Article 593 Why Contractors Should Give Great Care in Estimating, Monitoring, Evaluating and Reporting Preliminaries on Capital Construction Projects?

One of the common line items of every single capital construction project’s bill of quantity or schedule of values is preliminaries. Those are the cost of operating the construction project and would typically include the cost of Site Staff, including project manager, engineers, foremen, quantity surveyors, office manager, store keeper, clerks, secretarial; Head office staff allocated to project, for example, designers; health and safety; Company cars; Site offices, mess huts, toilets, running costs; Transport for construction equipment; General site labor; Services connections and running costs; Haul roads; Temporary fencing; Construction equipment purchases including personnel carriers, land rovers, compressors, pumps, cranes, miscellaneous; Scaffolding and hoists; Access for subcontractors; Small tools; Plant consumables including fuel and fuel distribution; Contract works insurances; Setting up compounds; Security; Signboards; Road-cleaning facilities Computing equipment; Office stationery, etc. (Construction Cost Management Learning from Case Studies, Keith Potts, Page 84).

Not only having an accurate estimate of all those expenses is important but also it can prove to be of great value when extension of time claims where those preliminaries items will be the basis for calculating the site overheads component within each prolongation claim. In addition, it is also important to capture and document the actual expenses incurred against those preliminaries to confirm their accuracy and validity. Further, all changes to the original preliminaries estimate that could be due to claims or potential changes as well as change orders need also to be captured and well documented.

This information will enable the contractor to report on the planned preliminaries cost allowance, planned preliminaries expenses allocated to work in place or Earned Value, actual preliminaries incurred to date or Actual Cost, the Estimated to Complete (ETC) cost of preliminaries which will be adjusted by the performance efficiency of what was planned to be spent and actual spent being the Cost Performance Index (CPI) and how this will affect the anticipated preliminaries cost or Variance at Completion (VAC).

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Using a project management information system (PMIS) like PMWeb, this can be easily achieved. To start with, a separate estimate template needs to be created for preliminaries. This will ensure that the list of possible preliminaries expenses is comprehensive, detailed to the desired control level and common to all projects that the contractor is delivering.

For preliminaries, it is highly to standardized the unit of measure for the cost estimate line items for which it will be WORK DAY. Accordingly, the quantity field will be used to reflect the project’s duration in work days. The reason for this standardized unit of measure is that it will ease using those rates for all claims that have prolongation cost.

In addition, it is also recommended to assign the project schedule duration associated with each estimate line item although usually most of the preliminaries’ expenses will be all associated with the summary task for the overall project duration. Of course, the contractor might elect to create different versions for the preliminary estimate template that could be best suited for projects that could differ by type, location, size, etc.

The cost breakdown structure (CBS) levels that the contractor will use for the different cost management business processes will have preliminaries as one of the cost account groups for which it will be further detailed to match the preliminaries types and categories. Those cost breakdown structure (CBS) levels will be incorporated in the project cost estimate.

In addition, PMWeb allows capturing the different revisions of the preliminaries cost estimate for which the final version needs to be in line with the awarded construction contract. A workflow will be assigned to the estimate module to ensure that the final version of the preliminaries estimate had been formally reviewed and approved. The review and approval workflow tasks will incorporate the pre-defined approval authority levels as documented in the Delegation of Authority (DOA) matrix.

In addition, all supportive documents that we used to develop the estimate for preliminaries will be attached to the estimate template. This will also include links to other PMWeb records as well as emails imported to PMWeb. The preliminaries estimate could also include the URL links to websites used to finalize this estimate.

The approved preliminaries cost estimate will be used to generate two others important PMWeb records. The first will be the budget request or adjustment to the baseline budget. The user can select to post those revisions as original budget or revised budget. This will ensure that the costs associated with preliminaries are part of the project’s overall baseline budget.

The second PMWeb record that will be generated from the approved preliminaries cost estimate will be the commitment record. The commitment record will represent the amount committed by organization for the cost of preliminaries. On monthly basis, the project team needs to quantify the actual cost incurred against those preliminaries line items. This will become the basis for reporting the actual cost incurred against preliminaries and estimate or balance to complete each item.

PMWeb potential change order module will be used to capture any potential changes identified that could impact what was originally estimated for preliminaries. The reported potential changes will be subject for detailed review in accordance with the workflow assigned to this business process.

If a potential change is approved, then it will become the basis for generating the change order to adjust the estimated commitment for preliminaries. Those changes to the preliminaries need to be aligned with the relevant change order submitted by the contractor to the project owner regardless if those change orders were approved, pending approval, disputed or even withdrawn.

Whenever there is an approved change to the preliminaries cost estimate, the project’s baseline budget needs also to be revised by issuing a budget request. To ensure that all changes to the preliminaries’ commitment have the required budget adjustment record, PMWeb change event module will be used to combine the approved budget with the approved change or changes to the preliminaries’ commitment.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.

Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 500 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.


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