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Administration of Cost Plus Contracts

9 replies [Last post]
Tue, 2009-11-17 03:28
Ussama Morad
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Joined: 21 Dec 2004
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Dear All,
Could some body help informing how to administer Cost Plus Construction Contracts? Specially Accounting Procedures?
Best Regards
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Replies

Sat, 2013-09-28 14:39
#1
Syed Rashid Zaki
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Joined: 11 Feb 2012
Posts: 5
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Dear All

Kindly tell me the procedure to check the market price of materials in cost plus billing ? Presently i am checking the cost plus bill of my subcontractor and also i want to  know the suitable percentage of sundry material cost in the Mep Works.

 

 

Regards

Syed Rashid Zaki

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Mon, 2009-11-30 08:45
#2
Samer Zawaydeh
User offline. Last seen 5 years 8 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Ussama,

This depends on the size of your project and the knowledge of the client and the Contractor. Each project has special conditions. Maybe the Contractor has a group of subcontractors that does all the work for him. Maybe the Client wants identified subcontractor to complete the jobs.

Give us a small description of the project, contract amount, duration, location, and we might be able to be of more assistance.

With kind regards,

Samer
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Mon, 2009-11-30 07:00
#3
Ussama Morad
User offline. Last seen 6 years 34 weeks ago. Offline
Joined: 21 Dec 2004
Posts: 9
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Dear Samer,

Control of material and its wastage is a big headache (think about cement metal sheets to fabricate HVAC duct works)

Before issues of productivity and cost of rework and rejected item to be controlled at Site. Certain agreements/procedures should be stated in the Contract. and that is what I am looking to have a sample.

Best Regards
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Mon, 2009-11-30 06:35
#4
Samer Zawaydeh
User offline. Last seen 5 years 8 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Ussama,

The best way to avoid mistakes, is for both parties to agree on the process and write it down. From your part, you need a person at site to confirm the receipt of the material, a person to approve the release of the amount after the works has been completed, and an accountant to do the number crunching.

Productivity and cost of rework and rejected items are issues that much be controlled at site.

With best regards,

Samer
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Sun, 2009-11-29 23:55
#5
Pramodkumar Avula
User offline. Last seen 11 years 46 weeks ago. Offline
Joined: 22 Mar 2009
Posts: 4
Groups: Civil Engineering
Dear Ussama,

I agree samer, we have to verify for double invoicing.

I understand your situation, like whether all the material brought to Site will be incorporated into Works.Please follow the Stock register every 2 weeks, and you have to visit the Site every day. That way it is easy to keep a watch on materials.

At the time of final account ensure that you deduct the amount for balance material, which were not used for Works.

I have formats for Cost plus Contracts, please send me your email id, i will forward it to you.

Cost plus Contracts are easy for Structural & Civil building Works, but if it is for MEP Works it is bit more difficult.
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Sun, 2009-11-29 18:00
#6
Samer Zawaydeh
User offline. Last seen 5 years 8 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Ussama,

The Site Engineer will verify that the material has entered site. Or the store keeper or the Project Manager depending on the size of the project.

You have to keep your attention to double invoicing. So I suggest that you accept only original invoice for the purpose of releasing payments.

Basically, you approve for payment only invoices released by the Project Manager. He will also approve % payments to suppliers.

With kind regards,

Samer
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Sun, 2009-11-29 16:53
#7
Ussama Morad
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Joined: 21 Dec 2004
Posts: 9
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Dear Pramod,
Dear Samer,

Thank you for your reply and advice but it looks that I need more clarifications and real examples/formats to be able to administer such Contract type.

Also I need to know about material purchases how the Client will be sure that all material will be used in the job?

Best Regards,

Ussama
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Sun, 2009-11-29 15:15
#8
Samer Zawaydeh
User offline. Last seen 5 years 8 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Ussama,

This is a standard form of Contract.

The Contractor will submit invoices at the end of each month and it will be reviewed and verified by the Site Engineer and the Project Manager.

I would recommend that you use the same categories of material in a regular BOQ when possible. Of course you will have more invoiced items since you are invoicing the components not the deliverables.

The amount of retention has to be agreed between the two parties.

The issue of productivity on site has to be well managed by both parties and some kind of standard to be followed.

All agreements with subcontractors must be administered by both parties.

All purchasing above a certain limit must be administered through an agreed process. I would suggest a Table of Quotation with a minimum of three quotation for material above 5000SR.

With kind regards,

Samer
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Sat, 2009-11-21 07:46
#9
Pramodkumar Avula
User offline. Last seen 11 years 46 weeks ago. Offline
Joined: 22 Mar 2009
Posts: 4
Groups: Civil Engineering
Hi Ussama Morad

Cost plus fixed fee Contract is a type of Contract wherein Client agrees to pay the Contractor actual cost incurred plus a fixed fee as agreed by both the parties for completing a Work.

Contractor charges usually fall into the following categories

Contractor Salaried Employes
Contractor Site craft labours
Material Purchased
Subcontractor Costs.
Rental equipment
Site Office Costs
Bonds/Premiums
Any other costs

Contractor Salaried Employes: Check for daily attendance sheet. Check whether that employee is required on Site..for example draftsman are required for preparing shop drawings etc., check whether contractor is charging more no. of draftsman required for that job. etc.,

Material:

Most construction contracts specify that the contractor is responsible for purchasing the construction material.

In evaluating material purchases cost we need to look for the following.

Evidence that a competitive bid process was followed on major material purchases

Material charges on the contractors invoice are supported by canceled checks.

Subcontractors: Subcontracting works can be made either by Nominated subcontracts or can be domestic subcontracts.


Equipment rental:

On some contracts, the total rentals paid by owner approach and sometimes exceed the purchase price of the equipment being rented. Hence check for Contract Clause, generally..rental of equipment should not be charged above 80% of the total equipment cost.

Also u can try to search in google for Cost Plus Contracts..u will get lot of information.

Thanks and regards
Pramod
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