Multidisciplinary Steering Group
IN this output, the steering group examines the current challenges with people and cost assurance and audits on infrastructure projects. Discussed and developed from a multi-disciplinary perspective, it explores the perspective of funders, clients, legal and contract experts, audit and assurance experts and contractors delivering infrastructure projects. This output includes key topic themes, from real-life issues to practical examples and examines the future outlook for cost assurance on infrastructure projects.
Open-book culture
What does this mean? How should this work in Practice?
Fostering an atmosphere of mutual trust and cooperation among project stakeholders can be achieved by building trusted professional connections, promoting open communication, active listening and mutual respect.
Open book culture can be defined as an aspect of supply chain management where key financial and commercial information are transparently shared with key stakeholders and non-sensitive information is also shared with other suppliers in a joint venture or alliance. This can help increase value to customers and stakeholders by optimising costs on a project and highlighting non-value-adding costs.
The open-book culture in construction strives to establish a setting where all stakeholders, have visibility into the project’s financial aspects.
To successfully adopt an open-book culture, the business requires a cultural shift for implementation and has the following major goals:
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Fostering an atmosphere of mutual trust and cooperation among project stakeholders can be achieved by building trusted professional connections, promoting open communication, active listening and mutual respect. Stakeholders should be informed about project specific goals, expected outcomes and the benefits of an open-book culture for buy-in and to align the parties understanding of and commitment to values of openness and cooperation. Establishing protocols and systems for securely exchanging financial data, such as contract details, costs and project budgets. Making sure that only those who need to know have access to information.
Encourage input and participation by actively involving key parties in the decisionmaking process when making crucial project decisions, and inviting participation to obtain feedback, and take their opinions into account. This can be achieved by creating efficient channels of communication to allow contractors to share thoughts and offer cost-optimising and risk-mitigating recommendations. Asking for input and proactive early warnings will allow issues to be addressed actively and support the successful implementation of an open-book culture in a non-adversarial manner.
Cecelia Fadipe, CFBL
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Consulting At the point of agreeing to utilise a cost-based price mechanism, the parties are accepting obligations around open book assurance of costs. Importantly this is often for ‘both’ parties. Typically, a contractor will need to provide access to its costings, systems record, etc. when entering into a contract such as NEC4 using option C. In practice, these records and systems are not homogenous across organisations and clients will want their assurance objectives to be achieved resulting in varying degrees of difficulty. However, on long-term framework agreements, it is not uncommon for the parties to enter into whole project budget models, partnership arrangements, or alliances that incentivises against cost performance of the aggregated costs of the client and contractor. Therefore, the client will equally need to be prepared for a cost audit by the contractor to ensure that allocated costs are bona fide.
Tom Leach, Southern Water
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In practice, an open book culture means that the supply chain agrees to an environment where it is required to provide unfettered access to records, accounts and data to substantiate cost, commercial outputs and performance. Typically, in the industry, the term has been coined with the expectation that an open book environment means having access to a standard and limiting suite of documents (i.e., invoices and timesheets) but really this transparency should extend to the underlying systems and processes that form the supplier’s records. In practice, the supply chain should be willing and ready to demonstrate the systems, controls, and processes that it uses to manage contract performance. However, the party/ individual (s) undertaking this review requires the right level of experience and skill to properly form a robust risk-based view of the environment which should then ultimately form part of a pragmatic audit/assurance regime.
Imran Akhtar, Turner & Townsend
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When looking at open book culture and what it may mean in practice, it is necessary to step back and consider what this seeks to achieve and what are the potential benefits of such an approach. Traditionally, parties have been reluctant to share information, especially about costs, and this approach could be justified on the basis that when contracts are agreed on a lump sum basis than the actual costs incurred are largely irrelevant. In such an environment, the lack of transparency sometimes gives rise to concerns by the employer, often unjustified, as to actual recovery and what the employer may see as excessive profit.
Open book culture is a fundamental approach of openness to achieve shared objectives. It encourages the use of early contractor involvement which can reduce the risks and cost of design changes as well as improve efficiencies of time.This is not the place to discuss the issues with such concerns but it seems clear that a lack of transparency creates uncertainty that leads to a lack of trust which in turn goes against a collaborative environment. This should be less of an issue where the contract is cost-reimbursable or where change is assessed based on actual cost, but even then questions may arise as to how costs are recorded and the extent of information to be provided.
