Project Administration, ProcedureNo: 1PROJECT 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 isnecessary.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 controlprocess, and also covers some aspects of the Corrective Action task.3.This procedure consists of the following sections :Section 1This introduction.Section 2Cost Code Numbering system and the Estimate SplitSummary.Section 3ALabour (Manhour reporting).3BLabour (Cost reporting).Section 4Plant Cost Reporting.Section 5A Commitment Reports.5BHistorical Cost Reports.5CEscalation.5DProject Assessment & Summary.Section 6Variations and Extras.Section 7Exceptional items. 4. This introductory section of the Project Cost Control procedure discusses thephilosophy of the standard cost reporting system, but the details are covered inthe other sections above. The system applies in principle to all types of contract, i.e., lump sum, schedule of rates and cost reimbursable, although thedetails and requirements will vary. October 2007Page: 1 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROL 5. The procedure describes a manual method of project cost control reporting.Company Name objective is to use payroll data, financial and estimate figuresfor 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 markedAttachments. For the purpose of putting in place the COMPANY NAME.Project Cost Control Procedure, it shall be refered to as the manual methodwhere it may be necessary to set up the reports in appropriately designedspreadsheets to suit manual entry of data obtained through COMPANYNAMEs 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 correctallocation 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 earlieststage of incurring cost. For many items, this can be achieved by reporting atthe time of placing an order i.e. at commitment. For such a system to succeedit is essential that expenditure is not incurred without the issue of a properlycosted order signed by an authorised person. However, with certain items it isimpractical to report costs at the time of commitment. The cost control reportingsystem provides alternative methods for reporting these items, which includelabour 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 takingaccount of escalation, variations, etc. (Thus they are able to spot unsatisfactoryperformance and initiate corrective action without delay). October 2007Page: 2 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROLc.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 andacetylene. e. Identify "one off" items where cost reporting is ineffective and short termplanning is the only effective way of controlling costs. a. Use "rule of thumb" estimates to check actual costs and seek explanationsfor those that do not check. It will often lead to errors in coding or incorrectallocation 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 reportingand financial aspects. Terms used within the reporting system must beconsistent to avoid errors and misunderstandings. Abbreviated terms,particularly when used in reports, must be fully understood to avoid errors inreporting. The System 10. The cost control reporting system is based on two distinct types of reportingmethod:a.Reporting at commitmentandb.Reporting using historical (invoiced) costs.At the stage of establishing the cost control report documents it is necessaryto determine those items that are best reported at commitment and those thatare best reported using historical cost. The items should be clearly separatedand 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 andwhere the gain or erosion of margin can be predicted providing wastage isas expected. Thus after the initial "single-decision" the only effectivecontrol is on wastage. Subcontracts, the cost of which are known at the time of ordering andagain the gain or erosion of margin can be predicted. October 2007Page: 3 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROL 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 beaccurately assessed in most instances for the period that the plant hasbeen on the project, and forecasting the commitment to completion is notas accurate as when assessing commitments for major materials andsubcontracts. Thus Plant control is best based on a system that measurescommitments to date rather than forecast commitments to completion. For this reason a different reporting system is proposed for Plant when theplant 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 orderedpiecemeal, it is virtually impossible to make a reliable prediction of thetotal final commitment and hence forecast the gain or erosion of margin. Ittherefore becomes necessary to review the costs for these items eachmonth, and compare them with an assessment of alloweds for the costsrecorded, as a basis for control action. Labour, where up-to-date accurate costs are known (from payroll) butreliable predictions of the total final costs are virtually impossible due tothe usual uncertainties associated with labour. For the Labour componentof 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 theLabour component of a contract is significant.Other items that are often included in historical cost control reportingmethods are: Small material and subcontract items, that although suitable for commitment type reporting can be more readily and satisfactorily reportedby historical costs means. This is particularly so if these items arecombined with other historical cost type items. Examples includesubcontracts and materials for site establishment. Freight charges, office running expenses, items not normally covered byorders (e.g.. telephone accounts), Staff charges.13.It is possible for any item to be reported by either the commitment or historicalcost method. The final choice of method must be determined from the aboveguidelines and factors such as the administrative task involved, the value of any

particular item, the likelihood of major variations or variances necessitatingclose control, and the availability of documentation such as orders. October 2007Page: 4 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROL Production of Cost Control Reports 14.Commitment reports will generally be produced monthly giving details for eachcost code.15.Historical cost reports will similarly be produced monthly giving details for eachcost code. 16. For projects with a significant component of Labour requiring separate Labour reports it would be expected to produce Labour Manhour and Cost reportsweekly to coincide with payroll closing dates.17.For projects with a significant component of Plant necessitating separate PlantCost reports it would be expected to produce Plant Cost reports weekly, or asrequired to suit the desired level of control. 18. The relationship between the various reports that make up the cost controlsystem is illustrated in the flow charts inAttachments # & #. Treatment of Escalation 19. The system is designed on the basis of comparing actual costs with escalatedalloweds. 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 actiontaken 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 apredetermined figure, say 10%. 22. The Labour Cost Report must be studied to verify that actual manhour ratesline 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 andreasons for variances determined.24.For Commitment items the reports are more in the nature of a recording systemthan a principal cost control instrument. This is because if wastage (in the caseof materials) is kept under control, the end result costwise is decided at thetime of placing the order. Thus these cost reports are studied to detect October 2007Page: 5 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROLanomalies; i.e. materials not invoiced, variations for which orders have notbeen placed, uncontrolled expenditure, etc. 25. For Historical Cost item, the cost reports do form a principal cost controlinstrument provided that adequate care has been taken with the calculation of alloweds used, and recorded costs are up-to-date.The reports must be studiedto 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 toapply the most effective corrective action. And starting with the critical itemwhich is showing the worst variance, the situation must be analysed asfollows: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 assistanceif 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 possiblecourse 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 andextras 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 andconsumables is usually much more difficult and in most cases the solution liesin more detailed and effective planning, or better stores control. October 2007Page: 6 of 6 Project Administration, ProcedureNo: 1PROJECT COST CONTROL 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" plusthe Supervisor plus any labour hired on an hourly basis from another employer (usually referred to as external labour). Note that labour hired on an outputbasis 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 projectwhether from "Company Name" or elsewhere and it could also include hiredequipment such as buildings, scaffolding and formwork if the estimate split andcost 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 theestimate split and cost code system, in such a way as to provide effectivecontrol with minimum effort. 3. "Subcontracts" include all agreements whereby persons or firms undertake toperform 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 thework 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 asinstallation of services. 4. "Materials" includes all other items not covered by "labour", "plant" or "subcontractors". "Permanent" materials are those materials required for thepermanent 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 notobviously identifiable to a direct work item. October 2007Page: 1 of 4

Project Administration, ProcedureNo: 1PROJECT COST CONTROL 8. "Commitment Control" , (also known as "Committed Cost") refers to a controlsystem in which the emphasis is on controlling materials and sub-contractcosts (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 controlsystem. 9. "Manhours" means the number of actual hours worked (inclusive of normalnon-productive time, e.g.. teabreaks) by each employee and includes the sumof such hours for several

employees. 10. Manhours Actual means the amount in manhours that has been expended onan item of work. 11. "Manhour Rate" means the average dollar cost per manhour, averaged outover a pay period. It includes the effects of overtime penalty rates, bonus andother on-costs and can be either "allowed" or "actual". 12. "Allowed" means the amount in dollars or manhours, as relevant, allowed in theestimate (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 tothe sense. 14. "Variance" means the difference between the allowed and the actual for thesame item or quantity of work. 15. "Tender price, quantity, rate, etc".means the price, quantity, rateetc. nominated in the tender. Note that whilst normally these will be the sameas 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 thetender 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, methodor 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 Variationor 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 October 2007Page: 2 of 4

Project Administration, ProcedureNo: 1PROJECT COST CONTROLin 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 statedvariations 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, suchreimbursement 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 Branchoverheads, Head Office overheads and Group profit. It also is equal to thedifference between contract receipts and contract costs. 25. "Estimate Split" is the activity of allocating allowed in the estimate toappropriate cost codes. 26. "Estimate Split Summary" is the final document resulting from the estimate splitand summarises the allowed dollars from the estimate that have been allocatedto selected cost codes. October 2007Page: 3 of 4

Project Administration, ProcedureNo: 1PROJECT COST CONTROL 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 Codenumbering system.2.This section covers the following steps involved in the design of the cost codenumbering 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. Thenumber of digits will be 4.b.The numbering system should comply with the following generalstandard unless strong reasons exist to the contrary, when approvalshould be obtained from the Branch/Division/General Manager.1000- 1999Indirect Costs - Non recurring.20002999Indirect Costs - Recurrin.3000- 4999Labour Costs.5000- 5999Plant Costs.60008999Materials & Subcontracts.9000- 9999Contingencies, Provisional Sums, Insurance claimsetc.

