CHAPTER FIVE

COST CONTROL AND

MONITORING IN
CONSTRUCTION PROJECTS
BY :-Abebe D.
MAY 2015

4. Project Cost Summary Report

Cost code
Activity description
Item
Quantity

work hours

Labor

Materials

Equipment

subs

Final product, project manage is

tracking on

1. Objectives of Cost
Control

Collect project cost data to:

comparison with budgeted costs
Provide an historical database
Provide management with data
to isolate cost or productivity
issues needing attention
Provide a management tool to
forecast final cost
Place responsibility and credit
for team players

2. Categories of Cost In
CI
A. Estimated Cost
Established prior to start (award)
May be assembled with limited
time / knowledge
Proper scope essential
Parameter for the control budget
are the sum of cost to date,
commitments and exposure.

2. Categories of Cost
(cont.)
B. Budgeted Cost
Developed by Project
Management, and
Should embrace managements
plans for:
Productivity (cost) objectives
Time & Quality requirements, and
Organization of the project
is derived from the detailed cost
estimate prepared at the start of the
project
5

Categories of Cost (cont.)

C. Actual (To date)
Costs incurred during performance
Objective complete for less than
Budgeted
D. Projected
Forecast cost at completion of an
activity/ operation
Why would they differ from
Estimate /Budget?
Actual productivity data
Better understanding of project risk

3. The Project Budget

For cost control on a project, the

construction
plan
and
the
associated cash flow estimates can
provide the baseline reference for
subsequent project monitoring and
control.
The final or detailed cost estimate
provides
a
baseline
for
the
assessment of financial performance
during the project.
cost
overruns
or
savings
on
particular items can be identified as
7

5. Cost and Schedule Performance

Performance against budget is measured by
comparing what was done to what was paid.
This compares earned work-hours to actual
work-hours or cost.
If more was paid than is done, then the project
would have a cost overrun of the budget.
The following variance and index equations
can be used to calculate these values:
SV = BCWP BCWS= Earned Planned
CV = BCWP ACWP= Earned Actual)
SPI = BCWP/BCWS
CPI = BCWP/ACWP

A positive variance and an index of 1.0

or greater is a favorable performance.

5. Cost and Schedule Performance

Forecasting
BAC = Budget at completion
(Original project estimate)
ETC = (BAC BCWP)/CPI=> (Estimate
to complete)
EAC = (ACWP + ETC) =>(Estimate at
completion)

Example 1

Provide an earned-value analysis to evaluate the

progress of a project with a total budgeted cost of
$147,500 and an estimated completion time of 94
working days. A status report after 10 working days
into the project is as follows:
BCWP = $7,600
ACWP = $7,700
BCWS = $7,600
BAC = $147,500
BCWP = BCWS WHY ?
Then Cost and schedule deviations
Cost variance, CV = BCWP ACWP
=$7,600 - $7,700
=-$100
Schedule variance, SV = BCWP BCWS
=$7,600 - $7,600
10
=0

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

11

contd

Cost and schedule performance

Cost performance index, CPI = BCWP/ACWP =
$7,600/$7,700 = 0. 987
The CPI is less than 1.0, which indicates a poor cost
performance. The earned value is less than the actual
costs.
Schedule performance index, SPI = BCWP/BCWS =
$7,600/$7,600 = 1.0
The SPI is equal to 1.0, which indicates the schedule
performance is progressing precisely as planned.
Forecasting cost at completion
Estimate to complete, ETC = (BAC BCWP)/CPI
=($147,500$7,600)/0.987 = $141,743
Based on the analysis of the status report, the remaining
cost to complete the project is $141,743.
Estimate at completion, EAC = ACWP + ETC
= $7,700 + $141,743
12

Exercise

Provide an earned-value analysis to

evaluate the progress of a project with a
total budgeted cost of $147,500 and an
estimated completion time of 94 working
days. A status report after 20 working
days into the project is as follows:
BCWP = $22,720
ACWP = $25,200
BCWS = $22,400
BAC = $147,500
Then based on the above data make a
detail EVA analysis?
13

6. Project Progress Measurement

Engineering work is broken down into major
categories, and the contribution of each of the
various
categories
toward
total
percent
completion is proportional to the percentage that
the estimated work-hours for that category bears
to the total estimated work-hours for the project.
For example, if concreting
is estimated to
consume 30% of the total engineering work-hours
and the concreting activity is 50% complete,
then, the weighted contribution of concreting to
the overall percent complete would equal 50% of
30%, or 15%.
The percent completion for each of the individual
major activities is based on a physical progress
measurement.
14

contd

In countries like Ethiopia most

construction
projects
didnt
completed
with
the
estimated
project cost because of the following
reasons:
Variations due to request from
either parties,
Delay,
Under estimated quantities,
Incompleteness of designs, etc..
The method of cost controlling in
PPA 2006 G.C has been defined from
15

