot increased costs. This is non-productive work as it takes time away
from the PQS where the PQS could be investing their time into more valuable aspects of the project.
To facilitate the deletion of Clause 36, the Client will have to come to some sort of mutual agreement with
the Contractor, traditionally a lump sum payment for the deletion of the Clause. The Contractor will be
asked to submit an anticipated increase in costs. This will then be reviewed by the PQS, who will either
approve or ask the Contractor the review the submission until a mutual agreement is agreed. This value will
then be added as a separate Line Item in the Preliminary’s Section of the Bill of Quantities.

Post Contract Cost Control 2021.

Question 1 (Continued):
Contractors Facilitation of Deletion of Clause 36:

When it comes to Clause 36 the Contractor is affected both positively and negatively by it. Just like the
PQS, the inclusion of Clause 36 created unnecessary extra documentation and administrative work for the
Contractor. All relevant info in relation the change in prices and costs needs to be monitored and recorded
throughout the project. However, the Clause can have a positive effect of the Contractor. It protects the
Contractor from potential losses due to reason outside their control. If the contractor incurs these potential
costs, it reduces the amount of profit generated on the project. Be mindful that its common to have projects
with a 2 or 3% profit. During the recession in Ireland, certain big players in the Irish construction Industry
were pricing projects on a Loss, with the objective being to keep employment, keep the company afloat, and
ride out the troubling period. However, if the Client is willing to provide sufficient reimbursement for the
removal of Clause 36, the Contractor would happily facilitate this. The PQS for the Client will request the
removal of Clause 36 from the RIAI Contract. The Contractor will then need to provide an assumption in
relation to the additional cost that could possibly be accrued. This value will cover all the forecasted
additional cost. This value will be submitted as an Additional Line Item to the PQS who will either agree or
contest our value until a mutual decision is agreed. This is a common practice here in Ireland, deleting
Clause 36. Essentially it can potentially be a win-win for both the Client & the Contractor. Deletion of the
Clause gives the Client cost certainty in the project as it eliminates the potential for the Contractor to submit
additional claims. It also benefits the Contractor in certain situations. These figures agreed by both parties
are assumptions and forecasted figures. Theses figures can both increase and decrease. As the contractor will
be looking to cover all additional costs, they generally tend to be on the heavy side of the valuation. This
often leads to contractors gaining more from an agreed reimbursement for the deletion of Clause 36 than
they would have by submitting additional claims.

Post Contract Cost Control 2021.

Question 2:
“Timely and efficient administration of a Contractors Progress Applications will result in effective cost
reporting throughout the course of a Construction Project.”

Discuss the above ensuring that you provide relevant examples.

I agree with the above statement that time and efficient administration of a Contractors Progress
Applications will result in effective cost reporting thought out the course of the project. Cost reporting is a
very important aspect of costing a project. Cost reporting is a when a Contractor submits a report to the
Client informing them about the status, and magnitude of the projects predicted final cost or actual cost. This
figure can be expressed in two ways, either as a Final figure, or a comparison in relation to the project’s
budgets. The report will include all costs incurred to a specific date, a forecast of the projected costs likely to
be incurred for the rest of the project, risk allowances to cover these projected costs and Contingencies for
the project.

With the complexity of Construction projects, its accepted at the start of the project that losses will be
incurred due to unpredictable matters such as delays, changes in costs, over the duration of a project,
especially projects with long durations. The idea of the cost report is to provide a figure for the Contractor
and the Client that gives them an idea of where they project currently lies financially. As these issues are
generally unpredictable, cost reporting needs to be done on a time and efficient matter.

The key to successful cost report is time and efficiency. As I mentioned before the value set to the project at
the beginning will change, either increase or decreasing. This is known. What is not known is when these
costs will happen. Therefore, the report needs to be submitted on a regular basis to provide an accurate
Progression of the Projects Finances. A Cost report should be submitted to the Client monthly.

