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Cost Control

Upali Fernando
(Chartered Surveyor, Chartered Quantity Surveyor , Chartered
Builder, Panel Member of the Adjudicators in Sri Lanka, Constructioin
Cost and Claim Consultant and Construction Law Specialist.)
1.THE CONCEPT OF COST CONTROL

1.1 Cost control aims at ensuring that resources


are used to the best advantage. In these days of
ever increasing costs the majority of promoters
of construction are insisting on projects being
designed and executed to give maximum value
for money.
2. MAIN AIMS OF COST CONTROL

2.1 To give the client good value for money


A construction which is soundly constructed, of
satisfactory appearance and well suited to perform
the functions for which it is required ,combined
with economical construction and layout, and
completed on schedule as lost time is money
2.2 To achieve a balanced and logical
distribution of the available funds between the
various parts of the construction.

Thus the sums allocated to cladding,


insulation , finishings , services and other
elements of the construction will be properly
related to the class of construction and to each
other.
2.3 To keep total expenditure within the amount agreed by
the client
Frequently based on an approximate estimate of cost
prepared by the quantity surveyor in the early stages of
the design process. There is a need for strict cost
discipline through out all stages of design and execution
to ensure that the initial estimate, tender figure and final
account sums are all closely related. This entails a
satisfactory frame of cost reference (estimate and cost
plan) ample cost checks and the means of applying
remedial actions where necessary (cost reconciliation).
3. THE EMPLOYERS QUANTITY SURVEYORS
ROLE IN COST CONTROL

3.1 The controlling measures are usually


in the hands of the Employers QS
and his professional team
3.2 Cost control has been defined as the
controlling measures necessary to ensure
that the authorized cost of the project is
not exceeded.
. Initially, the authorized
cost is the contract price but at
subsequent times in the construction
period, it will need to be adjusted to take
account of necessary savings and of
additional costs which the Employer is
willing and able to meet
3.3 In this stage of preparing Feasibility
studies, Preliminary Project Estimates,
Life cycle Cost and Cost Planning ,the
quantity surveyor is concerned with
many issues of construction
economics.
3.4 Cost advising and preparing Tender
documents

3.4.1 It is highly desirable that the quantity


surveyor should be involved in the
planning and design stages of a
project. He can illuminate and amplify
quality decisions by bringing to bear the
full spectrum of his professional
knowledge of what is available in the
market.
3.5 Tendering arrangements

3.5.1 Conventional tendering procedures


have been criticised on the ground that
they fail to take full advantage of modern
techniques.

3.5.2 All tendering procedures aim at


selecting a suitable contractor and
obtaining from him at an appropriate time
an acceptable offer upon which a contract
can be let.
3.6 Recommending Contractual
Arrangements (Types of Contracts )

3.6.1 There are variety of client/contractor


relationship and the choice will be influenced
considerably by the particular circumstances

3.6.2 Cost reimburse contracts /prime cost


contracts
3.6.2.1 Cost plus percentage
Where the Contractor is paid the actual cost of
the work plus an agreed percentage of the
actual cost to cover mark-up.
3.6.2.2 Cost plus fixed fee
Where the Contractor is paid the actual cost of
the work plus a fixed lump sum

3.6.2.3 Cost plus target fee


Where the Contractor is paid the actual cost
of the work plus a fee, with the amount of the fee
being determined by reference to the allowable
cost by some form of sliding scale. Thus the
lower the actual cost, the greater will be the
value of the fee that the contractor receives.
3.6.3 Lump sum contracts
Contracts based on drawings and
specifications

3.6.4 Measure and pay contracts


Contracts include those based on schedule of
rates/approximate Bill of quantities

3.6.5 Package deal/Design and build/ Turnkey

3.6.6 Management Contracts

3.6.7 Construction Management

3.6.8 Joint Ventures


3.7 Recommending Contractual
Arrangements (Forms of Contracts)
3.7.1 Suitable Form of Contract to be established
to match with the suitable procurement
method.