In practice, true collaboration, trust and a mutual open book culture means that if parties are seeking to achieve true collaboration, a way to achieve trust between the parties is to have an open book culture. That should be operated on a mutual basis and while the emphasis tends to be on the contractor’s costs information, there is no reason why an open book approach should not apply to the employer’s commercial drivers, covering for example its financial arrangements and anything that may affect the funding of the works. In the same vein, transparency should go beyond the financial position to anything that may affect the project.
That is the rationale behind the early warning mechanism in the NEC form of contract, premised on the idea that if the parties are open about matters that may affect the works, regardless of the contractual liability, then they can take the necessary action where possible to limit any adverse consequences. This is especially the case when it comes to costs, where early identification of any issues allows the parties to address and improve their cost recording systems while the project is ongoing – as opposed to taking a retrospective approach post-completion. The challenge for the industry therefore is to move away from the traditional mindset where once the price is agreed the actual costs no longer matter and the reluctance to be open about any issues that may affect the works. If parties recognise the wider benefits of open book culture, that will promote better delivery and support a collaborative environment.
Shy Jackson, BCLP
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The open book culture is based on the transparency of costs, records and management, clarity of responsibilities, direction, decision-making and a risk/opportunity sharing approach in which parties are incentivised to share information, improve efficiencies and value for money based on shared objectives and collaboration. It is often adopted alongside other mechanisms which promote this level of collaboration such as partnering/alliancing, shared risk-based contracts, integrated teams with shared working spaces and regular meetings with decision-makers.
Open book culture is a fundamental approach of openness to achieve shared objectives. It encourages the use of early contractor involvement which can reduce the risks and cost of design changes as well as improve efficiencies of time. It moves away from a positional standpoint and promotes no-blame working practices which allow change, errors, or miscommunications to be recognised and addressed in a forward-thinking manner to protect both parties.
In practice, this is an adjustment from the historical norm for all parties and requires full engagement to succeed. There are contracts and guidance which provide a good framework and tools to build an open-book culture, but communication, the building of relationships and trust are core requirements that cannot be mandated. Clear expectations and objectives are important alongside a recognition that some priorities will not align but remain important.
Kathleen Hannon, Scottish Water
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This is all about transparency and ensuring all contracting parties, funders, supply chains, and stakeholders operate a transparent financial system to deliver sustainable infrastructure projects. The transparency culture is embedded from the early project phases into the operation phase. In practical terms, this begins by setting up a commercial management plan from day one of contract implementation. For example, if it is an actual cost contract (target or reimbursable), the project manager should arrange for the cost audit team to have access to and understand how the contractor’s financial system work. This requirement should ideally be Included within the contract scope documents or works information. Open book culture results in opportunities for higher productivity levels, delivery efficiencies and for achieving greater value for money levels.
Elliot Patsanza, Ridge & Partners
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Open-book contracting is a work culture that emphasises collaboration and transparency between parties involved in a contract. This approach is based on sharing information about project costs, profits and risks to build trust, align incentives and promote joint problem-solving. In an open-book contracting culture, parties are encouraged to work together to establish a shared understanding of the project’s goals, timelines and costs. This includes sharing detailed information about costs, liabilities and profits, as well as any potential risks and uncertainties.
By doing so, both parties can gain a deeper understanding of the project’s financial implications and work together to identify potential cost savings or opportunities.
Open book contracting can work in practice through several key practices, including:
So, an open book contracting culture is a collaborative and transparent approach to contract management that can help to build trust, align incentives and promote joint problem-solving. To make this approach work in practice, parties should focus on building a collaborative relationship, sharing information, aligning incentives, establishing performance metrics and committing to continuous improvement. By doing so, parties can maximise project value and achieve shared success.
Martin Perks, National Highways
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The only negatives I can think of to an open book culture is that we expose ourselves to additional scrutiny and give potential competitors on future projects inside knowledge. Reviewing actual cost data can be time-consuming for commercial staff and open the project up to the potential review of every cost element. However, an open book culture enables assessments of our applications and cost increases due to the change to be fully transparent. It reduces disagreements based on assessments.
An open book contract prevents misunderstanding of cost build-ups as they can be based on actuals. It also prevents forecasts from having elements of bunce, preventing parties from managing risks within budgets and making incorrectly priced or project overspends visible. I feel an open and honest approach to everything means the best for the project.
