Project Cost Control Procedure

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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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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. Proper design of an effective cost code numbering system and correct

allocation of alloweds into this system.

b. 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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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.

e. Identify "one off" items where cost reporting is ineffective and short term

planning is the only effective way of controlling costs.

a. 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.

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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• 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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anomalies; i.e. materials not invoiced, variations for which orders have not been placed, uncontrolled expenditure, etc.

25. For Historical Cost item, the cost reports do form a principal cost control

instrument provided that adequate care has been taken with the calculation of alloweds used, and recorded costs are up-to-date.The reports must be studied to identify significant variances.

Guidelines for development of corrective action plans

26. Generally it is in the area of labour and plant that the project staff are able to

apply the most effective corrective action. And starting with the critical item which is showing the worst variance, the situation must be analysed as follows:

a. Has the cost coding of time sheets or invoices been correctly carried out? b. Is the actual method being used exactly what was intended?

c. If not, why not?

d. Apply work study techniques to the method looking for the elimination of unnecessary work, idle time, inefficient techniques, etc. Call in assistance if required.

e. Is the Supervisor motivating his crew as well as possible?

f. Is access and working space adequate and safe? g. Are materials supplies adequate?

h. Are plant breakdowns causing too much lost time? i. Are any other site factors holding down productivity?

28. The answers to the above questions will usually indicate at least one possible course of action, and thus provide the basis for a plan to be made.

29. The plan must be communicated to all concerned in an effective manner.

30. In the areas of wastage of permanent materials, and control of variations and extras on subcontractors, the corrective action is usually more readily seen, decided upon, and acted upon.

31. The control of historical cost items, such as temporary materials and consumables is usually much more difficult and in most cases the solution lies in more detailed and effective planning, or better stores control.

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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.

1. "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). Note that labour hired on an output basis from another employer is treated as a sub-contractor,

e.g.. labour-only Riggers/Scaffolders being paid an agreed amount per hour. (However, in a contractual context all externally hired labour, on an hourly or output basis, should be treated as a sub-contractor).

2. "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, scaffolding and formwork if the estimate split and cost codes have been established accordingly. The dividing line between "plant" and "small tools and equipment", which are treated as "historical cost" items, is left to be defined by the Project Manager, at the time of producing the estimate split and cost code system, in such a way as to provide effective control with minimum effort.

3. "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 hired on an hourly basis is not considered as sub-contract. Usually the work covered by a subcontract is permanent work, or closely related there to, such as formwork and does not include work related to overhead items such as installation of services.

4. "Materials" includes all other items not covered by "labour", "plant" or

"subcontractors". "Permanent" materials are those materials required for the permanent works, and "temporary" materials is used to describe all other materials.

5. "Cost" means the amount in dollars that we are obligated to pay for labour,

plant, materials or sub-contracts.

6. "Direct Cost" means a cost related to and readily identifiable with an item of

work specifically required by the Contract.

7. "Indirect Cost" means a cost related to the overall running of a contract but not

obviously identifiable to a direct work item.

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8. "Commitment Control" , (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, i.e. placing the order, rather than using invoiced costs as prime data in the control system.

9. "Manhours" means the number of actual hours worked (inclusive of normal

non-productive time, e.g.. teabreaks) by each employee and includes the sum of such hours for several employees.

10. “Manhours Actual” means the amount in manhours that has been expended on

an item of work.

11. "Manhour Rate" means the average dollar cost per manhour, averaged out

over a pay period. It includes the effects of overtime penalty rates, bonus and other on-costs and can be either "allowed" or "actual".

12. "Allowed" means the amount in dollars or manhours, as relevant, allowed in the

estimate (adjusted for any post tender negotiations included in the 'contract') for the quantity of work to which it refers.

13. "Actual" means "cost", "manhours actual", or "manhour rate" as appropriate to

the sense.

14. "Variance" means the difference between the allowed and the actual for the

same item or quantity of work.

15. "Tender price, quantity, rate, etc". means the price, quantity, rate

etc. nominated in the tender. Note that whilst normally these will be the same as those in the contract, this is not necessarily so, e.g.. where post-tender negotiations are incorporated in the contract.

16. "Estimate" means the documents, e.g.. summaries, costing sheets,

programmes, schedules, method statements and quotations on which the tender was based.

17. "Estimate amount, quantity, rate etc". means the amount, quantity, rate etc.

shown in the estimate.