3.7.2 International Form of Contracts are JCT


(Joint Contract Tribunal),FIDIC (Federation
International Des Ingineurs Counceil),NEC
(New Engineering Contracts)
3.7.3 Domestic Form of Contract is ICTAD. Form
where several forms such as ICTAD/SCA/1-
For any amount

ICTAD/SBD/01-For 10 million-100 million

ICTAD/SBD/02-For over 100million

ICTAD/SBD/03-For not exceeding 10 million

ICTAD/SBD/04- For Design & Build contracts


3.8 Tender Documents
3.8.1 Form of agreement
3.8.2 Information and instructions to tenderers /
bidders
3.8.3 Form of tender /bid
3.8.4 Conditions of contract (part 1)
3.8.5 Conditions of contract (part 2/particular
condition/contract data)
3.8.6 General specification
3.8.7 Particular specification
3.8.8 Drawings / schedules
3.8.9 Bill of Quantities / Schedule of rates
3.8.10 Specimens of bonds and guarantees
3.8.11 Others
3.9 Contract Documents

3.9.1 Form of agreement


3.9.2 Letter of acceptance
3.9.3 Memorandum of understanding (if any)
3.9.4 Letter of intent (if any)
3.9.5 Form of tender
3.9.6 Conditions of contract (part 1)
3.9.7 Conditions of contract (part 2 / particular /
contract data)
3.9.8 Particular specifications (if any)
3.9.9 General specifications
3.9.10 Drawings / schedules
3.9.11 Price bill of quantities / schedule of rates
3.9.12 Others
3.10 Preparing Variation Accounts

The quantity surveyor should value the


variations before issuing to the Contractor by
preparing and valuing Variation Accounts. By
this way he can advise the design team and the
project managers the cost effeteness of the
variation and may suggest different proposals to
cost control purposes in post-contract
stage/construction stage.
3.11 Preparing recommendations for certification
of valuations and final accounts
Providing financial statement as various stages during
the construction period as specified in the contract and
agreeing all work done under original scope ,variation
orders, provisional sums, fluctuation claims (if any) and
other all general claims the quantity surveyor is
completing the final accounts and obtain the Contractors
agreement and the statement of discharge.
4. THE CONTRACTORS QUANTITY
SURVEYORS ROLE IN COST CONTROL
The contractors contract administrator is
unlikely to have any direct control of the
general contract administration but his role
can be described as to make a proper pre -
tender (bid) plan to procure the projects with
competitive tender (bid) amounts and to
complete the projects with profits.
4.1 TO PROCURE THE PROJECTS WITH
COMPETITIVE TENDER (BID) AMOUNTS

4.1.1 Immediately after obtaining the tender


(bid) documents it is advisable to check all
the pages are there and all the drawings
have been issued.
4.1.2 Then the contractors quantity surveyor
studies the documents and lists, all prime
cost and provisional sums, and marks the
quantities which the firm normally sub-lets.
After carefully studying the drawings and the
bills of quantities, contractor contract
administrator of experience will have an
approximate idea of the cost of the building.
4.1.3 They consider particularly possible
difficulties of access to the site; the storage
of materials (which is very important on
confined city sites); adjoining premises;
type of ground; necessity for temporary
roads, hoardings, compounds and
enclosures; the arrangement and siting of
temporary offices and welfare buildings;
the availability of water for construction,
and the availability of labour in the area.
4.1.4 After the decision to proceed , the contract
administrator has to prepare tender (bid)
Programme.
PROJECT ..

TENDER PROGRAMME Available balance dates for Submission Say 20 days

Activity Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Officer


No entrusted to
Attend
1 Preparing S/C & Suppliers quotations & Mr. X & Ms. Y
dispatching
2 Arranging to obtain the required bonds Mr. X

3 Arranging to obtain other information to Ms. Y


be submitted along with the tender
4 Prepare Unit rate analysis for preliminary Mr. X
items
5 Prepare unit rate items for all other items Mr. C & Mr. D
in the BOQ
6 Response from sub contractors & suppliers Mr. X & Ms. Y
& follow up to obtain the same
7 Re-check the unit rate break downs based Mr. X
on above quotations
8 Obtaining profits & overhead percentages Mr. C
from the Managements
9 Revise all unit rates considering the above Mr. C & Mr. D
percentages
10 Preparing final tender documents after Mr. C & Mr. D
filling all rates in BOQ, Form of Tender etc.
11 Final arithmetical test Mr. X

12 Finalizing covering letter Mr. C

13 Completing tender envelops, including Mr. X


putting all required documents & sealing
14 Transport arrangements to submit the Ms. Y
tender & attending the tender open
4.1.5 Preliminaries

The simple definition of preliminaries is site


establishment charges and site overhead
charges.

