Cliff Commended07GMCAG

Contract Audit Manual
GMCAG
GREATER MANCHESTER CONTRACTS AUDIT GROUP
Highly Commended in the CIPFA 2007 Cliff Nicholson Awards.
GM Contracts Audit Group
SRED 1
Contributors (Members of the Greater Manchester Contracts Audit Group):

Blackburn with Darwen BC Blackpool BC Bolton MBC Bury MBC Halton BC Manchester City Council Oldham MBC Rochdale MBC St. Helens Council Salford City Council Sefton MBC Stockport MBC Tameside MBC Trafford MBC Warrington BC Wigan MBC
2 SRED 1
CONTENTS
PART 1
SECTION 1: SECTION 2: SECTION 3:
Background
Introduction Training for Contract Auditors Scope for Joint Working
PART 2
SECTION 4: SECTION 5: SECTION 6: SECTION 7: SECTION 8: SECTION 9:
Pre-Contract
Project Appraisal Assessing the Viability and Competency of Contractors Tendering Procedures Contract Conditions and Tender Documents Insurance Performance Bonds
PART 3
SECTION 10: SECTION 11: SECTION 12: SECTION 13: SECTION 14: SECTION 15: SECTION 16: SECTION 17: SECTION 18:
Current Contract
Monitoring Arrangements Nomination Instructions for Supplies and Sub-Contractors Valuations and Interim Payments Controlling Price Fluctuations Controlling Variations Assessing Applications for Extensions of Time Receipt and Evaluation of Contractual Claims Liquidations and Bankruptcies Site Visits
PART 4
SECTION 19: SECTION 20: SECTION 21: SECTION 22:
Post Contract
Completion and Accuracy of Final Accounts Calculating and Recovering Liquidated Damages Post Contract Reporting Post Completion Reviews
PART 6
SECTION 23 SECTION 24 SECTION 25
Developments
Partnering Private Finance Initiatives Programme Project Management
3 SRED 1
Section 1
Introduction 1. In September 2001 Greater Manchester Contracts Audit Group Members agreed a workplan to develop a risk based approach to the audit of contracts by sharing best practices and producing control matrices on Contract Audit subject areas. The Chief Auditors Group subsequently agreed the workplan that would lead to the production of a Contract Audit Manual for use by all members.
2.
Membership of the Greater Manchester Contracts Audit Group is as stated in the contributors list
3.
Subject areas to be examined were mainly identified from CIPFA publications on Contract Audit and the subject areas were allocated to Group Members (Lead Authority and Assisting Authority) for review. It was agreed that the majority of subject areas reviewed would be recorded in the format of a control matrix to provide comprehensive practical gu idance for auditing that subject area.
4.
The Lead Authority presented the subject area that they had reviewed at Contracts Audit Group Meetings for consideration and agreement by Members with amendments made to documentation presented where required. It was agreed that Bury would maintain and update the Manual and that Lead Authorities would be responsible for updating the subject areas allocated to them and notifying any changes and updates to Bury. Additional subject areas would be added to the manual a s required.
5.
Guidance from CIPFA and the Institute of Internal Auditors (IIA) and the experiences and working practices of Greater Manchester Audit Sections have been consulted extensively in the production of this manual.
6.
The subject areas as defined w ithin the index have been reviewed and incorporated into subsequent sections of this manual. Whilst the Greater Manchester Contracts Audit Group are pleased to share this Manual with other public sector auditors, it is expected that the source of the document be acknowledged in any subsequent audit reports. The Manual must not, without prior permission, be reproduced either whole, or in part, in a commercial context.
7.
8.
NB: It should be noted that whilst the guidance is as comprehensive as possible, it is not claimed to be exhaustive and Auditors will need to use their judgement in prioritising risks and may need to supplement the matrices with their own ideas on risks and expected controls.
GM Contracts Audit Group 4 SRED 1
2.Training for Contract Auditors
RISKS & CONTROLS

Audit Ref Service Subject Prepared By Date Reviewed By Date
2
RISKS
Likelihood H/M/L
TRAINING FOR CONTRACT AUDITORS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 If staff are unaware of regulations, they are unable to comply with them. Specific risks within this overarching risk: y Pre-contract y The number of tenders required by Financial Procedure Rules is not met. y Quotation or tender thresholds are circumvented by the division of an order into multiple smaller orders. y Bonds y Performance bonds are dispensed with afte r tender, but the cost of the same is not deducted from the account. y Variations y Overpayment due to AIs/SOIs incorporating duplicate items from site instructions. y Overpayment due to site instructions being paid at rates other than those tendered in the Bill of Quantities y Overpayment due to fixed cost sums not being removed when calculating extensions of time
Expected
All staff should have access to financial regulations, standing orders and other relevant control documents.
Actual GM Contracts Audit Group 5 SRED 1
2.Training for Contract Auditors
SRED 1
2.Training for Contract Auditors RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 (Cont.) If staff are unaware of regulations, they are unable to comply with them. y Prime Cost & Provisional Sums y Provisional sums and contingencies are not removed from the final account prior to payment. y Prime cost sums are not adjusted prior to payment. y Arithmetic errors Misc.
Expected
Actual 1.2 Lack of standard documentation causes inconsistency and difficulty in appraisal or moderation. Expected Standard documentation is developed, and able to be identified by contract auditors. Records are maintained for auditing daywork accounts and extensions of time.
Actual 1.3 Lack of understanding of specific areas of contract audit that require specialist knowledge e.g. partnering. Expected Identification of areas of contract audit which require specialist knowledge and resulting training of staff working in these areas. Training providers include J. R. Knowles, Stuart Kings, and Ken Odgers.
Actual 1.4 Contract auditors lack of knowledge or understanding is not identified, causing loss of revenue or overpayment of fees by the oversight of valid queries. Expected Weaknesses and gaps in knowledge are identified, and correct practice established. Staff are trained in correct procedure and correct contacts.
Actual
SRED 1
2.Training for Contract Auditors RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.5 The raising of invalid queries causing abortive costs from quantity surveyors or consultants, caused by a lack of understanding of construction industry terminology and procedures, and the responsibilities of professional staff within the construction ind ustry.
Expected
That areas of contract audit which require specialist knowledge are identified, and staff working in these areas trained accordingly. Training providers include J. R. Knowles, Stuart Kings, and Ken Odgers.
Actual
SRED 1
3. Scope for Joint Working
Section 3
Scope for Joint Working 1. 2. Joint working is two or more internal audit sections working together on specific contract audit projects. Blackpool and Warrington explored the opportunities provided by joint working and put forward several approaches ranging from limited working between audit sections to a total joint approach i.e. delivery of contract audit by a consortium. The following suggestions were put forward for discussion: Area Joint purchase of training and trainers shared locally Issues Contract Audit training providers exist and the cost per Authority could be reduced because of economies of scale. Assumes that Authorities approach to Contract Audit is similar and is at the same stage of development. Agreed method of recharge in advance e.g. hourly rate, reciprocal arrangements etc. Confidentiality may be a barrier.
1.
2.
3.
4.
5.
6.
Joint training exercises between Authorities e.g. risk based approach to contract audit, use of interrogation software etc. Sharing of contract audit skills (sharing expertise/experiences) e.g. where auditors dealing with PFI schemes get together to brainstorm key risks. Developing a shared database of contract audit related information e.g. a Contract Audit Manual or an intranet site. Purchase or provision of specialist skills between Authorities e.g. conditions of contract, PFI, M4I, computer audit techniqu es. Agreement would be needed on time/costs. Secondment of staff for development purposes.
Responsibility for updating part of the manual could be allocated to each Authority. Cost and allocation of agreed between Authorities. Could be administer e.g. contract/conditions. time to be participating complex to employment
7.
Joint (consortium service) provisions i.e. one whole contract body for the whole area.
Formal arrangement necessary that may be difficult to administer e.g. employment contract/conditions, employee travelling time. Formal arrangement needed. Agreement of all Authorities. May include other disciplines.
3.
It was concluded that there was little experience of joint working within member Authorities and that the development of such practices requires a proactive approach from individual Chief Internal Auditors and Contracts Auditors. The development of this manual is a good example of joint working across Authorities.
9 SRED 1
4.
4. Project Appraisal
RISKS & CONTROLS

4
RISKS
Likelihood H/M/L
PROJECT APPRAISAL
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Project Initiation 1.1. Officers and Partners are not fully aware of their roles and responsibilities
Expected
Each member of the team has received adequate briefing and training regarding their individual roles and responsibilities .
Actual Expected Reporting lines and responsibilities are detailed to each member of the team.
Actual Expected The project appraisal team consists of the right level of expertise, has an adequate terms of reference and reporting arrangements.
Actual 1.2. The project appraisal process fails to ensure all projects are consistent with corporate/service policies and strategies and the relevant agreed priorities. Expected An agreed strategy or plan exists for the service and it sets out the priorities to be achieved.
Actual Expected The project appraisal compares each option being considered with the strategy.
Actual
10
SRED 1
4. Project Appraisal RISKS

Likelihood H/M/L Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.2 (Cont.)
Expected
As part of the process each option being considered is evaluated and ranked against the priorities in the plan.
Actual 1.3. The project appraisal process fails to confirm that the scheme/project is really necessary and that the selected solution meets the need in the most effective way. Expected The project appraisal includes a business case which provides a description and quantification of the problem, adequately identifies the need and provides a costed solution, having considered all viable alternatives.
Actual Expected Need is assessed against a list of agreed criteria.
Actual 1.4 Adequate budget provision is not considered or finalised. Expected Financial requirements are considered and obtained before the project is progressed.
Actual
11
SRED 1

CONTROLS
Test Ref
EVALUATION
2.0 Project Compliance 2.1. The project appraisal process does not comply with agreed formal procedures and fails to consider all relevant aspects. Expected All schemes over an agreed limit must be subject to a formal project appraisal.
Actual Expected The project appraisal process has agreed objectives and follows a pre -determined brief approved by committee.
Actual Expected The project appraisal brief includes:. Feasibility of the scheme Availability of resources Consideration and evaluation of the options Feedback from previous schemes Feasibility study on all the realistic options Justification of the scheme and whether it meets the needs and broad requirements Consideration of the scheme on the overall programme and strategy Risks of the project failing to meet its objectives Conditions under which the project would become non -viable Demonstrate the cost effectiveness of the scheme after taking into a ccount the previous issues
Actual

