Think you know how to R.E.V.I.E.W. defined costs?

Expect additions to them. Rarely do we see a vanilla ECC. Review carefully for variations in detailed scope information and z clauses (usual spots!).

Main additions tends to be around further clarity on allowable work hours during any given day, procedures for pre-approved overtime working and expectations around allocation sheets (to better document the physical work done).

Many contracts also specify the importance of independent time checking back to client or project owned swipe systems (face/hand/card recognition typically).

Enhancements to better understand the on-site training requirements for labour and what will be paid for (beyond the basic health and safety training) also get added in too.

Check the reimbursement method for labour. Less common than say for staff, but occasionally we see defined cost for labour on ECC contracts get substituted for pre-agreed labour rates (whether a trade rate or all in rate).

Often done for simplicity**, but this can lead to a whole host of problems on long term contracts if blended or gang labour rates are used, inflation isn’t considered properly, full transparency isn’t given on add-ons for say, expenses or small tools (what is in/out of the rate) and all “potential” labour work scenarios aren’t considered accurately, for example:

• Predicted daily overtime
• Night shift working
• Weekend working
• Compulsory Rest Period allowances

When doing inspections or audits you will be reviewing defined costs against a SOCC, so compare your contract to those of a vanilla SOCC.

Understand the tweaks, common in things such as operative bonuses, sick pay, expenses, redundancy. Think why?

Next check for any specific mobilisation rules:

• Must CVs and skills cards e.g. CSCS or other qualifications be shared in advance with the client? Approved? What if not?
• Beyond this, work will commence and labour will start charging. Consider the following questions:
  • How detailed are the rules in the contract around time charging?
  • For labour, how clear is it in the ECC contract and in turn within the individual’s employment contract as to what is paid for with respect to travel time, wash up time, break times etc. This is particularly important if charged labour hours are to be compared to swipe data (as mentioned above) where you need to know the precise locations of the swipe systems with respect to work face, canteens and messrooms, as well as the exact entitlement to pay
  • Must a timesheet specify certain information and be in an agreed format i.e. start/end times, break times, travel time, total hours versus charged hours?
  • How detailed is the narrative required as to what is being physically done?
  • Is there a cost coding structure to be followed?
• Who (client and supplier side) has to approve the hours, and is it within a time limit? Are hours capped/adjusted on timesheets (per day/week or month)?
  • Are there specific rules regarding pre-authorisation of overtime or shift patterns?
  • Or in fact does the contract give minimal rules? And what potential problems might that bring with it e.g. a labourer wandering on and off site all the time for various visits to suppliers or ad hoc meetings

Also read the contract rules to better understand the cost management aspects relating to labour, whether this be requirements for organisational charts, weekly resource plans/whereabouts reports, monthly budget v actual analysis and forecasting reports (with variance narratives).

The above just gives a flavour of rules to look out for when commencing a review of labour cost.

Also think whether the above could apply exactly the same for key reimbursable sub contract packages and/or labour only subcontract arrangements, especially if main contract terms are passed back to back down the supply chain.

** Useful to have though to price Compensation Events

Understand the importance of how labour costs are prepared and reported in your project and the supplier environment, as this heavily influences risk.

• Obtain a good background to the project and your supplier. Consider process reviews to understand preventative and detective controls to drive robust labour charging and AFP compilation.
• Understand what further data can be produced outside of the basic AFP provided data, which may just be a one-liner of a cost per labourer per week. Detailed payroll reports or global time reports can help show detailed work patterns per day/week per labourer
• Assess the maturity of the supplier operating open book contracts and the supplier team managing labour costs:
  • Have a discussion with the labour manager to confirm how labour is controlled and managed day to day
  • It is important to physically observe daily sign in and out processes for labour and timesheet compilation (often done by labour supervisor/manager from daily sign in/out sheets as opposTESTed to a wet copy timesheet done by the actual labourer at the end of the week)
  • Ask basic questions about pre commencement and post completion routines in relation to shifts – this will help you understand what the labour force does and where i.e. getting to site (can be via bussing on larger programmes), getting changed, toolbox talks, wash up time
  • Also understand break entitlement and project specific patterns
• Look at the stability of the supplier team over time and the labour reports and analysis produced. Much changed?
• Understand the wider environment at the client – is the supplier sharing labour across multiple projects? If so, you may need to liaise with other audit teams or project commercial staff to see if there is an obvious risk of labour overcharging
• Understand the physical site and demands of the scope/project. What’s the nature of the work? Complexity? What is the expectation on charging – lots of full time workers or labour in and out, booking the odd hour here and there? How fluid or specialist is the labour force? How is labour managed week to week i.e. 1 week, 2 week, 4 week look ahead reports?
• How has the labour account progressed to date? What can the client cost manager reveal? Is there a good narrative on cumulative labour costs/headcount/FTEs and progress against the programme. Any periods of idle labour? Has the account been heavily reviewed to date? Have any costs been disallowed? Have these been accepted by the supplier or challenged?
• Finally, where is your audit going? Is it just basic support for the Project Manager in routine and ongoing AFP assessments or something wider? Does your review have Cl50.9/final account implications?

People data for labour is often shared by suppliers somewhat quicker and in more detail than staff data. This is because most suppliers see a lower GDPR risk for labour than staff, as labour pay is often uniform and tied to publicly available information i.e. working rule agreements for labour such as CIJC, JIB etc. In doing any audit work still be aware of your GDPR responsibilities as a data processor (particularly when reporting).

With a decent data set a lot of labour analysis is possible, across data fields such as name, trade, rate, hours, date, work description etc. Add swipe data to this and the list is almost endless, but remember it needs to be relevant to the rules of the contract and environment to reveal relevant mis-charging risks.

Also consider what other data sets are widely linked or reliant on labour e.g. operated plant (equipment).

The data to analyse is best described as high volume/low value. However, once the data is in a required format, analysis can quickly be undertaken to show:

• Total labour costs per week over time laid alongside actual hours (useful for spotting holiday periods and excessive holiday accruals)
• Total labour costs per hours type (normal hours, overtime hours, weekends, nights)
• Total labour costs per week per component (base pay, overtime, bonus, Er’s NI, pension, travel fares, lodge, subsistence, small tool allowances etc)
• Highest bookers/costed individuals
• Frequency of bookers; high hours/low hours/overtime patterns
• Average charge rate per trade
• Average start and leave times per worker versus average hours claimed
• Labour costs vs operated plant costs

A simple piece of analysis is shared below:

A thorough understanding of the environment, plus good data analysis should help shape where costs may be mischarged against the identified rules.

It is important to consider or link all the rules back to specific tests. This should identify people or trends and patterns of interest for further inspection.

Beyond test design, you must also work up a pragmatic sampling strategy for risk based and other core transactions giving the assurance coverage required.

When auditing you need to look at specific individuals as well as auditing generically across the cost component elements.

This keeps sampling simple and manageable.

Remember sampling must be relevant to the wider population, so don’t just focus on a few labourers at a certain grade or costs in one year.

Request the information required and agree a GDPR compliant review process (for you the data processor and the supplier who is the data controller).

If things appear wrong always try to understand why? What is the root cause of the issue? Control problem? Isolated error? Does the supplier response hang together? Should you be widening your sampling to better understand the problem?