18. "Variation" & "Extra" means a change to the specified quality, quantity, method

or time of work specified in the contract or on the contract drawings. However, changes solely in quantity in a Schedule of Rates contract are not included, nor are escalation amounts treated as variations.

19. "Variation Submission" means a submission for approval of price for a Variation

or Extra.

20. "Progress Payment Claim" or "Progress Claim" means a claim for a regular progressive payment in accordance with the contract conditions for work done

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in an agreed period. In relevant cases, it also includes material on site.

21. "Variation Payment Claim" means a claim for payment in respect of the stated

variations and extras.

22. "Escalation Payment Claim" means a claim for payment as reimbursement of

the effects of wage and materials price increases since the date of tender, such reimbursement being calculated in accordance with the contract conditions. Such claims may relate to progress payment and variation payment either separately or together.

23. "Retention" means an amount in dollars withheld from a payment claim. 24. "Margin" means the amount of money added in an estimate to cover Branch

overheads, Head Office overheads and Group profit. It also is equal to the difference between contract receipts and contract costs.

25. "Estimate Split" is the activity of allocating allowed in the estimate to

appropriate cost codes.

26. "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.

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SECTION 2 –COST CODES & ESTIMATE SPLIT

INTRODUCTION

1. The principles for effective cost control are stated in section 1 of the procedure. The key framework around which cost control is built is the project Cost Code numbering system.

2. This section covers the following steps involved in the design of the cost code numbering system and in splitting the estimate.

a. Examine the Estimate.

b. Determine cost code block names. c. Select cost codes

d. Allocate alloweds from estimate to cost codes.

e. Prepare estimate split summary. f. Check totals with estimate.

g. Review cost codes and estimate split Summary. h. Publish cost code list.

Cost Code Numbering System

3. The following points must be taken into account when designing the system: a. Each cost code on any project will have the same number of digits. The

number of digits will be 4.

b. The numbering system should comply with the following general standard unless strong reasons exist to the contrary, when approval should be obtained from the Branch/Division/General Manager.

1000 - 1999 Indirect Costs - Non recurring. 2000 - 2999 Indirect Costs - Recurring. 3000 - 4999 Labour Costs.

5000 - 5999 Plant Costs.

6000 - 8999 Materials & Subcontracts.

9000 - 9999 Contingencies, Provisional Sums, Insurance claims etc.

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4. “COMPANY NAME”. TREATS COST CODES 3000 - 4999 AS LABOUR, i.e..

THESE NUMBERS ARE USED TO SEGREGATE LABOUR MANHOUR AND LABOUR COST REPORTS.

“COMPANY NAME”. TREATS COST CODES 5000 - 5999 AS PLANT, I.E.. THESE NUMBERS ARE USED TO SEGREGATE PLANT COST REPORTS FOR ALL PLANT USED ON A PROJECT.

“COMPANY NAME”. TREATS ALL OTHER COST CODES AS EITHER (A) "COMMITMENTS" OR (B) "HISTORICAL COSTS" TYPE.

Examining the Estimate

5. Before selecting cost codes examine the estimate to identify the critical few that

will determine the structure of the cost code system. In particular examine the labour items of the estimate and, if the value of labour warrants the use of separate labour cost reports, list those

items:-a. which have the largest dollar amounts alloweds.

b. Where the risk of error (e.g.. quantity, productivity, manhour allocation,) could cause significant variation.

c. where the concentration of labour will be high.

6. Examine the plant items of the estimate and, if the value of plant warrants the

use of separate plant cost reports, list those

items:-a. which have the largest dollar amounts alloweds.

b. where the risk of error could cause significant variances.

c. where plant productivity depends on factors such as survey or inspection. 7. Examine the estimate and identify the major materials and subcontract items of

the estimate that will be controlled on a commitment basis.

8. Examine the estimate and identify the temporary materials, consumables etc. that will be controlled on an invoiced cost basis.

Determining Cost Code Block Names

9. After examination of the estimate, the next step is to determine names or titles for blocks of cost codes. These block names will be those as reported in the final cost report i.e. the Project Assessment Summary. Block names may reflect the physical nature of the project e.g.. Building A, Building B, etc. Alternatively block names may be used to reflect the trade to which the cost codes apply e.g. civil, building, mechanical, etc.

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If the Labour and Plant reports are being considered then Labour and Plant block names will be required.

Selecting Cost Codes

10. Having named blocks of cost codes, a list of cost codes should be prepared. 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.

