Focus on Finance - Autumn 2016 - Cost Control For Roads (Re-)Construction
Cost Control For Roads (Re-)Construction
It is a truism that the greatest threats to a Council’s financial stability arise from deficient cost control over capital expenditure projects. Although we have selected the easiest and simplest project as our example – road (re-)sheeting – the same principles apply to all projects.
Step 1 – Quantity Survey
Estimates are made of the quantities of materials, labour and plant use broken down into the major components of the project. The quantity surveyor needs to give careful thought to the most efficient method of executing the project.
For road (re-)sheeting, the major components are likely to be:
- Traffic control
- Raise, load and cart
- Grade, water & compact
- Road furniture
- The distance from the pit to the worksite (length of lead) will have a major influence on the quantities for raise, load and cart and will vary for each project. A longer lead may also mean that more or different trucks are needed for carting, to reduce the loader’s idle time (or truck drivers self-load if they have the necessary tickets).
Step 2 – Cost Estimate
Current prices are applied to the Quantity Survey to obtain the cost estimate. (A simple spreadsheet template can be developed so that this is a 5 minute step, and also acts as a cross-check for omitted items.)
Cost estimates should be checked to ensure that they reflect current prices immediately before the commencement of the project – if budget supplementation is required, the earlier this is realised, the better.
Step 3 – Construct the Project
The project should be constructed in the most efficient manner possible, notwithstanding that for operational reasons this may diverge from the method envisaged by the quantity surveyor. Assuming that your ledger permits, costs should be separately accumulated within the ledger in the major components identified in the quantity survey (including any additional components that may be required).
Step 4 – Review the Completed Project
And this is the most important part! It does require that the project is properly completed – not leaving the road furniture uncompleted for months with the “roadworks ahead” signs still up!
Compare the actual quantities used with the quantity survey and identify significant differences – and ideally, this should be done together with the officer who prepared the quantity survey. Provided the cost estimate was updated immediately prior to the commencement of the project, there should be no pricing variations.
- Calculate the cost per cubic metre to raise, load and cart the rubble used. This can usually be obtained from royalty records, based on the number of truckloads.
- For each variation, seek to identify whether this was caused by project specific influences or a deficiency in the quantity survey process. If the former, consider whether part of the cost should be written off to expense (e.g. wet weather delays).1 If the latter, this analysis should help to improve future quantity surveys.
- Compare the quantities of materials carted with the materials in the completed project. This will identify abnormal wastage, materials salvaged from a previous asset2, or even instances where materials have been wrongly removed from the project.
1 Paragraph 22, AASB 116 states (in part) – “Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset.”
2 In one case of a road re-sheeting project, 1 km of road of average 8 metre was re-sheeted to 200 mm depth – a total of 1,600 cubic metres of material. However, only 1,200 cubic metres of new material was carted to the worksite. The value of the new asset includes the value of the material salvaged from the old wearing surface calculated at the value to raise, load and cart determined as above.
Summary
Consistent use of these procedures will result in:
- Improved and more accurate quantity surveys, leading to more reliable cost estimates. A maximum of less than 5% variance between estimate and actual cost is achievable.
- Constant review of operational procedures leading to the adoption of the most efficient techniques.
- Reliable unit costs for revaluation purposes.
- Improved and more accurate budgeting of labour, plant and materials – all budgeted projects
- completed within the periods budgeted for, without significant cost over-runs.
David G Maxwell, Coalface Software Solutions www.coalface.com.au Ph: 02 6925 5646