CONTROLS
Test Ref
EVALUATION
2.2. The conclusions of the project appraisal process are not taken on board.
Expected
A detailed report of the project appraisal is subject to approval by committee (or to other interested bodies) before the preferred option can be selected and continue as a project.
Actual Expected The project appraisal report covers :

y y y y y y y y y y y y y y
Relationship between the project and the Councils strategic objectives User needs The detailed requirements Site location Land requirements Priority ratings of options Cost implications including total capital expenditure, cash flow and operating costs Funding streams available to support the financing of the projects Revenue alternatives to capital expenditure (if any) Legal and environmental constraints Health & Safety requirement/issues Project timing and phasing Consequences of delay in implementation of the project Full justification for using the preferred solution in preference to th e best solution (if applicable)
Actual 2.3 The project is not aligned with the organisations priorities Expected
y
The appraisal report is reviewed by appropriate Members and Officers prior to inclusion in the capital programme
13 SRED 1
Actual
4. Project Appraisal
3.0 Project Outcomes 3.1 The project fails to meet its objectives Expected The project appraisal details are reviewed prior to the project being approved and progressed.
Actual
14
SRED 1
5. Assessing the Competency and Viability of Contractors
RISKS & CONTROLS

5
RISKS
Likelihood H/M/L
ASSESSING THE COMPETENCY AND VIABILITY OF CONTRACTORS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Competency and Viability 1.1 Works are not completed or carried out to a satisfactory standard. Best value is not achieved from the use of contractors. Expected All prospective contractors should be subject to formal appraisal.
Actual 1.2 Contractors do not provide the necessary information to enable their suitability to be properly evaluated. Expected All prospective contractors should complete a standard application form when tendering for a contract or applying for inclusion on an approved list.
Actual 1.3 Inappropriate contractors selected or included in approved list(s) because incorrect appraisal criteria applied. Expected Formal appraisal procedures should be put in place and regularly reviewed and updated
Actual 1.4 Too many contractors apply for work prolonging the selection process and delaying the contract start. Expected Approved contractor lists should be drawn up and categorised for different types of works and financial bandings. The method of tendering (e.g. restricted, open) should be considered when selecting contractors for works.
Actual
RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.0 Financial Appraisal 2.1 Contractor does not have the financial capability to carry out the works. Expected All contractors considered for contracts should be financially appraised.
Actual 2.2 Financial appraisal is based upon incomplete and/or out of date information. Expected Financial appraisal should be based on sufficient and up to date financial information (including parent and subsidiary companies where appropriate) e.g. last three years accounts.
Actual 2.3 Financial appraisal is based on incorrect or incomplete financial information. Expected External checking should be carried out on contractors to support or replace internal financial appraisals e.g. Equifax, Infocheck, Dunn & Bradstreet, Constructionline etc.
Actual 2.4 Inappropriate contractors selected or included in approved list(s) because incorrect appraisal criteria applied. Expected Criteria should be established for financial appraisers e.g. ratio analysis, internal report, scoring process.
Actual 2.5 Contractor does financial resources complete the works not have necessary the to Expected Financial limits should be set for the maximum value of work that can be awarded at any one time to each contractor.
Actual
16
SRED 1
5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.6 There is no evidence that the contractor has been financially appraised.
Expected
The financial documented.
appraisal
should
be
fully
Actual 2.7 The financial status of a contractor deteriorates resulting in a lack of resources/bankruptcy and failure to meet contractual obligations. Expected Financial information should be received annually from contractors on approved lists so that financial appraisals can be reviewed and updated.
Actual 2.8 Contractors resources may be overstretched owing to commitment to other contracts. Expected Before awarding a contract either via open tender or from an approved list, the contractors current commitments should be ascertained and an assessment made as to whether the contractor has the resources necessary to carry out the work. The contractor should be questioned regarding their intended use of sub -contractors
Actual 3.0 Technical Appraisal 3.1 Work is not up to standard, is not completed on time or at an excessive cost. Expected A technical appraisal should be carried out prior to contractors being awarded contracts or being included on approved lists to ensure that they are capable of carrying out the required work.
Actual Contractors should provide details of recent contracts completed and references for the work carried out.
Expected Actual
17
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
Expected Actual
References should be checked for contractors whose work is not known to the Authority.
Expected Actual 3.2 No evidence that the contractor has the technical expertise Expected
Site visits should be carried out to inspect previous works carried out by the contractor.
The technical documented.
appraisal
should
be
fully
Actual 3.3 Inappropriate contractors selected or included in approved list(s) because incorrect evaluation criteria applied. Expected Evaluation criteria should be established for technical appraisals covering contractor performance i.e. completion of works on time, quality of work, value for money, amount of remedial work necessary, customer satisfaction etc.
Actual 3.4 Contractors performance falls below the required standard. Expected Technical appraisals should be updated with details of contractor performance since the last contract i.e. post contract appraisals carried out.
Actual
18
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.0 Health and Safety Appraisal 4.1 Fatality or serious injury occurs on site because appropriate safety arrangements are not in place. Expected A health and safety appraisal should be carried out on contractors before a contract is awarded or before a contractor is included on an approved list and reviewed for each contract awarded from the approved list.
Actual 4.2 Health and Safety appraisal is not based on complete information. Expected The contractors health and safety documentation should be examined i.e. health and safety policies, risk assessment methodology etc.
Actual Expected External assessments should be taken into account i.e. Constructionline, CHAS etc as well as the contractors track record of accidents at work
Actual 4.3 Inappropriate contractors selected or included in approved list(s) because incorrect appraisal criteria applied. Expected Criteria should be established for health and safety appraisals covering contractor performance i.e. track record of accidents, external assessments etc.
Actual
19
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.4 There is no evidence that the contractor has had a health and safety appraisal that confirms that health and safety requirements have been met.
Expected
The health and safety appraisal should be fully documented.
4.5 Contractor activities fall below the health and safety standards.
Actual Expected
Health and Safety performance should be monitored.
Actual 5.0 Equal Opportunities 5.1 Contractor is in breach of equal opportunities legislation. Expected Contractors should have an Equal Opportunities policy.
Actual 5.2 Contractor treats staff and/or other contacts unfairly. Expected Examine contractors track record on equal opportunities i.e. breaches
Actual 5.3 There is no evidence of appraisal of contractors equal opportunities policies and procedures. Expected The equal opportunities appraisal should be fully documented.
Actual 5.4Contractor fails to maintain compliance with Equal Opportunities legislation. Expected Equal Opportunity appraisal should be carried out regularly.
Actual
20
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
6.0 Insurances 6.1 Contractor has insufficient insurance cover to meet any liability claims. Expected Contractor should be required to provide evidence of insurance cover e.g. evidence of public and employer liability cover, professional indemnity and any other insurance. Levels of cover should be specified in the Councils Contract Procedures Insurance cover must be valid for the full duration of the contract peri od. Actual
21
SRED 1
Assessing the Competency and Viability of Contractors Guidance notes All contractors/suppliers should be subject to a range of checks designed to ensure that contractors used by the organisation deliver the best possible contracting services. The checks should be applied to those contractors submitting tenders for works and those applying to be included on an approved list of suppliers/contractors. In order that the organisation will receive at least a satisfactory level of service and workmanship, contractor/suppliers must be able to demonstrate:
y y y y y y y y
Sound technical knowledge; Adequate taxation certification; Rigorous Health and Safety policies; Non-discriminatory employment practices; Adequate insurance provisions; Environmental awareness; Financial capacity. Capacity in their work programme
22 SRED 1
6. Tendering Procedures Policies & Procedures
RISKS & CONTROLS

6
RISKS
Likelihood H/M/L
TENDERING PROCEDURES POLICIES & PROCEDURES

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 CORPORATE RULES AND PROCEDURES INCLUDING EUROPEAN UNION REQUIREMENTS