11. The following points must be taken into account when selecting cost

codes:-a. Within the series 1000 - 2999, the allocation of numbers should relate to the

sequence used in the estimating check list, (refer procedure Estimating and Tendering). A suggested standard cost code system is given in Attachment #.

b. Within the series 6000 - 9999, the direct work can be split either by trade, (mainly applicable to building work), or by area (more applicable to engineering work).

c. A separate single cost code number should be allocated to each major supplier or subcontractor to facilitate comparisons between cost reports, forecasts and accounting documentation.

d. If the Client requires cost reporting as for example in a cost reimbursable contract, the system must cater for his requirements.

e. Cost codes should be kept to a minimum consistent with effective control.

As a guide any cost code should not represent less than 0.5% of the contract value.

f. Cost codes must relate to identifiable activities, e.g.. if it is not simple for a

Supervisor to decide how many hours a rigger has been erecting beams or erecting purlins, don't give them separate cost codes.

g. Cost codes must distinguish between those that are to be controlled as “commitment” items, i.e. controlled at time of writing order, and those that are to be controlled by “historical costs”, i.e. controlled by invoiced cost method.

Splitting the Estimate and Preparing the Estimate Split Summary

12. Having prepared a cost code system the next step is to split the estimate and

allocate estimate alloweds against each cost code. This is done by annotating the estimate to show the relevant cost code for every item. Summarise the estimate in order of cost code numbers. Refer to Attachment # for a typical "Estimate Split Summary" in order of cost codes. Note that for the purposes of this exercise, the expression "estimate" is used to cover either the original estimate or a revised estimate as appropriate.

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13. 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. This will allow measurement of work done for each cost code to be more readily ascertained later.

14. Check that the totals and sub-totals still conform with the tender estimate.

Reviewing the Cost Codes and Estimate Split Summary

15. 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.

16. Review all allocations to check conformity with the principles for effective cost control.

17. Again check that totals and sub-totals still conform with the tender. The estimate split summary becomes the base document for the preparation of the various reports in the cost control system. It is also the document that will be regularly referred to as the contract progresses to establish value of work done, effects of method changes, etc. The original estimate split summary should be kept intact and any changes made on duplicate copies.

THE BASE DATA TOTALS MUST EQUAL THE TENDER/ESTIMATE TOTAL.

Publication of Cost Code Numbering System

18. 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, and relevant Head Office personnel. The list should have separate sections

for:-a. Labour b. Plant

c. Materials and Subcontracts.

19. The description against each cost code should contain both a brief title and

some explanatory remarks as to what is included or excluded. A suggested format is given in Attachment #.

20. 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.

21. The published list must be reviewed regularly and updated to include any changes due to variations, method changes etc.

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Attachment #A

SUGGESTED STANDARD COST CODES FOR INDIRECT COSTS

The following sets out a standard cost code numbering system for indirect costs. In many cases it will not be necessary to utilise all these numbers; e.g. all "Utilities and General Services" could be grouped into one number, "1500"; in other cases it may be desirable to split further.

If the administration costs (22** series) are subdivided, the numbers should as far as possible correspond with “COMPANY NAME” Administration ,cost code numbers.

1000 Non Continuous Costs

10** Project Staff - Removal add Resettlement Costs

11** Supervision and General Labour - Removal and Resettlement Costs 12** Administration Costs - Non recurring or Lump Sum (includes Bonds,

Insurance, Fees etc.)

13** Site Buildings - Establish and Remove 14** Camp and Housing - Establish and Remove

15** Utilities and General Services Establish and Remove 150* Power

151* Water 152* Sewerage 153* Air

154* Heating and Air Conditioning 155* Site Roads and Drainage

156* Security Fences, signs and lights

16** Special Temporary Works - Mobilise and Demobilise

17** General Plant, including vehicles - Mobilise and Demobilise 18** Special Services - Non recurring or Lump Sum

19** (Spare)

2000 Continuing Costs

20** Project Staff - Salaries, allowances and oncosts

21** Supervision and General Labour - Wages, allowances and oncosts 22** Administration Costs - Continuing Costs

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Project Administration PROJECT COST CONTROL 23** Site Buildings - Operate and Maintain

24** Camp and Housing - Operate and Maintain 25** General Services - Operate and Maintain

250* Power 251* Water 252* Sewerage 253* Air

254* Heating and Air conditioning 255* Site Roads and Drainage

256* Security fences, signs and lights 257* General Supplies

258* General Transport

26** Special Temporary Works - Operate and Maintain

27** General Plant, including vehicles - Operate and Maintain 28** Special Services - Continuing Costs

29** (Spare)

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Attachment #A

ESTIMATE SPLIT SUMMARY Prelims and Overheads

1300 (A) Mobilise and demobilise site offices. 7600 Mobilise Plant 800

Furniture 2000 Power 3000 Water 1000 Demobilise Plant 800 2200 (A) Office running cost (consumables)

2900 (A) Small tools & protective clothing.