Charlotte Edwards, Atkins – SNC Lavalin
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Behavioural training for project teams responsible for keeping/ recording documents/records is also needed to support and promote the culture of openness required for this to work.This means being open and honest with each other in the contractual arrangement and sharing all documents required in support of cost assurance audits.
For this to work and to manage expectations and avoid surprises a list of base documents required to support this openness is to be agreed upon and wherever possible included in the contract rather than leaving an open-ended requirement in the contract that just says records are required to be kept in support of cost assurance audits.
Behavioural training for project teams responsible for keeping/recording documents/records is also needed to support and promote the culture of openness required for this to work.
Dr Anywhere Muriro, BAM Nuttall
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An open book culture refers to a transparent and collaborative approach to financial and commercial matters within a project or organisation. It involves sharing relevant information, such as cost data, budgets and financial performance, openly and honestly among all stakeholders involved.
Building trust among stakeholders by ensuring that financial information is accurate, reliable, and presented in a transparent manner.
This fosters trust, promotes effective communication and encourages joint problem-solving. In practice, an openbook culture can be implemented by:
Tony Cave, Croftstone Management
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Industry skills and behaviours
What are the current and emerging challenges?
In a cost assurance or audit engagement, independent qualified professionals have been appointed to assess and assure the reliability and accuracy of commercial and financial cost data, risks, controls systems and forecasts. They play a key role in identifying potential risks, evaluating cost performance, people, process and controls and making recommendations to mitigate future financial challenges.
The cost assurance landscape is changing because of the emergence of innovative technologies like automation, machine learning, and artificial intelligence. To improve the accuracy and efficiency of cost assurance procedures, professionals need to invest in and adapt to these technological changes and develop the skills required to make use of data analytics tools, predictive modelling and other innovative techniques.
The cost assurance landscape is changing because of the emergence of innovative technologies like automation, machine learning, and artificial intelligence.For cost assurance professionals more focus is being placed on independent audit and assurance of sustainability KPIs on sustainable construction projects. Adopting sustainable practices, energy-efficient technologies and renewable materials must be evaluated in terms of their cost impact. Accurate cost assurance and decision-making depend on having a clear understanding of the scope 1,2,3 emissions, costs and benefits associated with a sustainable project.
Due to the participation of multiple stakeholders, international supply chains and complicated financial arrangements, construction projects are becoming more complex. To overcome this complexity, cost assurance professionals need to be knowledgeable about complex contracts, legislation and risk management. To offer precise cost assessments and recommendations, they must be able to analyse and evaluate complex financial data.
Cost assurance professionals face ongoing challenges with compliance, evolving laws and standards. For accurate cost reporting, financial transparency and compliance with legal requirements, professionals must stay current with relevant laws, regulations and accounting standards.
Soft skills and communication are crucial for cost assurance professionals. They must clearly and concisely convey and report complex financial information to an array of stakeholders, such as project managers, leaders, and clients. Therefore excellent interpersonal skills are needed for working with cross-functional project teams and addressing challenging financial risk and opportunities early on.
Cecelia Fadipe, CFBL Consulting
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Current challenges:
Emerging challenges:
Tom Leach, Southern Water
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As the scale and complexity of projects and programmes increases, there is an increasing demand for audit/assurance activity. Undertaking an audit/assurance activity requires experience and a refined approach to collaboratively manage numerous stakeholders, all of whom may have different objectives/demands from the process (often conflicting).
Whilst collaborative ways of working continue to be developed, such as alliancing arrangements or incentivisation approaches that reward efficiency and productivity, there is still an underlying risk that projects end up with frayed relationships when issues occur during the delivery phase.
The key challenge is maintaining an assurance approach that is independent and evidence-based despite the pressures of the project/programme.
Assurance activities that pay on findings made and disallowed costs identified can sound like a fair idea in practice from a project owner’s perspective however adopting this approach may have unintended consequences by either threatening the auditor’s independence and integrity and also driving the wrong behaviours within the supply chain that may ultimately result in a lack of trust and credibility in the assurance process.
Imran Akhtar, Turner & Townsend
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Embracing and pioneering change is a continuing challenge that will not dissipate in the industry. New priorities in the industry such as value for money, focus on efficiency and carbon reduction may lead to a shift in working practices and decision-making, having an impact on the desired skillsets and behaviours required of all parties. These skillsets and behaviours will take time to acquire, to align with business objectives and procedures and be embedded in the workforce.