1.1 Relevant Officers may not be aware of current tendering requirements and processes.
Expected
Standing Orders relating to this area exist.
Failure to follow EU rules could result in legal action against the organisation. Ignorance of requirements generally could lead to an inconsistent approach, procedures interpreted differently, unauthorised documentat ion and staff errors. Actual Expected Standing Orders should provide precise written instructions on procedures, including those falling within the EU Thresholds.
Actual Expected Standing Orders should highlight the responsibilities of Officers and Members including authorisation and approval levels.
Actual
23
SRED 1
6. Tendering Procedures Policies & Procedures RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 (Cont.) Relevant Officers may not be aware of current tendering requirements and processes. Failure to follow EU rules could result in legal action against the organisation. Ignorance of requirements generally could lead to an inconsistent approach, procedures interpreted differently, unauthorised documentation and staff errors.
Expected
Standing Orders are available communicated to all appropriate staff.
to
and
Actual
Expected
There is compliance with any corporate procurement policy.
Actual 1.2 Policies and Procedures are out of date and fail to reflect current best practice. This could lead to current objectives not being met and procedures failing to cover all key control areas Expected Standing Orders are reviewed on a regular basis.
Actual
Expected Actual 1.3 Policies and Procedures are out of date and fail to reflect current best practice. This could lead to current objectives not being met and procedures failing to cover all key control areas. Actual Expected
Standing Orders are updated, where necessary.
Standing Orders incorporate the C.I.B. Code of Practice.
24
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.0 TENDER METHODOLOGY 2.1 The most appropriate method of selection may not be undertaken. This could lead to an incorrect method being used, an unsuitable contractor being selected, a lack of accountability, collusion and non -compliance with standing orders. Expected Appropriate/approved methods are available to meet varied contract requirements.
Actual
Expected
The different methods of selection are described in procedure documents.
Actual Expected A responsible Officer documents the chosen method of selection.
Actual Expected A responsible Officer documents the reasons for a particular method being chosen.
Actual Expected Appropriate approval for the selection method is sought.
Actual
25
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.0 TENDER PROCESS 3.1 The process documented. is not clearly Expected Procedures comply with the C.I.B. Code of Practice for the selection of main contractors.
Thus the probity of the system could be challenged, leading to a loss of confidence by tenderers, an unsuitable contractor being selected, a lack of accountability, collusion and non compliance with standing orders.
Actual
Expected
Procedures must be comprehensive and ensure fair competition and a consistent approach is maintained.
Actual Expected For every contract awarded the Authority must retain appropriate documentation to support the decision made.
Actual 3.2 Compilation and authorisation of lists is not properly recorded. This could lead to the use of an unapproved list, the compilation of a list that is not at an optimal level leading to poor value for money and an ineffective use of resources. Additionally, claims may be made that the Authority is behaving in an anti -competitive behaviour and the inclusion of unsuitable contractors (both financially and technically).
Expected
A suitably approved record is maintained of all interested Contractors.
Actual
26
SRED 1
27
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.2 (Cont.)
Expected
Tender lists should be maintained at an optimum/appropriate level to ensure maximum value for money.
Actual Expected Regulations specify the maximum and minimum number of tenders to be invited for particular contracts (e.g. 5,000 - 50,000 = 3 written quotes).
Actual Expected Financial references must be obtained and opinions sought on the financial stability of firms.
Actual 3.3 Compilation and authorisation of lists is not properly recorded. This could lead to the use of an unapproved list, the compilation of a list that is not at an optimal level leading to poor value for money and an ineffective use of resources. Additionally, claims may be made that the Authority is behaving in an anti -competitive behaviour and the inclusion of unsuitable contractors (both financially and technically). Expected All references and other documentation should be retained.
Actual
28
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.4 All firms may not be provided with an equal opportunity to submit tenders (e.g. public adverts). This could lead to unfair competition and possible legal action by failing to comply with statutory regulations (eg ojec)
Expected
Adverts should be placed at least 4 weeks before the list is compiled.
Actual Expected Adverts should journals. be placed in appropriate
Actual
3.5 The tender list does not provide an up to date record of Contractors able to undertake the contracts.
Expected
The tender list should be reviewed fully on a regular basis.
This could lead to the appointment of an unsuitable contractor and a list that does not cover current market conditions.
Actual
Expected
Where firms continually fail to submit tenders, they should be deleted from the list.
Actual 4.0 PROCESS DOCUMENTATION 4.1 Procedures for the invitation of tenders may not be documented. This could lead to bribery and corruption if procedures are not followed. Actual Expected Standing orders specify the procedures to be followed.
29
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.2 Documentation does not exist to record the tendering procedure. This could lead to a lack of accountability and no formal terms of reference to follow.
Expected
Any extension of time for return of tenders or changes in information should be notified to all tenderers in writing.
Actual
Expected Actual 4.3 Contractors are not sent full details of the contract. This could lead to bribery and corruption and the risk that documents may be held back by corrupt employees. In addition, envelopes could be opened in error and contractor anonymity will cease and could lead to disqualification. Expected
A formal record should be kept detailing the amounts tendered.
Tender documents should contain standard statements governing rules regarding bribery and corruption.
Actual
Expected
Tenderers should be required to confirm receipt of tender documents and their intention to submit a bid.
Actual Expected Actual Expected Actual The envelope is not marked in any way to identify the contractor who submitted the tender. The envelope should identify clearly that it contains a tender submission.
30
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.4 There is no evidence to record the receipt and opening of tenders. This could lead to envelopes being mislaid, a lack of a separation of duties between the receipt and opening of tenders, potential collusion and tenders being received after the closing date
Expected
The envelope should state clearly to whom the tender should be returned.
Actual
Expected
All tenders should be passed unopened to an independent custodian.
Actual Expected The recipient of the tender documents shall immediately endorse the envelope with the time and date of receipt.
Actual Expected All tenders shall be opened at the same time and key details immediately recorded and signed by the openers.
Actual Expected Records should be kept of all tenders received and identify all those received late or opened in error.
Actual Expected Tenders received after the due date are rejected.
Actual
32
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.5 Tenders are not opened in a timely manner.
Expected
The time and date for returned tenders should be as close as possible to the time and date they are due to be opened.
This could lead to documents going astray, late tenders being included, an unfair advantage to contractors submitting late tenders. 5.0 TENDER EVALUATION 5.1 Insufficient time is given to evaluate tenders, leading to an inappropriate tender being selected.
Actual
Expected
An adequate time period has been approved and documented.
Actual 5.2 Tenders are not evaluated on an equitable basis. This could lead to discrepancies within the evaluation process and a tender may be accepted which may contain errors. Further more, legal claims could arise against the authority. Expected Appropriate price/quality agreed in advance. ratios have been
Actual
Expected
The role of documented.
the
Evaluating
Officer(s)
is
Actual Expected Actual The evaluation and results are documented.
33
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
5.2 (Cont.)
Expected Actual Expected Actual Expected
Procedures are documented in Standing Orders.
Contractors should be advised of any errors immediately.
The above procedure should be undertaken by the Evaluating Officer(s) to provide confidentiality.
Actual 5.3 A lack of documentation means that tenders are evaluated using different criteria. Expected The evaluation process and subsequent results are fully documented.
Actual 5.4 Errors in tenders are not dealt with effectively as procedures may not be known by all officers. This could lead to legal action or the risk of collusion between officers and contractors. Expected Procedures are documented in Standing Orders.
Actual Expected Actual Expected The above procedure should be undertaken by the Evaluating Officer(s) to provide confidentiality. Contractors should be advised of any errors immediately.
Actual
34
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
5.5 Tenders could be considered that do not meet the requirements of the Authority.
Expected
Standing Orders specify the correct procedure and responsibility for collection of tenders.
Actual Expected The results of the evaluation process are documented.
Actual Expected Successful and unsuccessful tenderers are notified promptly.
Actual 5.6 Relevant documentation is not held for a minimum period reducing the effectiveness of an audit trail Expected Minimum retention periods are defined (including retention of unsuccessful bids).
Actual 5.7 The tender document is not examined meaning that the Authority could be overcharged or legal disputes in the event of an error being detected after the contract has been awarded. Expected All successful tenders should be checked for arithmetical accuracy.
Actual 5.8 Tender documents are not held securely resulting in them being mislaid or accessed by unauthorised officers. Expected The exchanged contract should be held in a locked safe with access restricted to authorised personnel.
Actual
35
SRED 1
Tendering Procedures policies and procedures Guidance notes 1. There are four main forms of tendering. These are:
y y y y
Open Tendering; Ad hoc Select List; Special Select List; Standing List.
2.
Standing Orders will explain each of these processes in detail and should be reviewed regularly to take account of new practices in procurement (eg e tendering, partner ships etc). Open Tendering. This method should be used for contracts for expenditure over an approved pre -determined level as laid out in Standing Orders (eg 1m), when it is in the Councils interest to invite tenders from a wide range of contractors. Ad Hoc Select List. Public notice is given using newspaper or journals informing potential contractors of the contract into which the Council wish to enter and inviting those interested parties to apply for permission to tender. Special Select List. A delegated Officer with responsibility for a particular contract may draw up a select list from an existing approved list (eg Constructionline). Standing List. Compiled and maintained by an authorised body, eg, Executive Sub Board Committe e for specific categories of works. 4. Any electronic system used in the tendering process should emulate the manual processes prescribed in your relevant Standing Orders Relating to Contracts. 5. The matrix covers the following key areas within the tendering process. Policies/procedures, tender methodology, tender process, documentation and evaluation.
3.
36 SRED 1
7. Contract Conditions and Tender Documents
RISKS & CONTROLS