A Cost report also needs to be efficient. It needs to be able to be manipulated easily for both the Contractor
and the Client so it can be understood easily, and no misunderstandings would occur. As large construction
projects can cost millions of euros, monthly Its forecasting needs to be accurate. If the forecasting is too
optimistic, it goes an inaccurate picture of the project, and gives both the Contractor a false sense of
security. If the report is easy to manipulate, easily to understand, correctly forecasted, and includes all
relevant historical data, is it easy to compile reports monthly.

Post Contract Cost Control 2021.

Question 2 (Continued):
Reasons to be Timely & Efficient in Progress Applications:

 Investigate Losses:
Losses can down to a range of things, from transportation of materials issues to adverse weather
conditions, low productivity, labour issues. Having a success cost reporting system gives us an
opportunity to spot the places where these losses occurred. This gives the opportunity to investigate
the issue and address it accordingly.

 Running “Blind” in the Project:

When it comes to the financial side of a project, especially multi-million-euro projects, operating
without any knowledge of what is ahead of the project financially, is recipe for failure. Fail to
prepare, prepare to fail. Have a successful cost reporting system and a successful Process Application
system, this eliminates this. With an efficient system, large scale unexpected costs can be forecast
and processes can be in place for weeks if not months prior to the event, to help compensate for the
expense at the time. It is possible for large, unexpected expenses, which could have been forecasted,
have essentially bankrupt projects.

 Accuracy:
It is common for large scale construction projects to have a project duration in excess of 12 months.
A lot of variables can change throughout the duration which can lead to increases in costs. Having a
timely and efficient cost reporting system will give the Client a more definitive accurate picture of
where the project is financially now, and where it will be at Final Account stage. Accuracy is
essential in anything financial.

 Unnecessary losses go unchecked.

If reports are not being submitted regularly, this can have knock on effects to the project. If the report
is not being submitted, the necessity to track and log all data and administrative work by the
administrative staff onsite reduces, leading to gapes in paper and people skipping corners. This has
the potential for the QS to miss extra costs incurred which could have been passed onto the
contractor. This eats into the profit of the Contractor as its money that they were entitled to claim
from the Client.

Post Contract Cost Control 2021.

Question 2 (Continued):
 Helps Create Trends:
Having efficient and timely Progress Applications create trends. It gives the Client and the
Contractor both historical data of which can help lead to improved forecasting and ultimately
improve financial management and save money. It can look at trends in relation to Wage increases,
material increase etc.

Cost Value Reconciliations (CVR’s):

An example of a Progress Application is a Cost Value Reconciliation Report, also knows as a “CVR”. A
CVR is a report which monitors, and measures actual expenditure compared the costs set out in the budget.
It gives a running account of the projects profitability by comparing the Costs, and the values that were
associated to these costs at the beginning of the project. The CVR has two purposes, the form the basis of
the accounts and it provides management information to assist in the identification of problems. It helps give
the Client a more realistic picture on where the project is financially. It helps minimise current
overspending, control ongoing overspending, and contributes to Cost forecasting. CVR’s are submitted
monthly alongside the Interim Valuations and on Final Accounts Completion. CVR reports are easy to do
and easily to manipulate monthly to adjust the figures. CVR’s are typically done on an Excel File with the
document being approved by both the Client & The Contractor is the Contract negotiation stage. CVR gives
you a running account of the project’s profitability by comparing cost and value at given points in the
project lifecycle. A CVR covers all aspects mentioned above. It can help create trends, provide accuracy,
and helps prevent unnecessary losses. CVR’s can also be used as analysis for historical data to help forecast
the profitability of future projects. It can look at the CVR’s and see what were the causes that incurred
excess costs, and if these values are unavoidable, the contractor will look at other options. For example,
some Clients can be very hard to deal with as they can be unorganised or indecisive which can lead to
additional costs, which in turn leads to arguments and clashes between Client & Contractor.

Post Contract Cost Control 2021.

Question 3:
“Submission of a Loss and Expense Claim by a Building Contractor is ultimately caused by the negligence
of the Design Team”.

Discuss the above outlining whether you agree or disagree with the statement ensuring that you
provide relevant examples.