New technology and tools are being developed to assist but it takes time and alignment to identify the best tools, adapt, embed and for users to embrace these. These combined with external challenges such as market shift and a wider skill requirement can be challenging to all areas of the industry be it client, contractor or supply chain.
Kathleen Hannon, Scottish Water
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The audit industry sector is going through a transformative phase as new technologies disrupt embedded behaviours and methods of auditing.The audit industry sector is going through a transformative phase as new technologies disrupt embedded behaviours and methods of auditing.
Previously, clients relied on auditors to be data custodians, now they are turning to data analytics digital systems and artificial intelligence (AI).
The emergence of AI means auditors must acquire new skillsets and behaviours that align with the digitalisation of audit services.
Auditors must increase their digital quotient and pivot to new roles that require them to audit and validate digital systems used by clients.
Elliot Patsanza, Ridge & Partners
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Martin Perks, National Highways
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Emerging challenges are that staff coming through from academia appear to struggle when faced with open book culture may be due to a lack of training/education in the curriculum – a coordinated effort involving professional organisations, industry leaders and client organisations to get such subjects taught in educational institutions – the soft skills that appear to be in the blind spot of the current curriculum. Are we doing enough to harness the power of digital construction tools to help with improving on data collection, data analysis and accessibility? I do not think so and believe there is room for improvement.
Dr Anywhere Muriro, BAM Nuttall
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The construction industry faces several current and emerging challenges related to skills and behaviours including:
Workforce shortage: One of the significant challenges in the construction industry is a shortage of skilled labour. Many experienced construction professionals and operatives are retiring and there is a lack of new talent entering the industry. Succession planning and knowledge transfer strategies are essential to capture the expertise of senior professionals and operatives and transfer it to the next generation. Other geopolitical and market forces such as BREXIT have compounded pressure on the UK workforce shortage. This shortage of skilled workers can lead to delays, increased costs and reduced productivity.
- Skills gap: The construction industry is evolving rapidly with advancements in technology, sustainability practices, and new building techniques. However, there is a gap between the skills required for these emerging trends and the skills possessed by the existing workforce. Bridging this skills gap through training and upskilling programs is crucial.
- Technological advancements: The construction industry is becoming increasingly reliant on technology, such as building information modelling (BIM), drones, robotics and augmented reality. However, integrating these technologies into daily operations requires construction professionals to have digital literacy and the ability to adapt to new tools and systems. There is a risk that some labour-intensive and repetitive operations are likely to be replaced by technology in the future which may require the workforce to be upskilled and trained in other areas to ensure their continued employability.
- Safety, health and wellbeing: Construction sites can be hazardous environments and ensuring construction professionals’ and operatives’ safety, health and well-being is a constant challenge. Promoting a strong safety culture and enforcing best practices are essential to mitigate risks and prevent accidents.
- Diversity and inclusion: The construction industry traditionally lacks diversity and struggles with inclusivity. Encouraging a more diverse and inclusive workforce can bring in fresh perspectives, improve innovation, and address skill shortages. Efforts should focus on attracting and retaining individuals from underrepresented groups and creating inclusive work environments.
- Soft skills and collaboration: In addition to technical skills, the construction industry requires strong soft skills such as communication, teamwork, problem-solving and adaptability. Building effective collaboration between different stakeholders, including contractors, subcontractors, architects, engineers, other consultants, and clients, is crucial for successful project delivery.
- Sustainable practices: Sustainable construction practices are gaining prominence due to environmental concerns and regulatory requirements. Adopting sustainable behaviours, such as green building techniques, energy efficiency and waste reduction, requires the construction workforce to be knowledgeable about these practices and committed to their implementation.
Addressing these challenges requires proactive efforts from industry stakeholders, including construction companies, trade associations, educational institutions and government agencies. Initiatives should focus on attracting and developing new talent, providing relevant training programs, promoting safety, health and wellbeing practices, fostering diversity and inclusion, and adapting to technological advancements. By addressing these challenges, the construction industry can build a skilled and resilient workforce capable of meeting the demands of the future.
Justice Sechele, Currie & Brown
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Barriers to early assurance
What are the barriers to early assurance from pre-procurement to delivery phases?
