The objective of the webinar was to identify factors that contribute to the effective delivery of construction projects. It also examined how the quantity surveyor and accountancy profession can work together in a way which plays to the strengths and expertise of each.

1. What leads to greater certainty over cost and time at start of a project?

• Time invested at the start of projects increases the likelihood of success. The ability to influence a project outcome is up front; the further through the more difficult it becomes.

• Early engagement within the client and supply-chain – it is important to engage the right people early on and ensure that the right information is available in the right form at the right time.

• Time invested upfront can ensure the risk is understood and therefore the appropriate procurement solution is selected; with the legal framework that appropriately allocates the risks of a project.

• The type of client should be considered; is the client able to make quick informed decisions, or bound by internal bureaucracy? Recent trends towards a “thin, intelligent client” have seen some cases where the client resource is too ‘thin’ to effectively oversee the setting up of the contract upfront, leading to weaknesses in control of the project in the future.
• There is a tendency for contracts to become all-encompassing to the extent that they become onerous and unwieldy, and actually too expensive and time-consuming to be complied with. The NEC is actually against ‘z clauses’ being added to their contracts.

• The use of Building Information Modelling (BIM) and other systems create a common understanding of a project and add to certainty and transparency. This is an area where the QS has the knowledge and the accountant could increase their understanding.

Key Takeaway: Investment in the planning, including an understanding of the specific risks to the project will increase the likelihood of success.

2. How can accountants and QS's work together to avoid these problems?

• There is a benefit from accountants being involved early alongside QS’s. Accountants and Quantity Surveyors know a lot about their own professions, but are less clear on what each other does. The professions need to be complimentary, and be clear about the interdisciplinary boundaries.

• Most accountants are involved in construction either at year end with financial audit or working within the actual construction company/contractor.

• Project stakeholders would benefit from a harmonisation of terminology from the accountancy and surveyor organisations.

• Understanding skill-sets is key. For example, a robust set of books for a project is important and whilst this is often the responsibility of a QS, it would benefit from the oversight of an accountant.

• Accountants understand technical elements of cost but not the construction elements, whereas QS’s understand the construction elements of cost but not the technical elements. So, whilst an accountant will know the cost of a crane, how it has been charged for and the duration of its presence, they will not understand if it should have been there in the first place.

• There is the potential for a disconnect between what a contractor and client respectively calculate as being due to be paid; caused by a misunderstanding of the accounting for a project.

• Project accounting is very different from accounting within an organisation. In the latter there is a shared set of business objectives whereas in a project there are multiple stakeholders often with different objectives and expectations.

• Construction is a dynamic process and not all reporting is ‘concrete’ – for example quality can be a grey area. What is important is that the different risks are understood along the supply chain.

Key Takeaway: The accountant and QS contribute to a successful project by deploying their skill-set to the areas where they have greatest expertise and therefore greatest impact. 

3. Controls - How can projects be controlled to deliver cost and margin certainty?

• Understanding the context and the level of risk will determine the type of contract used. A low-risk project will often use a fixed-price contract whereas a high-risk project will tend towards a collaborative cost-reimbursable or target-cost contract.

• Fixed-price contracts are well understood by the QS, whereas a cost reimbursable or target cost contract often benefits from an accountant being involved to ensure that the correct controls are in place.

• Under a cost reimbursable or target cost contract not all costs can be charged to the project and the contractor needs a system that effectively distinguishes between allowable and disallowable costs. In this respect training in audit is very useful in order to provide assurance that the costs to be paid are ‘correct’.

• Simple projects benefit from Cost Value Reconciliation, which allows a contractor to see project cost versus income at a point in time, and therefore calculate the margin.

• More complex projects may benefit from Earned Value analysis. Earned Value is concerned with the actual value of what has been delivered to a certain date. It also considers the Cost to Completion, giving an estimate outturn costs that can providing an early warning overspend.

The following checkpoints throughout the progress of a project can reduce uncertainty:

• Status of subcontracts

• Status of change

• Management of progress

Key Takeaway: More complex projects that use cost-reimbursable contracts require additional assurance that the costs adhere to the contract and should be paid.

4. Disputes and how to avoid them

Disputes typically arise from:

• Uncertainty

• Poorly written contracts with unclear clauses

• Departing from the contract

• Poor record keeping and contract administration

• Whilst NEC contracts prescribe ‘mutual trust and collaboration’ this doesn’t mean departing from the contract.

• Technology can be very useful in controlling project administration, for example use of systems such as CEMAR.

• Contracts can be amended if all parties agree but this needs to be done in a formal and considered fashion.

• NEC4 emphasises the importance of operating in accordance with the contract as well as in the spirit of ‘mutual trust and cooperation’.

• There are some cultural areas of behaviour which cause disputes – for example contractors not showing discretion, and making subcontractors comply fully to terms and conditions or aggressively managing change; leaving subcontractors viewing a dispute as the only option.

• The early recognition of a potential dispute is critical. Don’t allow it to fester or leave it to the final account. Have open challenging conversations early.

• Assurance can help in identifying areas of a contract where there is uncertainty and enable an issue to be dealt with before it becomes significant.

Key Takeaway: Investment in a clear contract, and engagement of both parties where a potential dispute is identified will prevent the majority of dispute

Authors

Ros Rowe, Chair, ICAEW

Alan Muse, Global Director Built Environment, RICS

Phil Joyce, MD, The Orange Partnership