3900 3200 Pipe slings 2000 Tools (Area1) 600 Tools (Area 2) 600 Labour

3010 Mobilise and demobilise offices etc. 9000

Mobilise 4500 Demobilise 4500

3060 Supervision. 25500

Area 1 Supervisor 16 weeks 12000 Area 2 Supervisor 18 weeks 13500

3070 Crane operator. 14 weeks 10500

4000 Construct foundations. 170 m2 41040

4100 Erect Steel Area 1 560 Tonnes 15280

4200 Erect Steel Area 2 1020 Tonnes 21845

Plant

5000 Sheds. 4 No. for 24 weeks 12240

5100 Mobile crane. 14 weeks 26600

5200 Prime Mover. 12 weeks 15960

Materials & Subcontracts

6000 (A) Concrete consumables. 4950

Formwork 1550 Oil, chairs etc. 3400

7000 (P) Foundation materials. 5720

Concrete 51 m3 4590 10% waste 450 Mesh 170 m2 680

7010 (P) Steel supply Area 1. 560 tonnes 170000

7020 (P) Steel supply Area 2 1020 tonnes 306000

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Project Administration PROJECT COST CONTROL

8000 (P) Protective Coating Area 1 S/C. 560 tonnes 22900 8010 (P) Protective Coating Area 2 S/C 1020 tonnes 41700 8020 (P) Design & Draftings S/C. Area 1 4 weeks 8500 8030 (P) Design & Draftings S/C. Area 2 8 weeks 17000 Sub total 769435 Margin & Contingency 90000 TOTAL 859435

(A) = Actual Costs (Invoices) (P) = Committed (Purchase Order)

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Attachment #

PROJECT COSTCODE LISTING

PROJECT: PROJECT NUMBER:

PROJECT MANAGER: DATE:

COST CODE DESCRIPTION TENDER $ ALLOWED QTY UNIT VARIATIONS TOTAL $ ALLOWED R&F FORMULAE ESCALATED UNESCALATED COMMITS ALLOWEDS 1300 MOBILISE &DEMOBILISE SITE OFFICES (A) 7600 7600 n/a A 2200 OFFICE RUNNING COSTS (Consumables) (A) 3900 3900 n/a A 2900 SHALL TOOLS & PROTECTIVE CLOTHING (A) 3200 3200 n/a A 3010 MOBILISE & DEMO & SITE OFFICES 9000 4 WEEK 9000

3060 SUPERVISION 25500 34 WEEK 25500

3070 CRANE OPERATOR 10500 14 WEEK 10500

4000 FOUNDATIONS 41040 170m2 41040

4100 ERECT STEEL AREA 1 15280 560 TONNES 15280

4200 ERECT STEEL AREA 2 21845 1020 TONNES 21845

5000 SHED HIRE 12240 24 WEEK 12240

5100 CRANE HIRE . 26600 12 WEEK 26600

5200 PRIME MOVER HIRE 15960 14 WEEK 15960

6000 CONCRETE CONSUMABLES (A) 4950 4950 n/a A

7000 FOUNDATION MATERIALS 5720 5720 n/a A

7010 STEEL SUPPLY AREA 1 170000 306000 01 A

7020 STEEL SUPPLY AREA 2 306000 170000 n/a A

8000 PROTECTIVE COATING SUB-CONTRACT AREA 1 22900 560 TONES 56100 n/a A 8010 PROTECTIVE COATING SUB-CONTRACT AREA 2 41700 1020 TONNES 8500 n/a A 8020 DESIGN & DRAFTING SUB-CONTRACT 8500 4 WEEKS 25500 n/a A 8020 DESIGN & DRAFTING SUB-CONTRACT 17000 8 WEEKS 25500 n/a A

$ 769435 0 0 769435

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SECTION 3A – LABOUR ( MANHOURS)

INTRODUCTION

1. The purpose of the labour cost control reports is to control those components of the estimate that have been allocated to labour cost codes, i.e.. cost codes 3000-4999.

2. Whilst labour reports must ultimately be expressed in dollars, it is preferable to report labour in two stages, firstly manhours in detail and then dollars in total. 3. This procedure covers the setting up and routine production etc. of two reports,

namely:

a. Labour Manhour (productivity) report. b. Labour Cost Report.