Early assurance in a project’s pre-procurement to delivery phases entails assessments, risk analyses and evaluations to ensure that important project components, such as cost estimates, schedules and records and systems are precise and attainable. The application of early assurance throughout these phases may be hampered by several barriers, such as:
Early assurance efforts may be impeded by a lack of participation and collaborative relationship among stakeholders, such as between clients project managers, contractors, designers and cost assurance professionals. Limited stakeholder engagement may lead to incomplete or incorrect information, poor risk identification and poor administration of findings and decisionmaking.
The pressure to proceed swiftly through the pre-procurement and delivery phases frequently results in a rushed assessment process, insufficient data analysis, and inadequate risk assessments.Complete and reliable data may be hard to obtain during the early stages of a project. Conducting accurate cost assessments, schedule evaluations and risk analysis may be difficult due to incomplete project designs, conceptual estimates and incomplete scope definitions. Early assurance attempts will not be successful if there are no plans in place or reliable data sources.
One major challenge to early assurance is caused by unclear or changing project objectives and requirements. It becomes challenging to establish appropriate cost estimates, correctly evaluate risks and define performance indicators without clearly defined objectives and requirements. Project goals that are unclear might lead to misalignment and inefficient costs and early assurance processes.
A project’s early time constraints can make it difficult to provide early assurance. The pressure to proceed swiftly through the preprocurement and delivery phases frequently results in a rushed assessment process, insufficient data analysis and inadequate risk assessments. Lack of time for early assurance can lead to missed risks, incorrect cost, and potential project delays.
Early assurance activities may be difficult to implement if resources, both financial and human, are limited. The quality and efficacy of early assurance efforts may be impacted by inadequate financial support for these processes and a shortage of trained personnel with experience in cost estimation, risk analysis and project assessment.
Cecelia Fadipe, CFBL Consulting
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This forum has generally agreed in principle that early assurance of costs, systems and processes produces benefits and mitigates the risk of things going wrong. However, this is not always achieved in practice.
The following circumstances may be at play:
Tom Leach, Southern Water
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As noted above, one of the challenges is undertaking assurance in the ‘right’ way, adopting a risk-based approach and taking time to understand the supply chain’s ways of working.
Ultimately this takes time and also may not yield monetary findings or savings making it difficult for the project owner to justify the activity in a phase that is usually time critical. There may also be a natural challenge that the supply chain may not have sufficient evidence to provide support and substantiate their ways of working as things may still be ‘in theory’ rather than executed in practice.
Whilst it is viable to undertake this early assurance to create a risk-based expectation and assurance framework further audits will still need to be undertaken to confirm that the proposed ways of working have been adopted and any risks identified have properly been managed and dealt with.
Finally, commercial audits/assurance activities are not defined statutory activities and as such do not have a defined set of procedures and tests that need to be conducted (as is typical and common in the world of company external financial audits).
Project owners need to think carefully about any pre-contract audit/ assurance regime to ensure that it is able to be opened up to scrutiny and challenge by the supply chain as part of a fair and transparent procurement process (which is a requirement for many government organisations or projects that use public funding).
Imran Akhtar, Turner & Townsend
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Time pressures can often mean that assurance is requested at a point in time where the scope of projects has not been fully developed and the risks to the project may not be fully understood. Market change particularly in recent years means that costs and available resources may not be as predictable as they have been.
While many companies have a good degree of information in the form of cost intelligence, productivity and KPIs from historical projects, market changes can be difficult to track and project forward such that the degree of confidence in assurance may not be as reliant as in previous years.
Risk management and commercial management during delivery can also impact early assurance. This can be exacerbated by issues in the early stages however having a sound foundation in the basics is key for ensuring that change and risk realisation are managed effectively and do not impact the quality, cost and time of a project.
Kathleen Hannon, Scottish Water
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There is an unfounded perception that early assurance opens and exposes firms to external threats such as intellectual property espionage.
There is an unfounded perception that early assurance opens and exposes firms to external threats such as intellectual property espionage. Most organisations find the concept of opening their financial systems to external parties unpalatable with their objectives of building ‘unique selling points’ and products.Most organisations find the concept of opening their financial systems to external parties unpalatable with their objectives of building ‘unique selling points’ and products.
These unfounded fears manifest behaviours that result in barriers to early assurance. During early development stages there is a lack of awareness amongst the supply chain that cost assurance audits are part of the core activities of delivering large complex infrastructure projects.
The workforce is unaware their organisations are mandated under the contract to support and facilitate regular cost audits throughout the programme of work that monitor and assess performance.
