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CA Sanjay Christian

Consult Us For Construction

Internal control at constuction site - Civil Engineering

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  1. 1. Engineering:

As far as engineering role is concerned, tender is the first document to be properly studied and analysed so that the project revenue is structured so as to match the cash outflows involved in executing the project.

 

1.1. Study of Tender Terms & Conditions

Following points need proper study in order to give a proper quote:-

 

S. N

Details sought for

Catch

1

Work order Value – Permissible Variation / LD Clause

Variation Limits should not be more than 25%. Further LD clause should not have a upper limit of more than 10%. If LD clause exists , contractor may insist upon Incentive Clause for timely or early completion.

2

FIM - RMC / Cement / Steel?

Wastage Norms as per Standard, Debit Rates as per market rates

3

Work completion period

Delay to be ignored if the same is due to delay in availability of drawings and work front

4

Facilities from the Client - Labour colony, Land, Power & Water supply.

Whether Free / Chargeable. Availability at Single Point / Multiple Points

5

Billing period cycle, Bill certification period and advance payment percentage against bill submission and post certification

Third Party Certification should not be a necessary requirement for release of payment. Atleast 70% adhoc should be released against uncertified bills.

6

Check whether any prescribed format for client bill?

Compliance with laws – Formats permissible under VAT and service tax to be seen.

7

Whether the job is new or left over one?

Investigation required if it’s a left over job where the cost is expected to be higher.

8

Safety / Quality Norms

Impact on Time and Money as different clients have different ground level disciplines.

9

What are the requirements with each RA bill?

Agencies / Department involved in  Certification

10

What are the rates of principal items (like Excavation, RMC supply, Shuttering etc.)

Higher Margins may be kept in some of the initial items to take care of initial cost of set up.

11

What deductions shall be made by client from RA bill

Only those agreed as per WO. Adhoc deductions should not be entertained and clearly objected by way of written communication.

12

Service tax / VAT / WCT extra or inclusive?

Exemptions – Paper Work / State specific norms to be made clear

13

Whether running plant expansion or construction of new plant building?

Cost of doing a job in an already running plant i.e. plant expansion may be higher due to scarcity of space available for work execution.

14

Physical visit of the work locations

This is necessary to understand Local Material Rates / Terrain for Equipments / Labour colony area / Distance from the city.

15

Internal Logistics

Location of Porta Cabin where the office set up is to be done vis-a-vis Client office / Labour Colony / Batching Plant / Store

16

Bank Gaurantee

Amt / Performance / Time Validity

17

Mobilisation Advance

Normally 5-10% advance should be released. However advance recovery should not be in equal instalments but in proportion to the monthly bills.

1.2. Additional Points to be kept in mind mainly by sub-contractors

1.2.1. Ensure to avoid the Tendency of main contractor to pass on all the scope to the sub-contractors without proper rates.

1.2.2. Sometimes we may find that even fabrication is a part of the drawings and has to be done at no extra cost.

1.2.3. Linking the payment for the extra work with the corresponding payment to the main contractor is a pitfall.

1.2.4. Reduction in W.O duration without increase in rates is not acceptable.

1.2.5. Instead of specifications like best material or best quality, it is always advisable to specify the make or brand or give full specifications in the work order to avoid any dispute at a later stage.

1.2.6. If there is a clause for inspection by third party, then the third party will come at its on leisure. Payment should not be withheld for want of third party inspection and It should be routine exercise.

1.2.7. Unless actual inspection of the site is carried out, it should not be confirmed to have been done.

1.2.8. If any guarantee against any risk or damage is accepted, its better to find out if the risk is insurable. And if yes, then the cost needs to be factored into at the time of rate finalisation.

1.2.9. Liquidated damages should always be subject to a maximum overall cap.

1.2.10. Escalation clause is required if job duration is more than 9 months

1.2.11. If job extends beyond schedule for reasons/delay attributable to client or the main contractor, it is advisable to demand compensation for the same.