October 2007Page: 1 of 4

Project Administration, ProcedureNo: 1PROJECT COST CONTROL 4. COMPANY NAME. TREATS COST CODES 3000 - 4999 AS LABOUR, i.e..THESE NUMBERS ARE USED TO SEGREGATE LABOUR MANHOUR ANDLABOUR COST REPORTS.COMPANY NAME. TREATS COST CODES 5000 - 5999 AS PLANT, I.E..THESE NUMBERS ARE USED TO SEGREGATE PLANT COST REPORTSFOR 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 thatwill determine the structure of the cost code system. In particular examine thelabour 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 theuse 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 titlesfor blocks of cost codes. These block names will be those as reported in thefinal cost report i.e. the Project Assessment Summary. Block names mayreflect 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 costcodes apply e.g. civil, building, mechanical, etc. October 2007Page: 2 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROLIf the Labour and Plant reports are being considered then Labour and Plantblock names will be required. Selecting Cost Codes 10. Having named blocks of cost codes, a list of cost codes should be prepared. Itis unlikely that the final list will be established first time and it will requirerevision as the estimate

split progresses and cost control documents arefinalised. 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 thesequence used in the estimating check list, (refer procedure Estimating andTendering). A suggested standard cost code system is given inAttachment#.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 toengineering 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 reimbursablecontract, 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 thecontract value. f. Cost codes must relate to identifiable activities, e.g.. if it is not simple for aSupervisor 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 ascommitment items, i.e. controlled at time of writing order, and those thatare to be controlled by historical costs, i.e. controlled by invoiced costmethod. Splitting the Estimate and Preparing the Estimate Split Summary 12. Having prepared a cost code system the next step is to split the estimate andallocate estimate alloweds against each cost code. This is done by annotatingthe estimate to show the relevant cost code for every item. Summarise theestimate in order of cost code numbers. Refer toAttachment #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 originalestimate or a revised estimate as appropriate. October 2007Page: 3 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROL13.In summarising the estimate for the non-critical items that have been groupedtogether under a single cost code (to minimise proliferation of cost codes),each estimate item should be shown separately even though they are groupedunder one cost code. This will allow measurement of work done for each costcode 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 thecost code system to be sure that the requirements of para 11 above have beenmet.16.Review all allocations to check conformity with the principles for effective costcontrol.17.Again check that totals and sub-totals still conform with the tender. Theestimate split summary becomes the base document for the preparation of thevarious reports in the cost control system. It is also the document that will beregularly referred to as the contract progresses to establish value of work done,effects of method changes, etc. The original estimate split summary should bekept 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 beprepared and published for all project staff who are involved in cost reportingand recording or in financial forecasting, and relevant Head Office personnel.The list should have separate sections for:-a.Labour b.Plantc.Materials and Subcontracts. 19. The description against each cost code should contain both a brief title andsome explanatory remarks as to what is included or excluded. A suggestedformat is given inAttachment #.20.It is usually advisable to spend time with each member of the project staff toexplain the system and as far as possible resolve ambiguities etc.21.The published list must be reviewed regularly and updated to include anychanges due to variations, method changes etc. October 2007Page: 4 of 4 Project AdministrationPROJECT COST CONTROL Attachment #A SUGGESTED STANDARD COST CODES FOR INDIRECT COSTSThe following sets out a standard cost code numbering system for indirectcosts. 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 asfar as possible correspond with COMPANY NAME Administration ,cost codenumbers.1000 Non Continuous Costs10**Project Staff - Removal add Resettlement Costs11**Supervision and General Labour - Removal and Resettlement Costs12**Administration Costs - Non recurring or Lump Sum (includes Bonds,Insurance, Fees etc.)13**Site Buildings Establish and Remove14**Camp and Housing - Establish and Remove15**Utilities and General ServicesEstablish and Remove150*Power 151*Water 152*Sewerage153*Air 154*Heating and Air Conditioning155*Site Roads and Drainage156*Security Fences, signs and lights16** Special Temporary Works - Mobilise and Demobilise17**General Plant, including vehicles - Mobilise and Demobilise18**Special Services - Non recurring or Lump Sum19**(Spare)2000 Continuing Costs20**Project Staff - Salaries, allowances and oncosts21**Supervision and General Labour - Wages, allowances and oncosts22**Administration Costs - Continuing Costs October 2007page 1 of 58 Project AdministrationPROJECT COST CONTROL23**Site Buildings - Operate and Maintain24**Camp and Housing - Operate and Maintain25**General Services - Operate and Maintain250*Power 251*Water 252*Sewerage253*Air 254*Heating and Air conditioning255*Site Roads and Drainage256*Security fences, signs and lights257*General Supplies258*General Transport26**Special Temporary Works - Operate and Maintain27**General Plant, including vehicles - Operate and Maintain28**Special Services - Continuing Costs29**(Spare) October 2007page 2 of 58 Project AdministrationPROJECT COST CONTROL

Attachment #A ESTIMATE SPLIT SUMMARYPrelims and Overheads 1300 (A)Mobilise and demobilise site offices. 7600Mobilise Plant 800Furniture 2000Power 3000Water 1000Demobilise Plant 8002200 (A) Office running cost (consumables)2900 (A) Small tools & protective clothing.39003200Pipe slings 2000Tools (Area1) 600Tools (Area 2) 600 Labour 3010Mobilise and demobilise offices etc. 9000Mobilise 4500Demobilise 45003060Supervision. 25500Area 1 Supervisor 16 weeks12000Area 2 Supervisor 18 weeks135003070Crane operator.14 weeks 105004000Construct foundations.170 m2 410404100Erect Steel Area 1 560 Tonnes 152804200Erect Steel Area 21020 Tonnes 21845Plant5000Sheds.4 No.for 24 weeks 122405100Mobile crane.14 weeks 266005200Prime Mover.12 weeks 15960 Materials & Subcontracts 6000 (A) Concrete consumables. 4950Formwork 1550Oil, chairs etc. 34007000 (P) Foundation materials. 5720Concrete51 m3 459010% waste 450Mesh170 m2 6807010 (P) Steel supply Area 1. 560 tonnes1700007020 (P) Steel supply Area 21020 tonnes306000October 2007Page 1 of 4

Project AdministrationPROJECT COST CONTROL8000 (P) Protective Coating Area 1 S/C. 560 tonnes 229008010 (P) Protective Coating Area 2 S/C1020 tonnes 417008020 (P) Design & Draftings S/C. Area 1 4 weeks 85008030 (P) Design & Draftings S/C. Area 2 8 weeks 17000Sub total769435Margin & Contingency 90000 TOTAL 859435(A) = Actual Costs (Invoices)(P) = Committed (Purchase Order)October 2007Page 2 of 4 Project AdministrationPROJECT COST CONTROLAttachment # PROJECT COSTCODE LISTING PROJECT:PROJECT NUMBER : PROJECT MANAGER:DATE:COSTCODEDESCRIPTIONTENDER$ ALLOWEDQTYUNITVARIATIONSTOTAL $ALLOWEDR&F FORMULAEESCALATED UNESCALATEDCOMMITSALLOWEDS 1300MOBILISE &DEMOBILISE SITE OFFICES(A) 7600 7600n/aA2200OFFICE RUNNING COSTS (Consumables)(A) 3900 3900n/aA2900SHALL TOOLS & PROTECTIVE CLOTHING(A) 3200 3200n/aA3010MOBILISE & DEMO & SITE OFFICES 9000 4 WEEK 90003060SUPERVISION2550034 WEEK 255003070CRANE OPERATOR 1050014 WEEK 105004000FOUNDATIONS 41040170m2 410404100ERECT STEEL AREA 115280560 TONNES 152804200ERECT STEEL AREA 2218451020 TONNES218455000SHED HIRE 1224024 WEEK 122405100CRANE HIRE. 2660012 WEEK 266005200PRIME MOVER HIRE 1596014 WEEK

159606000CONCRETE CONSUMABLES(A) 4950 4950n/aA7000FOUNDATION MATERIALS 5720 5720n/aA7010STEEL SUPPLYAREA 117000030600001A7020STEEL SUPPLYAREA 2306000170000n/aA8000PROTECTIVE COATING SUB-CONTRACT AREA 122900560 TONES 56100n/aA8010PROTECTIVE COATING SUB-CONTRACT AREA 2417001020 TONNES 8500n/aA8020DESIGN & DRAFTING SUB-CONTRACT 85004 WEEKS 25500n/aA8020DESIGN & DRAFTING SUB-CONTRACT170008 WEEKS 25500n/aA $76943500769435 October 2007Page 1 of 4