4. Each of these reports provides a comparison between the actual expenditure, in

manhours and then dollars, and the alloweds for the same amount of work done.

5. The Labour Manhour Report provides a detailed comparison for each relevant

cost code. Details are reported in manhours because this unit is the most readily understood, measured, controlled and forecast by the staff having direct control of labour, namely the Supervisor. Reporting in manhours does not reflect the effects of excessive overtime, bonuses, labour on-costs or other factors affecting pay rates and thus in itself does not provide adequate overall control.

6. The Labour Cost Report provides an overall comparison in dollars for total

labour. The comparison is between the actual labour cost in dollars and the alloweds dollar amounts, such alloweds dollars amounts being adjusted to take account of escalation as explained later in this procedure. This report, read in conjunction with the Labour Manhour Report, will direct attention to excessive overtime, high bonuses or other factors. 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, due to the actual manhour rate being higher than the alloweds manhour rate for any reason.

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LABOUR MANHOUR REPORT Initial Set-Up

7. The layout of the standard report form is shown in Attachment #. This is the report layout as produced by “COMPANY NAME”.

8. Standard Project Information such as the project name etc. are inserted on the form, and Base Data is entered into columns 1, 2, 3, 4, 5, 6 and 7 from the estimate split summary. (Refer Section 2 of Project Cost Control procedure.) In entering this information onto the form it is advisable to include provision for sub-totals if required. Also provision should be made in the form of a spare line for each cost code, or additional pages, for items such as variations, miscellaneous sales, insurance repairs etc. as explained later.

9. Columns 3 and 7 must be checked against the estimate split summary. If errors are found, further detailed checking is carried out until all errors are eliminated. 10.Once this base data is established there should be no need to change it except

for the effects of variations, change in work methods, or similar.

Source of Data

11.Data to produce the Labour Manhour Report is obtained from the following records which must be regularly maintained:

a. Actual manhours expended for each cost code, either for the period or to

date. This information is recorded on Time Sheets and is usually summarised in the Labour Costing Report from the payroll. This applies to direct hire labour and external hire labour also.

b. A schedule of measured total quantities completed to date for each cost code. 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.

Completing the Report

12. Refer to Attachment # for details as to how to complete the Labour Manhour

Report and the calculations required.

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Treatment of Contract Variations and Extras

13.Refer to Section 6 of Project Cost Control Procedure - Variations, Extras and Delays.

14.Where a variation or extra is to be costed against existing cost code numbers, Cols. 3, 5, and 7 will have to be amended for each cost code affected and Cols. 3 and 7 for the total and relevant sub-total. Also Col. 6 may require amendment. 15.Where a variation of extra is to be costed against new specially allocated cost

codes, details shall be added in Cols. 1, 2, 3, 4, 5, 6 and 7 and the total and relevant subtotals shall be amended in Cols. 3 and 7.

16.When using manual control methods a very methodical approach is required when amending base control documents. Preferably enter only those variations that have been approved to avoid unnecessary alterations at a later stage. Regularly check totals and ensure that these are carried through to all other related control documents.

Treatment of Method Changes

17. The Labour Manhour Report could become invalid as a relevant document if

changes in plan are not reflected in the alloweds in the report. 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, or vice versa. 18.The general procedure for reflecting such changes in all reports is outlined in

Section 7 of this procedure.

Treatment of Back Charges and Insurance Work

19. Work done by “COMPANY NAME”. labour for subcontractors or others and for which we can charge them should be allocated to a cost code number or numbers entitled "Misc. Sales ....".

20. Work done by “COMPANY NAME”. 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…….”

21.These cost code numbers are grouped at the end of the report immediately after a subtotal, which thus shows the position for the contract work only.

22. To avoid negative variances distorting the Labour Manhour Report (and

subsequently the Labour Cost Report), alloweds can be made to equal actual (i.e.. Cols. 12 and 13 respectively).

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This is technically incorrect however as backcharges etc. do not increase alloweds, but are normally credited to costs. The preferred method is therefore to balance negative variances by forecasting negative manhours to complete, (which will then appear as future credit to costs in the labour cost report). When the invoice for backcharges, or claim, is finally paid and labour costs have been credited with the due amount, the respective cost code(s) should be deleted in its entirety from the Labour Manhour Report. Any adjustments necessary between hours incurred and hours paid will be automatically taken care of in the Labour Cost Report. Refer to Section 7 for further details of administering Backcharges and Insurance Work.