Another barrier is the lack of resources to support early assurance from the supply chain, this is a particular barrier that applies to SMEs who normally have limited resources.
Lack of clear guidance and a consistent approach to early assurance adds another layer of complexity which also leads to early assurance barriers.
The public and private sector must develop a regulatory framework that drives a fair and consistent approach with clear standards that encourage early assurance and eliminates barriers.
Elliot Patsanza, Ridge & Partners
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There are several barriers to early commercial and contract assurance from preprocurement to the delivery phases of an infrastructure project.
Some of these include:
Martin Perks, National Highways
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I have noticed an increase in rates due to subcontractors and contractors being held to commercial agreements that were insufficient over the past few years; steel, labour and fuel are the main ones. Subcontractors and SMEs are trying to recover previous losses and now the current uncertainties within the economic environment are exasperating the situation. As well as cost increases, I am seeing an increase in commercially aggressive pre-commencement discussions, subcontract applications, and final accounts.
Charlotte Edwards, Atkins - SNC Lavalin
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Lack of cost assurance specialist involvement during the early stages of procurement with their involvement currently being tagged post contract at which point the opportunity to influence best practice cost assurance processes and systems is gone/missed.
Lack of knowledge by the parties involved is another barrier. Most if not all contractual arrangements over the last 100 or so years were non-cost-based contracts with no requirement for construction cost audits by the client organisation/consultants, so this process is a relatively new phenomenon and most parties involved are genuinely not experienced in the process.
Compounded with this are differences in cost capturing/ collation systems out there in existence which may not have been geared to fulfil robust cost assurance audits.
So a combination of people, processes and culture in the industry have contributed to the barriers to cost assurance audits that we see today.
Dr Anywhere Muriro, BAM Nuttall
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Some barriers to early assurance from preprocurement to delivery phases include:
- Lack of clarity on project requirements: Insufficient understanding of project scope, objectives and stakeholder expectations can hinder early assurance efforts. Unclear requirements make it challenging to establish effective assurance mechanisms and can lead to delays in identifying and addressing potential issues.
Lengthy and complex procurement procedures can delay the initiation of assurance activities.- Limited stakeholder engagement: Inadequate involvement and collaboration among key stakeholders during the early stages of a project can impede early assurance. Lack of communication and coordination among stakeholders can result in missed opportunities to address risks and ensure compliance with project requirements.
- Resource constraints: Limited availability of skilled resources, both internally and externally, can pose challenges to conducting early assurance activities. Insufficient staffing, budget constraints, or a shortage of specialised expertise can hinder the ability to perform thorough audits and assessments in the early phases of a project.
- Complex procurement processes: Lengthy and complex procurement procedures can delay the initiation of assurance activities. If assurance is not factored in early, it may be difficult to align the assurance plan with the project timeline, leading to gaps in monitoring and control.
- Resistance to change: Resistance from stakeholders, including contractors, to adopt new assurance practices or engage in early assurance activities can act as a barrier. Reluctance to embrace new approaches or perceived burdens associated with additional scrutiny can hinder the effectiveness of early assurance efforts.
Tony Cave, Croftstone Management
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Early assurance refers to the process of providing assurance during the pre-procurement to delivery phases of a project. It involves identifying and mitigating risks early on to ensure successful project outcomes. However, several barriers can impede the effective implementation of early assurance.
Below are some of the common obstacles across the different phases:
Pre-procurement phase:
Design phase:
Procurement phase:
Construction phase:
Delivery phase:
Overcoming these barriers requires proactive measures, including:
By addressing these barriers, early assurance can be effectively implemented, leading to improved project outcomes, reduced risks and enhanced stakeholder satisfaction.
Justice Sechele, Currie & Brown
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Resistance to audit
Why is there often resistance to audit compared to deals/commercial arrangements?
Resistance to audits compared to deals or commercial arrangements can result from several factors, including those involving careful evaluation of financial records, procedures and controls. These may be perceived as intrusive and disruptive to daily individual activities at work and can be disturbing and unsettling to have external auditors will be examining records, systems and seeking supporting documentation.
Audits are intended to find potential errors, discrepancies or non-compliance with rules and regulations. Due to fears of scrutiny of decisions, conduct being questioned or fraud exposed, people may reject audits in favour of commercial deals Some parties could feel uneasy about having more accountability, which might cause resistance. The compilation of documentation, providing backup to auditors, responding to audit queries and working with auditors can take considerable time and effort during audits. The perception that audits are time-consuming and difficult makes some parties resist audits and instead opt for commercial deals if they already have pressing delivery priorities.