Cost Control acording to PPA 2006 G.C

Clause 37 : Bill of Quantities or

activity schedule
Types of Contract
Admeasurements contract BoQ
Lump sum Activity schedule
The quantities set out in the BoQ
are the estimated quantities for
the Works, and they are not to be
taken as the actual and correct
quantities of the Works to be
executed by the Contractor in
fulfilment of his obligations under

Contd

Clause 38:
quantities

Change

in

bill

of

Option 1: Changes in the Bill of

Quantities
for
Admeasurements
Contracts
If final qty >qty in BOQ by 25%
provided that the change exceeds 5%
of the contract price, the engineer
shall adjust the unit rate.
The engineer shall not adjust the unit
rate if the change exceeds 15% of the
contract price.
The contractor shall submit the cost
breakdown up on request

Continued

Clause 39: Variations

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

Clause 40: Payment for Variations

For both Admeasurement and Lump Sum
Contracts, the Contractor shall provide the
Engineer with a quotation for carrying out the
Variation when requested to do so by the
Engineer.
For Admeasurement Contracts only, if the
work in the Variation corresponds with an
item description in the Bill of Quantities and
if, in the opinion of the Engineer, the quantity
of work above the limit stated in Sub-Clause
38.1 or the timing of its execution do not
cause the cost per unit of quantity to change,
18

Continued

If the cost per unit of quantity changes, or if the

nature or timing of the work in the Variation
does not correspond with items in the Bill of
Quantities, the quotation by the Contractor shall
be in the form of new rates for the relevant items
of work.
For both Admeasurement and Lump Sum
Contracts, if the Contractors quotation is
unreasonable, the Engineer may order the
Variation and make a change to the Contract
Price, which shall be based on the Engineers
own forecast of the effects of the Variation on
the Contractors costs.
For both Admeasurement and Lump Sum
Contracts, if the Engineer decides that the
urgency of varying the work would prevent a
19
quotation being given and considered without

Continued

Clause 41: Cash flow forecast

When the Program is updated, the

Contractor shall provide the Engineer
with an updated cash flow forcast.
Profit and loss computations
A. Cash in flows - Direct cost expence =
Gross profit:-used for controlling effect
of direct cost.
B. Gross profit inderct but variable cost
expenice= Profit after
inderct but
variable cost
expenice used for
controlling
effect of inderct but
variable cost
20
C. Profit after inderct but variable cost

Continued
Clause 42: Payment Certificates
The Contractor shall submit to the
Engineer monthly statements of the
estimated value of the work executed
less the cumulative amount certified
previously
The
Engineer
shall
check
the
Contractors monthly statement and
certify the amount to be paid to the
Contractor.
The value of work executed shall be
determined by the Engineer.

Continued

The value of work executed shall

comprise the value of:
a) The quantities of the items in the Bill
of Quantities completed in the case of
Admeasurement Contracts; or
b) Completed activities in the Activity
Schedule in the case of Lump Sum
Contracts.
The value of work executed shall
include the valuation of Variations and
Compensation Events.
The Engineer may exclude any item
certified in a previous certificate or
reduce the proportion of any item
22

Continued
Clause 43: Payments
Payamente
shall
be
ajustad
for
deducciones for advance payamente and
retantion
If an amount certified is increassed in a
later certificate or as a result of an award
by the Adjudicator or an Arbitrator, the
Contractor shall be paid interest upon the
delayed payment as set out in this clause
Unless otherwise stated, all payments and
deductions will be paid or charged in the
proportions of currencies comprising the
Contract Price.
Items of the Works for which no rate or
23
price has been entered in will not be paid

Payments
Payments in construction projects
may be
Advance Payments
Interim Payments
Payments after taking over
certificate /final Payments
Payments after defect liability
/closing of accounts
Payments after termination

Interim Payments

The contractor shall submit a monthly

statement showing the amounts
entitling him to be paid together with
supporting documents.
A monthly statement shall includes
The estimating value of the BoQ work
executed including excess in quantity.
Any amount to be added or deducted
Payment requests: - are first
prepared on the project site by the
contractor and approved by the site
engineer

In Case of Interim Payment:

The contractor measures all the works after the last

payment and puts the amount of work multiplied by the unit
price on the take of sheets.
The take of sheets should be described in words
arithmetically and/or with sketches where necessary.
The take off sheet is transferred to the measurement
certificate with proper care.
This is submitted to the project engineer.
The project engineer checks and approves the correctness
of the take off sheet and the measurement certificate and
submits to the office engineer.
Materials delivered to the contractor between the last and
the current payment should be submitted by the logistic
department.
The office engineer finally prepares the payment certificate.
In approving payments the following care should be taken
by supervisor's engineers and managers.