No, I do not agree that a Loss & Expense claim is ultimately caused by the negligence of the Design team.
Yes, negligence caused by a design team can lead to a delay which leads to a loss and expense claim but not
all loss and expense claims are caused by this negligence. There are other factors that cause a Loss &
Expense Claim to be submitted.

Most Standard Forms of Contract contain Loss &/or Expense Clauses. A Loss & Expense Claim can be
defined as the financial side of a “delay claim.” They arise from delays to the project, changes to the nature
of the project, disruptions caused by the Employer, or Variations to the contract.
To disprove this statement and prove that all Loss & Expense claims are not ultimately caused by the Design
Team, we will look at the aspect of a delay in project.
When a delay occurs in a project, a contractor incurs extra costs. These extra costs are both indirect and
direct costs. These include disruption costs, head office costs, loss of profit, finance charges and additional
site labour, plant, and overhead costs, plus the recovery of costs for preparing a claim. If the Contractor feels
this extra expense is due to reasons outside the control of the Main Contractor, they submit a Loss &
Expense Claim for the amount they think they are owed. The onus is then on the Contractor to prove and
justify the amount set in a Loss & Expense Claim. A Global Claim will not suffice in a Loss & Expense
Claim.
Contractors needs to follow three steps to justify and expense claim. The first is Entitlement. Has a delay
occurred that is the other parties Risk? Who ultimately holds the Risk for this delay? Is this the Design
Team? The second step is Demonstrate of Cause and Effect. Precise cause and effect need to be shown. The
separate causes of loss or expense need to be shown clearly and what effect each cause had on progress or
completion. Accurate records will assist with showing the links between cause and effect, which is often the
key factor in making a successful claim. It’s extremely important for the Contractor to submit the documents
in real time and as they occur. Facts lose their strength over time. If it’s left until the end of the project it is

Post Contract Cost Control 2021.

harder to justify the costs where as if a Dayworks sheet is submitted every week, the onus and burden of
proof is then on the employer.

Question 3(Continued):
Loss & Expense Claims are a topical issue now in relation to delays in projects. The delays are due to the
COVID-19 Pandemic and mandatory lockdowns issued by Government Officials. As a pandemic and
Government Restrictions were an unprecedented thing to happen, Standard Forms of Contract were not
written with Pandemics in mind. This has let a lot of Employers & Contractor in “grey areas”. All leading
construction Federations such as the CIFI, SCSI, and others have all acknowledged the situation which has
arisen and provided guidance in relation. The Pandemic can be considered “force majeure” as it was
unprecedented, but the issue with considering it force majeure only protects from damages for late handover,
but they may not automatically provide a platform for making claims for losses arising from prolonging of
the work or disruption to the work and the work schedule. Some Contracts, such as the NEC3, as widely
used Contract, does not list force majeure in its Compensation Events.

To disprove the theory that all Loss & Expense Claim are caused by negligence by the Design Team I will
give a example I am currently involved in. I am currently working as a Quantity Surveyor for a Mechanical
Contractor. We commenced a project in February 2020 for a Client in the Pharmaceutical Industry with a
project length of 12 Weeks. Due to the Covid the project completion date ended up being February 2020.
The project was delayed by 39 Weeks. This will a heavy additional expense, to us, the Contractor. When the
job was complete, I had to do a Delay analysis for the project for the Loss & Expense Claim.
Firstly, I refer to the Contract signed with the Employer. The Contract was a Standard Form of Contract. As
expected, there was no reference to a Pandemic in the Contract. The Standard Form of Contract did allow
for the extension of time and some damages, but not all damage that arose.
I then had to look at why these delays arose and demonstrate the resulting effects. Firstly, I had to look at the
Entitlement. Has a delay occurred due to the Employer? Yes, it had. The Employer had implemented
changes to working conditions, and changes to site conditions which greatly affected the delay of the
project.
Here are some Extracts from the report:

Site Layout and Access Restrictions:

Mid-project the Client decided to change the walkway layout of the site and access to OSP 1. A one-way
walking system around site was introduced and only one access to OSP1 was permitted, at the South of the

Post Contract Cost Control 2021.

