Page 223 - Civil Engineering Project Management, Fourth Edition

Interim monthly payments
203
or for which contractual dates for completion are reached (including any exten-
sion given) – whichever is earlier. This provides an incentive for the contractor
to achieve target dates.
Corrections may have to be applied if, as is often the practice, ‘interim’
indices are first published, followed later by ‘final’ values.
If no authentic indices are available for calculating price variation, as may
occur on overseas projects, then price increases have to be directly calculated.
Tenderers are required to list the basic rates of wages and prices of materials on
which their tender is based. Checking the authenticity of these is usually done
before signing the contract. Prices of materials may have to be checked by
contacting suppliers direct, asking them to confirm what their price was at the
date of tender. Any wage increases charged should have some authenticity, for
example, be in line with inflation of cost of living or relate to some government
or state policy for equivalent labour. Wage sheets and invoices for materials
have to be supplied by the contractor as work is done: these are analysed to
calculate the extra costs paid by the contractor. Sundry checks have to be applied
of an auditing nature, for example, that the wages shown on the pay sheets
were actually paid; that suppliers were paid what their invoices said; that the
quantity of materials invoiced were used on the job and not on some other job;
that invoices are not submitted twice over, etc.
In the hands of a competent and reputable contractor the checking work
may be straightforward though very time consuming. Usually the engineer
will draw up a construction contract which stipulates that ‘only those mater-
ials named and priced by the tenderer will rank for price variation’, in order to
limit the number of items that have to be checked. The resident engineer will
need to graph out the total price increases certified against total payments for
work constructed, to ensure the increases follow a consistent pattern and are
believably in line with known current price trends. The work is so time con-
suming and open to mistake or even falsification, that every effort is usually
made to adopt some simpler and more reliable measure by means of a formula
even if only a limited selection of indices is available.

16.9 Cost reimbursement

In recent years a number of employers have taken to using cost reimburse-
ment terms for payment; often with a target cost (see Section 3.1(e)). In such
contracts the contractor records his costs on an ‘open book’ basis so the
employer can check and audit the books to confirm the validity of the costs to
be paid to the contractor. Costs are normally recorded by computer and can
be onerous to check as compared with a bill-of-quantities contract or other
method of valuing work. Checking is thus often on a sampling basis, checking
different categories of expenditure each month and concentrating on major
costs with the intent of covering all important matters before a final account
is agreed.