7
RISKS
Likelihood H/M/L
CONTRACT CONDITIONS AND TENDER DOCUMENTS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 Works commence using terms and conditions that are inappropriate or out of date, creating the risk of dispute, delays and/or additional costs.
Expected
The organisation should have a policy that is reviewed regularly, specifying the standard forms of contract that should be applied to each type and size of project.
Actual Expected A recognised form of contract is utilised. This is periodically reviewed and updated.
Actual 1.2 A scheme is let without the Authoritys interests being protected by a formal contract. Expected All employees involved in accepting tenders from contractors should have access to relevant financial regulations & instructions (e.g. standing orders, contract procedure rules etc.), and this should be formally evidenced.
Actual Expected Standing orders/financial regulations should be periodically reviewed and updated.
Actual
37
SRED 1
7. Contract Conditions and Tender Documents RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.3 A contract containing illegal or ambiguous terms and conditions is signed by the relevant parties (contractor/council). This may include amendments for local requirements under framework agreements.
Expected
Before formal contracts are sent out to the contractor, any amendments to the standard terms and conditions of the contract should be authorised by the organisations legal services section.
Actual 1.4 Works commence on a scheme where formal documentation is incomplete or not in place. The lack of specific clauses could lead to the risk of dispute or delays escalating Expected Contracts are formally completed by Legal, and clearing memos are sent to the relevant contract stakeholders (i.e. client, Qs /engineer, finance/internal audit).
Actual 1.5 Signed agreement does not include contingency provisions, to cover the Authority in case the contract does not progress as planned. Expected Before the formal contract documents are sent to the contractor for signing, or exchange, the employer should check that the documents are complete and accurate e.g. that a rate of liquidated and ascertained damages is stated, insurances have been obtained/confirmed and, if necessary, the required performance bond has been obtained.
Actual Expected A recognised form of contract is utilised.
Actual
38
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.6 The contractor starts on site before an agreement is signed.
Expected
The design team (e.g. Architect) should ensure that the contractor is authorised to take possession of the site and commence work, immediately confirmation has been received from the employer that all the necessary approvals, documents (including the signed contract), insurances etc. are in place.
Actual 1.7 The contractor could submit a claim for loss and expense, as they were not allowed full prompt access to the site. Expected The design team (e.g. Architect) should ensure that the contractor is authorised to take possession of the site and commence work, immediately confirmation has been received from the employer that all the necessary approvals, documents (including the signed contract), insurances etc. are in place.
Actual Expected Before a date is agreed on which the contractor will commence work, the design team should check with the employer that such date is in order e.g. that the contractor will not be prevented from having full access to the site.
Actual 1.8 Contract let with an incorrect value for the scheme quoted in the contract documentation. Expected Checks should be made to ensure that the contract sum, or target price/guaranteed maximum price under framework agreements, stated in the contract documents is in accordance with the amount tendered by the winning firm, taking into account any post tender adjustments.
Actual
39
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.9 The Organisation will allow the contractor to commence work without the security of a formal contract.
Expected
Checks should be made before the contract commencement date has been agreed and the contractor asked to commence work, that contract documents have been exchanged.
Actual Expected Requisite approval standard process. obtained for any non
Actual 1.10 The Organisation is at risk of receiving a claim for delayed acceptance of a contractors tender or an increase in the schemes cost. Expected Procedures during the post tender stage, including the evaluation and checking of tenders, should be planned to be completed within the tender acceptance period stated in the form of tender.
Actual Expected Checks should be undertaken when contracts are about to be exchanged.
Actual 1.11 Contracts could be let to the wrong firm. Expected Checks should be made at the time contracts are about to be exchanged, that appropriate approval has been obtained for the firm to be awarded the contract at the amount stated. This should also include reference to the results of any tender evaluation exercise, which may have recommended the acceptance of a tender other than the lowest.
Actual
40
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.11 (Cont.)
Expected
For partnering schemes a robust selection panel should be in place to ensure that the contractor meets the appropriate partnering selection criteria with the required mix of Partnering Potential, Quality, Social Inclusion, and Price.
Actual 1.12 Contract documents may be signed by an inappropriate person. Expected Before the design team is given clearance to instruct the contractor to take possession of the site and commence work, the employer should check that a formal contract has been signed or exchanged.
Actual Expected The employer should check that the documents have been signed by individuals who have the necessary authority to bind their respective organisations to the agreement.
Actual Expected The signing of documents on behalf of the employer should be restricted to an authorised list of employees. The organisations solicitors should ensure that only employees on the approved list are allowed to sign.
Actual
41
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.13 Fire or malicious intent destroys original contract documentation
Expected
All contract originals are stored in a suitable, secure location such as a fireproof safe. Ensure contract documents are filed in separate, labelled storage pouches.
Actual 1.14 Contract documents are misplaced. Expected Access to the strong room should be restricted and a record of whereabouts of documents kept. The contents of the contracts store should be checked for completeness on a regular basis.
Actual Expected When a request is made to borrow specific contract documentation, a record should be made of who has taken the documents and when they will be returned.
Actual 1.15 Contract documents destroyed before the contract becomes statute barred. Expected At conclusion of the contract, a destruction date is entered on contract/in register, and a statutory retention period is applied. The authority that an officer has for destroying documents should be recorded before files are destroyed.
Actual 1.16 Under partnering schemes the contractor may submit invoices for values above actual cost and agreed profit elements. Expected The contract/framework agreement should specify rights of access to contractors records under open book accounting arrangements.
Actual
42
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.17 Disallowed costs, which the Authority is not liable to pay for, may be charged by the contractor.
Expected
The Authority should specify their approach to disallowed costs in tender documentation. Contract documents should also clearly define what is deemed to be a disallowed cost.
Actual 1.18 The contractor may submit invoices for sub contract work which has not been completed, or for materials not yet on site. Expected The contract documents should clearly define the payment terms for sub contractor and supplier payments. Any agreements to pay on an accruals basis should be recorded in the contract, specifying that payments will only be made on actual costs incurred.
Actual Expected It should be specified in the contract documents that any materials paid for should have been delivered to site and are the property of the Council.
Actual
43
SRED 1
8. Insurance
RISKS & CONTROLS

8
RISKS
INSURANCE
CONTROLS Test Ref EVALUATION
1.0 Qualification 1.1.Contract works and services are not adequately insured, or do not comply with a corporate policy, giving rise to financial loss to the Authority. Expected Approved minimum insurance requirements for contractors and consultants must be in place and their adequacy reviewed centrally by a nominated officer.
Actual Expected Regular and comprehensive training is undertaken for all contract administrators to ensure awareness and understanding of those minimum requirements and any additional cover required under the contract.
Actual Expected Verification and monitoring of the required insurance cover of contractors/consultants to be undertaken centrally and included within the normal contract process.
Actual Expected Decision on the appropriate provision for each contract to be taken by the contract administrator and notified to the section undertaking the verification/monitoring process.
Actual
8. Insurance
45
SRED 1
8. Insurance RISKS
CONTROLS
Test Ref
EVALUATION
1.1.(Cont.) Contract works and services are not adequately insured, or do not comply with a corporate policy, giving rise to financial loss to the Authority.
Expected
Regular reviews, at least annually, of the procedures to ensure that minimum insurance provision (Employers and Public Liability) is in line with Insurance Market conditions.
Actual 1.2 Incomplete tender documentation prevents the Council from making the appropriate insurance provision under the contract. Expected All tender documents and conditions issued must specify the insurance requirements under the contract.
Actual 2.0 Verification 2.1 Appropriate insurance cover may not be in place prior to commencement of the contract. Expected Verification that the necessary insurance is valid for the required period must be undertaken centrally prior to commencement of the contract.
Actual 2.2 The contractor/consultant may cancel the policy without the knowledge of the Council. Expected The Council's interest must be registered with the insurer. This must be done centrally as part of the verification process.
Actual 2.3 Insurance companies may not be able to meet their obligations under the contract. Expected Proposed insurance companies must be assessed centrally as to their ability to meet their commitments.
Actual
46
SRED 1
8. Insurance RISKS
CONTROLS
Test Ref
EVALUATION
2.4 Insurance claims are not pursued where appropriate.
Expected
Documented procedures must set down for prompt processing of claims. All relevant personnel must be aware of and comply with these procedures.
Actual
47
SRED 1
8. Insurance
Insurance Guidance notes CIPFA control matrices (ICQ's, Compliance Tests and Risk Identifiers) present a comprehensive and detailed assessment of the requirements under the system for contract insurance. The following notes should be used as a summary of the main practical points when undertaking an audit review of this system. INSURANCE (i) Insurance held by the contractor, ie Employers Liability and Public Liability Minimum requirements must be state d on all tender information. Those minimum requirements must have been assessed by the Council's Risk/Insurance Manager. Actual policy details must be verified and the insurance company vetted by the Insurance Section prior to the contractor being allowed on site. Insurance claims statistics generally determine what the current minimum levels should be on construction EL and PL, so the Insurance Section should review these periodically. Currently OMBCs minimum requirements are: EL 10m, PL 5m (Oct. 03). Insurance of the work - The contract form being used will normally determine the responsibility for insuring the various elements within the contract. Thus Supervising Officers must assess what is to be insured and the value and must liaise with the Insurance Section to verify that the contractor and/or the Council has the required cover prior to the start of the contract. Insurance held by consultants, ie. Professional Indemnity Insurance Minimum requirements must be stated on all tender inf ormation and again the Insurance Section must have assessed those requirements, verified the actual policy details and vetted the insurance company prior to contract finalisation. This type of insurance is on a claims made basis, therefore it must be in force at the time of the claim. Thus contract documents must stipulate that the insurance is maintained for a suitable period. Also the cover is "per event and in the aggregate per annum" and so a claims history may be relevant intelligence prior to sele ction of consultants for tender. Currently OMBCs minimum requirements are : Prof. Ind Ins.2m (Oct.03)
(ii)
(iii)
LATENT DEFECTS INSURANCE This is a possible solution to the problem of resolving the question of "Latent Defects" on a contract ie defects that arise a fter the end of the maintenance period. Question - How does one hold to account a contractor and/or consultant for defects that may arise years after they have finished the job? Contractors and consultants may not be in business by then and consultants may not have maintained their professional indemnity insurance. (See (iii) above). Current Answer - Litigation, which is nearly always protracted and costly.
48 SRED 1
8. Insurance
The Latham Report (page 106), recommended the introduction of compulsory latent defects insurance over a ten year period, the premium to be shared by the principal parties to the contract. This would appear to be the best way forward to achieve a practical solution to the problem, but one for the future. NB. Full involvement by the Council s Legal and Insurance Sections is essential during audit review of the system of contract insurance.
49 SRED 1
9. Performance Bonds
RISKS & CONTROLS

9
RISKS
Likelihood H/M/L
PERFORMANCE BONDS
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Organisation No provision exists for additional costs incurred due to a contractor's non performance, or there is no corporate approach to the provision. Expected An approved policy must be in place and its effectiveness monitored by a nominated officer.
Actual Expected Decision on the appropriate provision for each contract to be taken centrally by a nominated officer, following an assessment of the contractual risk and the most cost effective method of providing for that risk.
Actual Expected Actual Expected Regular and comprehensive training is undertaken for all involved in the contract process. Contract Administrators are aware of and understand the Policy.
Actual Expected A regular review, at least annually, of the Policy to ensure that decisions on provision are in line with the contractual risk and are cost effective.
Actual
50
SRED 1
9. Performance Bonds RISKS

Likelihoo d H/M/L Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.2 Incomplete tender documentation prevents the Council from making appropriate provision for contract non performance.
Expected
All tender documents and conditions issued must specify the bonding policy and its requirements.
Actual 2.0 Application 2.1 Appropriate provision may not be in place prior to commencement of the contract. Expected The legal documentation must be completed prior to the commencement of the contract.
Actual 2.2 The provisions may not give appropriate protection to the Council's financial position. Expected The terms and conditions of the bond must be drafted/agreed centrally by the Council's Legal Division.
Actual 2.3 External sureties may not be able to meet their responsibilities under the provisions of the bond. Expected The Council's minimum requirements for external sureties must be stated within the bonding policy and notified to tenderers.
Actual Expected There must be a procedure in place to verify that sureties conform to Council requirements prior to progressing the bonding process.
Actual
51
SRED 1
9. Performance Bonds RISKS