23.Special care must be taken in forecasting manhours as with any other forecasting exercise. When forecasting manhours to complete, the following points must be taken into account:

a. 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. (Productivity curves are sometimes useful here.)

b. Make allowance for clean up tasks on completion if they have not been

alloweds in another cost code.

c. Make allowance for any time extensions that may affect the duration of the cost code item.

Any other contingency items for unscheduled circumstances, such as possible industrial action, should be assessed at the Project Assessment stage.

Regular Production and Distribution

24.The Project Manager shall determine the required frequency of regular Labour Manhour Reports. This will usually be weekly unless the labour component of the contract is minor and cannot significantly affect the financial outcome of the contract.

25.The Project Manager shall determine the timing for the production of regular Labour Manhour Reports. 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.

26. The Project Manager shall determine the required distribution of the regular

Labour Manhour Report. This distribution will usually be such that at least the senior Supervisors will receive those subsections of the report that cover their work. The distribution will include the General Manager, Project Accountant or Estimator (but this would not be usual).

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SECTION 3B- LABOUR (COSTS)

Labour Cost Report

1. The layout of the standard form is shown in Attachment #. This is the layout as

produced by “COMPANY NAME”. Note that this report is a summary report and does not report against individual cost codes. The number of categories of labour used in the Labour Cost Report should be as small as possible in order to minimise the workload. A category of "Supervision" should always be used. It will generally be sufficient to group all other labour categories into the one classification of "Other". However if unusually highly paid tradesmen are a significant part of the labour force, a separate category should be established for them.

“COMPANY NAME”. REQUIRES A MAXIMUM OF 4 CATEGORIES OF LABOUR, THE FOURTH CATEGORY BEING "ALL OTHER LABOUR".

2. Standard Project Information such as project name is entered on to the form etc.

and Base Data entered into col. 3 which is obtained from col. 7 of the Labour Manhour Report.

3. Col. 6 is completed using the average dollars per manhour of the relevant category of labour as used in the estimate. Note that it is important to total the manhours (Col. 3) x Estimate alloweds dollars per manhour (Col. 6) to ensure that it equals the total alloweds dollars for labour as per the estimate split summary.

Source of Data

4. Data to produce the Labour Cost Report is obtained from the following records: a. The Labour Manhour Report.

b. The Weekly Labour Costing Report from the payroll, summarised to show the total cost for each category of labour. Completing the Report

5. Refer to Attachment # for details as to how to complete the Labour Cost report and the calculations required.

6. The labour cost escalation factor entered in Col. 7 should be the escalation factor as determined from the Head Contract escalation formula if there is one.

There may be circumstances when an alternative factor is desirable that truly represents the cost increase in labour. 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.

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7. 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 Factor = Tender average rate + average increases Tender average rate

8. If the contract makes no provision for adjustment of contract price on the basis of wage increases, the Escalation Factor shall be 1.0. If a contingency amount was alloweds in the estimate to cover wage increases the Project Manager should follow para. 7 and keep the total escalation included in the alloweds under review against the contingency amount alloweds.

9. No special treatment is required because the details have already been included

in the totals transferred from the Labour Manhour Report. However if any variation has been priced with an alloweds manhour rate that is not the same as the estimate alloweds manhour rate, 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.

10. No special treatment is required because the details have already been included

in the totals transferred from the Labour Manhour Report. It is important, however, to check the alloweds manhour rates following any adjustments for method changes.

11.No special treatment is required because the details have already been included in the totals transferred from the Labour Manhour Report.

12.These items may be costed separately in the Labour Cost Report for the reason explained under Variations and Extras above.

Forecasting

13. Forecasting of the final cost of labour is done using the Forecast Final Labour

Cost Report, refer Attachment #. Forecasting of labour manhours to complete the contract will have already been carried out in the Labour Manhour Report. These manhours are entered into Col. 3 of 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. (The current average actual manhour rate should be

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carefully assessed and should not necessarily be based on the last payroll alone.)

Refer to Attachment # for details of how to complete the Forecast Final Labour Cost Report and the calculations required.

14.The Project Manager shall determine the required frequency and timing of regular Labour Cost Reports. This will normally be the same as the frequency of the Labour Manhour Reports.

15. The Project Manager shall determine the required distribution of the regular

Labour Cost Reports. This will usually be only to the Project Manager himself but may also include the General Manager/Company Acountant.

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SECTION 4 – PLANT (HIRED ITEMS)

PLANT

Introduction

1. The purpose of the Plant Cost Reports is to control those components of the estimate that have been allocated to plant cost codes, i.e.. cost codes 5000 - 5999.

