The ability to clearly link costs incurred with specific causes often leads to a quick resolution of change order requests and claims. To do this as smoothly as possible, you need a system which records the costs of impacts of changes or changed conditions concurrently with the performance of the work as the impacts are being experienced.
To the extent that changed or extra cost items can be separated from those relating to unaffected areas of performance, the subcontractor should seek to simultaneously record the costs for all portions of affected work. The subcontractor must establish and maintain suitable accounting and record keeping systems to permit measurement and evaluation of the cost consequences of changes and other conditions affecting the work.
The particulars of a cost control and accounting system are dictated by the size and complexity of the project, the volume and nature of the subcontractor’s business, and the management resources available. The cost accounting monitoring and accounting system should strive to meet the following objectives:
- Permit correlation of the original project estimate to a detailed project budget showing labor, material and equipment projections for separate, definable work items.
- Permit separate cost allocation of labor, material, equipment and subcontractor expenses for each defined work item. This can be done by assigning cost codes or account numbers to each separable work item in the budget, which then can be used for reference by the project management staff in recording time and cost.
- Permit regular and accurate monitoring of actual cost performance relative to budget for such work items.
- Permit monitoring of labor productivity by comparison of actual labor costs or man-hours to output of work accomplished relative to planned rates.
- Permit assignment of separate work order accounts or new cost codes relative to specific items of directed or required extra work which can be segregated and identified apart from the base contract performance. This allows:
- Extra work to be segregated in separate cost accounts reflecting associated labor, material, equipment and even overhead costs.
- Tracking of the direct cost impact of changes and modifications on a concurrent basis.
- Proof of both cost causation and quantification of the impact resulting from changes or changed conditions.
ASA’s Contract Changes and Claims is a series of articles providing tips for the management of changes and changed conditions and how to realize full adjustment to the contract price or contract
