Chapter 6.pptx

CHAPTER FIVE

COST CONTROL AND MONITORING IN CONSTRUCTION PROJECTS

BY :-Abebe D.

MAY 20151

4. Project Cost Summary Report • Cost code• Activity description• Item– Quantity– work hours– Labor– Materials– Equipment– subs

• Final product, project manage is tracking on

1. Objectives of Cost Control • Collect project cost data to:–comparison with budgeted costs–Provide an historical database–Provide management with data to isolate

cost or productivity issues needing attention –Provide a management tool to forecast

final cost –Place responsibility and credit for team

players

2. Categories of Cost In CI• A. Estimated Cost – Established prior to start (award)–May be assembled with limited time /

knowledge–Proper scope essential–Parameter for the ‘control budget’–are the sum of cost to date, commitments and

exposure.

2. Categories of Cost (cont.)

• B. Budgeted Cost –Developed by Project Management, and– Should embrace management’s plans for:• Productivity (cost) objectives• Time & Quality requirements, and• Organization of the project• is derived from the detailed cost estimate prepared

at the start of the project

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Categories of Cost (cont.)• C. Actual (To date)–Costs incurred during performance–Objective – complete for less than Budgeted

• D. Projected– Forecast cost at completion of an activity/

operation Why would they differ from Estimate /Budget?• Actual productivity data• Better understanding of project risk variables

3. The Project Budget

• For cost control on a project, the construction plan and the associated cash flow estimates can provide the baseline reference for subsequent project monitoring and control.

• The final or detailed cost estimate provides a baseline for the assessment of financial performance during the project.

• cost overruns or savings on particular items can be identified as due to changes in unit prices, labor productivity or in the amount of material consumed.

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5. Cost and Schedule Performance• Performance against budget is measured by comparing

what was done to what was paid. This compares earned work-hours to actual work-hours or cost.

• If more was paid than is done, then the project would have a cost overrun of the budget.

• The following variance and index equations can be used to calculate these values:

SV = BCWP – BCWS= Earned – PlannedCV = BCWP – ACWP= Earned – Actual)SPI = BCWP/BCWSCPI = BCWP/ACWP

• A positive variance and an index of 1.0 or greater is a favorable performance.

5. Cost and Schedule Performance

Forecasting• BAC = Budget at completion (Original project

estimate)• ETC = (BAC – BCWP)/CPI=> (Estimate to complete)• EAC = (ACWP + ETC) =>(Estimate at completion)

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Example 1

• Provide an earned-value analysis to evaluate the progress of a project with a total budgeted cost of $147,500 and an estimated completion time of 94 working days. A status report after 10 working days into the project is as follows:

• BCWP = $7,600• ACWP = $7,700• BCWS = $7,600• BAC = $147,500• BCWP = BCWS WHY ?• Then Cost and schedule deviations Cost variance, CV = BCWP – ACWP =$7,600 - $7,700 =-$100 Schedule variance, SV = BCWP – BCWS =$7,600 - $7,600 = 0 10

ANSWER

• The BCWS and BCWP shown above were the same since all activities that were scheduled for completion were completed according to the original planned schedule.

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…cont’d• Cost and schedule performance Cost performance index, CPI = BCWP/ACWP = $7,600/$7,700 = 0. 987• The CPI is less than 1.0, which indicates a poor cost performance. The earned

value is less than the actual costs. Schedule performance index, SPI = BCWP/BCWS = $7,600/$7,600 = 1.0• The SPI is equal to 1.0, which indicates the schedule performance is progressing

precisely as planned.• Forecasting cost at completion Estimate to complete, ETC = (BAC – BCWP)/CPI =($147,500-$7,600)/0.987 = $141,743• Based on the analysis of the status report, the remaining cost to complete the

project is $141,743. Estimate at completion, EAC = ACWP + ETC = $7,700 + $141,743 = $149,443• Based on the analysis of the status report, the estimated cost of the project at

completion is $149,443, which is $1,943 over the original budget of $147,500.12

Exercise

• Provide an earned-value analysis to evaluate the progress of a project with a total budgeted cost of $147,500 and an estimated completion time of 94 working days. A status report after 20 working days into the project is as follows:

• BCWP = $22,720• ACWP = $25,200• BCWS = $22,400• BAC = $147,500Then based on the above data make a detail EVA

analysis?13

6. Project Progress Measurement• Engineering work is broken down into major categories,

and the contribution of each of the various categories toward total percent completion is proportional to the percentage that the estimated work-hours for that category bears to the total estimated work-hours for the project.

• For example, if concreting is estimated to consume 30% of the total engineering work-hours and the concreting activity is 50% complete,

• then, the weighted contribution of concreting to the overall percent complete would equal 50% of 30%, or 15%.

• The percent completion for each of the individual major activities is based on a physical progress measurement.

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cont’d…In countries like Ethiopia most construction

projects didn’t completed with the estimated project cost because of the following reasons:Variations due to request from either parties,Delay,Under estimated quantities,Incompleteness of designs, etc..

The method of cost controlling in PPA 2006 G.C has been defined from clause 37 up to 54 of General conditions of contract.

