Cost Assurance

Cost assurance and audits on infrastructure projects and contracts

Part 8: The future of assurance

Multidisciplinary Steering Group 

IN key output 9, our steering group examined the future of assuring cost on infrastructure projects and contracts. We discussed the future of assurance in construction again from a multi-disciplinary viewpoint. We explored the topic from the perspective of clients, contractors, and subcontractors. As well as from the viewpoint of auditors, commercial managers, finance managers, project managers and lawyers on infrastructure projects.

Our multidisciplinary steering group of diverse experts, professionals, and member companies have the required wealth of UK and international expertise on cost assurance and audits on infrastructure projects and construction contracts. Through our CSR and governance initiative, we are working in conjunction with funders, clients, and contractors to drive change and transformation industry-wide.

Our vision is to continue to do this nationally within the UK as well as internationally on global construction projects. This output developed by our steering group members includes key themes relating to the future of assurance and answers questions raised on the topic during the July 2022 conference.

These key themes are:


Q: Given the strong pipeline for infrastructure and high global demand for sector skills and materials, what specific measures can help local costs to be better managed and driven down through cost assurance throughout the project life cycle? Secondly, as an industry, how do we capture the benefits of these measures?

The challenges of labour shortage since Brexit and raw material shortages since COVID-19 have been worsened by the Ukrainian war which has driven the supply chain crises to an all-time peak. On infrastructure projects, labour on average can account for as much as 60% of costs and materials 20% of costs. Combined these represent 80% of costs and therefore fluctuations in these costs will have significant impacts on cost and assurance. An up-to-date cost programme supported by a proactive forecast of resources instead of a reactive project organisation will help manage labour costs. Material costs over the project lifecycle can in addition to active project lifecycle forecasts be benchmarked to evidence value for money and significant variances flagged for further investigation and audit particularly when the material has been procured with limited competition or without benchmarked rates.

Cecelia Fadipe


Q: What is the role of independent cost assurance audits in assuring ESG?

Independent cost assurance audits will in the future help govern ESG and carbon costs by providing independence and transparency for stakeholders.

Independent cost assurance audits will in the future help govern ESG and carbon costs by providing independence and transparency for stakeholders.This will be done by using reliable data collected during cost audits for the verification of actual costs and hence performance which can be reported in real-time to help prevent greenwashing. Cost auditors are already privy to huge amounts of sensitive cost and confidential ESG data at a granular level such as energy and utility cost data for carbon cost audits and payroll data for gender pay audits.

This learning curve can be leveraged to assure ESG data and actual costs relating to ESG issues and carbon emissions on a project. Increased environmental and social risks have led to an increased need for governance and regulatory reporting. This in turn has resulted in a rise in Greenwashing – a practice where businesses incorrectly portray/report the extent of their green credentials. For the future, this is not sustainable best practice and for many businesses.

The challenges of ESG reporting include obtaining accurate data, particularly scope 3 data from wider supply chains and ecosystems, a lack of expertise, and protocols for consistently reporting on ESG to satisfy investors and stakeholders. Protocols and training will be required to assure ESG and for the correct application and adoption of frameworks e.g., UN SDGs, ISSB, TCFD, or other relevant standards. Construction alliancing and open-book contracts will build on clauses e.g. NEC X29 with requirements that environmental costs are captured, reported, and independently verified. The biggest challenge remains sensitive comparable benchmarking data and metrics.

Cecelia Fadipe


Are there any examples of where the use of data analytics has provided value to a project and how was that value measured? What type of data analytic software would you recommend?

There are several data analytics/visualisation software options available to quickly review big data. A recent development has been the prevalence of Office 365 environments in most professional organisations which means Power BI has become a go-to programme used by businesses to undertake analytics, visualisation, and reporting. Power BI has a low barrier to entry of cost and naturally integrates well with other Microsoft products (particularly Excel). Sometimes it is also worth ensuring that the full functionality of Excel is explored as well.

Power Query, Power Pivot, and other features give Excel a surprising amount of functionality to easily and quickly transform and forensically analyse data. A few examples of where data analytics/visualisation could be useful could be (typically required to be done on total data population); analysing a large data set of people’s hours/time to identify outliers/trends (i.e. time booked on weekends, bank holidays, over contractual allowances/caps); analysing aged accruals; reviewing plant usage and productivity in correlation to labour usage and other site data.