Building. This has doubled the length of time taken to get from the Project to our onsite workshop in the
Contractors Compound due to the one-way system. This means the travel time for our workers around site
has in fact doubled. This change in site layout by the Client has led to the length of time to complete a job
has been increased, and not accounted for in the tender as the site change was unprecedented.

Question 3(Continued):
Restrictions on Vehicles:
The Client enforced restrictions on Vehicle Use on Site. Only 1 person allowed per vehicle and only
designated people were allowed drive the on-site vehicles. This led to further delays. Workers who needed
to get to the workshop for equipment, or materials or tools, in the past would have taken the van, now had to
walk down, follow the one-way system, and wait for a vehicle to arrive to transport materials equipment to
the project area.

I them looked at my second item in my analysis, Demonstration of Cause and Effect. I had to compile a list,
of all the separate causes of the delays, just like what is mentioned in the extract above. I then had to identify
their effects on the progress or completion. When broken down into separate causes, I then had to formulate
the extra expense acquired by these delays. Below are 2 examples of formulating the effects.

Example 1:
“Banning Changing Facilities in Compound:
The Client decided mid project that the Contractors were no longer allowed to use their own changing
facilities in the Contractors Compound. Instead, a COVID Village was placed in the ADM Compound.
Contractor were only permitted to use the Changing Facilities in the COVID Village. This decision has
created Lost Time for us, the Contractor, which was not factored into the Tender Price as this was
unexpected. The reasoning behind the COVID Village is understandable, but was a cost accrued by us, the
Contractor, because of changes to the Site Layout by the Client. As you can see from the table below, the
numbers of workers onsite working on the Tendered Jobs. The total loss due to the movement of the
Changing Facilities is 289Hours which equates to €12,610.25. This is a loss by the Contractor due to Site
Changes by the Client mid-project.

Example 2:

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The Third Item I had to consider was records. Accurate record keeping is crucial in putting together
legitimate claim. My Loss & Expense claim will have no strength unless records are kept. Accurate records
will show a link between cause and effect. I recounted emails sent to the Contractor when at the beginning
of this pandemic. There was notice given to the Employer about potential claims for loss and expense on
March 17th, 2020 when all Construction workers were sent home from site. All detailed records were
maintained throughout the project. Dayworks were constructed and issued to the Client every week claiming
delays. An example of the importance of records and documentation is the “White Construction Pty Limited
v PBS Holding Pty Limited”.

Question 3(Continued):
On completion of the Analysis, it was time to present the Claim to the Employer. I started with an Executive
Summary of the report. I then included a Statement of Claim. This expands on the summary. I then defined
the specific relevant terms in the contract which I felt were relevant. I then laid out my cause-and-effect
narrative, as described in the extracts above. I laid out the considerations for health and safety conditions,
separate COVID-19 impacts from other sites, and included comparisons of impacted works with unimpacted
works. I then attached any appendices and Exhibits I felt were necessary.

Post Contract Cost Control 2021.

Appendix:

 Construction Lockdown 2: COVID and The Four Corners of a Successful Claim - Construction

Industry Federation (cif.ie)

 Slide 1 (trentglobal.edu.sg)

 Sub-Contractor’s Claims for Loss and Expense | SpringerLink

 Delay in Construction Projects – Practical Tips for 2020-2021 - Construction Industry Federation

(cif.ie)

 Contractors’ Claims for Loss and Expense under the Principle ‘Traditional’ Forms of Irish Building

Contract (tudublin.ie)

 COVID-19: A briefing on claims for loss and expense | HKA

 Evidencing Construction Delay Claims - The Importance of Maintaining Site Records When

Substantiating or Defending Delay Claims (rdj.ie)

 Loss and Expense Claims - A Guide (arbicon.co.uk)

 Construction Cost Value Reconciliation | Sub Contractor Quantity Surveyor (buildt.co.uk)

 Calculation Of Value Report (CVR) Benefits - Wealth Management - United States (mondaq.com)

Post Contract Cost Control 2021.