Your Cost to Complete: Do You Have a Clear Picture?
Your cost to complete a project hinges on a variety of known and unknown factors. On a prior blog post, we focused on the importance of a contract’s “Schedule of Values”. As emphasized in that post, the Schedule of Values must be a well delineated listing of all the tasks that constitute the project. The more detail, the clearer the project comes into focus. However, even the most detailed Schedule of Values is only one half of the picture. While the Schedule of Values describes the tasks that must be completed to produce revenue for the contractor, an important part of the picture remains undeveloped. A Schedule of Values does not reflect the costs that the contractor will incur when accomplishing the defined tasks. A lack of detail in this area creates a blurry image. A properly designed and implemented Funds Administration process will produce a fully developed picture by zooming in for the details.
When a project is being managed under Funds Administration, you can expect that each task will be associated with the party responsible for completion of that task. If the task has been delegated to a subcontractor, the name of that subcontractor and the amount of the subcontract will be known. Each subcontract is obtained to determine the subcontractor’s scope of work, and these defined tasks are compared against the Schedule of Values that the contractor submits to the owner. When disbursing funds, the subcontractor’s requisition for payment is analyzed against the corresponding line item on the Schedule of Values, and the amount of that line item, paid by the owner. These procedures ensure that the performing parties are satisfied.
Under Funds Administration, a sharp image of every function that has not been ‘subbed out’ is also developed. A depth of field on each of the contractor ‘self-performed’ functions is ascertained. The labor and material costs required to complete each item on the Schedule of Values is determined. All material suppliers are identified, and the budget for each of these suppliers is revealed. With this expense data, as the project develops, it will be determined if the material and labor costs will exceed the contractor’s expectations.
As you can clearly see, Funds Administration will produce a high-resolution picture.