Imran Akhtar


A contract was originally tendered as an option A submission, but had to settle with option E due to programme delivery requirements from the client.

The importance of environmental, social, and governance concerns are evergrowing, with companies facing criticism for recognising ESG (and wider CSR) responsibilities, but failing to act on them. When developing the auditing mechanics of the contract, it was noticed the client was trying to re-write the requirements as if it had been tendered as an option E – where we have not only had to submit our actual cost but are requiring substantiation for all of the lines (1000+ odd), where we thought that a randomised auditing process would be utilised. In this situation, what should be an ideal list of substantiation for subcontractor costs, material costs, equipment costs, and people costs?

Option A and option E are fundamentally different contracts with a different approach to assessing and valuing work done. The question would indicate option E has been agreed and so the fact it was tendered on option A is unlikely to be relevant to the substantiation now required.

For context:

As such, a contractor ought to be prepared to substantiate for:

The ‘ideal list’ of substantiation would be as much as possible to prove the cost incurred, evidencing each of the component parts of defined cost. On a practical level, however, people, plant and equipment and subcontractors are where we see the most challenge and are subject to proving actual money/costs incurred as opposed to say costs based on tendered rates or percentages.

By way of example with people, the level of substantiation would include names/positions/rates/salary/time spent/project name and proof of such with real-time data collection whether electronic/hard copy timesheets. With the burden on the contractor, there is no way around this. Similar levels of information are required for plant and equipment and subcontractors.

Claire Randall-Smith


Under the NEC4 ECC main options C to F, the contractor is required to make records available for inspection by the project manager as opposed to providing copies of these records. The records should already be in existence as the contractor has to produce its own accounts.

In our experience there are many client and contractor organisations out there that are:

There is no best practice in the construction industry regarding cost assurance, as the work carried out isn’t regulated. Our steering group allows experts from a vast range of sectors to discuss the shortfalls in current approaches and offer well-considered guidance. One example is access to records that should already be in existence on cost capture and financial systems for accounting and reporting purposes.

Darren Ward


Q: How do we address ESG costs assurance?

The importance of environmental, social, and governance concerns are ever-growing, with companies facing criticism for recognising ESG (and wider CSR) responsibilities, but failing to act on them. A tangible and cost-effective way to track and monitor ESG matters at present (and prevent overkill or underperformance) is to align them with the company’s KPIs and ensure such KPIs are in line with the company’s unique values.

As with other methods of reporting, standardised approaches often assist with streamlining what could otherwise be an arduous process. Setting clear parameters and goals, and ensuring flow down from the board and management level will help support consistent implementation. That said, at present, we are not seeing cost implications attached to a failure to implement ESG objectives/KPIs. Until then, we question how much focus will be placed on such KPIs/objectives.

It seems inevitable that ESG matters will become mandatory and regulated within construction projects which will lead to auditable data and reports, all of which will come at a cost and will circle back to KPIs/obligations linked to paid performance. Data and information will become open to scrutiny and therefore have to become more accurate.

Charlotte Hughes


With the widespread use of NEC option C target cost-based contracts cost assurance including cost verification has become a necessary step in the process to provide the transparency and assurance required by employers, clients, and project managers. The steering group has prepared several outputs from assembled groups of like-minded professionals who have looked in detail at the various key aspect.

Jim McCluskey


Q: At the conference the NEC 4 Alliance contract was mentioned as a more collaborative way of working, does this mean with a partner approach the need for cost assurance is removed as all partners work together as one entity with one vision?

As such, there is still a clear and defined requirement to have an audit/assurance framework within alliance contracts.Alliance contracts define clear three lines of defence methodology/ mentality with the definition of an alliance project team, alliance management team, and alliance leadership team. Each layer will have to develop its assurance and audit protocols however the requirement for assurance and audit still exists as the contracts will still be ‘open book’.

Furthermore, whilst the assurance framework can be more collaboratively developed within an alliancing environment (across the organisation layers and amongst the alliance parties) there is still a requirement for the alliance to demonstrate its performance to external stakeholders (e.g. client funder, government department/agency). As such, there is still a clear and defined requirement to have an audit/assurance framework within alliance contracts.