2. 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. Refer Section 1 for the definition of what is included as "plant".

3. This section of the procedure covers the setting up and routine production etc. of Plant Cost reports.

Intial Set-Up

4. The layout of the standard report form is shown in Attachment #. This is the

report layout as produced by “COMPANY NAME”.

5. Standard Project Information such as the project name etc.. as inserted on the

form, and Base Data is entered into columns 1, 2, 3, 4, 5 and 6 from the Estimate Split Summary. In entering this information onto the form it is advisable to include provision for sub-totals if required. Also provision should be made in the form of a spare line for each cost code, or additional pages, for items such as variations, miscellaneous sales, insurance repairs etc.. as explained later.

6. Note that the units used in Col. 3 should as far as possible be measurable units

of work, not units of time. This point should be checked before the entries in Cols. 4, 5 and 6 are finalised, realising that the figures in Col. 6 should not be changed substantially and that the total of all Col. 6 figures must not change at all.

7. Once the base data is established there should be no need to change it except for the effects of variations, change in work methods or similar.

Source of Data

8. Data to produce the Plant Cost Report is obtained from the following records which must be regularly maintained:

a. Weekly Hired Plant Time sheets, (refer Attachment #). These time

sheets are used to record hired plant on site for the period; estimated costs obtained from orders placed for the respective item of plant, or from plant hire rate schedules; and finally the cost for the period for hired plant for each cost code. 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.

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Project Administration, Procedure No: 4

PROJECT COST CONTROL

b. A schedule of measured total quantities to date for each cost code. 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.

Completing the Report

9. Refer to Attachment # for details on the method of completing the Plant Cost

Report and the calculations required.

10.Refer to section 6 of this procedure, Variations, Extras and Delays.

11.Where a variation is to be costed against established cost codes Cols. 4 and 6 will have to be amended for each cost code involved and Col. 6 will have to be amended for the total and relevant subtotals. Col. 5 may also require amendment.

12.When a variation is to be costed against new specially-allocated cost codes, details shall be added in Cols. 1, 2, 3, 4, 5 and 6 and the total and relevant subtotals shall be amended in Col. 6.

13.When using manual control methods a very methodical approach is required when amending base control documents. Preferably enter only those variations that have been approved to avoid unnecessary alterations at a later stage. Regularly check totals and ensure that these are carried through to all other related control documents.

14. 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. 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, or vice versa. 15.The general procedure for reflecting such changes in all reports is detailed in

Section 7 of of this procedure.

16. The Plant Cost Report is adjusted as above in respect of Plant alloweds etc.

17. Work done by plant owned, or hired, by “COMPANY NAME”. for subcontractors

or others and for which we can charge should be allocated to a cost code entitled "Misc. Sales ".

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18. 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….”.

19.These cost codes are grouped at the end of the report immediately after a subtotal, which thus shows the position for the contract work only.

20. To avoid negative variances distorting the Plant Cost Report, alloweds can be

made to equal actual (i.e.. Cols. 10 and 11 are completed using same figures as in Cols. 12 and 13 respectively).

This is technically incorrect however, as backcharges etc.. do not increase alloweds, but are normally credited to costs. The preferred method is therefore to balance negative variances by forecasting negative costs to complete (i.e.. forecast a credit to costs). When the invoice for backcharges, or claim, is finally paid and plant costs have been credited with the due amount, the forecast cost should be corrected back to zero value. This will then automatically adjust the report for any variation between costs incurred and costs paid. Refer to Section 7 for further details of administering Backcharges and Insurance Work.

Escalation Factor

21.The Escalation Factor to be entered in Col. 9 should be the escalation factor as determined from the Head Contract escalation formula if there is one.

There may be circumstances when an alternative factor is desirable that truly represents the cost increase in 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.

22.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. In contracts of short duration, or where the plant cost content is relatively low, it will normally be acceptable to keep the Escalation Factor at 1.0 throughout the contract.

b. In other cases, if the majority of plant is hired at fixed rates, the Escalation Factor should be kept at 1.0.

c. If however, plant cost rises become significant, the Escalation Factor should be applied to the relevant plant items and should be based on the actual increases in hire rates. (Note that this applies both to Group plant and to external plant).

Forecasting

23. The Plant Cost report provides space in Cols. 18 and 19 for figures for

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forecasting the costs to complete each cost code item. Col. 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. Col. 19 is the Project Manager's forecast of the cost required to complete the cost code item. If the outstanding work can be completed as estimate then cols. 18 and 19 will be the same.