CONTROLS
Test Ref
EVALUATION
2.4 The provisions of an external bond may cease before the contractor has been absolved from financial liability.
Expected
The bonding policy must state at what stage of the contract the bond will be released.
Actual Expected The Council's Legal Division will not release the bond until the contract supervisor/authorised officer has evidenced that the necessary stage of the contract has been achieved.
Actual 2.5 Additional costs are not pursued following non -performance by the contractor. Expected Documented procedures must be set down for prompt recovery of costs under the bond. All relevant personnel must be aware of and comply with these procedures on every occasion following non-performance.
Actual
52
SRED 1
9. Performance Bonds
Performance bonding Guidance notes CIPFA control matrices (ICQ's, Compliance Tests and Risk Identifiers) present a comprehensive and detailed assessment of the requirements under the systems for contract performance bonding. The following notes should be used as a summary of the main practical points when undertaking an audit review of this system. PERFORMANCE BONDS (i) Contract bonding, is part of a family of contract procedures and so must not be reviewed in isolation. The degree of contractor vetting and perfo rmance monitoring undertaken by the organisation will affect the policy and procedures adopted under performance bonding. (ii) Is current policy cost effective and does it offer real prospect of recovery of additional cost? A disadvantage of performance bonds is that payments are not received until well after completion of the contract. The Institution of Civil Engineers has incorporated a default bond, in conjunction with ICE 7th Edition standard form of contract, which enables the employer to claim under the bond, prior to completion of the works. Thus it may be possible to adapt the bond for use with other contracts if it is deemed suitable. this would have to be done via the proper legal procedures. (iii) Sureties must be vetted., eg. Oldham will only accept a bank or building society deemed suitable by the Treasury Management Section, or an insurance company that has at least a 'BBB' rating on the latest monthly Standard and Poor's International Insurer Ratings List. (iv) All parties involved mus t be aware of the requirements under the bonding rules and all Council officers must understand their role. i.e. Contractor (at tender stage) Contract supervisor Legal Section Insurance Section
(v) Members will find the results of the questionnaire on external and internal bonding policies of Greater Manchester Councils carried out by Tameside MBC, in February 2001, to be a useful reference work. NB. Full involvement by the Councils Legal and Insurance Sections is essential during a udit review of the system of Performance Bonding.
53 SRED 1
10. Monitoring Arrangements
RISKS & CONTROLS

10
RISKS
Likelihood H/M/L
MONITORING ARRANGEMENTS
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Progress 1.1 Progress may not be in line with the plan. Expected Actual Expected Regular reports (to a predetermined timescale) should be submitted to the client comparing actual progress to the planned progress. A system to monitor predicted or anticipated delays should be in place.
Actual 1.2 The asset may not be available on schedule. Expected Actual Expected The contract provides for the recovery of additional costs ie liquidated and ascertained damages. There are clear lines of communication and responsibilities for taking remedial action.
Actual 1.3 Progress may be unavoidable delays. hindered by Expected A formal reporting process detailing the causes and proposed corrective action of any delays should be in place, and be subjected to an approval process.
Actual
54
SRED 1
10. Monitoring Arrangements RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.3 Identified problems may not be rectified promptly or in line with requirements.
Expected
Progress on any applied corrective action should be reported detailing its success and illustrating how it is complying with requirements.
Actual 1.4 Inappropriate working practices may result in delays due to personal injury. Expected Incident logs should be maintained on site with a periodic report (or performance measure where applicable) completed. A record of all site visitors should be maintained. Safety precautions should be clearly visible and compliance enforced, with any breaches recorded.
Actual 1.5 Quality of materials, finishes and work may not meet the required minimum level, resulting in delays in completion. Expected Evidence should be retained to support the contractors compliance to quality requirements, variance should be reported and corrective action initiated immediately any failures are identified.
Actual 2.0 Reporting 2.1 Reports may not contain the level of detail required to support the management function, they may be incorrect or incomplete. Expected Quality standards detailing content, minimum requirements and verification processes applied should be defined at the outset of any contract.
Actual
55
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.2 Reports may be inappropriately directed to the wrong level of management or staff resulting in appropriate actions not being taken or the wrong conclusions being drawn.
Expected
Responsibilities relating to the contract should be fully defined with frequency and report requirements defined.
Actual 3.0 Valuation Payments 3.1 Contract costs may escalate and exceed the available funding or budgets. Expected There should be a system for monitoring expenditure against the spending programme.
Actual Expected There must be procedures for approving and providing additional funding as a result of agreed cost increases.
Actual Expected The financial position of the contract should be reported regularly to the managing body.
Actual Expected The financial position of the contract should be reported in line with defined frequencies to the relevant officers.
Actual
56
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected
There must be documented procedures for the approval and valuation of contract cost variations.
Actual 3.2 Incurred costs through stage payments may not be adequately supported or the information to substantiate charges may not be available to support costs. Expected Detailed records to support all payments should be maintained. This should be supported by comprehensive records on site which detail operatives, site condition, variations (with approvals), materials and photographic evidence of any possible area which could result in dispute.
Actual Expected Detailed records to support all payments should be maintained. All payments should be authorised and supported by confirmation that payments actually reflect the work carried out.
Actual 3.3 Claims costs may escalate out of control. Expected Clear well defined procedures to promote prompt resolution of contractual disputes at the lowest possible level of contract administration.
Actual
57
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.4 The client or contractor may dispute claims or payments.
Expected
There should be comprehensive records on site which detail operatives, site condition, variations (with approvals), materials, downtime and photographic evidence of any possible area which could result in dispute.
Actual 4.0 Improvements 4.1 Inexperienced or inadequately qualified staff may be tasked with essential roles in the contract monitoring process. Expected Essential officer skills are defined and adequately skilled, trained or qualified persons fill posts. A process to identify training needs is in place and applied.
Actual Expected Compliance to statutory, corporate, legislative and best practice is verified through prescribed management checks.
Actual 4.2 Improvements in working practice may not be identified for future use and poor practice perpetuated. Expected Process of assessment and review of the project and a forum for collating new ideas, methods & also pitfalls to be avoided for future reference.
Actual
58
SRED 1
10. Monitoring Arrangements
10. Monitoring Arrangements Guidance notes 1 The key concerns within any contract is that it is not completed on time and expenditure exceeds the available budget. This section seeks to identify the key risks associated with monitoring the contract and classifies them into four areas:
y Progress - risks and controls concerned with the completion of the contract on time. y Reporting - risks and controls to evaluate the distri bution of the monitoring information. y Valuation payments - risks and controls concerned with costs of the contract. y Improvements - risks and controls to ensure that officers tasked with contract control are suitably qualified and any lessons learned are disseminated to develop best practice.
The majority of information relating to a contract will be available through various officers of the Authority (Partner organisation /consortium), including Engineers, Quantity Surveyors, Site Supervisors, Project Ma nagers and Procurement staff. Throughout the audit process and for each of the above elements the following four criteria should remain as a focus for the review:
y frequency - that staff are carrying out a formal review of the contract position. y timeliness - that information used to inform the contract evaluation process is as up to date as possible. y completeness - all information relevant to the contract is incorporated in the monitoring process. y accuracy - that the information used is accurate.
The above points should be linked to the relevant procedure guides, standing orders and regulation of the Authority to form the basis of evaluation. 4 This section acknowledges that variations, unavoidable delays, and damages are mentioned and the proces ses around the administration and management of these elements should be considered as part of the monitoring process. It should be noted, however, that detailed matrices on these elements of the contract process are contained within their own sections of this manual.
59 SRED 1
11. Nomination Instructions for Suppliers and Sub Contractors
RISKS & CONTROLS

11
RISKS
Likelihood H/M/L
NOMINATION INSTRUCTIONS FOR SUPPLIERS AND SUB-CONTRACTORS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 The tendering process may not be transparent, leading to the risk of fraud (i.e. connected parties), and poor value for money being obtained for works commissioned.
Expected
The employer should have a policy document (e.g. standing orders) that specifies the means of appointing sub -contractor work. This could be by competitive tender or use of other selection criteria under partnering arrangements.
Actual Expected The employer should ensure that adequate checks are contained within the selection process to ensure that the selected nominee is the most appropriate and best value in the circumstances. In addition, that the selection criteria is fair and is applied equally to all potential nominees.
Actual Expected A reasonable objection against the appointment of a nominated sub -contractor, made by the main contractor, should lead to another sub contractor being put forward. (This may not be applicable under partnering with partner contractors usually choosing their own sub contractors or their own company subsidiaries).
Actual
60
SRED 1
11. Nomination Instructions for Suppliers and Sub Contractors
61
SRED 1
11. Nomination Instructions for Suppliers and Sub Contractors Likelihood RISKS H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 (Cont.) The tendering process may not be transparent, leading to the risk of fraud (i.e. connected parties), and poor value for money being obtained for works commissioned.
Expected
The employer should ensure that all documents relating to the selection process are retained for future inspection if required. In particular, the decision making process by which firms were included on the tender short list, and the methods of evaluating tenders received and identifying the best should be formally documented. If other selection criteria under partnering arrangements is used this should be clearly documented to demo nstrate the reason for selection.
Actual Expected When compiling tender short lists, the employer should ensure that the requirements of the EC Works Directive and, if appropriate, the EC Supplies Directive, are adhered to.
Actual Expected Tender documents should provide for the main contractor the opportunity to price for profit and attendance on the nominated works. These prices should be properly applied in the evaluation of the nominated works.
Actual
62
SRED 1
11. Nomination Instructions for Suppliers and Sub Contractors RISKS

