‘Cost Control’ is the efficient management of finances for both the client and the contractor at the post-contract stage.
‘Cost Value Reconciliation’ (CVR) and ‘Earned Value’ (EV) are two popular methods of cost control used in the UK construction industry. You are therefore required to carry out independent self study into these two methods so as to gain a fuller understanding of the techniques involved in order to answer the following:
a) Their effectiveness in providing information on costs
b) Their effectiveness in monitoring progress of the works
c) Which party (client or contractor) will benefit most from their use
d) Their ease of use in practice
e) Advantages and disadvantages of each method
f) An overall summary and conclusion about the two methods
Two research papers entitled ‘Cost Value Reconciliation (CVR) in the UK Construction Industry’ and ‘Earned Value Clear and Simple’ will be given but also is required to find other sources of information.
Note – This is a scenario type of question where you are required to make your own assumptions and to put forward your own solutions to the problems that you have identified.
You are the contracts manager of a medium sized construction company and a client has approached you for advice on how best to proceed with the redevelopment of a disused 19th century three storey warehouse building situated adjacent to a river in the South of England. The client approached you because you had been recommended to him by former clients of yours; however, he is also discussing the project with one other construction company that was also recommended to him.
The client has secured the buildings freehold but has not undertaken this type of project before and can therefore be considered to be an inexperienced client. Planning permission for the building has been obtained for conversion to 20 luxury one and two bedroom apartments but no funding arrangements are yet in place and the client is seeking cost certainty. The client is a little vague upon how he intends to secure funding once a contract price has been agreed.
The client is willing to negotiate on the price and does not want to go out to tender for the work. He is very concerned about quality and cost increases during the execution of the works. Only basic sketch drawings and an outline specification are available at present but the client is anxious to get an early start on site and a fixed price for the works. The client has not appointed an architect or engineer and wanted to know whether your company would take on those roles.
In order to get an understanding of the project you visit the site and have serious concerns regarding the integrity of the buildings foundations due to the adjacent river and the stability of the riverbank itself, however, your company is short of work at the moment and profits are down from those forecast so you are keen to win the contract.
a) Write a report for the board of directors that will allow them to make a decision whether to proceed with providing a price for this contract. Identify the risks involved and determine what information you would need in order to provide the client with an accurate price for the work. Give consideration to your company taking on the role of designer for the works.
b) How would you address the clients concerns regarding quality and price certainty as the works progress and what method would you use to control costs during the execution of the works.
c) You learn that the other construction company which the client approached is no longer interested in the project because they felt that there were too many risks involved and it appears that you are now the only bidder for the works. Would this fact have any influence upon how you proceeded to build up your estimate for the works? Explain how it would or would not influence the contract bid price you give to the client.
Please note that references are only required for Question 1 and not Question 2.
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