Preliminary bill will have to be prepared based


on the actual involvements. This will vary from
project to project.
4.1.6 When this stage of the work is completed
the estimator will make arrangement to obtain
required guarantees and required documents to
be submitted along with the tender (bid).

4.1.7 Then the Estimator will present his


estimate to the directors ,with his observations
regarding the lapses in the documents where the
contractor can alter the estimate anticipating
future known variations that will help the
directors to adjust the estimate ,who will convert
it into tender (bid).
4.1.8 This should always be the final
responsibility of the directors. It is useful for
the estimator to present his estimate in the
form of a schedule ,giving the directors all the
information at a glance . A typical layout for
such presentation is as follows;
TENDER ANALYSIS

Tender for: Gross labour rates:


Date due: Skilled:
Unskilled:
Net value of firms own work: Rs. Cts

Preliminaries : .

Labour : ..

Materials : ...

Plant : .
___________________
Add for overheads : ..%
Add for profits : %

Domestic sub-contractors :
Add for profits :.%
Nominated sub-contractors .
Nominated suppliers :
Provisional sums: .. .
_____________
TOTAL OF TENDER .. ..
4.1.9 From this summary sheet the Directors will
arrive the final tender (bid) figure . This is sign by
the director or the company secretary, placed in
the endorsed envelope along with all other
requested documents and dispatched either by
post or by hand to the Engineer/Employer as
stipulated in the invitation and instructions to
tender (bid) . The copy of all duly filled tender
(bid) documents should remain in the possession
of the company,
Generally tender (bid) results must be recorded
for future reference
4.2 TO COMPLETE THE PROJECTS WITH PROFITS

4.2.1 The contractors quantity surveyor is


in the position of monitoring cost and
expenditure and advising the contractor on
4.2.1.1 Anticipated final value
4.2.1.2 Anticipated final cost
4.2.2 The contractor/contractors contract
administrator will be concerned with the
relationship between the contractors
expenditure on the construction work and
the total of payments received or
anticipated from the Employer.
4.2.3 While the payments are in excess of the
expenditure, there is a profit. If in any part
of the work, however, the contractors
costs exceed the amounts payable under
the contract terms, there will exist a loss
situation, at least so far at that section of
the work is concerned.
4.2.4 The contractors contract
administrator will be expected to be able to
explain why this situation has arisen and
may even be expected to foresee a
potential loss-making position developing
and to warn the Contractor and so that he
may take what steps are necessary to
minimize or reverse the loss.
4.2.5 Such a position may arise from any one
or more of the following causes:

4.2.5.1 Inefficient deployment of resources


(labour, plant, and materials);
4.2.5.2 Excessive wastage or theft of materials;
Plant being allowed to stand idle or
under utilized;
4.2.5.3 Adverse weather or working conditions;
4.2.5.4 Delays arising from one or more of a variety
of causes;
4.2.5.5 Under-pricing of tender (bid) documents by
assumptions in regard to labour times, types
and sizes of plant, etc., which do not equate
with the realities of the
construction work.
4.2.5.6 Under valuation by the Quantity Surveyor
4.2.5.7 Not claiming Extension of Time ,Disruption
,fluctuation ,loss of profit claims
4.2.5.8 Wrongly priced variation work etc.
5. Contract administration from the view point
of the contractor, therefore, is distinct from
that of the employer

6. The former is concerned with the relationship


between the contractors expenditure and
payments to him by the employer, while the
latter is concerned with the relationship
between the total amount that the employer
is willing and able to spend and the total
sum that he is liable to pay under the terms
of the contract.
7. FORECASTING CLIENTS CAPITAL
EXPENDITURE FLOW

7.1 If a contract is large with a cost of


millions to be expended over several
years, it is essential to make a
reasonably reliable forecast of the
likely flow of expenditure.
7.2 Even where costs are more modest,
and contract time correspondingly
shorter, it is to a clients advantage to be
able to anticipate his cash flow
requirement and to be able to arrange for
finance to be available accordingly.
7.3 In order to do this, it is necessary to
prepare a programme for the carrying out
of the various parts of the construction
work. That has to be produced by the
Contractor and to be approved/ consented
by the Engineer.
7.4 Using bill rates and prices (or schedule
rates and prices, if there is no bill), each
section of the work is valued, the totals
being broken down into monthly amounts
over the period allocated to each section,
as shown in Figure A.
CONTRACT PROGRAMME CHART