Resistance to audits may result from a lack of knowledge and understanding of the sustainable forward-thinking benefits and purpose of these audits. People who are unfamiliar with the audit protocols could perceive it as nice-to-do or tedious, instead of appreciating its value in promoting improvements, transparency, identifying risks, and strengthening controls early.
Cecelia Fadipe, CFBL Consulting
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Time is of the essence in the industry as productivity is seen as a key factor for delivery. It is often quicker and easier to agree on a deal or settlement with the supply chain on a nominal basis (50/50, ‘meet in the middle’) and this approach could help preserve relationships and ultimately avoid further potential legal costs should the matter escalate to dispute.
Time is of the essence in the industry as productivity is seen as a key factor for delivery.An audit in this instance could be seen by both parties as a potential disruptor should the findings contradict the intention to settle equally.
Audits should be used as a way to gain intelligence, comfort and knowledge of how things have actually been managed during a project. They should be used to identify and eliminate issues before they escalate and become contentious between parties and also identify those matters where there is a difference of opinion and there may need to be some form of mutual agreement or settlement.
Ultimately audits should be used as part of a settlement scenario as it is unlikely (and not recommended) that an audit would ever seek to test 100% of records, costs and requirements and as such the interpretation of audit findings will always require pragmatism and implementation in the context of the project. Hopefully, one that all parties can agree to.
Imran Akhtar, Turner & Townsend
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The audit is rarely so straightforward and ultimate assurance is achieved the first time around. Some degree of additional inter-party collaboration, negotiation or argument is generally required to achieve the ultimate sight of costs or understanding of systems and processes.
From the contractors’ side, the following risks of non-compliance are common:
The following risks can occur from the client’s side in whole project budget models:
Tom Leach, Southern Water
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At its root, this may be a reluctance to have works examined under a magnifying glass and the apprehension that issues that are found may assign blame to one party or another. Having a future-focused, noblame approach to audit which encourages communication to resolve and prevent future issues can be helpful to both parties and encourage acceptance of audit.
This is however in tension with the fact that audit usually looks at historical data and therefore where decisions have been made, they cannot be undone. As such it is very important for a focus to be put on what lessons can be learned from findings and how improvements moving forward can protect both parties.
The resources and time required to facilitate an audit can also be a barrier with no guarantee that an outcome will be agreed (particularly where the interpretation of the contracts differs).
In comparison, a commercial deal takes a wider view and can resolve several issues so that both parties feel they have compromised but ultimately feel protected in a short space of time. The benefit to audit is that it can ensure principles are agreed upon and interpretations align whereas, with a commercial deal, the issues may well arise again as clarity may not have been provided.
Kathleen Hannon, Scottish Water
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I see a few common issues which present as resistance to audit:
• • Position in the supply chain: In the era of cost-plus and target cost contracts applied to big infrastructure projects in particular, client/employer organisations need to account for their costs to the central government. Even if they are private schemes, there is still likely to be some public finance. There are often structures, expertise and expectation in place within that organisation to audit cost from its contractors. Mostly this is an audit of staff/management and subcontractor costs against the definition of cost in well-used and well-understood contracts. However, in subcontracts between contractors and subcontractors, back-to-back contract terms do not necessarily mean that the parties have back-to-back structures, expertise and expectations to demonstrate cost which will include far more direct costs such as labour, plant, and materials which can have multiple cost components.
• • Distrust and confidentiality: There can be less trust between subcontractors and contractors than between contractors and client organisations. Generally, a division within a contractor organisation will have very few customers but subcontractors have far more options and contractors have more choices, so there is a different dynamic to consider. Sometimes there is a distrust to be truly ‘open book’ and only demonstrating costs to a level of granularity that the subcontractor is comfortable showing to its customer for fear of giving away too much private and confidential information.
• • Dealing with commercial decisions, discounts and fee disparities: Often, when securing a contract, there has to be a final decision made on how the deal is structured and what a subcontractor or contractor is prepared to offer to get the deal over the line and secure the work. Then, when the costs are audited, there can be a difference between a rate included in (say) the BoQ and the actual cost of that item where a rate could be lower than the cost. This can cause issues in agreeing on variations/compensation events and final accounts. Also, components included in the fee and the total fee percentage can vary between contractors and subcontractors depending on the deal that has been struck. The fact that subcontractors can have a fee percentage of around 25% (or more) and contractors around 10% (or less) can create a desire to protect that position for fear of it being reduced on the next project.