Project Administration, ProcedureNo: 1PROJECT COST CONTROL 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 toreport 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, inmanhours and then dollars, and the alloweds for the same amount of work done. 5. The Labour Manhour Report provides a detailed comparison for each relevantcost code. Details are reported in manhours because this unit is the most readilyunderstood, measured, controlled and forecast by the staff having direct controlof labour, namely the Supervisor. Reporting in manhours does not reflect theeffects of excessive overtime, bonuses, labour on-costs or other factors affectingpay rates and thus in itself does not provide adequate overall control. 6. The Labour Cost Report provides an overall comparison in dollars for totallabour. The comparison is between the actual labour cost in dollars and the alloweds dollar amounts, such alloweds dollars amounts being adjusted to takeaccount of escalation as explained later in this procedure. This report, read inconjunction with the Labour Manhour Report, will direct attention to excessiveovertime, high bonuses or other factors. It provides a safeguard againstunwarranted (and dangerous) complacency in the situation where the Labour Manhour Report shows favourable trends but the Labour Cost Report shows anadverse dollar comparison, due to the actual manhour rate being higher than

thealloweds manhour rate for any reason.October 2007Page 1 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROL LABOUR MANHOUR REPORT Initial Set-Up 7. The layout of the standard report form is shown inAttachment #. This is thereport layout as produced by COMPANY NAME.8.Standard Project Information such as the project name etc. are inserted on theform, and Base Data is entered into columns 1, 2, 3, 4, 5, 6 and 7 from theestimate split summary. (Refer Section 2 of Project Cost Control procedure.) Inentering 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, miscellaneoussales, insurance repairs etc. as explained later.9.Columns 3 and 7 must be checked against the estimate split summary. If errorsare 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 exceptfor 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 followingrecords which must be regularly maintained: a. Actual manhours expended for each cost code, either for the period or todate. This information is recorded on Time Sheets and is usuallysummarised in the Labour Costing Report from the payroll. This applies todirect hire labour and external hire labour also.b.A schedule of measured total quantities completed to date for each costcode. The tendency is to measure quantities for the period for convenience,however this should be avoided as any errors will compound over a periodof time. Completing the Report 12. Refer toAttachment #for details as to how to complete the Labour Manhour Report and the calculations required.October 2007Page 2 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROL Treatment of Contract Variations and Extras 13.Refer to Section 6 of Project Cost Control Procedure - Variations, Extras andDelays.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. 3and 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 costcodes, details shall be added in Cols. 1, 2, 3, 4, 5, 6 and 7 and the total andrelevant subtotals shall be amended in Cols. 3 and 7.16.When using manual control methods a very methodical approach is requiredwhen amending base control documents. Preferably enter only those variationsthat 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 inplan could be a change in the construction method or a decision to use asubcontractor 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 inSection 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 whichit is intended to submit a claim under an insurance policy should be allocated to acost 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 (andsubsequently the Labour Cost Report), alloweds can be made to equal actual(i.e.. Cols. 12 and 13 respectively).October 2007Page 3 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROLThis is technically incorrect however as backcharges etc. do not increasealloweds, but are normally credited to costs. The preferred method is therefore tobalance negative variances by forecasting negative manhours to complete,(which will then appear as future credit to costs in the labour cost report). Whenthe invoice for backcharges, or claim, is finally paid and labour costs have beencredited with the due amount, the respective cost code(s) should be deleted in itsentirety from the Labour Manhour Report. Any adjustments necessary betweenhours incurred and hours paid will be automatically taken care of in the Labour Cost Report. Refer to Section 7 for further details of administering Backchargesand Insurance Work.23.Special care must be taken in forecasting manhours as with any other forecasting exercise. When forecasting manhours to complete, the followingpoints must be taken into account:a.Assess the productivity rate to complete any item by reviewing theaverage productivity rate for the cost code item for the last period versusthe productivity rate for the past 2-3 periods, and consider any factor thatmay influence production in the future. (Productivity curves are sometimesuseful here.) b. Make allowance for clean up tasks on completion if they have not beenalloweds in another cost code.c.Make allowance for any time extensions that may affect the duration of thecost code item.Any other contingency items for unscheduled circumstances, such aspossible industrial action, should be assessed at the Project Assessmentstage. 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 thecontract is minor

and cannot significantly affect the financial outcome of thecontract.25.The Project Manager shall determine the timing for the production of regular Labour Manhour Reports. Completion of the report should be achieved within twodays 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 thesenior 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).October 2007Page 4 of 4 Project Administration, ProcedureNo: 1PROJECT COST CONTROL SECTION 3B- LABOUR (COSTS) Labour Cost Report 1. The layout of the standard form is shown inAttachment #. This is the layout asproduced by COMPANY NAME. Note that this report is a summary report anddoes 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 tominimise the workload. A category of "Supervision" should always be used. It willgenerally be sufficient to group all other labour categories into the oneclassification of "Other". However if unusually highly paid tradesmen are asignificant part of the labour force, a separate category should be established for them.COMPANY NAME. REQUIRES A MAXIMUM OF 4 CATEGORIES OFLABOUR, 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 relevantcategory of labour as used in the estimate. Note that it is important to total themanhours (Col. 3) x Estimate alloweds dollars per manhour (Col. 6) to ensurethat it equals the total alloweds dollars for labour as per the estimate splitsummary. 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 showthe total cost for each category of labour. Completing the Report 5. Refer toAttachment #for details as to how to complete the Labour Cost reportand the calculations required. Treatment of Escalation 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 trulyrepresents the cost increase in labour. This may achieve a more accurate pictureof the cost of labour compared to the

estimate but will give an inaccurate ProjectAssessment if totals using these fictitious factors are carried forward. October 2007Page: 1 of 3 Project Administration, ProcedureNo: 1PROJECT COST CONTROL7.If an escalation factor other than that generated by the Head Contract formula isused it would be usual for the Project Manager to specify the basis of calculationof the factor in the form:Escalation Factor = Tender average rate + average increasesTender 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 wasalloweds in the estimate to cover wage increases the Project Manager shouldfollow para. 7 and keep the total escalation included in the alloweds under reviewagainst the contingency amount alloweds. Treatment of Contract Variations and Extras 9. No special treatment is required because the details have already been includedin the totals transferred from the Labour Manhour Report. However if anyvariation has been priced with an alloweds manhour rate that is not the same asthe estimate alloweds manhour rate, then the alloweds man hour rate in thelabour cost report will have to be adjusted accordingly. Alternatively labour associated with variations could be costed separately. Treatment of Method Changes 10. No special treatment is required because the details have already been includedin the totals transferred from the Labour Manhour Report. It is important,however, to check the alloweds manhour rates following any adjustments for method changes. Treatment of Back Charges and Insurance Work 11.No special treatment is required because the details have already been includedin the totals transferred from the Labour Manhour Report.12.These items may be costed separately in the Labour Cost Report for the reasonexplained 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 thecontract will have already been carried out in the Labour Manhour Report. Thesemanhours are entered into Col. 3 of the Forecast Final Labour Cost Report. Toforecast the final cost of labour the current average actual man-hour rate for eachcategory of labour is used. (The current average actual manhour rate should be October 2007Page: 2 of 3

Project Administration, ProcedureNo: 1PROJECT COST CONTROLcarefully assessed and should not necessarily be based on the last payrollalone.)Refer toAttachment #for details of how to complete the Forecast Final Labour Cost Report and the calculations required.

Regular Production and Distribution 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 butmay also include the General Manager/Company Acountant. October 2007Page: 3 of 3 Project Administration, Procedure No: 4 PROJECT COST CONTROL SECTION 4 PLANT (HIRED ITEMS) PLANT Introduction 1.The purpose of the Plant Cost Reports is to control those components of theestimate 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 indoing work and the alloweds for the same amount of work done. Refer Section 1for 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 inAttachment #. This is thereport layout as produced by COMPANY NAME. 5. Standard Project Information such as the project name etc.. as inserted on theform, and Base Data is entered into columns 1, 2, 3, 4, 5 and 6 from the EstimateSplit Summary. In entering this information onto the form it is advisable to includeprovision for sub-totals if required. Also provision should be made in the form of aspare 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 unitsof work, not units of time. This point should be checked before the entries inCols. 4, 5 and 6 are finalised, realising that the figures in Col. 6 should not bechanged substantially and that the total of all Col. 6 figures must not change atall.7.Once the base data is established there should be no need to change it exceptfor 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 recordswhich must be regularly maintained: a. Weekly Hired Plant Time sheets, (refer Attachment #). These timesheets are used to record hired plant on site for the period; estimatedcosts 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 madeprogressively for actual costs obtained from invoices and the CostLedger if these do not match the estimated costs recorded on the timesheets. October 2007Page: 1 of 5 Project Administration, Procedure No: 4 PROJECT COST CONTROLb.A schedule of measured total quantities to date for each cost code.The tendency is to measure quantities for the period for conveniencehowever this should be avoided as any errors will compound over aperiod of time. Completing the Report 9. Refer toAttachment #for details on the method of completing the Plant CostReport and the calculations required. Treatment of Contract Variations and Extras 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 6will have to be amended for each cost code involved and Col. 6 will have to beamended for the total and relevant subtotals. Col. 5 may also requireamendment.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 relevantsubtotals shall be amended in Col. 6.13.When using manual control methods a very methodical approach is requiredwhen amending base control documents. Preferably enter only those variationsthat 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 14. The Plant Cost Report could become invalid as a relevant control document itchanges in plan are not reflected in the alloweds in the report. Such a change inplan could be a change in the construction method or a decision to use asubcontractor 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 inSection 7 of of this procedure. 16. The Plant Cost Report is adjusted as above in respect of Plant alloweds etc. Treatment of Back Charges and Insurance Work 17. Work done by plant owned, or hired, by COMPANY NAME. for subcontractorsor others and for which we can charge should be allocated to a cost code entitled"Misc. Sales ". October 2007Page: 2 of 5