CONTROLS Expected
Test Ref
EVALUATION
2.1 Poor Value for Money may be provided by suppliers.
Works carried out by the nominated sub contractors and appropriate personnel should properly and adequately supervise goods delivered by the suppliers. Also, the work to be undertaken or goods to be supplied on each project should be clearly identified.
Actual Expected
Procedures should exist that check the quantity and quality of materials prior to their inclusion in the works.
Actual
2.2 Sub Contractors may not operate in accordance with main contract conditions.
Expected
The nominated sub-contractors application for an extension of time or other contract variations should be processed in accordance with conditions in the contract.
Actual Expected
In the event of re -nomination of a sub contractor, all terms should be in accordance with the contract.
Actual Expected
Any extensions to or over run of the contract should be dealt with in accordance with the conditions of the contract.
Actual
63
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 Incorrect/inappropriate payment may be made to sub contractors.
Expected
The valuation of work completed should be done in accordance with the conditions of the contract.
Actual Expected Such advice or notification regarding the amount payable should be documented in the contract file.
Actual Expected Payment should only be made to the main contractor for sub contracted work, after proof has been received from the main contractor that the sub contractor has been paid.
Actual Expected If the main contractor failed to pay the certified amount to the nominated contractor/supplier, the Employer can make direct payment out of the money due to the main contractor to the nominated sub-contractor/supplier. However, if the main contractor goes to liquidation, such payments should cease forthwit h.
Actual 3.2 Incorrect/inappropriate payment may be made to sub contractors. Expected Direct payments to nominated sub -contractors should only be made within the terms of the contract.
Actual
64
SRED 1
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.2 (Cont.)
Expected
Early final payment to sub contractors should be dealt with, within the conditions of the contract.
Actual Expected A sample of payments should be checked for their compliance with the terms and conditions of the contract.
Actual
65
SRED 1
12 Valuations and Interim Payments
RISKS & CONTROLS

12
RISKS
Likelihood H/M/L
VALUATIONS & INTERIM PAYMENTS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1. Authority 1.1 Payments to contractors are not made in accordance with standing or ders and financial regulations. This may lead to incorrect, unauthorised or invalid payments being made to contractors, disputes, and potential legal claims against the Authority. Expected Financial regulations and/or standing orders should outline the procedures and responsibilities for payment to contractors.
Actual
Expected Actual Expected
All payments to contractors should be cert ified by an authorised officer.
A list of employees authorised to certify payments to contractors is maintained, including, where applicable, a sp ecimen signature.
Actual Expected Where electronic authorisation is allowed, authorised officers use passwords. A log is maintained of all authorisations and this is independently checked on a regular basis.
Actual
66
SRED 1
12 Valuations and Interim Payments RISKS

CONTROLS
Test Ref
EVALUATION
1.2 Payments to contractors may not be properly calculated and checked. This may lead to incorrect payments being made to contractors, disputes, and potential legal claims against the Authority. Overpayments will have a financial impact on the Councils monies.
Expected Actual
A second employee checks certificates before payment is made.
Expected
Detailed valuations should be prepared to support the issue of interim certificates. These should be signed by an authorised officer .
Actual Expected Measurements submitted by the contractor, or prepared by the quantity surveyor or engineer, should be checked and agreed before issue of the valuation.
Actual Expected Records maintained by the employer, or by the quantity surveyor or engineer, should be sufficient to allow the verification of previous valuations and certificates issued.
Actual Expected Valuations should be endorsed to show that the document has been checked by the person responsible.
Actual
67
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.2 (Cont.)
Expected
Where the verification of valuations is carried out by more than one person, there should be a means by which each is aware of their respective duties.
Actual Expected There should be a record of all payments made to each contractor and details of to what the payment relates (e. g. period of work charged for).
Actual Expected Amounts included in respect of nominated sub contractors and suppliers should be supported adequately (e.g. invoices prepared in accordance with tender or quotation).
Actual 2. Completeness 2.1 Records are not updated when payments are made. Expected Manual and computer records should be updated promptly and fully to show payments made, with responsibility for this function clearly defined.
This may lead to duplicate /incorrect payments, disputes and claims against the Authority.
Actual
Expected Actual
Certificate numbers are marked sequentially.
68
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected
There should be sufficient reference within valuations regarding the method of measurement, bill references, etc.
Actual 2.2 There is a lack of management control within the system. Expected Items such as forecasted overspends, variations exceeding the contingency sum, significant variances in quantities, etc should be identifiable by management and investigated independently.
This may lead to incorrect payments, disputes and claims against the Authority. 3. Measurement 3.1 Incorrect rates and prices are used.
Actual
Expected
All rates and prices included in interim valuations should be checked and agreed to the contract.
This may lead to incorrect payments, potential disputes and claims against the Authority.
Actual
Expected Actual
Valuations should be checked for arithmetical correctness.
69
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected
Variations should be valued in accordance with the contract terms (e.g. dayworks should be used only if it is not possible to apply the rates and prices stated in the contract specification and/or bill of quantity).
Actual Expected On variable price contracts, the contract price fluctuation calculations should be checked to ensure that they are in accordance with the contract.
Actual Expected Deductions in respect of retention payments should be calculated in accordance with the terms of the contract and applied correctly to each interim valuation.
Actual Expected Appropriate allowance should be made for deletion of prime cost sums, provisional sums, credits and contingencies.
Actual Expected Previous payments on account should be deducted from the total work value in order to obtain the appropriate net payment due.
Actual
70
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected
Liquidated damages should be calculated in accordance with the contract and deducted, where appropriate, from the net amount payable.
Actual Expected The employee responsible for certifying payments should be aware of the contract sum and the procedure to be followed when an interim certificate is received which would, if paid, cause the expenditure on the contract to exceed the original approved budget .
Actual Expected Preliminary costs should be verified as appropriate to the stage of the contract (e.g. setting up and dismantling costs).
Actual 4. Timeliness
4.1 Contract payments and /or valuations are undertaken later than defined within the terms of the contract. This may lead to disputes/claims against the Authority for late payment
Expected
Measurements should be verified promptly where the work is to be enclosed or concealed by subsequent works.
Actual Expected Interim valuations should be prepared by the quantity surveyor or engineer in accordance with the terms of the contract (e.g. at intervals of no less than four weeks).
Actual
71
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.1 (Cont.)
Expected
The architect or engineer in accordance with the terms of the contract should issue interim certificates.
Actual Expected Payment should be made to the contractor within the timescales specified in the contract.
Actual Expected The certificates should indicate the date by which payment is due.
Actual Expected Checks should be undertaken to ensure that the period between valuations remains consistent.
Actual
72
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
5. Regularity
5.1 Incorrect tax deductions /VAT payments are made. This may lead to penalties /legal action against the Authority. This could have financial implications for the Authority. The reputation of the Authority could be damaged if tax/vat rules are not adhered to.
Expected
Procedure for the treatment of tax should be clearly defined, and staff responsible should sign to evidence awareness.
Actual Expected Payments should only be paid gross to contractors having a valid 714 sub -contractors tax certificate (or certifying document, for companies).
Actual Expected Tax certificates and documents should be confirmed as being valid, up to date and signed by the company secretary.
Actual Expected The organisation should insist on sight of the original certificate where appropriate.
Actual
73
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
5.1 (Cont.)
Expected
Sufficient records and copies of the details of contractors 714 certificates should be maintained.
Actual Expected Where the contractor does not have a valid tax certificate or document, the organisation should calculate tax deductions in accordance with the Inland Revenues directives.
Actual Expected The organisation should ensure that VAT is only paid where a bona fide VAT invoice or VAT receipt is received from the contractor.
Actual 6. Ownership 6.1 Payments may be made in relation to assets not used within the contract. This may lead to fraudulent valuations, additional costs to the Authority, disputes and potential legal proceedings. Expected All materials/stocks/assets should be appropriately recorded at the point of receipt.
Actual
Expected
Periodic on site stock checks should be undertaken and recorded /evidenced.
Actual
74
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
6.1 (Cont.)
Expected
Amounts payable in respect of any goods or materials on or off site, and not yet included as part of the permanent works, are calculated as provided for in the appendix to the form of tender, and are subject to ascertainment of title.
Actual 7.1. Items used in the contract are not charged for correctly. Expected Where applicable, amounts payable in respect of prime cost items should be supported by invoices accompanied by proof that these invoices have been paid.
This may lead to improper payments, disputes and legal action.
Actual
Expected
Where possible, checks should be made to ensure that the best value for money was obtained in purchasing these items.
Actual 8. Transaction Streams
8.1 Payments damaged, stolen.
records
are
lost,
Expected
The documents supporting payments to contractors should be held in a secure place with access restricted to authorised personnel only.
This may lead to additional costs, incorrect payments, disputes and legal action.
Actual
75
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
9. Permanent Records 9.1. Unauthorised personnel process interim certificates. Expected There should be restricted access to the part of the creditors system computer program, which allows processing of payments to contractors (i.e. a separate password for this menu option).
Collusion between officers and contractors leading to incorrect or fraudulent payments being made
Actual
Expected
Staff should be instructed to keep all account passwords confidential.
Actual Expected Individual and sub -menu passwords, together with the system password, should be changed regularly, and changed immediately when relevant staff leave.
Actual Expected Access to the system should be restricted to a limited number of authorised terminals.
Actual 9.2. Data held on computer files is not adequately backed up or secured. Expected Back up copies of files should be taken immediately after an update and also at appropriate intervals. A copy should be held off site.
This may lead to data /information loss with consequent additional costs.
Actual
76
SRED 1
13. Controlling Price Fluctuations
RISKS & CONTROLS

13
RISKS
Likelihood H/M/L
CONTROLLING PRICE FLUCTUATIONS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 Price fluctuations are raised in error due to inaccurate valuations or calculations.
Expected
The design team (e.g. quantity surveyor) should ensure that procedures for valuing works in progress incorporate adequate checks on each contract to ensure that, when necessary, price fluctuations are prepared in accordance with the terms and conditions of the respective contract.
Actual 1.2 Erroneous or fraudulent claims for price fluctuations are submitted and subsequently paid. Expected The design team (e.g. quantity surveyor) should ensure that procedures for valuing works in progress incorporate adequate checks on each contract to ensure that, when necessary, price fluctuations are prepared in accordance with the terms and conditions of the respective contract. In particular, that price fluctuations are only calculated when specifically provided for by the terms and conditions of the respective contract.
Actual
77
SRED 1
13. Controlling Price Fluctuations RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.3 An incorrect figure is quoted in the interim valuation due to arithmetical errors occurring in the calculation of price fluctuations.
Expected
The design team (e.g. quantity surveyor) should ensure that procedures for calculating price fluctuations incorporate full computation checks on the arithmetic and castings within the calculations. Checks should also be made to ensure that any indices or price bases used in the calculations have been stated correctly.
Actual 1.4 Fluctuations are calculated in such a way as to benefit the employee, the contractor, or a third party. Expected A senior member of the design team (e.g. quantity surveyor) should periodically check calculations in respect of price fluctuations to ensure that they are valid and accurate.
Actual Expected Documentary evidence is retained to demonstrate the calculation and approval of all price variations.
Actual
78
SRED 1
14. Variations
RISKS & CONTROLS

