Think you know how to R.E.V.I.E.W. defined costs?
Assurance basics
Reimbursable contracts are pretty commonplace these days on major construction programmes. Of course, they get tweaked, but in the main NEC Option C and E contracts tend to be the backbone (currently) of reimbursing infrastructure projects in the UK. The basic clauses allow Project Managers (usually delegated to their Cost Managers) to inspect accounts and records of their choice in relation to defined cost (Cl52.2). Those suppliers being audited need to be helpful and transparent - that’s pretty much it.
And the audit side (if we dare call it that) is relatively simple too. Say you are asked to check some people costs – surely you just speak to your supplier and ask them to supply a few timesheets and back up some actual costs with payslips?
What could possibly go wrong?
Defined cost auditing is a bit like car maintenance. Whilst a good proportion of us might feel reasonably competent changing a tyre or topping up the anti-freeze, when the red light flashes up on the dashboard it’s usually time to get the experts in.
Our cars have become complex pieces of machinery, much like many NEC Option C or E contracts we see. It can be tempting to do your own repairs at home to save money, especially when there are hundreds of places online teaching you how to change your oil or replace your brake pads. But mostly, the risks far outweigh the money saved and if done incorrectly can result in even more costly repairs down the road.
It's the same with cost checking / verification / auditing / assuring costs * on complex open book contracts. Think of auditing a construction contract like DIY car maintenance. The basics are manageable but when that red light flashes on the dashboard suddenly auditing becomes hard.
* take your pick, all these words are loosely thrown around the industry
R.E.V.I.E.W
Having audited hundreds of NEC contracts, we know the importance of being qualified when faced with complex cost and commercial issues. We often see individuals or teams who are not qualified auditors or accountants struggling to know where to start reviewing costs. Sometimes what is required is a specialised and expert approach to how you review constructions costs.
In this latest series of help sheets, we will start to analyse how to spot the red flags signalling that costs require a deeper review, and more importantly what to do.
When we are faced with any cost area to verify, we try to focus our work around the R.E.V.I.E.W acronym. Much of this goes to the heart of smart or risk-based auditing.