Project Administration, Procedure No: 4 PROJECT COST CONTROL 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 policyshould be allocated to a cost code(s) entitled Insurance Repair..19.These cost codes are grouped at the end of

the report immediately after asubtotal, which thus shows the position for the contract work only. 20. To avoid negative variances distorting the Plant Cost Report, alloweds can bemade to equal actual (i.e.. Cols. 10 and 11 are completed using same figures asin Cols. 12 and 13 respectively).This is technically incorrect however, as backcharges etc.. do not increasealloweds, but are normally credited to costs. The preferred method is therefore tobalance negative variances by forecasting negative costs to complete (i.e..forecast a credit to costs). When the invoice for backcharges, or claim, is finallypaid and plant costs have been credited with the due amount, the forecast costshould be corrected back to zero value. This will then automatically adjust thereport for any variation between costs incurred and costs paid. Refer to Section 7for 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 asdetermined from the Head Contract escalation formula if there is one.There may be circumstances when an alternative factor is desirable that trulyrepresents the cost increase in plant. This may achieve a more accurate pictureof the cost of plant compared to the estimate but will give an inaccurate ProjectAssessment if totals using these fictitious factors are carried forward.22.If a factor other than that produced by the Head Contract Formula is used thefollowing guidelines should be used in arriving at a suitable factor:a.In contracts of short duration, or where the plant cost content is relativelylow, it will normally be acceptable to keep the Escalation Factor at 1.0throughout the contract.b.In other cases, if the majority of plant is hired at fixed rates, the EscalationFactor 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 theactual increases in hire rates. (Note that this applies both to Group plant andto external plant). Forecasting 23. The Plant Cost report provides space in Cols. 18 and 19 for figures for October 2007Page: 3 of 5 Project Administration, Procedure No: 4 PROJECT COST CONTROLforecasting the costs to complete each cost code item. Col. 18 is the totaloutstanding alloweds calculated by multiplying the alloweds quantity yet to becompleted 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 costcode item. If the outstanding work can be completed as estimate then cols. 18and 19 will be the same.24.Special care must be taken in determining the forecast plant cost as with anyother forecasting exercise. In the case of the Plant Cost Report, when forecastingthe following points must be taken into account: Assess the productivity rate to complete any item by reviewing theaverage productivity rate for the cost code item for the last period with theproductivity rate for the past 2-3 periods and consider any factor that mayinfluence productivity in the future. (Productivity curves are sometimesuseful here).

Allow for clean up tasks on completion if they have not been alloweds inanother cost code. Allow for any time extensions that may affect the duration of the cost codeitem.25.The forecast final cost is the total of the actual dollars to date (col. 12) and theforecast to complete (col. 19). This total is carried forward to the ProjectAssessment. Reconciliation with Project Cost Ledger 26.The Plant Cost Report is a form of control by commitments, since data isobtained from the Weekly Hired Plant Time Sheets which record commitments asa result of orders for hired plant. This provides a more up-to-date report thanhaving to wait for actual costs from the Project Cost Ledger.27.Actual costs can differ from commitments recorded on the Weekly Hired PlantTime Sheets, however, due to a variety of reasons. It is therefore necessary toperiodically reconcile the plant costs recorded in the Project Cost ledger with thecosts 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 PlantCost 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 PlantCost Report. This distribution will usually be such that at least the senior foremenreceive those subsections of the report that cover their work. The distributioncould include the General Manager, Accountant or Estimator (but this would notbe usual). October 2007Page: 4 of 5 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 5A COMMITMENT REPORTS Commitment ReportsIntroduction 1.The purpose of the commitment reports is to control those components of theestimate 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 theorder. 2. Commitment reports provide a comparison between the recorded commitments(orders placed) and the alloweds for the same goods and services covered bythe commitments. 3. Commitment reports should be maintained for those cost code items where thealloweds dollars can be specifically identified in the estimate, (and can besimilarly identified in the estimate split summary), which then can be directlycompared with any commitment made in respect of that item. Where it isimpractical to determine from the estimate the specific alloweds dollars for anyitem for which an order is placed, then the items concerned should be controlledby historical cost reports, (refer later). Initial Set Up 4. Commitment reports are set up in the form of a Commitment Allocation Recordfor each cost code and the layout of this record is shown inAttachment #. This isthe layout as produced by COMPANY NAME. If a manual method of costcontrol 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 torecord current alloweds, including the original alloweds as per estimate, changesin alloweds due to variations plus any change in alloweds due to escalation. Inthe centre, commitments (i.e.. purchase orders) are recorded, together withadditional commitments due to variations, and escalation due on thecommitment. To the right of the record the alloweds committed corresponding toeach purchase order are recorded together with the proportion of escalation dueon 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 therecord for forecasting calculations. 6. Standard Project Information such as the project name etc.. is entered on therecord, 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 October 2007Page: 1 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLbe checked with the estimate split summary. If an error is found further detailedchecking is carried out until all errors are eliminated. Source of Data 8.Data to complete the Commitment Allocation record is obtained from thefollowing records:a.Purchase orders identifying purchase order number, date, vendor description of services, total value of order. A system must be maintained toensure all orders written on, or for, the project are entered into theCommitment Allocation Record. b. The Estimate Split Summary to identify the alloweds corresponding to thecommitment made. Completing the Commitment Allocation Record 9. Refer toAttachment #for details as to how to complete the CommitmentAllocation record. Treatment of Contract Variations and Extras 10. Details of the change in alloweds for any particular cost code due to a variation isobtained from the Variations - Cost Code Split (refer section 6) and entered intothe Commitment Allocation Record under alloweds. 11. Details of additional commitments due to variations, such as change orders, areentered into the Commitment Allocation Record.under commitments. Thecorresponding amount of alloweds for each change order is entered into thealloweds committed column. 12. Refer toAttachment #for details as to how to complete the CommitmentAllocation 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 normallyimpractical to adjust the alloweds by spreading the changes generated by theHead Contract escalation formula over all the appropriate cost codes. Instead itis easier to include such changes in alloweds as a single line entry in the finalProject Assessment Summary. Location 18 on the Commitment AllocationRecord will therefore remain blank in manual control systems.14.If any purchase order (commitment) is subject to an escalation formula, theescalation 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 todate is entered at location 20. This is calculated as follows: October 2007Page: 2 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLAlloweds committed to date (locn 11)-------------------------------------------x Escalation on all'dsTotal 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 relevantdocument if changes in plan are not reflected in the alloweds. Such a change inplan could be a change in the construction method or a decision to use directlabour instead of a subcontractor.18.The general procedure for reflecting such changes in all reports is outlined inSection 7 of this procedure. 19. The Commitment Allocation Records are adjusted in respect of the estimatealloweds for each cost code. Reconciliation with Project Cost Ledger 20. The Record provides for recording monthly Cost Ledger amounts to compareactual costs with current commitments. The accounting month and Cost Ledger amount is entered at Loc'n 21 (refer Attachment #). The monthly totals aretotalled at Loc'n 22.21.In the case of Commitment Allocation Records the actual costs recorded have nosignificance except that total actual costs should not exceed the totalcommitments (loc'n 13). If the total actual cost does exceed the total commitmentit 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 thefinal commitment for each particular cost code.Refer toAttachment #for details of how to complete the record whenforecasting.23.Special care must be taken when forecasting as

with any other forecasting October 2007Page: 3 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLexercise. When forecasting outstanding commitments on the CommitmentAllocation Record the following points must be taken into account and included inthe 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 therecord under alloweds. c. Any future forecast escalation due on a purchase order or subcontractshown under commitments, for which an allowance has been calculated inthe alloweds.d.Any as yet undocumented future claim e.g.. for delays, likely from asupplier or subcontractor. Regular Production and Distribution 24.As discussed earlier Commitment Allocation Records are not an effective controldocument. Their main purpose is to assist in forecasting the financial result of theproject.25.Commitment Allocation Records should be updated monthly and should bereviewed monthly by the Project Manager. Further distribution is not requiredexcept in exceptional circumstances. October 2007Page: 4 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 5B HISTORICAL COSTS REPORTS HISTORICAL COSTS REPORTS 1.The purpose of the historical cost reports is to control those components of theestimate 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 theProject Cost Ledger, and the alloweds for the same goods and services coveredby the costs. 3. Historical cost reports should be maintained for those cost code items where thealloweds dollars corresponding to an order cannot be specifically identified in theestimate, (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 eachcost code. Using the COMPANY NAME. manual method of cost control aspreadsheet is employed to record data as per Attachment #accepted layoutrequired.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 CommitmentAllocation Record except as detailed below.YOU SHOULD CREAT THE SAME RECORD FOR BOTH COMMITMENTALLOCATION