14
RISKS
VARIATIONS
1.0 Authorisation 1.1 Cost adjustments as a result of the issue of unauthorised variations may not be picked up by QS/Engineer. Expected Variation Orders (VOs) are only issued by officers authorised to do so under the terms of the contract.
Actual 1.2 No formal accountability. authorisation or Expected All VOs are signed & dated by the relevant officer under the Contract (JCT = Architect; ICE = Engineer)
Actual 2. Evidence 2.1 Disputes could arise regarding payment for additional work/omitted work. Expected All agreed VOs are evidenced in writing, and those valued above a de-minimis amount are recorded in standard format.
Actual 2.2 Double charging valuation/final account. or incorrect Expected VOs identify which element of the original contract is being deviated from.
Actual
14. Variations
80
SRED 1
14. Variations RISKS

CONTROLS
Test Ref
EVALUATION
2.3 Misunderstandings regarding the nature/amount of additional work.
Expected
Copy VO documents are sent to all relevant parties.
Actual 2.4 Poor payment controls. Expected a) Sequentially numbered and properly authorised variations orders. b) Any contractors written confirmations of verbal instructions are sequentially numbered and retained.
Actual 2.5 Missing documentation may not be identified and there could be an inadequate audit trail when checking valuations/final account. Expected VOs are sequentially numbered.
Actual 2.6 The contractor claims unauthorised work, or work undertaken. for not Expected Any verbal variation instructions given to the contractor are evidenced in writing and forwarded to the relevant officers for approval.
Actual 2.7 Costs could escalate. Expected Proposed major variations to the original contract are costed & reported to the client for approval before any additional work takes place.
Actual
81
SRED 1

CONTROLS
Test Ref
EVALUATION
2.8 Unnecessary work done & project substantially altered from agreed brief.
Expected
As above
Actual 2.9 Breach of Financial Regulations. Expected Actual 2.10 Missing documentation not identified and an inadequate audit trail. Expected As above As above
Actual 2.11 Inability to match work with the cost involved. Expected Standard VO documents are used in all instances and these prompt the recording of all relevant details.
Actual 2.12 Unofficial amendments to contract. Expected Actual 2.13 Inadequate costing information. Expected As above As above
Actual 2.14 Inconsistencies in treatment. Expected Actual As above
82
SRED 1

CONTROLS
Test Ref
EVALUATION
3.0 Budget Monitoring 3.1 Inappropriate decision to proceed and excessive costs incurred in cases where additional work has not been authorised. Expected VOs are costed in accordance with the terms of the contract, before they are issued.
Actual 3.2 Disputes may arise at a later date. Expected Final costs are agreed with the contractor (by the Engineer/QS) as soon as possible after the varied work has been completed
Actual 3.3 Contract sum exceeded. Final product not comparable with original project spec. Expected The QS/Engineer continually monitors the value of variations to date & the overall effect on the total contract sum.
Actual 3.4 Client is unable to monitor costs. Expected The QS/Engineer reports regularly (monthly) to the client on the net cost effect of variations & any action required by the client.
Actual
83
SRED 1

CONTROLS
Test Ref
EVALUATION
4.0 Payments 4.1 Unauthorised, incorrect or duplicate payments are made. Expected Payments can be identified with a distinct VO or instruction.
Actual Expected Payments on account are not made unless a VO or approved contractors written confirmation exists.
Actual Expected The client or clients representative periodically reviews the valuation of VOs to ensure that this is in line with the terms of the original contract.
Actual 5.0 Document Security 5.1 VOs are raised in order fraudulently increase the value payments to the contractor. to of Expected Unused variation forms are held securely with access restricted to authorised personnel.
Actual 5.2 IT systems are not secure. Expected Actual 5.3 Data is lost. Expected Actual IT system are backed up nightly IT systems are password protected.
84
SRED 1

CONTROLS
Test Ref
EVALUATION
5.4 Data cannot be recovered in the event of a disaster.
Expected
There is a disaster recovery plan which has been tested.
Actual
85
SRED 1
15. Assessing Applications for Extensions of Time
RISKS & CONTROLS

15
RISKS
Likelihood H/M/L
ASSESSING APPLICATIONS FOR EXTENSIONS OF TIME

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 Lack of formal authorisation of the extensions to the contract period.
Expected
Extensions of time should be issued solely by those authorised t o do so, such as the engineer/contract administrator, under the contract.
Actual Expected All extensions of time should be awarded formally in writing.
Actual Expected The above document should be signed and dated by both parties to evidence agreement of the extension.
Actual 1.2 The employer may not be kept informed of any likely delays in completion of the project and unauthorised delays in completion (for which the employer is entitled to deduct liquidated damages) may go undetected. Expected The engineer/contract administrator should review progress on site continually and submit regular reports to the employer detailing any revisions to the expected completion date.
Actual
86
SRED 1
15. Assessing Applications for Extensions of Time RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.3 Extension of time awards may not be controlled adequately, creating the risk of duplicate awards being made or an unauthorised delay in completion going undetected.
Expected
The engineer/contract administrator should have a record of the due completion date, details of each extension of time which have been awarded, and the overall effect on the due completion date.
Actual 2.1 Extensions of time may be excessive. Expected Site records and reports, as appropriate, should be examined by the engineer/contract administrator before a decision regarding an award is reached.
Actual Expected All decisions must be made in writing and properly approved/signed/dated.
Actual 2.2 The contract administrator would not be advised at the earliest opportunity of likely delays and may be prevented from taking alternative actions to minimise or prevent delay. Expected Contractors should be obliged, under the terms of the contract document, to inform the contract administrator of specific events and causes, which may result in progress being delayed .
Actual 2.3 There may be a temptation to award an extension of time, which is not justified, or in where the situation has not been researched adequately. Expected Generally, awards should be initiated by notifications submitted by the contractor to the contract administrator/engineer, including details of the events, immediately it becomes likely that completion is going to be delayed.
Actual
87
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.4 Extensions of time may be awarded due to events, which are outside the terms and conditions of the contract.
Expected
Extensions of time can only be awarded due to the reasons stated in the appropriate contract document.
Actual 2.5 An extension of time may be awarded that is invalid or excessive. Expected All available information, including site records and reports, should be examined by the engineer/contract administrator before a decision regarding awards is reached.
Actual 2.6 An extension of time may be awarded that is excessive or insufficient. Expected The engineer/contract administrator should add the correct amount of time to the current due completion date and state a revised due completion date accordingly.
Actual 2.7 Delays could be incurred if a standardised approach is not adopted. Expected There should be standardised procedures and documentation for the awarding of extensions of time.
Actual 3.1 There would be conditions of contract. a breach of Expected The engineer/contract administrator should monitor the progress of the award procedure to ensure that timescales specified in the contract are met.
Actual
88
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
VALUATION
3.2 A risk of a decision being delayed, when it may be necessary to rely on memory or information long after the work has been completed.
Expected
The engineer/contract administrator should make decisions in respect of extensions of time awards at the earliest available opportunity.
Where the contractor is to blame for the delay, there is also the risk of the matter being overlooked and liquidated damages not being deducted. 3.3 There is a risk of collusion between the contractor and the engineer /contract administrator, who may extend the contract period for invalid reasons.
Actual
Expected
The engineer/Contract administrator should be able to justify the decision to amend the due completion date, and provide the necessary supporting documentation on which the decision was based.
There is a risk that contractors may take advantage of engineers /contract administrators who are perceived to be lax in their monitoring of the contract period.
Actual
89
SRED 1
15. Assessing Applications for Extensions of Time
Assessing applications for extensions of time (EoT) Guidance notes Extensions of time to a contract may be required as a result of events taken by: the Contractor; y the Employer (including the project team); y neither Contractor or Employer.
y
Causes of delays which may result in an EoT claim include: y Exceptionally Adverse weather conditions; y Compliance with Architects Instructions; y Late instructions; y Poor Programming. It is important to note that Periods of Extensions of Time and Claims are not the same. EoT relate to the Contract Period, whilst Claims relate to delays to the Contractors programme. Delays The Contractor should be required to give prior notice of potent ial delays, including expected effects, to the Engineer /Contract Administrator. If the Engineer /Contract Administrator considers that the event is relevant and completion will be delayed, then an EoT is awarded. The award should clearly state the rele vant events and the revised completion date. Claims The Contractor should be required to make a written application to the Engineer/Contract Administrator as soon as it becomes apparent that, in their opinion, they have, or are likely to incur additional costs, not reimbursed elsewhere in the contract. Liquidated Damages The Employer should ensure that they have sufficient information and records of delays caused by the Contractor in order to be able to claim Liquidated Damages as allowed for in the Cont ract. All claims must be made in writing to the Contractor clearly setting out the reasons for the claim and how the value has been calculated. Risks The main risk is the excessive award of Extensions of Time and /or Claims for loss due to: y Inadequate rec ords being maintained of events on site; y Records not fully examined when considering Extensions of Time and Claims; y Fraud and/or Collusion between the Contractor and Engineer /Contract Administrator etc. Controls The key control is the completion and retention of appropriate records. This could include, for example, Contractors planned and actual programme, progress schedules and bar charts, minutes of site meetings, site diaries, photographs and Contractors progress reports etc.). The following do cument summaries the key risks and expected controls that will help to guide the auditor when undertaking any review in this area.
90 SRED 1
16. Receipt and Evaluation of Contractual Claims
RISKS & CONTROLS