Check correctness of and quantities and rates

26

In accordance to the methods of

measurement specified in the
contract

Check for arithmetic errors

Check that prior payments are deducted as
per the contract
Check that retention advance payments,
material cost and other deductibles are
deducted as per the contract.
Check that the contractor has submitted
advanced
security
bonds,
performance
security
bonds,
and
other
obligations
specified in the contract and check the
validity of the bonds.
Check that the works are accepted in
27
accordance to the contract.

Continued
Clause 44: Compensation event
Clause 45: Tax
Unless otherwise specified in the SCC,
the Engineer shall not adjust the
Contract Price if taxes, duties, and other
levies are changed that subsequently
affect the Contract Price.
Clause 46: Currencies
Where payments are made in currencies
other than Ethiopian Birr, the exchange
rates used for calculating the amounts
to be paid shall be the exchange rates
stated in the Contractors Bid.
28

Escalation

Escalation costs change continuously

following
changes
in:
such
as
technology, availability of resources,
and value of money (e.g., inflation).
Escalation is the provision in a cost
estimate for increases in the cost of
equipment, material, labor affected by
continuing price changes over time.
Escalation may be: forecasted, to
estimate the future cost of a project
based on current year costs; or
historical,
to
convert
a
known
historical cost to the present.
29

Continued
Clause 47: Price Adjustments
Price Adjustments formula

Ln
Mn
En
pn A b
c
d
etc.
Lo
Mo
Eo
pn is a price adjustment factor (multiplier) to be applied
to the amount in each specific currency for each payment
certificate;
A is fixed coefficient, stated in the relevant table of
adjustment data representing the non-adjustable portion
in contractual payments.
b, c, d,.are coefficients representing the estimated
proportion of each cost element related to the execution
of the works, as stated in the relevant table of
adjustment; such tabulated cost elements may be
inductive of resources such as labour, equipments and
materials;

Continued

Ln, Mn, En, etc., are the current cost

indices or reference prices of the cost
elements

in

the

specific

currency

of

origin at the date 28 days prior to the

deadline for bid submission; and
Lo, Mo, Eo, etc., are the base cost indices
or reference prices corresponding to the
above cost elements at the date 28 days
prior to the last day of the period to

Continued
Clause 48: Retention
The Employer shall retain from each
payment due to the Contractor the
proportion stated in the SCC until
Completion of the whole of the
Works.
On completion of the whole of the
Works,
half
the
total
amount
retained shall be repaid to the
Contractor
and
half when the
Defects Liability Period has passed
and the Engineer has certified that
all Defects notified by the Engineer

Continued
Clause 49: Liquidated damage

49.1 The Contractor shall pay liquidated damages to

the Employer at the rate per day stated in the SCC
for each day that the Completion Date is later than
the Intended Completion Date. The total amount of
liquidated damages shall not exceed the amount
defined in the Special Conditions of Contract. The
Employer may deduct liquidated damages from
payments due to the Contractor.
49.2 If the Intended Completion Date is extended
after liquidated damages have been paid, the
Engineer
shall
correct
any
overpayment of
liquidated damages by the Contractor by adjusting
the next payment certificate. The Contractor shall
be paid interest on the overpayment, calculated
from the date of payment to the date of repayment,
at the rates specified in Sub-Clause 43.1.

Continued

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

51. Advance Payment

The
Employer
shall
make
advance
payment to the Contractor of the
amounts stated in the SCC by the date
stated in the SCC, against provision by
the Contractor of an Unconditional Bank
Guarantee in a form and by a bank
aceptable to the Employer in amounts
and currencies equal to the advance
payment.
The Guarantee shall remain effective
until the advance payment has been
repaid, but the amount of the Guarantee
shall be progressively reduced by the
amounts repaid

Continue
d

52.Securities
The Contract Security shall be provided to
the Employer no later than 15 days after
receipt of the Letter of Acceptance and
shall be issued in the form of a Bank
Guarantee, or for Ethiopian Contractors
only in the form of a Performance Bond.
The Contract Security shall be valid until a
date 28 days from the date of issue of the
Certificate of Completion in the case of a
Bank Guarantee and until one year from
the date of issue of the Certificate of
Completion in the case of a Performance
Bond.

Continued
53. Day works
If applicable, the Day works rates in the
Contractors Bid shall be used for small
additional amounts of work only when the
Engineer has given written instructions in
advance for additional work to be paid for in
that way.
All work to be paid for as Day works shall be
recorded by the Contractor on forms approved
by the Engineer. Each completed form shall be
verified and signed by the Engineer within two
days of the work being done.
The Contractor shall be paid for Day works
subject to obtaining signed Day works forms.

Continued

54.Cost of Repairs

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

Sample of payment
certificate
and how to prepare

Question???

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