1.2.12. Future changes in tax laws should be considered.

 

 

1.3. Mobilization:

As a Project manager, one has to jot down the resources required to execute the project. Sometimes due to shortage or non availability of resources, project can suffer despite rates being good. Following resources should be taken care of and quantity assessed both initially and also at the time of peak months :-

 

1.3.1. Skilled and unskilled labour strength required.

1.3.2. Staff with designation required for the site at the time of startup.

1.3.3. Type of machineries and equipments required (Like – JCB & Loader, Batching plant capacity, Miller, Crane, etc.).

1.3.4. Types of vehicles required (Like – Staff Bus, Sumo, Utility, Trailer, Tractor & Dumper, Bike etc.).

1.3.5. Computer or Laptop systems, Printer/Scanner/Copier, Data card or Broad band required at the site.

1.3.6. Assessing which telecom service provider’s network is better in the local area(Vodafone / Airtel / Tata – Docomo / BSNL) and the number of connections  required.

1.3.7. Availability of portable cabin / readymade office at the site. Whether the company needs to build or arrange Container on its own is to be decided.

1.3.8. Staff Camp / Mess system and the expected cost. Further number of staff who shall be staying out of company accommodation and HRA decision to be done in their case.

 

1.4. Availability of Drawing, Front for Work:

After the site mobilization, the project manager needs to strongly follow up for drawings and work front  from the client. Many a times work is started without availability of drawings as a result of which the work could be delayed affecting the work performance and profit margins adversely. For any delay client needs to be communicated accordingly.

 

 

 

 

1.5. Understanding the rules and norms in the Client Environment:

It is very important to understand the procedures and requirements to perform work in client locations, like

 

1.5.1. Whether work location is required to be inspected by client’s safety department

1.5.2. Details of Personal protection equipments (PPE) required

1.5.3. What are the other safety norms to be taken care of? Client may have a mechanism of raising safety debit noted for safety violations. The same can be passed on to the sub-contractors accordingly.

1.5.4. Whether test or certified agency certificates are required to use Tools or equipments?

1.5.5. Cube Testing discipline, if the contractor has its own batching plant.

 

 

1.6. Work Planning Daily / Weekly / Monthly:

1.6.1. Without goals and planning, the work can never be completed within the agreed time frame i.e., “Where there is no goal & planning, no Achievement”. Goals need to be set on Daily / Weekly and Monthly basis after discussion with the staff and then everything has to go after that need to achieve the same. If the Work is being carried out without effective goal and planning, no effective output can be achieved.

1.6.2. Also it is necessary to review Daily / Weekly & Monthly Plans so as to ensure work completion within time.

1.6.3. When we plan for work – we need to keep in mind - client priority, availability of resources, availability of drawing & front, weather, Funds etc.

 

1.7. Pre planning for FIM / Own Material:

Pre planning (system and procedure) is required for FIM and Own material so as to make it available in time at the time of opening the work front.

 

1.8. Joint Measurement Report (JMR) – Work completion & Extra work:

Joint measurement report (JMR) needs to be signed by the Client / Consultant after completion of work. This is required in monthly client bill. Daily work progress report (DPR) needs to be prepared for all site locations from all concerned engineers and supervisors of client. This needs to be prepared sub contractor wise so that  monthly bills of client and sub contractor are prepared easily and within time frame.

 

 

 

 

 

 

 

1.9. Sub Contractor Work Order:

Sub Contractor work orders should be prepared with original at HO and a copy at site. Item codes and language should be as per client work order so that reconciliation becomes easy. If rate is revised, amendment paper should be prepared to avoid any dispute later on. Project Manager and Project commercial head / Project Director need to jointly approve any such amendment. Many a times it may happen that work allotted to the sub-contractors are broken down into various components. In such cases one may say that it is difficult to track the comparison between client qty and sub-contractor qty. Following example would make things clear:-

 

For example:

Item Code

As per

Item description

UOM

Rate

1234

Client

Providing reinforcement including cutting, bending, binding, fixing in position including the cost of channels, bars (Binding Wire is in your scope).

MT

4500

FIM or Raw Material shall be provided to contractor for work by Company:

1234-A

Contractor

Reinforcement Cutting

MT

700

1234-B

Contractor

Reinforcement Bending

MT

800

1234-C

Contractor

Reinforcement Fixing

MT

1200

Contractor

Total Rate of item code-1234 is      ---->

MT

2700

 

 

1.10. Client & Sub Contractor billing and Certification:

Billing period / Frequency should be same for client & the sub contractor so that quantity reconciliation can be done at periodic intervals.

Client Running Accounting (RA) bill should be prepared and submitted in time frame so that its certification is done in time and funds are released timely otherwise once the cycle is disturbed, then it shall affect fund management adversely throughout the project.