RECORDS AND COST ALLOCATION RECORDS. IT SHOULDBE TITLED COMMITMENT/COS.T ALLOCATION RECORD. WHEN SETTINGUP EACH COST CODE FOR PROJECT COST CONTROL. YOU HAVE TOIDENTIFY THE COST CODE AS A COMMITMENT TYPE (P) FOR PURCHASE ORDER OR HISTORICAL COST TYPE (A) FOR ACTUAL COSTS . THESESHOULD 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 THEBOTTOM RIGHT HAND CORNER A SUMMARY OF THE ESTIMATESPLIT FOR THE PARTICULAR COST CODE FOR EASY REFERENCE. The Project Cost Ledger to obtain recorded costs for each cost code for each period. October 2007Page: 1 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL Completing the Cost Allocation Record 7. Refer toAttachment #for details as to how to complete the cost AllocationRecord. The method is identical to completing the Commitment AllocationRecord 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 sectionof the record. The alloweds for the period is assessed on quantity, or percentage of work done, or time, or similar, corresponding to the costsrecorded for that period. Note that Project Cost Ledgers usually record thecosts as at one month prior to the time that the record is updated. Thismust be taken into account when assessing the alloweds. The variance between alloweds and costs is then calculated, not allowedsand commitments as with the Commitment Allocation Record. 8. Refer toAttachment #for further details as to how to complete the CostAllocation Record. Treatment of Contract Variations and Extras 9. Variations and extras are treated exactly in the same way as in CommitmentAllocation Records. The alloweds for each period must be assessed taking intoaccount the effects of any variation, and whether or not the variation has beenpaid for and the costs included in the Cost Ledger. Treatment of Escalation 10. Escalation is treated exactly the same way as in the Commitment AllocationRecords. However with manual control methods any escalation due under theHead Contract formula

will not be entered under the alloweds section of therecord. 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 willshow up as actual costs in the Cost Ledger. A negative variance will result whichwill be balanced by any revenue from the Head Contract formula when entered inthe Project Assessment Summary.THE SPREADSHEET SHOULD BE SET UP TO AUTOMATICALLYCALCULATE THE PROPORTION OF THE TOTAL CHANGE IN ALLOWEDSDUE TO ESCALATION THAT IS ATTRIBUTABLE TO A PARTICULAR COSTCODE, AND ENTER IT AT LOCATION 18. THE SPREADSHEET SHOULDALSO AUTOMATICALLY CALCULATE THE ESCALATION DUE ON THEALLOWEDS COMMITTED AT LOCATION 20 (REFER PARA 14 SECTION 5AFOR METHOD OF CALCULATION). Treatment of Method Changes October 2007Page: 2 of 4

Project Administration, ProcedureNo: 1 PROJECT COST CONTROL12.Refer to Commitment Allocation Records. Forecasting 13. The Cost Allocation Record provides space for calculating the forecast final costfor each cost code. Refer toAttachment #for details of completing the recordwhen forecasting.14.Special care must be taken when forecasting as with any other forecastingexercise. When forecasting the final cost to complete a historical costs cost codethe following must be considered: Assess any trends that can be determined from an analysis of costs over the past say 2-3 periods compared to the average cost for all periods, andassess any factors that may affect trends in the future. Make allowance for any time extensions to the contract that may affect theduration of the cost code items. Allow for any likely increase in costs of goods and services that are notcovered by any Head Contract Escalation formula. Allow for any other foreseen item, such as variations, claims, that willaffect the final cost. (It may be worth perusing orders placed and not yetpaid for to identify exceptional orders that could upset trends establishedin a. above). Regular Production and Distribution 15.As for Commitment Allocation Records. ALTERNATIVE METHOD FOR HISTORICAL COST REPORTS 16.Project Cost Ledgers are a historical document in so far as they are produced atleast one month after an order is placed. Therefore the Cost Allocation Recordsdo not provide as accurate a report as do Commitment Allocation Records. 17. To treat Historical Costs in a similar fashion to Commitments, i.e.. record allorders placed,

is impractical as Historical Costs normally consist of a largenumber of small orders. To record every one as a Commitment would be anonerous administrative task. 18. One solution is to collect all the orders for historical cost items for a period, addthem together and show them as a single line entry in the form:-"Miscellaneous orders for the month of " October 2007Page: 3 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLThe Historical Cost record could then be completed in the same manner as aCommitment record.The difficulty with this concept however is that it requires every miscellaneouspurchase to be covered by an order and every order must be priced. Experienceshows that this is impractical. Many items e.g.. fuel, are subject to a blanket order at the commencement of the contract and a separate order is not written out for each delivery.A system of this nature therefore requires very strict administrative controls whichexperience has shown are difficult to achieve.19.Another alternative is to record invoices for the period before passing them on toaccounts for payment. Totals of invoices are calculated for each cost code andentered into the Historical Cost record under commitments as a single line entryin the form:"Invoices for miscellaneous items for month "The Historical Cost record is then completed in a similar manner to theCommitment record.By this means the problem of using historical data is overcome and the recordspresent a more accurate picture of the current situation. 20. IF EITHER OF THE ABOVE TECHNIQUES ARE USED THEN AS FAR ASCOMPANY NAME IS CONCERNED HISTORICAL COST RECORDS ARETHE SAME AS COMMITMENT RECORDS. EACH HISTORICAL COSTS COSTCODE SHOULD BE IDENTIFIED AS A COMMITMENT TYPE (P) FORPURCHASE ORDER).ALSO IF EITHER OF THE ABOVE TECHNIQUES ARE USED A VERYMETHODICAL APPROACH TO THE COLLECTION AND RECORDING OFORDERS OR INVOICES MUST BE ADOPTED. October 2007Page: 4 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 5C - ESCALATION ESCALATION 1.Many contracts provide for adjustment of the contract value as the cost of labour and materials increase during the course of the contract. Adjustment to thecontract value is usually calculated using a formula defined in the contractdocuments. This formula has been referred to as the Head Contract EscalationFormula throughout this procedure. (Also known as Rise and Fall formula, pricevariation formula etc.)2.Escalation formula come in many forms but the most common, expressed in itsmost simple form, is:Factor for adjustment to Contract Value for period =Indices (for labour and materials) for period--------------------------------------------Indices as at date of tender The indices used are normally calculated (for labour) or as published by the ABS(materials).3.Furthermore the formula usually splits the contract into categories, e.g.. labour,material and fixed, and applies a different indice for each category.Hence a typical rise and fall formula would

appear as:Factor for adjustment of contract value for period =LI(period) MI(1)(period) MI(2)(period) )35---------- + 25 ----------------- + 30 ---------------- + 10 ) / 100LI(tender) MI(1)(tender) MI(2)(tender) )LI, MI(1), MI(2) etc. represent the indices for various categories of labour andmaterial. 35, 25, 30 etc. are the proportions of the contract value correspondingto the particular indice. In the above 10 represents the fixed portion of thecontract value not subject to an escalation factor.COMPANY NAME CALCULATES ESCALATION BASED ON THE ABOVEFORM OF FORMULA. IT WILL ACCOMMODATE A FORMULA WITH UP TO 10ELEMENTS WHERE AN ELEMENT IS LABOUR, MATERIAL(1), MATERIAL(2),ETC. Calculation of Escalation due under Head Contract Formula 4. Escalation due under the Head Contract Formula is calculated using acalculation sheet shown inAttachment #. This calculation sheet is as producedby COMPANY NAME and is called the Escalation Detailed Listing. October 2007Page: 1 of 3 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL5.Standard Project Information, such as project name etc., is entered on the sheet.Base Data including formula base date, formula elements, proportions, and baseindices are then entered.The indices are updated for each period and the contract value, (subject toescalation by the Head Contract formula), and payment for the period entered.(Note that certain items in the Head Contract may not be subject to escalation, or may be subject to a different escalation formula as in the case of nominatedsubcontracts. These must be excluded in the contract value amount, andpayment, for the period).Refer toAttachment #for further details of completing the Escalation DetailedListing and the calculations required. Forecasting using the Frozen Indices Principle 6. Attachment #also shows the calculation of escalation due on the balance of thecontract at any particular period. This forecast is done using the indices for thelast period. No attempt is made to forecast future indices.BY USING A SPREADSHEET SPECIFICALLY SET UP THE CALCULATION OFESCALATION EASY, IT IS POSSIBLE TO FORECAST ESCALATION USINGFORECAST INDICES. THIS IS DONE BY ENTERING PROVISIONAL(P) INDICES FOR FUTURE PERIODS AND FORECASTING CONTRACT VALUESFOR EACH FUTURE PERIOD. THE PROVISIONAL INDICES ARE ADJUSTEDLATER WHEN PUBLISHED. THIS CAN BE VALUABLE ON A MANAGEMENTTYPE CONTRACT TO ASSIST THE CLIENT IN DETERMINING FUTURE CASHREQUIREMENTS IF ESCALATION IS A MAJOR FACTOR. Spreading Escalation over Cost Codes 7.For concise cost reporting it is ideal to be able to spread the escalation dueunder the Head Contract Formula over the cost code items that are covered bythe formula. With manual cost control methods this is impractical due to thenature of the task. Instead the escalation will appear as a single line entry in theProject Financial Summary and will be balanced by negative variances in eachcost code due to the costs, or commitments, having included in them the effectsof escalation.THE SPREADSHEET IS SET UP WHERE IT SPREADS OVER EACHAPPROPRIATE COST CODE THE TOTAL ESCALATION

