Commitment Reports
Introduction
1. 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, and also are appropriately controlled at the time of commitment i.e.. placing the order.
2. Commitment reports provide a comparison between the recorded commitments (orders placed) and the alloweds for the same goods and services covered by the commitments.
3. Commitment reports should be maintained for those cost code items where the alloweds dollars can be specifically identified in the estimate, (and can be similarly identified in the estimate split summary), which then can be directly compared with any commitment made in respect of that item. Where it is impractical to determine from the estimate the specific alloweds dollars for any item for which an order is placed, then the items concerned should be controlled by historical cost reports, (refer later).
Initial Set Up
4. 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 #. This is the layout as produced by “COMPANY NAME”. If a manual method of cost control is employed a Spreadsheet record as per Attachment # may be preferred.
5. The record is divided into three broad areas. On the left, space is provided to record current alloweds, including the original alloweds as per estimate, changes in alloweds due to variations plus any change in alloweds due to escalation. In the centre, commitments (i.e.. purchase orders) are recorded, together with additional commitments due to variations, and escalation due on the commitment. 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. Finally in the right hand column actual costs as per the project cost ledger are recorded. Space is provided at the bottom of the record for forecasting calculations.
6. Standard Project Information such as the project name etc.. is entered on the record, and Base Data from the estimate split summary is entered in location 1, i.e.. the original alloweds for the cost code item.
7. A Commitment Allocation Record is established for each appropriate cost code.
Alternatively each cost code is entered on the alternative layout as per Attachment #. The total of all alloweds entered into the commitment records must
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be checked with the estimate split summary. If an error is found further detailed checking is carried out until all errors are eliminated.
Source of Data
8. Data to complete the Commitment Allocation record is obtained from the following records:
a. Purchase orders identifying purchase order number, date, vendor description of services, total value of order. A system must be maintained to ensure all orders written on, or for, the project are entered into the Commitment Allocation Record.
b. The Estimate Split Summary to identify the alloweds corresponding to the commitment made.
Completing the Commitment Allocation Record
9. Refer to Attachment # for details as to how to complete the Commitment Allocation record.
Treatment of Contract Variations and Extras
10. Details of the change in alloweds for any particular cost code due to a variation is obtained from the Variations - Cost Code Split (refer section 6) and entered into the Commitment Allocation Record under alloweds.
11. Details of additional commitments due to variations, such as change orders, are entered into the Commitment Allocation Record.under commitments. The
13. The method of calculating escalation is covered in detail later in this Section of the procedure. 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. Instead it is easier to include such changes in alloweds as a single line entry in the final Project Assessment Summary. Location 18 on the Commitment Allocation Record will therefore remain blank in manual control systems.
14.If any purchase order (commitment) is subject to an escalation formula, the escalation due is entered under commitments at location 19. The method of calculating escalation on commitments is discussed later in Section 5c.
15. The corresponding proportion of total escalation due on alloweds committed to date is entered at location 20. This is calculated as follows:
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Alloweds committed to date (locn 11)
--- x Escalation on all'ds Total all'ds inc. var'ns (locn 9) (locn 18) 16.The subtotals and totals are recalculated.
Treatment of Method Changes
17. The Commitment Allocation Records could become invalid as a relevant document if changes in plan are not reflected in the alloweds. Such a change in plan could be a change in the construction method or a decision to use direct labour instead of a subcontractor.
18.The general procedure for reflecting such changes in all reports is outlined in Section 7 of this procedure.
19. The Commitment Allocation Records are adjusted in respect of the estimate alloweds for each cost code.
Reconciliation with Project Cost Ledger
20. The Record provides for recording monthly Cost Ledger amounts to compare actual costs with current commitments. The accounting month and Cost Ledger amount is entered at Loc'n 21 (refer Attachment #). The monthly totals are totalled at Loc'n 22.
21.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). If the total actual cost does exceed the total commitment it could be due to one or many of the following reasons:
a. Incorrect cost code allocation of costs.
b. Commitments not recorded.
c. Variations paid but not recorded under commitments.
d. Escalation on commitments paid but not accounted for under commitments.
The reason must be investigated and corrective action taken as appropriate.
Forecasting
22.The Commitment Allocation Record provides space for figures for forecasting the final commitment for each particular cost code.
Refer to Attachment # for details of how to complete the record when forecasting.
23.Special care must be taken when forecasting as with any other forecasting
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exercise. 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.
b. Any commitments yet to be made in respect to variations shown on the record under alloweds.
c. Any future forecast escalation due on a purchase order or subcontract shown under commitments, for which an allowance has been calculated in the alloweds.
d. Any as yet undocumented future claim e.g.. for delays, likely from a supplier or subcontractor.
Regular Production and Distribution
24.As discussed earlier Commitment Allocation Records are not an effective control document. Their main purpose is to assist in forecasting the financial result of the project.
25.Commitment Allocation Records should be updated monthly and should be reviewed monthly by the Project Manager. Further distribution is not required except in exceptional circumstances.
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