Gary Bone, Blake Newport
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Resistance to audit when compared to other commercial arrangements can be reduced to workforce competencies and capabilities.
Most of the construction workforce does not understand the basic purpose, function or need for an audit. An auditor review request comes as a surprise to many.
Most construction-related academic qualifications do not cover auditing at all.
Most delivery organisation charts rarely include the audit team so it is not seen or ever supported as a core delivery function.
Whereas on commercial arrangements, which normally include finance managers, audits are seen and treated as a core component.
Elliot Patsanza, Ridge & Partners
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- There is often resistance to auditing an infrastructure construction contract rather than striking a commercial deal because audits can be seen as invasive and disruptive. Audits involve a detailed examination of financial and operational records, which can take a significant amount of time and resources to complete. This can be seen as an unwelcome intrusion into the contractor’s operations and can result in confirmation of the real level of trust/mistrust between parties. Moreover, audits can also reveal issues and discrepancies in the project, which can lead to disputes and potentially impact reputations. As such, parties may prefer to strike a commercial deal that is based on trust and cooperation rather than subjecting themselves to an audit.
- However, audits are an essential tool for ensuring transparency and accountability in infrastructure construction contracts. Audits can identify potential fraud, waste and abuse in the project, which can save costs and prevent future problems. Moreover, audits can provide valuable feedback to both parties on how to improve project management and performance.
- Overall, while audits may be met with resistance, they are an essential part of ensuring transparency and accountability in infrastructure construction contracts. By striking a balance between commercial deals and audit requirements, parties can ensure a successful project outcome while maintaining a positive relationship.
Martin Perks, National Highways
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I appreciate the benefits of auditing and providing clients and parent companies comfort from independent auditors. I have not resisted auditing, but I do find it frustrating. Auditing compliance with the policy shouldn’t be required if a project is run correctly. I personally find the peer reviews by those who are familiar with the complexities of the project more beneficial and they find more errors or potential issues. The auditor’s lack of commercial involvement and familiarity with major civil work processes could lead to miss understanding and potentially missing areas of concern. Working on major infrastructure projects, deals are not an option and auditing is heavily favoured and a very common occurrence.
Charlotte Edwards, Atkins - SNC Lavalin
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Audits take a long time to undertake and cost more to clients leading to a temptation to make commercial deals in some cases.
Audits take a long time to undertake and cost more to clients leading to a temptation to make commercial deals in some cases. The contractor may feel that it has not got all the records required for an audit and therefore will be more inclined to make a deal rather than have the agony to fail an audit and not get the resolution that it is expecting which may come through a negotiated commercial deal.
The contractor/client may lack the resources to undertake a comprehensive audit and therefore go for a commercial deal as this is relatively cheap and quick to achieve in most cases where there is willingness to get an agreement from both parties.
Dr Anywhere Muriro, BAM Nuttall
Multidisciplinary Steering Group for cost assurance and audits on infrastructure projects and contracts
www.cfbusinesslinks.com/multi-disciplinary-steering-group
The Steering Group on Cost Assurance and Audits on Infrastructure Projects and Contracts:
Cecelia Fadipe (chair), CFBL Consulting; Imran Akhtar, Turner & Townsend; Claire Randall-Smith, Eversheds Sutherland; Ian Heaphy, INCC, NEC Board; Gary Bone, Blake Newport; Darren Ward, The Orange Partnership; Tom Leach, Southern Water; Kathleen Hannon, Scottish Water; Shy Jackson, Bryan Cave Leighton Paisner; Jennifer Varley, Bryan Cave Leighton Paisner; Charlotte Edwards, Atkins – SNC Lavalin; Jim McCluskey (CICES representative), Kier Group; David Worsley, Transport for the North; Elliot Patsanza, Ridge & Partners; David Sharp, Mott Macdonald; Michael Bamber, WSP; Justice Sechele, Currie & Brown; Chris Leach, Balfour Beatty; Victoria Hill-Stanford, Network Rail; Lisa O’Toole, Network Rail; Martin Perks, National Highways; Chris Richardson, Colas; Charlotte Hughes, DLA Piper; Tony Cave, Croftstone Management; Dr Anywhere Muriro, BAM Nuttall.