CALCULATED FROMTHE ESCALATION DETAILED LISTING (TO DATE AND BALANCE). THISTOTAL ESCALATION IS SPREAD IN PROPORTION TO THE CURRENTALLOWEDS FOR EACH COST CODE (INCLUDING VARIATIONS IFDESIGNATED AS SUBJECT TO ESCALATION). THESE PORTIONS OF THEESCALATION APPEAR IN THE COMMITMENT/COST ALLOCATIONRECORDS, OR THE PROJECT ASSESSMENT SUMMARY AS IN THE CASEOF LABOUR AND PLANT. Other Head Contract Formula October 2007Page: 2 of 3 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL8.If there are other Head Contract Formulae for items such as nominatedsubcontracts a separate Escalation Detailed Listing is maintained for eachformula. The calculations etc. are exactly as above except that the contract valueand payments for any period would relate to only those items of the estimatecovered by the particular formula. Escalation on Commitments 9.If any particular commitment, such as a major material order or subcontractor, issubject to escalation an Escalation Detailed Listing must be maintained for eachseparate order or subcontract. Providing the escalation formula for thecommitment is similar to the form of the Head Contract Formula the procedure isexactly as above except that the contract value and payment for the periodrelates to the value of the order or subcontract. 10. The values of escalation for each commitment (to date and balance) are enteredinto the Commitment Allocation Record as shown inAttachment #.THE FACILITIES FOR COMMITMENT ESCALATION FORMULAE ARESIMILAR TO THOSE FOR THE HEAD CONTRACT FORMULA. AGAIN THEREPORT SHOULD AUTOMATICALLY CALCULATE RESULTS INTO THEAPPROPRIATE COMMITMENT ALLOCATION RECORD. October 2007Page: 3 of 3 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 5D PROJECT ASSESSMENT Project Assessment Introduction 1.One of the requirements of the cost control system is to produce a financialsummary that gives Group management an accurate forecast of the finalfinancial status of the contract.2.It is part of the Group's standard reporting system that the following two financialreports are submitted by each project each month: Project Assessment Summary. Costs and Claims Forecast.The following relates to the preparation etc. of the Project Assessment Summary.Refer toProcedure #for details on the Costs and Claims Forecast. Project Assessment Summary 3.The two page Project Assessment summary provides data relevant to:a.Forecast Final

contract value. ) b. Forecast Final costs. )For each block of cost codes c. Codes as defined earlier. ) as defined earlier, including d. Forecast Final margin. ) labour and plant if used.e.Forecast Final completion times/dates.f.Sundry other summaries. 4. If costs have been recorded accurately and allocated correctly, if quantities of work done have been properly evaluated, if all commitments have been recordedand the corresponding alloweds correctly assessed, if progress claims have beenlodged in the maximum permissible amounts and if the forecasts to completionhave been carried out realistically, the information shown on the ProjectAssessment Summary should be mutually consistent. If, however, some of theinformation is discordant with the rest, it will indicate that one or more of theabove conditions has not been met and thus investigation is needed to identifyand remedy the cause of the discrepancy.I5.Most data entered in the Project Assessment Summary comes either directlyfrom the cost reports (labour and plant) and the commitment and historical costsallocation records. The remainder comes as explained in the following. October 2007Page: 1 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL 6. The format of the Project Assessment Summary is as per Attachment #. Thisformat is as produced by COMPANY NAME. An alternative format, may bepreferred where manual methods of cost control are used. (Refer attachment J). 7. The method of completing the financial aspects of the Project AssessmentSummary (Page 1) is noted in detail inAttachment #.8.An interim step may be necessary, to complete the Project AssessmentSummary, depending on the number of cost codes used. This interim stepinvolves the collection of data from the Commitment and Cost Allocation Recordsand sub-totalling into cost code blocks. A record lay out identical to the ProjectAssessment Summary can be used for this purpose. Additional Summary Information 9. Refer toAttachment #for additional details required to be submitted as part of the Project Assessment Summary (page 2). Reviewing the completed Assessment Summary 10.On completing the Project Assessment Summary, and before distributing it, it isgood practice to review it as follows to be sure that there are no inconsistenciesthat throw doubt on the accuracy of the document. Have any Client contingencies or provisional amounts been included inthe current alloweds? As explained in Section 7 Client contingencies,or provisional amounts for work that may not be done, should bebalanced by a negative variation at the start of the contract

andprogressively introduced as variations if and when the Client issues theappropriate variation order. If this is not done the contract value can beexaggerated as the contract progresses especially if the Client doesnot use the contingency. Do the variations allow for future known costs for Client provisionalsums and provisional amounts? If not the final contract value will beunderestimated particularly since such provisional sums often occur towards the end of the contract. Has there been a significant change in any of the totals since the lastreporting period? Such changes may have a straightforwardexplanation, on the other hand it may show up an error in forecastingor similar. Has the actual commitment to date changed since the last period? If ithasn't, either no orders have been placed or the commitment recordsare not being maintained. Have the alloweds to commit changed since the last reporting period?If they haven't then commitment records have not been kept up todate. October 2007Page: 2 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL Has the forecast final cost changed during the past period? If not whendid it last change? Is this because the forecast hasn't changed or is itbecause a proper forecast hasn't been done for some time? Does the calculated final commitment vary substantially from theforecast final cost? If it does a reasonable explanation is requiredparticularly if the contract is say more than 50% complete. As thecontract progresses, actual commitment (which equals actual cost inthe case of historical cost codes and commitments in the case of commitment cost codes) should equal the forecast final cost. Anydiscrepency can only be due to commitments not being recorded, or alloweds being incorrectly assessed. Does the claim to date less the costs to date confirm the forecast finalmargin? At the start of the contract this is unlikely due to establishmentcosts, the effects of learning curves etc., or alternatively claims may beinflated due to claim items being front loaded. However as the contractprogresses the claim less costs figure should start to confirm the finalmargin as forecast by the Project Manager. Is the percentage complete by time comparable to the percentagecomplete by alloweds? If the percentage complete by time is greater than the percentage complete by alloweds it suggests that the projectis behind schedule. Have time extension costs been alloweds in theforecasts, or instead acceleration costs if necessary? Do the current original alloweds (col. 2Attachment #) equal the originalcontract value (col. 1)? If not, why not? Timing and Distribution

11. The Project Assessment Summary is a key document in COMPANY NAMEScontrol system and thus it warrants careful attention. Even though some detail(e.g.. materials and subcontracts actual costs) cannot be entered until a fewweeks after the close of the relevant accounting period, much of the detail canand should be entered earlier in the month. In particular, project managersshould schedule their time so that the work of forecasting the final situation isdone at a time clear of the pressures of end-of-month reporting. If the actualcosts of materials or subcontracts contain any surprises, the effects on theforecast final figures can still be brought in at the last moment. Note that asystem based on commitments should minimise the risk of such surprises andshould facilitate forecasting of final results.12.In respect of manual cost control systems all dollar amounts in the ProjectAssessment Summary should be in full. Figures relating to firm data shall not berounded off, but those relating to forecasts should be rounded off to the nearest$1,000. October 2007Page: 3 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL 13. Does the calculated final commitment vary substantially from the forecast finalcost? If it does a reasonable explanation is required particularly if the contract issay more than 50% complete. As the contract progresses, actual commitment(which equals actual cost in the case of historical cost codes and commitments inthe case of commitment cost codes) should equal the forecast final cost. Anydiscrepency can only be due to commitments not being recorded, or allowedsbeing incorrectly assessed. October 2007Page: 4 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 6 VARIATION, EXTRAS & DELAYS VARIATIONS, EXTRAS & DELAYS Introduction 1.It is vital that variations, extras and delays to any contract be recognised,measured, priced, claimed, approved and paid for with minimum delay. This isnecessary to preserve a proper profit situation and proper cash flow.2.This section of the cost control procedure sets out the standard method of controlling variations. It does not cover aspects of pricing, claiming etc. nor aspects relating to extensions of time, both of which are covered in other procedures.3.In cases where the Client specifies detailed control procedures for the handlingof variations, extras and delays, this procedure may need to be modifiedaccordingly. General 4.As discussed in the procedure on administration of variations the action steps inprocessing a variation are:a.Identification.b.Notification of Intention to Claim.c.Obtaining Client recognition.d.Measurement.e.Pricing.f.Claiming and obtaining Client approval.g.Treatment of escalation.h.Cost control.i.Payment. j.Filing and recording.During this process any variation can have the following status:-a.Not yet submitted (but costs may well be being incurred).b.Submitted to Client for approval but not yet approved by him.c.Approved.The method of control of a variation does not vary according to its status.However it is important to identify within the control documents the