Operation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Totals
Site clearance 3,685 2,000 5,685
Excavation 2,432 4,325 5,141 3,458 3,271 6,916 6,586 32,129
Piling Nom. S/C. 5,400 5,400 2,205 13,005
Mains services connections 756 567 945 2,268
Drainage 3,458 3,551 1,962 1,683 1,683 1,870 934 863 16,004
Concrete work 843 3,728 4,738 4,739 1,789 3,911 4,673 5,609 5,981 5,047 5,178 4,234 5,538 56,008
Asphalt tanking & roofing. 1,440 3,420 6,786 3,654 2,160 17,460
Brick work & block work 1,870 7,477 5,981 5,648 5,567 6,543 3,681 7,989 1,928 46,684
Wood work 2,992 1,940 3,668 5,609 3,739 5,700 5,449 7,041 7,225 8,075 5,690 5,152 1,222 63,502
Metal work 371 2,405 1,388 1,388 1,747 1,026 925 483 9,733
Plumbing & heating 1,589 2,702 3,176 2,061 3,176 4,255 2,535 2,589 3,969 5,558 1,167 32,777
Plastering & tiling 1,573 2,405 2,461 1,517 5,088 1,341 1,714 2,774 2,774 1,070 22,717
Lifts Nom. S/C. 10,800 9,000 9,000 5,400 2,790 36,990
Electrical work Nom. S/C. 1,800 7,236 7,560 2,430 3,384 3,179 3,863 29,452
Glazing 1,017 1,295 556 1,851 1,133 1,386 1,388 8,626
Painting & decorating 278 1,664 1,480 1,480 1,666 1,388 1,388 1,388 1,388 1,388 1,388 1,110 1,110 630 17,746
Fencing 3,701 1,851 1,851 2,312 1,055 4,625 1,849 17,244
External paving 1,497 998 1,497 1,497 998 1,953 8,440
Provisional sums 137 138 137 138 137 138 137 138 137 138 137 138 137 138 137 138 137 138 1,237 1,288 5,000
Preliminaries 2,730 3,580 3,251 2,012 1,727 1,722 1,792 1,910 1,282 1,865 1,724 1,190 1,452 1,869 1,889 1,734 2,010 2,897 1,944 2,900 41,480
Dayworks & contingencies 602 603 602 603 602 603 602 603 602 603 602 603 602 603 602 603 602 603 602 603 12,050
Totals 11,185 21,214 24,559 26,786 28,651 31,636 32,628 33,892 34,402 31,571 31,213 31,906 32,413 29,737 26,695 22,213 17,202 12,981 8,695 5,421 495,000
Figure A: Use of programme chart for expenditure forecasting
Notes: Adjustment for errors in bills of
quantities distributed over
monthly values.
Day works and contingencies have
been included so that the total
agrees with the Contract Sum.
7.5 The monthly amounts are then totaled
and to each total is added the appropriate
proportion of the Preliminaries. The final
totals for each month (which together
should equal the contract sum) can then
be tabulated or plotted on a graph.
7.6 A graph plotted from such data is
usually referred to as an S-curve graph
because of the shape of the graph. It
indicates a build-up in the rate of the
expenditure over the first two or three
months, an acceleration of the rate over
the main part of the contract period and a
gradual run-down over the final three
months or so.
7.7 A graph produced of course, indicate
anticipated cumulative monthly total
values of work done and not anticipated
cumulative monthly total values of work
done and not a forecast rate of clients
expenditure. The difference between the
two is the amount of retention ,materials
on site, fluctuations and advance
payments (if any). The adjusted amounts
may then be plotted to give an S-curve
showing expected rate of expenditure by
the client.
7.8 There is an alternative method of
producing such a graph. If the totals of
interim valuations for a number of
contracts are plotted and curves of best
fit are drawn an S-curve of approximately
the same shape will result for each
contract.
7.9 It follows, therefore, that it is possible,
within a given range of cost and over a
limited range of contract times, to produce
a standard S-curve which can be used to
predict expenditure flows for further
contracts without the need to go through
the detailed procedure described above.
7.10 Some organizations arriving this S
curve using formula methods.
7.11 There are plenty of computer soft-
ware now available to achieve this S
curve and to modify monthly.