Association of Cost Engineers NEC: Option C Cost Audits NEC Option - - PowerPoint PPT Presentation

Association of Cost Engineers

NEC: Option C Cost Audits

NEC Option C Cost Audits

• NEC Audit Provisions
• NEC Payment Provisions
• Audit Objectives
• Audit Plan
• Audit Considerations
• Implementation of Audit Plan
• Rolling Programme of Cost Audits
• Potential Audit Problems

Solomons Europe Limited

• Solomons Europe is a Chartered Quantity

Surveying Practice Established in 1998

• Provide support to UK’s Major EPC and

Industrial Services Contractors

Solomons Europe Limited

• Specialise in

NEC AUDIT PROVISIONS

NEC ECC Option C Target contract with an Activity Schedule

NEC AUDIT PROVISIONS

• Contract Clause

– No express reference to cost audits in the NEC – 52.3 Contractor allows the PM to inspect accounts and records required to be kept at any time within the working hours

NEC Payment Provisions

• (50.1) Project Manager assesses the amount

due –Price for Work Done to Date

• Defined Cost + Fee

NEC Payment Provisions

• Defined Cost =

– Option C:

• Payments due to Subcontractors…

and

• The cost of components in the Schedule of Cost

Components

NEC Payment Provisions

• Payment timescales

– 51.1 PM certifies a payment within one week of the assessment date – Hence, high level review of any application with more thorough audit in the following weeks – Any audit findings are then incorporated into next PM assessment of amount due

Audit Objectives

• Audits ensure costs paid are
• Accurate
• Allowable and
• Appropriate

Audit Plan

• Managing Reality Book Two: Procuring an

Engineering and Construction Contract:

– Appendix 3: Audit Plan

Audit Plan

• The audit process should be detailed in the

Works Information

Audit Plan

• Audit Task Sections – Monthly Report
• People
• Equipment
• Plant & Materials
• Charges
• Manufacture & Fabrication
• Design

Audit Considerations

• Generally

– Specific contract provisions – Have payments actually been made? - access to bank statements – Allocation to correct cost codes / WBS

Audit Considerations

• Subcontractors

– Pre-appointment

• Order placed in accordance with any Works

Information requirements

Audit Considerations

• Subcontractors

– Post-appointment

• Properly administered

– Change control – Assessment of PWDD – Payments made within timescales – Final accounts reflect contract

Audit Considerations

• People

– Place of work: Working Areas: “used only for this contract” – Time capture procedure – Payslips (weekly & monthly) – Payroll burden: per Schedule of Cost Components

Audit Considerations

• Equipment

– Rates: reflective of current market rates (whether internal or not) – Idle plant – Purchased Equipment – Maintenance / repair

Audit Considerations

• Plant and Materials

– Orders – Goods received notes – Invoices – Payments – Check quants required v quants delivered

Audit Considerations

• Charges

– Costs necessary to carry out the works – Costs included in Working Area overheads / people overheads are not also included elsewhere

Audit Considerations

• Manufacture and Fabrication

– Outside the Working Areas – Should be agreed and form part of the Contract Data

• “wholly or partly designed for the works”

Audit Considerations

• Design

– Outside the Working Areas – Should be agreed and form part of the Contract Data – Rates x hours + travel to Working Areas

Rolling Programme of Cost Audits

• Plan to cover 10% of cumulative costs
• Plan to audit each major cost element
• Element audit schedule to reflect programme
• Frequency of element audits reflect relative

values

– Some elements may warrant a monthly audit: e.g. prelims, staff costs

Potential Audit Problems

• Vagueness of the Schedule of Cost

Components

• Non-availability of substantiating information

may result in reduced payments

Potential Audit Problems

• Ability to audit down the supply chain where

no direct contractual relationship exists

• Reluctance to provide “commercially

sensitive” substantiating information / Data protection (!)

• Where the supporting information is held

Summary

• Vital for Contractors (and subcontractors) to

keep full and organised records relating to costs to demonstrate validity and appropriateness

• Audits are a pragmatic way of ensuring

accurate allowable and appropriate costs are reimbursed

Summary

• Successful audits create commercial

confidence for both parties throughout the project

• Successful audit outcomes assist early

settlement of final accounts

Any further questions?

Feel free to call or email any of us or contact us online at:

www.solomonseurope.co.uk