Imran Akhtar


The NEC4 alliance contract (ALC) should remove the need for an external assurance function, as the alliance should be self-assured with each member of the alliance relying on the other members to account for their costs correctly and/or challenge where they feel this is not occurring. There may, however, be a requirement for the client to engage in some form of external assurance function to comply with internal or external governance issues.

Ian Heaphy


Alliance contracts do not remove the requirement for cost assurance, periodic reporting, independent verifications, benchmarking, hand-back, and close-out requirements all remain with the alliance contract. The alliance contract requires all parties’ commercial deliverables to be reviewed by the partnering NOPs and the OP, providing additional checks and scrutiny. The ALT reviews enable change to happen quicker, the blame culture is removed for a collaborative best for the interest of the project approach, and cost assurance remains a key requirement.

Charlotte Edwards


Q: Regarding alliance agreements and a standardised approach, are there any plans from NEC to provide recommended templates for processes, e.g. for the AFP?

There are currently no plans for the NEC to provide any templates for use as part of the cost assurance process as this will commonly be specific to the needs of the alliance and the client.

Ian Heaphy


Q: In the technology space the digital QS is looking like a topic of discussion for the future and potentially an industry game changer... What are your thoughts on this?

It could be a game-changer. The technology exists to automate the monthly cycles and routines of a commercial team, but the industry is too slow to implement them and make them commonplace. This will be a step-change in terms of mindset to take away certain monthly manual/semi-manual activities such as timesheet reviews and allocations, plant returns, collating a payment application to reflect completed work, processing payments, monthly reporting, and cost forecasting.

Much of this can auto-populate from intelligent first instance records which can themselves be completed via biometric and GPS data for example. Instead, commercial teams can focus on matters which require judgement and brain-power like procurement, contractual matters and ensuring change is agreed upon promptly.

Gary Bone


In the short-term 3-year horizon we will see an increase in the use of computer-aided take-off software, which will eventually integrate with BIM models and design software. The QS function is likely to transition and be more focused on value-adding activities moving away from low-value repetitive activities such as taking off and quantifying. As these will be taken over by digital bots. The QS role will remain vital to provide clients with strategic advice such as procurement route selection, value engineering, forecasting, and financial reporting accompanied by insightful commentary to support commercial and procurement decisions.

Elliot Patsanza


Q: If costs continue to increase without assurance with all the cost overruns and delays being experienced on infrastructure projects, does that mean that we in the industry are unable to forecast costs effectively or correctly foresee any future cost increases to the project?

Forecasting skills can be improved, especially when it comes to risk allowances. Programmes are often delivery focused and act as a target rather than a realistic plan, hence a resultant forecast will be set up for failure. However, off the back of Brexit, COVID-19, the Ukrainian War, and the resultant excessive inflation that the industry has experienced, there is an element to which these matters have produced unforeseen increases.

Tom Leach


There has been a difficult-to-explain increase in the cost of rail infrastructure projects. The scale of increase is larger than accounted for by increasing risk and optimism bias. We do not fully understand the reason why estimates for infrastructure investments have increased so much in recent years. We are currently looking into this and appealing for more research into the subject, and we are not making any sort of claim about the abilities or motivations of people in the rail industry; we just do not fully understand or know enough right now.

David Worsley


Q: In a period of high inflationary background, we can expect costs to increase. As projects vary, how do you separate material and labour costs to their components and apply inflation percentages to produce the business case?

Further down the supply change the more precarious is the business solvency, therefore when tier 2-3 subcontractors price in inflation, they will rightly cover themselves for the risk of additional inflation to specific commodities – otherwise they risk ‘losing their shirt’. This can lead to uneconomical pricing.

It may be more economical to break out the cost of certain LPM components, and for the parties up the supply chain (probably the client) to take the risk of price fluctuation on specific components. For example, the project may forecast specific pressures on its labour force, thresholds could be set for the daily rates of labour with the client taking the risk above specified thresholds.

Tom Leach


The current inflationary environment is having a significant impact on the outturn costs of projects and is presenting a challenge to industry professionals in estimating and forecasting final costs with consequent impacts on confidence in business case projections. Because of the unique nature and mix of inputs that go into capital projects, a singular index based upon the increase in general prices, such as CPI, does not necessarily reflect the nature of the inflationary pressures that a particular project will be subject to.

Even forecasts from construction-related indices may not reflect the genuine inflationary risks a particular project faces. Construction requires the procurement of large quantities of particular materials, the cost of which may be severely impacted by energy prices, transportation bottlenecks, and supply chain disruptions; labour and plant markets are subject to the vagaries of local and national demand and supply influences.