24.Special care must be taken in determining the forecast plant cost as with any other forecasting exercise. In the case of the Plant Cost Report, 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. (Productivity curves are sometimes useful here).

• Allow for clean up tasks on completion if they have not been alloweds in another cost code.

• Allow for any time extensions that may affect the duration of the cost code item.

25.The forecast final cost is the total of the actual dollars to date (col. 12) and the forecast to complete (col. 19). This total is carried forward to the Project Assessment.

Reconciliation with Project Cost Ledger

26. The Plant Cost Report is a form of control by commitments, since data is obtained from the Weekly Hired Plant Time Sheets which record commitments as a result of orders for hired plant. This provides a more up-to-date report than having to wait for actual costs from the Project Cost Ledger.

27. Actual costs can differ from commitments recorded on the Weekly Hired Plant Time Sheets, however, due to a variety of reasons. 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. Regular Production and Distribution

28.The Project Manager shall determine the required frequency of regular Plant Cost Reports. This will usually be weekly unless the plant component is minor and cannot dramatically affect the financial outcome of the contract.

29. The Project Manager shall determine the required distribution of the regular Plant

Cost Report. This distribution will usually be such that at least the senior foremen receive those subsections of the report that cover their work. The distribution could include the General Manager, Accountant or Estimator (but this would not be usual).

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SECTION 5A – COMMITMENT REPORTS

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.

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 corresponding amount of alloweds for each change order is entered into the alloweds committed column.

12. Refer to Attachment # for details as to how to complete the Commitment

Allocation Record to account for variations. Treatment of Escalation

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.

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.

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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SECTION 5B – HISTORICAL COSTS REPORTS

HISTORICAL COSTS REPORTS

1. 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, and are not suitable for controlling by means of commitment reports.

2. 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.

3. 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, (and similarly cannot be identified in the estimate split summary), and/or costs are incurred without orders necessarily having been placed (e.g.. telephone charges).

Initial Set Up

4. Historical cost reports are set up in the form of a Cost Allocation Record for each

cost code. Using the “COMPANY NAME”. manual method of cost control a spreadsheet is employed to record data as per Attachment # accepted layout required.

5. The Cost Allocation Record is identical to the Commitment Allocation Record. The method of completing the record is exactly the same as for the Commitment Allocation Record except as detailed below.

YOU SHOULD CREAT THE SAME RECORD FOR BOTH COMMITMENT ALLOCATION RECORDS AND COST ALLOCATION RECORDS. IT SHOULD BE TITLED COMMITMENT/COS.T ALLOCATION RECORD. WHEN SETTING UP EACH COST CODE FOR PROJECT COST CONTROL. YOU HAVE TO IDENTIFY THE COST CODE AS A COMMITMENT TYPE (P) FOR PURCHASE ORDER OR HISTORICAL COST TYPE (A) FOR ACTUAL COSTS. THESE SHOULD BE SHOWN ON ALL THE REPORTS.

Source of Data

6. 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.

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.

• The Project Cost Ledger to obtain recorded costs for each cost code for each period.

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Completing the Cost Allocation Record

7. Refer to Attachment # for details as to how to complete the cost Allocation

Record. 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.

• For each period an amount is entered in the alloweds committed section of the record. The alloweds for the period is assessed on quantity, or percentage of work done, or time, or similar, corresponding to the costs recorded for that period. Note that Project Cost Ledgers usually record the costs as at one month prior to the time that the record is updated. This must be taken into account when assessing the alloweds.

• The variance between alloweds and costs is then calculated, not alloweds and commitments as with the Commitment Allocation Record.

8. Refer to Attachment # for further details as to how to complete the Cost

Allocation Record.

9. Variations and extras are treated exactly in the same way as in Commitment

Allocation Records. The alloweds for each period must be assessed taking into account the effects of any variation, and whether or not the variation has been paid for and the costs included in the Cost Ledger.

10. Escalation is treated exactly the same way as in the Commitment Allocation

Records. However with manual control methods any escalation due under the Head Contract formula will not be entered under the alloweds section of the record. Also since commitments are not recorded there will be no entry for escalation on commitments.

11.Any increase in cost, due to escalation, of historical costs cost code items will show up as actual costs in the Cost Ledger. A negative variance will result which will be balanced by any revenue from the Head Contract formula when entered in the Project Assessment Summary.

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, AND ENTER IT AT LOCATION 18. 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).