Cost Control acording to PPA 2006 G.CClause 37 : Bill of Quantities or activity

scheduleTypes of Contract Admeasurements contract » BoQ Lump sum » Activity schedule

The quantities set out in the BoQ are the estimated quantities for the Works, and they are not to be taken as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligations under the Contract.

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Cont’d…

Clause 38: Change in bill of quantities Option 1: Changes in the Bill of Quantities for

Admeasurements Contracts If final qty >qty in BOQ by 25% provided that the

change exceeds 5% of the contract price, the engineer shall adjust the unit rate.

The engineer shall not adjust the unit rate if the change exceeds 15% of the contract price.

The contractor shall submit the cost breakdown up on request

Option 2: Changes in the Activity Schedule for Lump Sum Contracts Price in the Activity Schedule shall not be altered.

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…Continued Clause 39: Variations

All Variations shall be included in updated program produced by the Contractor

Clause 40: Payment for VariationsFor both Admeasurement and Lump Sum Contracts, the

Contractor shall provide the Engineer with a quotation for carrying out the Variation when requested to do so by the Engineer.

For Admeasurement Contracts only, if the work in the Variation corresponds with an item description in the Bill of Quantities and if, in the opinion of the Engineer, the quantity of work above the limit stated in Sub-Clause 38.1 or the timing of its execution do not cause the cost per unit of quantity to change, the rate in the Bill of Quantities shall be used to calculate the value of the Variation

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…Continued

If the cost per unit of quantity changes, or if the nature or timing of the work in the Variation does not correspond with items in the Bill of Quantities, the quotation by the Contractor shall be in the form of new rates for the relevant items of work.

For both Admeasurement and Lump Sum Contracts, if the Contractor’s quotation is unreasonable, the Engineer may order the Variation and make a change to the Contract Price, which shall be based on the Engineer’s own forecast of the effects of the Variation on the Contractor’s costs.

For both Admeasurement and Lump Sum Contracts, if the Engineer decides that the urgency of varying the work would prevent a quotation being given and considered without delaying the work, no quotation shall be given and the Variation shall be treated as a Compensation Event

For both Admeasurement and Lump Sum Contracts, the Contractor shall not be entitled to additional payment for costs that could have been avoided by giving early warning.

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…Continued Clause 41: Cash flow forecast

When the Program is updated, the Contractor shall provide the Engineer with an updated cash flow forcast.

Profit and loss computationsA. Cash in flows - Direct cost expence = Gross profit:-used

for controlling effect of direct cost.B. Gross profit – inderct but variable cost expenice=

Profit after inderct but variable cost expenice used for controlling effect of inderct but variable cost

C. Profit after inderct but variable cost Control –inderect but fixed cost expenice = profit after inderect but fixed cost used for controlling effect of inderct but fixed cost

D. Cash in flows –cash out flows including tax = Net profit

…ContinuedClause 42: Payment Certificates

The Contractor shall submit to the Engineer monthly statements of the estimated value of the work executed less the cumulative amount certified previously

The Engineer shall check the Contractor’s monthly statement and certify the amount to be paid to the Contractor.

The value of work executed shall be determined by the Engineer.

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…Continued

The value of work executed shall comprise the value of:a) The quantities of the items in the Bill of Quantities

completed in the case of Admeasurement Contracts; or

b) Completed activities in the Activity Schedule in the case of Lump Sum Contracts.

The value of work executed shall include the valuation of Variations and Compensation Events.

The Engineer may exclude any item certified in a previous certificate or reduce the proportion of any item previously certified in any certificate in the light of later information.

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…ContinuedClause 43: PaymentsPayamente shall be ajustad for deducciones for advance

payamente and retantionIf an amount certified is increassed in a later certificate or

as a result of an award by the Adjudicator or an Arbitrator, the Contractor shall be paid interest upon the delayed payment as set out in this clause

Unless otherwise stated, all payments and deductions will be paid or charged in the proportions of currencies comprising the Contract Price.

Items of the Works for which no rate or price has been entered in will not be paid for by the Employer and shall be deemed covered by other rates and prices in the Contract

MARCH 2016

Payments

Payments in construction projects may be • Advance Payments• Interim Payments• Payments after taking over certificate /final

Payments• Payments after defect liability /closing of

accounts• Payments after termination

Interim Payments• The contractor shall submit a monthly statement

showing the amounts entitling him to be paid together with supporting documents.

• A monthly statement shall includes The estimating value of the BoQ work executed

including excess in quantity.Any amount to be added or deducted Payment requests: - are first prepared on the

project site by the contractor and approved by the site engineer

In Case of Interim Payment: • The contractor measures all the works after the last payment and puts

the amount of work multiplied by the unit price on the take of sheets. • The take of sheets should be described in words arithmetically and/or

with sketches where necessary.• The take off sheet is transferred to the measurement certificate with

proper care.• This is submitted to the project engineer.• The project engineer checks and approves the correctness of the take

off sheet and the measurement certificate and submits to the office engineer.

• Materials delivered to the contractor between the last and the current payment should be submitted by the logistic department.

