Updated: Sep 25, 2020
The Need for Industry Wide Standards for Cost Assurance and Audits of Major Infrastructure Projects
Cost Assurance & Audit Standards
There is presently no standard for cost assurance and audit on major infrastructure projects which complements cost-based contracts where cost assurance and validation is a mandatory requirement. This means that risks persist in the development of competencies, professional training, continuous improvement and correct people behaviours in the industry. Taking this and lessons learnt on Crossrail, Great Western Electrification and Thameslink projects on board, early this year, Network Rail established a standardised approach, through its newly developed cost assurance and audit protocols and training that are now being implemented across its five regions (Wales & Western, Central, Northern, Southern and Scotland & North East) and its supply chain. However, they considered that the optimal benefit for the wider industry would be through infrastructure clients working together with professional bodies, contractors, government and funding bodies to create an industry wide standard and protocols against which future cost assurance improvements and training could be developed.
Cost Assurance & Audit Conference
Consequently, in collaboration with CFBL and Arcadis, it was decided that the 2019 Cost Assurance & Audit Conference be arranged for this purpose. The first phase of the conference that involved jointly engaging infrastructure clients and professional bodies was held on 1st October 2019. The next meeting involving contractors is planned for early Q4 2019 and a final session comprising government and funding bodies will be held thereafter.
Current Issues - External & Internal Drivers of Change
At the start of the conference, external and internal change drivers were examined, in the form of video and newspaper articles along with case studies of major infrastructure projects like HS2, Heathrow and Hinkley. The assessment of how these issues (exacerbated by Brexit and treasury set departmental expenditure limits) were impacting external and internal stakeholders was undertaken.
Infrastructure Projects & Stakeholder Assurance Theory
Next macro and micro socio-economic benefits of infrastructure projects such as innovation, global competitiveness, social value created through regeneration, employment, improved operational efficiency, capacity enhancements and reduction of congestion and pollution were explored. These were examined along with the theory that although external and internal stakeholders had divergent goals, ultimately, they want assurance on three key aspects; delivery, cost and risks.
Audit Categories & Cost Audit Definition
Thereafter, common categories, examples, descriptions, types and distinction between audits e.g. external and internal audit were discussed. Evidence presented at the conference demonstrated that there was minimal available theory, frameworks, standards or definitions for cost audits. Furthermore, what a robust definition of cost audit was and should entail was examined.
The Digital Era
During the conference, the digital era and how technology must now be used to drive cost assurance and improve audit effectiveness was examined. This was considered alongside key benefits such as the use of real time cost reports to improve the timeliness of cost risk decision making, the use of automation to minimise manual errors and the use of data science to quantify cost risks and analyse outputs and data from completed audits. This will provide the added benefit of correctly informing government, funding bodies and management about options, risks and cost on future engineering and infrastructure projects.
An Industry Wide Framework
Next, the need to establish a robust industry wide framework for a cyclical based approach to cost assurance and audit was discussed. This encompassed a broad range of key cost issues that should be considered in developing this framework, such as contract terms, risk quantification, cost reporting, industry behaviours and technology, which were summarised into four distinct areas; compliance, processes, people, technology.
Driving Assurance Through a Rolling Cycle of Cost Assurance Audits
The requirement to drive continuous improvements through rolling cycles of cost assurance audits was deliberated. This included establishing a mechanism and committee to ensure that outputs and lessons learnt from completed audits are fed forward by nominated representatives from a cross section of the industry and ensuring that improvements which can be quantitatively and qualitatively measured are implemented through changes to compliance, contract terms, processes, technology and people behaviours through training.
“Victoria Hill Stanford head of commercial projects spoke about Network Rail’s recently established and implemented CP6 Cost Assurance and Audit Protocols via standardised systems, processes and people training and competency up-skilling to improve behaviours, collaboration and relationships with its supply chain”.
“David Cullen a Senior member of Arcadis’ Cost and Commercial Assurance team and co speaker discussed the key underpinnings of cost assurance audits, the requirement for audit in cost-based contracts, key compliance issues related to staff and labour cost components, including Arcadis’ methodology for a cyclical based approach to Cost Assurance Audits. He showcased two Arcadis automation case studies related to timesheet data extraction and invoice data consolidation, demonstrating and discussing process efficiencies that have been gained.”
Finally, action plans were set out and precise contribution on what clients and professional bodies present would like reformed captured. Two representatives from a client organisation were also nominated for involvement. The conference was successful with representation from professional bodies and several infrastructure client organisations. It ended in an upbeat mode with discussions on sharing best practice and the next steps of further engagement, initially with industry supply chain contractors, consultants and later with government bodies and infrastructure funders e.g. IPA, NAO, DFT for endorsement and sponsorship of the standard framework and charter.
The ICMS www.icms-coalition.org have done some work to establish international standards on cost reporting but more needs to be done in the UK. With several cost risks, multiple methods of costing, reporting, cost auditing and incorrect behaviours on contracts, clearly standards are vital and needed in this area. So, it is important to take this positive bold step in the right direction.
Read the full article by the Chartered ICES below.