Breaking down a project’s initial cost plan into the various labour and materials components provides more granularity and enables the development of more refined cost output predictions and a better understanding of the risks a project faces in this respect.

Materials and components particularly susceptible to inflationary pressures such as energy-intensive products – e.g. steel – or oil derivative products – e.g. bituminous materials – can be isolated, a range of potential cost scenarios assessed, and mitigation plans established. Relevant indices and forecasts are available from sources such as ONS and relevant trade associations. Undertaking this more granular analysis will deliver more foresight and confidence to funders and sponsors at the business case stage and enables clients and contractors to exercise better decision-making and control throughout the project.

Michael Bamber


Q: How likely are we to see an industry-recognised standard and qualification for cost assurance practitioners?

As the industry moves and develops, we would expect training and qualifications to be updated to reflect the requirements of the industry.

With regards to cost and commercial assurance, the skillsets are likely available through quantity surveying and accounting personnel, however, it may be that this space develops to include other areas and skillsets such as carbon and data capture, etc.This can take time to flow through with a need being highlighted and communicated to professional bodies, universities, etc.

With regards to cost and commercial assurance, the skillsets are likely available through quantity surveying and accounting personnel, however, it may be that this space develops to include other areas and skillsets such as carbon and data capture.

Some training may be available via professional bodies however different client requirements, stakeholder behaviours and systems can require a different approach so standardising training which provides specific structured and tailored advice out-with at the company level may be challenging at this point in time.

Our steering group aims to provide outputs to give stakeholders guidance as to areas to consider in their cost/commercial assurance/audit strategies and contains a broad spectrum of client, consultant, contractor, legal and professional bodies to try and give a balanced view of what good practice should look like.

Kathleen Hannon


Firstly, it’s worth noting that many organisations now use the term cost assurance and this has different meanings, so to clarify my answer is based on the cost audit function of cost assurance. Unfortunately I doubt we will ever see any recognised industry or qualification specifically for cost assurance, purely based on the fact cost audit is a very niche discipline making it unviable. Mind there are already industry-recognised standards and qualifications for the multitude of disciplines required for cost audit, for instance, auditor (IIA, AIA), commercial/ QS (RICS), contract management (NEC accreditation) and then there are many accounting qualifications.

David Sharp


Q: 70/80% of cost assurance is undertaken to utilise supply chain data, how do you see us overcoming the challenge of poor data quality/transparency at this level?

To start with, technology and electronic record keeping should help improve the quality of records. If in the past it was necessary to process large numbers of handwritten allocation sheets of varying quality, moving to electronic systems which keep good records of who is working on any given day and the ability to tag that information with a site location or activity, as well as adding a few photos should help make a big difference – one can see a simple app being developed for that purpose.

To ensure such systems are used fully and properly it is also important to make it clear to the supply chain why good record keeping is crucial and why it serves their own interest to do so.

In addition to simply having such obligations, which need to be realistic and achievable, as a contractual obligation, it is worth considering using KPIs, which can be linked to incentives, and regular monitoring of the quality of records. If that is done from day one, rather than late in the day when issues arise (and by which time it may be too late), that is more likely to embed good quality habits with regard to record keeping.

Shy Jackson & Jennifer Varley 

Multidisciplinary Steering Group for cost assurance and audits on infrastructure projects and contracts

Cecelia Fadipe, CFBL Consulting (Chair)
Imran Akhtar, Turner & Townsend
Claire Randall-Smith/Charlotte Hughes, Eversheds Sutherland
Ian Heaphy, INCC/NEC
Gary Bone, Blake Newport
Darren Ward, The Orange Partnership
Tom Leach, Southern Water
Kathleen Hannon, Scottish Water
Shy Jackson/Jennifer Varley, BCLP
Charlotte Edwards, Atkins /SNC Lavalin
Jim McCluskey, Vinci Construction/CICES
David Worsley, Transport for the North
Elliot Patsanza, Ridge & Partners
David Sharp, Mott Macdonald
Michael Bamber, WSP
Chris Richardson, National Highways Justice Secheles, Arup
Chris Leech, Balfour Beatty
Victoria Hill-Stanford/Lisa O’Toole, Network Rail/HS2