status of avariation since until such time a variation is approved the final value is not known.Hence the alloweds for a submitted variation, and included in the controldocuments, may have to be adjusted when the variation is finally approved.5.The other factor that influences the method of control is whether of not the October 2007Page: 5 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLvariation is subject to escalation. When a variation is priced and submitted, it willusually be stated as being one of the following:-a.not subject to escalation.b.subject to escalation with effect from the date of the submission of theprice for the variation.c.subject to escalation with effect from the same date that is used for calculation of escalation under the Head Contract escalation formula.6. The choice between the above three must take account of the Client's statedrequirements if any. From the point of view of convenience in cost control either a. or c above are preferred. Cost Control 7.As soon as a variation has been identified, a decision must be made as towhether the labour, plant, materials and subcontracts involved will be costed tonew specially-allocated cost codes or to numbers within the established system.In addition to the factors normally considered during design of a cost controlsystem, account must be taken of the expected amount of backup informationthat the Client may require in substantiation of the claim for the variation.8.To avoid a proliferation of cost codes, small variations may be lumped together under a code termed "miscellaneous variations".9.Foremen, Accounts and other associated personnel must be advised when anew cost code is raised.10. When the estimate of a variation has been completed it shall be split into thealloweds for the relevant labour, plant, materials and sub-contract cost codes asdecided in accordance with the above.11. The split of this estimate into its various cost codes together with margin andtotal is then entered on the form as per Attachment 6A "Variations - Cost CodeSplit".The labour dollars alloweds should be based on the estimate labour rate andthese amounts are those to be allocated to each cost code number as relevant.The difference between the above labour dollars alloweds and the amounts inthe labour part (at current rates) of the estimate of the variation should be shownin the column "Escal. incl.". Note that this form also makes provision for recordingthe amounts finally approved by the Client. If these are different from thosesubmitted, the Project Manager shall decide whether the difference is of sufficientsignificance to warrant adjustment of cost control documents, etc. 12.The split of estimate as entered on the "Variations - Cost Code Split" should betransferred to the relevant cost control documents at the time appropriate to themaintenance of proper cost control. For example, details of a major variationshall be transferred immediately before costs are to be incurred even though itmay still have a status of not submitted. Details of minor variations should betransferred on a regular basis, e.g.. monthly. However, if costs are not being October 2007Page: 6 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLincurred in the meantime, it is preferable not to transfer variations to the costcontrol documents until they have been approved. This minimises the effort of having to update the documents in the event that the approved variation does notequal the submitted variation. Each item on the "Variation - Cost Code Split" shallbe

ticked when transferred to the cost control documents. 13. When variations and extras become numerous, there may be a need to keep arecord of the changes made to the value of each cost code. A system issuggested inAttachment #which can also be used as a summary to date of theproject's alloweds.14.All costs incurred (labour, or extra material and subcontract) in carrying out avariation shall be debited against the cost codes used in the "Variations - CostCode Split". It is important to ensure that those responsible for writing and checkin time sheets fully understand what cost codes are to be used. Reporting Variations in the Project Assessment 15. Once variations data is transferred into the cost control documents their influenceon the contract value etc. will automatically flow through to the ProjectAssessment Summary except as follows:-a.Extra over margin generated by variations must be added to the originalcontract margin in the Project Assessment Summary.b.Escalation on variations must be carefully examined if of significance.When variations are not subject to escalation, or are subject to escalationas per the Head Contract, then inclusion of the variations in the paymentfor the period as per the Escalation Detailed Listing will effectively allowthe correct escalation amount in the Project Summary. Variations subjectto a different basis of escalation must be calculated separately andincluded separately in the Project Assessment Summary if of significance.16.When controlling variations it is essential to be realistic as to the amounts thatthe Client is expected to approve. Do not include contentious claims for variations, or any other similar forms of claim, in the control documents. Leavethese for comment by the Project Manager in the space provided at the end of the Project Assessment Summary - sheet 2. PROJECT COST CONTROL AND VARIATIONS 17. VARIATION DATA IS FED INTO PROJECT COST CONTROL AFTER THE"VARIATIONS - COST CODE SPLIT" STAGE. 18. VARIATIONS SHOULD SHOW THE STATUS OF APPROVED, SUBMITTED ORNOT SUBMITTED. THIS DOES NOT INFLUENCE THE METHOD BY WHICHTHE VARIATION IS CONTROLLED BUT GIVES THE ABILITY TO PRINTVARIATION REPORTS FOR THE CLIENT, OR THE PROJECT'S, USEACCORDING TO THEIR STATUS. 19. A VARIATION IN COMPANY NAME. PROJECT COST CONTROL SHOULDBE IDENTIFIED AS BEING EITHER FIXED OR SUBJECT TO ESCALATION ASPER THE HEAD CONTRACT FORMULA. ESCALATION CALCULATIONS. THE October 2007Page: 7 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLSPREADSHEET DESIGN SHOULD BE SUCH THAT THE VARIATIONS AREAUTOMATICALLY CALCULATED AS DATA ON ESCALATION IS FED INTOTHE SYSTEM PROVIDING THE PAYMENT FOR THE PERIOD CONCERNEDINCLUDES THE APPROPRIATE VALUE OF VARIATIONS INCLUDED IN THEPAYMENT. 20.

THE CONTRACT MARGIN SHOULD BE AUTOMATICALLY ADJUSTED WHENVARIATION MARGIN IS ENTERED AFTER THE VARIATION COST CODESPLIT STAGE October 2007Page: 8 of 4 Project Administration, ProcedureNo: 1 PROJECT COST CONTROL SECTION 7 EXCEPTIONAL ITEMS EXCEPTIONAL ITEMS Introduction 1.This section of the procedure discusses different types of contracts, andparticular contract items, that require either a modified cost control procedure, or a method of control that has not been discussed in detail in the previoussections. SCHEDULE OF RATES CONTRACTS 2.Confusion sometimes occurs in Schedule of rates contracts due primarily to thefact that at the start of the contract quantities of work required are not firm (incontrast to the situation in a Lump Sum contract). As the work proceeds theestimates of quantities become firmer and firmer, usually involving changes fromthe original estimated quantities. Such changes are not variations in the acceptedcontractual sense. However, true variations can occur in a Schedule of Ratescontract, as for example when the specified quality of work is altered or changesin method are necessitated as a result of a requirement or action by the Client or if the Client changes the programme logic or schedule timing requirements. 3. True variations on a schedule of rates contract are treated in accordance withSection 6 of this procedure. 4. A further difficulty with Schedule of Rates contracts is that the schedule is usuallymuch condensed compared to the estimate. In other words, changes in oneschedule item will usually require changes in several of the project cost codeitems. For example changes in rock excavation quantities will influence not onlydirect, labour and plant involved but also miscellaneous costs for explosives,steels, etc. Also the Indirect Costs and margin amounts included in the tender amount for rock excavation will be affected.5.The following general approach is described as a guide to the Project Manager who shall detail the procedure to be used taking account of the particular characteristics of the project including any unbalancing of tender rates andinclusion of establishment items. a. When preparing the Estimate Split Summary a more detailed summary isrequired to record the various cost code items to which each scheduleitem has been allocated and the corresponding alloweds. A format similar to Attachment # "Variations - Cost Code Split" would be appropriate for thepurpose.b.When initially setting up the labour, plant, commitment and miscellaneouscosts reports, enter the original contract quantities and related alloweds asif these were firm. Wherever practical, use units and quantities whichappear in the Schedule. For example, for items such as explosive and drill October 2007Page 1 of 6 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLsteels which depend on rock excavation quantities, use the rockexcavation unit and quantity against explosives and drill steels. It may bedesirable to