• The office engineer finally prepares the payment certificate. • In approving payments the following care should be taken by

supervisor's engineers and managers.• Check correctness of and quantities and rates 26

In accordance to the methods of measurement specified in the contract

• Check for arithmetic errors• Check that prior payments are deducted as per the

contract• Check that retention advance payments, material cost

and other deductibles are deducted as per the contract.• Check that the contractor has submitted advanced

security bonds, performance security bonds, and other obligations specified in the contract and check the validity of the bonds.

• Check that the works are accepted in accordance to the contract.

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…ContinuedClause 44: Compensation eventClause 45: Tax

Unless otherwise specified in the SCC, the Engineer shall not adjust the Contract Price if taxes, duties, and other levies are changed that subsequently affect the Contract Price.

Clause 46: CurrenciesWhere payments are made in currencies other than

Ethiopian Birr, the exchange rates used for calculating the amounts to be paid shall be the exchange rates stated in the Contractor’s Bid.

Escalation• Escalation costs change continuously following

changes in: such as technology, availability of resources, and value of money (e.g., inflation).

• Escalation is the provision in a cost estimate for increases in the cost of equipment, material, labor affected by continuing price changes over time.

• Escalation may be: forecasted, to estimate the future cost of a project based on current year costs; or historical, to convert a known historical cost to the present.

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…ContinuedClause 47: Price Adjustments

Price Adjustments formula

pn is a price adjustment factor (multiplier) to be applied to the amount in each specific currency for each payment certificate;

• “A” is fixed coefficient, stated in the relevant table of adjustment data representing the non-adjustable portion in contractual payments.

• “b, c, d”,….are coefficients representing the estimated proportion of each cost element related to the execution of the works, as stated in the relevant table of adjustment; such tabulated cost elements may be inductive of resources such as labour, equipments and materials;

.etcEoEnd

MoMnc

LoLnbApn

…Continued Ln, Mn, En, etc., are the current cost indices or reference

prices of the cost elements in the specific currency of

origin at the date 28 days prior to the deadline for bid

submission; and

Lo, Mo, Eo, etc., are the base cost indices or reference

prices corresponding to the above cost elements at the

date 28 days prior to the last day of the period to which

a particular Interim Payment Certificate is related.

…ContinuedClause 48: RetentionThe Employer shall retain from each payment due

to the Contractor the proportion stated in the SCC until Completion of the whole of the Works.

On completion of the whole of the Works, half the total amount retained shall be repaid to the Contractor and half when the Defects Liability Period has passed and the Engineer has certified that all Defects notified by the Engineer to the Contractor before the end of this period have been corrected.

…ContinuedClause 49: Liquidated damage49.1 The Contractor shall pay liquidated damages to the

Employer at the rate per day stated in the SCC for each day that the Completion Date is later than the Intended Completion Date. The total amount of liquidated damages shall not exceed the amount defined in the Special Conditions of Contract. The Employer may deduct liquidated damages from payments due to the Contractor.

49.2 If the Intended Completion Date is extended after liquidated damages have been paid, the Engineer shall correct any overpayment of liquidated damages by the Contractor by adjusting the next payment certificate. The Contractor shall be paid interest on the overpayment, calculated from the date of payment to the date of repayment, at the rates specified in Sub-Clause 43.1.

…Continued50.Bonus: The Contractor shall be paid a Bonus calculated at

the rate per calendar day stated in the Special Conditions of Contract for each day (less any days for which the Contractor is paid for acceleration) that the Completion is earlier than the Intended Completion Date. The Engineer shall certify that the Works are complete by the Contractor. Interest will not be charged on the advance payment

51. Advance Payment• The Employer shall make advance payment to the

Contractor of the amounts stated in the SCC by the date stated in the SCC, against provision by the Contractor of an Unconditional Bank Guarantee in a form and by a bank aceptable to the Employer in amounts and currencies equal to the advance payment.

• The Guarantee shall remain effective until the advance payment has been repaid, but the amount of the Guarantee shall be progressively reduced by the amounts repaid

…Continued52.SecuritiesThe Contract Security shall be provided to the Employer

no later than 15 days after receipt of the Letter of Acceptance and shall be issued in the form of a Bank Guarantee, or for Ethiopian Contractors only in the form of a Performance Bond.

The Contract Security shall be valid until a date 28 days from the date of issue of the Certificate of Completion in the case of a Bank Guarantee and until one year from the date of issue of the Certificate of Completion in the case of a Performance Bond.

…Continued53. Day works• If applicable, the Day works rates in the Contractor’s Bid

shall be used for small additional amounts of work only when the Engineer has given written instructions in advance for additional work to be paid for in that way.

• All work to be paid for as Day works shall be recorded by the Contractor on forms approved by the Engineer. Each completed form shall be verified and signed by the Engineer within two days of the work being done.

• The Contractor shall be paid for Day works subject to obtaining signed Day works forms.

…Continued

54.Cost of Repairs :Loss or damage to the Works or Materials to be

incorporated in the Works between the Start Date and the end of the Defects Correction periods shall be remedied by the Contractor at the Contractor’s cost if the loss or damage arises from the Contractor’s acts or omissions.

Sample of payment certificate and how to prepare ……

Question???

Thank you