Delayed client billing in turn shall affect sub contractor billing and quantity comparison of client with sub contractor. Many a times as a result of this delay excess quantity is given to sub contractor as compared to client billing which shall adversely impact the project profitability.

 

1.11. Reconciliation – FIM & Principal Material:

Wherever running accounting bill is prepared for the client, one needs to prepare reconciliation statements to match balance quantity for FIM and own purchases (Major Raw Materials only) to avoid discrepancies and revenue loss. The issue here is assessment of physical quantities lying at the site especially in case of steel, for which an experienced supervisor is required.

 

If material consumption by the sub-contractor goes beyond standard norms then the same needs to be passed on to the respective sub-contractor. However for this, material issue mechanism and the controls have to be set accordingly right from the start of the project. The only challenge that remains is regarding transfer of material from one contractor to another at the site, for which an experienced stores personnel is required.

 

 

1.12. Preventive action for Malfunctions:

S. N.

Particular

Malfunction

Preventive Action

1

Material procurement

Project Manager / Site Incharge or Commercial incharge can procure material at higher rates.

a)   Watch on MIS

b)   Monitoring the budget

c)   Purchase Rate Audit

d)   Major purchases to be handled centrally.

2

Misuse & Wastage of Material

Site Engineer may consume material more than the standard norms

example – Plywood and Batton etc.

a)      Monthly Reco of Material consumption.

b)      Watch on Budget

3

Pmt of excess quantity

Engineer can give excess quantity to contractor than claimed from client

Client vs Contractor Quantity MIS

4

Company resources

Theft / Pilferage at site

 

Timely physical verification by internal auditor.

 

 

 

 

 

  1. 2. Checklist for Project Completion

2.1. Final bill preparation and certification:

Final bill can be timely prepared If following issues are properly taken care of:-

  • Cumulative Executed Quantity.
  • All pending extra item claims should be included, if pending.
  • Necessary follow up for W.O amendment if Actual Qty > WO Qty.
  • Release of Qty on Hold for want of various reasons.
  • Fight for the incentive clause.
  • If any company asset is given on rental / hire basis to other party as per instruction from client, the same should be claimed in final bill.
  • If resources like equipment / manpower have remained ideal due to non availability of front, it should be claimed in the final bill.
  • NOC shall have to be obtained from various departments of the client

2.2. Final FIM and Raw Material Reconciliation with bill and balance qty.:

Formula:

  • Total Material Inward
  • Less: Material Returned / Transferred
  • Less: Standard Consumption = Balance Quantity at Site / Store
  • Less: Standard Scrap Generation
  • In case this quantity is not available at site / store, there could be various possibilities:-

–        Excess consumption as compared to standard

–        Theft / Pilferage during the project

  • In case of excess consumption, some portion can be recovered from the measurement contractor, if not recovered till date.
  • Proper justifications are required from the project manager and appropriate action should be taken in case of abnormal difference between actual and standard balance
  • Balance FIM material which shall not be used needs to be returned with sign and stamp from the client.

 

2.3. Fulfillment of client work completion procedure:

In case of project completion, client to have checklist for the same so the contractor needs to ask the same from the client and compile each point accordingly.

 

 

2.4. Receivable & Liability Status Clearance:

Get status of project liability with break up of nature of creditor and special remark for local creditors. It is best suited if ledger confirmations for the same are obtained.

–        Follow up for payment receivable from client after bill certification

–        Clear local liabilities to avoid any demobilization harassment from them.

 

2.5. Statutory compliance:

Follow up and get pending WCT & TDS receivable certificates from client.

–                 Give all necessary details for VAT return filing to local sales tax consultant and other details, if any required for audit.

–                 Get any pending forms like C & F from the department, also reconcile with the forms issued till date.

–                 Clear o/s local pending liabilities like Road tax, Entry Tax, Employee Professional Tax etc.

 

2.6. Possible reasons for delayed submission of Final bill:

S. N.

Points

Corrective Action

1

Non updation of FIM data with stores.

Physical verification of FIM with stores records.

2

Reconciliation of FIM

Required with each RA Bill.

3

Work order Amendment

Some foresightedness and Strong Follow up with the client.

4

Change in Project Manager / Billing Engg.

Regular documentation

Proper Back up practice at HO

Process Checklist

5

Proper compilation of Hard and soft copies of all the Running Bills

Data Control and Regular Audit.

 

 

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