include explanatory notes in the description column. c. Operate the cost reporting system as normal as far as possible. Thisapplies particularly to items where the quantity of work done can beaccurately identified. Where cost code items cannot be readily associatedwith specific work items, e.g.. typically, supervision, it will usually beadequate to devise and use a percentage complete type assessment of "alloweds" based on realistic groups of specific work items. Alternatively apercentage complete based on the ratio of total claim to date to finalcontract value may be appropriate. This approach should identify areaswhere productivity rates are below estimate. Note that if the quantities of work done exceeds the original quantities alloweds, this should merely benoted at this stage and the actual quantities should be used in the costreports. d. The Project Manager shall decide when to adjust the "total quantityalloweds" figures and the relevant dollar amounts. This will depend on thedetails of the work, how predictable quantities are, etc. However, ingeneral, when the final quantity for a particular item is known fairlydefinitely, the adjustment should be made.e.Whilst the above should provide a regular spotlight on currentperformance, it will not provide much indication of the forecast final result.Thus it is necessary to carry out a separate assessment of the overallsituation, broadly as follows:i.Based on the latest forecast of final quantities, calculate theforecast final income, including escalation, variations, etc. ii. Based on the same quantities as above, calculate thequantities of work still be performed and estimate the costs of doingthis work using up to date productivity information.iii.Add the recorded costs to date to the above estimate tocomplete.iv.Review the above to ensure that like is being compared tolike. MANAGEMENT CONTRACTS (PROJECT AND CONSTRUCTION) 6.The majority of Project Management and Construction Management contractsconsist of: A fee for management. The fee is often a lump sum, or based on apercentage of the direct cost. A sum for direct costs in the form of a budget, or provisional amounts for subcontracts, or a guaranteed maximum price based on a budget etc. Thissum can vary significantly, or at least the items within the sum can, as orders October 2007Page 2 of 6 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLare progressively placed.7.To control these types of contracts separate control documents should beprepared for the fee and the direct costs. Project Costs Ledgers should besimilarly maintained as if they were two separate contracts.The fee component of the contract is controlled in the normal manner. Anychanges to the fee resulting in a change in the scope of the direct work should befed into the control documents as variations.The direct cost component of the contract should be similarly controlled with thealloweds being the provisional sums, or budget estimates, for the various items inthe contract. Most contracts of this type require all direct work to besubcontracted so it is relatively easy to identify subcontract packages and controlthem accordingly. MAJOR MATERIALS WITH WASTAGE

8.As discussed earlier in this procedure major material supplies should becontrolled by means of Commitment reports. Providing wastage is controlled, andproviding quantities supplied match quantities measured and paid for, no further control is required.9.The technique is illustrated by the following example of concrete purchased for acontract. The estimate alloweds for 1000 m3 of concrete at a price of $75.00 per m3.The estimator also assumed 5% waste and hence alloweds for a total of 1050m3 to be supplied. A Commitment Allocation Record is established for the supply of concrete.The total alloweds is $78,750 (1050 m3 x $75).An order is placed on a supplier for 1000 m3 of concrete at $73 per m3. The totalcommitment of $73,000 is recorded. Thus the variance assuming no wastageoccurs is +$5,750.A second dummy order is entered under commitments for concrete wastage, i.e..$3,650 (50 m3 x $73). The variance including allowance for wastage is now +$2100 (78,750 - (73,000 + 3650)). From now on control should be centred on ensuring that wastage is kept withinthe 5% alloweds. This is where the foreman's daily record of concrete pours isrelevant. Also as the contract proceeds progressive totals of concrete placedshould be compared to the estimate quantities to ensure that they are the same.If not there may be cause for a variation, or it may show up as an error in theestimate. If the wastage varies from the 5% then a variation should be made to the dummy October 2007Page 3 of 6 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLorder for waste concrete. If the actual quantities vary from those alloweds in theestimate a variation order should be placed on the supplier. In both cases thevariance should be adjusted accordingly. CONTINGENCY (COMPANY NAME.) 10. Any contingency alloweds in the estimate should be highlighted as margin untilsuch time the contingency is used up through costs occurring for the reason thatthe contingency was there in the first place. Contingencies should not be put intoalloweds as they become buried, lost, and their original purpose forgotten. CONTINGENCY (CLIENT) 11.The Client usually specifies a contingency in a contract to cover unforseen costsand to provide money for likely variations. Such contingencies should not beconsidered as part of the Final Contract Alloweds until such time they become avariation.Client contingencies should be included in the original estimate alloweds toensure that the alloweds balance with the tender. A dummy negative variationshould then immediately be generated equal to the value of the contingency. Thiswill avoid the contingency being carried forward into Project Assessments andinflating the Final Contract Alloweds. PROVISIONAL SUMS, AMOUNTS, QUANTITIES 12.Provisional sums, amounts, quantities etc. appear in contracts in a variety of forms. The description of the provisional item in the contract must be studiedcarefully to determine how best to treat it in the control documents as describedbelow.13.One common form of provisional sum is for nominated subcontracts.The exact value of the nominated

subcontract is not known at the time of tender and a provisional sum is nominated in its place.Even though it is a provisional sum the feature of this type of provisional sum isthat there is no doubt that the work covered by the provisional sum will be done,unlike some other forms of provisional sums. This form of provisional sum istreated like any other alloweds in the control document. The alloweds(provisional) amount is subsequently adjusted when the Client issues a variationorder when the nominated subcontract is finalised.14.Other provisional sums often allow for items that may never be carried out under the contract. They are in fact another form of contingency for specific items thatmay or may not eventuate. An example might be "Allow the provisional sum of $xfor dewatering, if required, to be carried out under separate contract". Sometimesthey are in the form of provisional quantities that have had to be priced at thetender stage. An example of this type is "Disconnection and removal of uncharted services encountered during excavation - Provisional Quantity 10 No."With this type of provisional sum a variation order, or Client instruction, isrequired at the time of doing the work.The method of controlling these provisional sums, or quantities, is the same asfor Client contingencies. They are included in the original alloweds in the control October 2007Page 4 of 6 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLdocuments to balance with the tender. They should then be negated by dummyvariations. If and when the work is eventually done the alloweds are adjusted bythe variations that the Client should issue for such provisional items. This avoidsthe Final Contract Alloweds being over-inflated as the contract draws to aconclusion due to the provisional items having been overlooked. PC SUMS 15.PC sums are often nominated in the contract for items which had not beencompletely specified at the time of tender. They are another form of provisionalsum although contractually they are sometimes interpreted differently. Itemssubject to PC sums are not normally subject to being deleted from the contract.They will have to be supplied eventually, it is just a matter of what price is finallypaid for them.PC sums are normally the subject of some form of variation order which containsdetails of the precise item to be purchased. The PC sum is included as analloweds in the control documents and is subsequently adjusted as result of thevariation order if the change in value warrants such adjustment. METHOD CHANGES 16.The various reports and records in the cost control procedure could becomeinvalid as a relevant control document if changes in plan are not reflected in thealloweds in each report. Such a change in plan could be a change in theconstruction method or a decision to use a subcontractor for some work insteadof using direct labour or vice versa.17.The general procedure for reflecting such changes in all cost reports is:a.Make an estimate of the changed method and allocate cost codes (new or existing as considered most appropriate).b.List the items in the various reports and records which are redundant dueto the adoption of the changed method.c.Check that the total cost in a. is equal to or less than the total cost in b.and if relevant decide whether to treat the difference as extra margin or toshow it somewhere in the cost reports as a contingency.d.Amend the various reports and records by deleting all items listed in b.and inserting all items in a. and adjusting totals and

relevant subtotals. BACKCHARGES, MISCELLANEOUS SALES AND INSURANCE WORK 18.The usual accounting procedure is to treat revenue for backcharges,miscellaneous sales and insurance work as a credit to costs, not as an increasein alloweds.New cost codes should be allocated for backcharges etc. and labour, plantreports and commitment, costs records modified or established accordingly. Thereports or records are maintained in the usual manner. As costs are incurred for October 2007Page 5 of 6 Project Administration, ProcedureNo: 1 PROJECT COST CONTROLbackcharges etc. negative variances will result which will distort the period andto-date reports and records. Two alternative methods are possible for control of this type of cost, these being by the adjustment of alloweds, or the forecast cost.19.Adjusting the alloweds to equal the costs to date will overcome the distortion of todate and period reports due to negative variances. When invoices for backcharges, or claims for insurance work, are finally paid and credited to eachrespective cost code, the alloweds for each cost code has to be adjusted back tozero value. Any difference between monies invoiced, or claimed, and moniespaid will then be automatically taken care of. If in the meantime, however, thealloweds have been carried forward to the Project Assessment the final contractvalue will be incorrectly overstated.20.Alternatively, instead of adjusting the alloweds, the negative variances can be"corrected" by forecasting a future negative cost (i.e.. a credit). When invoices for backcharges, or claims for insurance work, are finally paid and credited to eachrespective cost code, the forecast yet to commit/spend for each cost code isadjusted back to zero value. Any difference between monies invoiced, or claimed, and monies paid will then be automatically taken care of. This is thepreferred method since it correctly reflects the situation of costs being incurredresulting in negative variances, ultimately offset by revenue that reduces thecost, hence variance, without adjustment of the alloweds. October 2007Page 6 of 6

of 54