16
RISKS
Likelihood H/M/L
RECEIPT AND EVALUATION OF CONTRACTUAL CLAIMS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 General 1.1 Employees may be unaware of the procedures to follow. Expected Written procedures are in place for the receipt and processing of a contractors claim. All relevant staff and the client officer are aware of them.
Actual 1.2 There may be no consistent approach between the practices operated in house and by external consultants. Expected A comparison is made of in house and external consultants procedures and where necessary external consultants terms and conditions include in house procedures, to which they agree to comply.
Actual 2.0 Contract Monitoring 2.1 The number of contract claims may increase due to the lack of a formal approach to monitoring. Expected The procedures include instructions /guidance for the consultancy team on monitoring, and the appropriate action to take, on all notifications of delay or disruption received from the contractor.
Actual
91
SRED 1
16. Receipt and Evaluation of Contractual Claims RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.2 The contractor may not take the appropriate action in support of events reported to the contract administrator.
Expected
All notifications from the contractor are promptly acknowledged by the Contract Administrator. Instructions are given to the contractor to minimise the cost, and what records and /or additional records need to be retained.
Actual 2.3 The potential liability may not be assessed promptly resulting in the employer not being aware of the current situation. Expected Notifications received are assessed promptly, and the employer advised of the possibility and potential value of any subsequent claim.
Actual 3.0 Receipt of Claims 3.1 A claim may not have a legal background. Expected The Form of Contract should state the conditions under which a claim can be made.
Actual 3.2 Claims may not be properly considered, or may not be valid. Expected Contractors are required to make claims formally in writing, stating the reasons for the claim, and the clause under which it is made. This should be signed and dated by the contractor.
Actual 3.3 The contractor is not aware of the status of the claim. Expected All claims are acknowledged in writing. Initial discussions and negotiations with the contractor by the consultant are kept to points of principle.
Actual
92
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.4 An incorrect or invalid claim may be accepted.
Expected
Checks are made by the consultant to ensure that the principles and information on which a claim is based are valid and complete.
Actual 3.5 A fair claim may be rejected and become the subject of a challenge. Expected Contractors are advised by the consultant of the records that are required to be submitted in support of their claims.
Actual 4.0 Evaluation & verification of claims 4.1 Decisions on claims may contradict contract law. Expected All claims are evaluated in the light of current legal guidance and opinion.
Actual 4.2 Aspects from the claim that may not be justifiable are accepted, and paid. Expected Claims are split into relevant events which are agreed individually. All relevant records that have been requested are examined.
Actual 4.3 An incorrect payment may be made. Expected Checks are carried out which confirm that the costs claimed are those that would have been reasonably incurred.
Actual
93
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
4.4 Individual items may not have supporting evidence and contain inaccuracies.
Expected
All claim items are supported by detailed calculations. Claims are subject to a full arithmetic check.
Actual 4.5 Duplicate claims may be made by the contractor. Expected All claims forms are marked to indicate payment has been made. The claim date, no and amount of claim is then noted down.
Actual 5.0 Settlement of Claims 5.1 Reliance may not be able to be placed on the operation of the controls for the verification of the claim. Expected Evidence in the form of a certified checklist for the verification of the claim is presented to the Contract Administrator, prior to the claim being approved.
Actual 5.2 The settlement made may exceed the value of the loss /disruption to the contractor. Expected All offers of a settlement are checked by the Contract Administrator for validity, and as representing an advantageous settlement.
Actual 5.3 The employer may not be aware of the cost of a claim, and refuse to approve it. Expected The Contract Administrator regularly updates the employer on progress in settling claims, and when seeking approval of an offer.
Actual
94
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
5.4 Unbudgeted expenditure may be incurred when approving an offer.
Expected
A settlement of a claim will only be approved by the employer when there is sufficient budgetary approval.
Actual 5.5 Inappropriate or excessive payments may be made. Expected Payments are only made to the extent and the degree of the substantiation of a claim that has been provided by the contractor, and agreed by the contract team.
Actual 6.0 Payments 6.1 Payment of a claim may be delayed. Expected As and when a section of a claim is agreed, the value is added to the next interim payment.
Actual 6.2 Duplicate payments may be made. Expected Checks are carried out for duplication between claims and the final account.
Actual 6.3 Inappropriate payments may be made. Expected All payments are approved by the employer. An officer authorised to do so.
Actual 6.4 The final cost may not be identified for monitoring purposes. Expected The final agreed value of the claim is included in the final account.
Actual
95
SRED 1
17. Liquidation and Bankruptcies
RISKS & CONTROLS

17
RISKS
Likelihood H/M/L
LIQUIDATION AND BANKRUPTCIES

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 Contracts are awarded to inappropriate contractors, who, by liquidation or bankruptcy, fail to complete the contracted work .
Expected
All contractors are subject to appropriate financial appraisal to assess the firms suitability to perform work, and thereby minimise incidence of non-completion due to liquidation or bankruptcy.
Actual 1.2 Contractors undertake projects for which they are unsuitable, increasing the risk that they fail. Expected Financial appraisal procedures include the calculation of appropriate maximum contract values for each contractor. Only contractors approved to carry out work of the contract value should be invited to tender.
Actual Expected Actual 1.3 The risk to the Authority is not minimised. Liquidation or bankruptcy of a contractor holding an insufficiently regulated number of contracts may have significant detrimental effect on the Authority. Expected The appropriate limit on the total value of contracts that a contractor may hold with the Authority is calculated, and procedures employed to ensure this is not exceeded. References are obtained from other customers to gauge the quality of service provision.
Actual
96
SRED 1
17. Liquidation and Bankruptcies
97
SRED 1
17. Liquidation and Bankruptcies RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.4 Payment has been made for work not yet undertaken, and the cost of this overpayment cannot be recovered.
Expected
Tender evaluation procedures identify and assess any front loading of tenders.
Actual Expected Contract specifies payment terms as being upon receipt of invoices/interim certificates.
Actual 1.5 Payment has been made for work not yet undertaken, and the cost of this overpayment cannot be recovered. Expected Procedures for the verification of valuations should ensure that they represent fair value for the work completed to date.
Actual 1.6 No compensation is available to the Authority in the event of non-completion due to liquidation or bankruptcy. Expected Where required, performance bonds or parent company guarantees should be in place prior to work commencing.
Actual 2.1 Staff are unaware of the appropriate action to be taken in the event that a contractor becomes bankrupt or goes into liquidation. The Authority loses money and the contract cannot be continued. The legal position may not be understood, and illegal acts may occur. Expected Procedures include a requirement for any possible failure of a contractor to be notified through a prescribed reporting procedure, which includes liaison with the organisations legal officers.
Actual Expected A contingency plan outlining back up procedures is maintained.
Actual
98
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.2 The Authority does not act in accordance with contract conditions or legal obligations. The Authority is unable to appoint another contractor to complete the work.
Expected
As soon as evidence of liquidation or bankruptcy is received, the employment of the contractor is terminated in accordance with the contract terms and conditions.
Actual 2.3 The Authority does not claim full reimbursement from the liquidator, due to duplications and/or omissions as a result of people not being aware of their responsibilities. Expected Responsibility for co-ordinating communications and claims between the liquidator, bondsman and technical officers is clearly defined, thereby ensuring that there is regular consultation between all parties.
Actual 2.4 The Authority incurs losses by way of items on site owned by the Authority being seized by the contractor or other interested parties. Expected Sites are secured, and the title of all items is confirmed and all items valued. Adequate insurance arrangements are in place to cover losses. Actual 2.5 Site deterioration results in additional work being required and accordingly additional costs incurred - before the contract can be restarted. Expected Replacement contractors are appointed as soon as possible to avoid disruption to the project.
Actual
99
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.6 The Authority is not fully compensated for losses arising from the failure of the contract.
Expected
Compensation from performance bonds/parent company guarantees is sought, and the receivers are informed of any outstanding claims against the contractor.
Actual 2.7 The contractor is overpaid. Expected Payments are discontinued until the final sum due to the contractor is determined.
Actual 2.8 The full cost is not recovered and the contractor is overpaid. Expected Should the contractor enter liquidation or become bankrupt during the defects period, the cost of making good any defects should be taken into consideration when calculating the amount due to the contractor.
Actual 2.9 The true cost arising from the failure of the original contractor to complete the work is unknown. Expected On completion, two final accounts should be prepared, one indicating the overall cost of the work, and a second notional account indicating the final cost had the original contractor completed the work.
Actual 2.10 The full cost is not recovered. Expected Any additional costs should be charged to the contractor.
Actual
100
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.11 Payment may be made in respect of one contract while monies are still owed to the Authority by the contractor.
Expected
Final settlements with the liquidator should take the form of one payment in respect of all outstanding contracts with the organisation.
Actual 2.12 The final inappropriate. payment may be Expected Actual The final payment is authorised appropriately.
101
SRED 1
18. Site Visits
RISKS & CONTROLS

18
RISKS
SITE VISITS
1.1 Contractor claims, valuations or variations could not be substantiated.
Expected
Contract clearly specifies the client requirements for site records and applicable contract conditions e.g. ICE, JCT, PPC2000.
Actual Expected Contractors QM system defines records to be kept, responsibilities incl. separation of duties and the mechanism for reviewing the process.
Actual Expected Actual Expected Actual Expected Actual Expected Records of materials and plant are kept incl. Ownership. Records of sub contractors working on site. Records of employees (trade, work done, hours attended) working on site. Regular management reports on progress of site activity are produced and reviewed.
Actual
102
SRED 1
18. Site Visits RISKS

CONTROLS
Test Ref
EVALUATION
1.1 (Cont.)
Expected Actual Expected Actual Expected Actual
Checks of deliveries to site are carried out and recorded.
Client inspects records & inspections are evidenced (Diary of site visits).
Checks on sub contractors QM systems are carried out & checks are evidenced.
2.1 Loss of records/data/assets. Unauthorised access to records. Damage (fire, flood, malicious).
Expected
Responsibilities for site security are defined & documented e.g. in the contract/site security plan.
Actual Expected Actual Expected Actual Expected Actual Sample evidenced checks are performed by the client. Compliance with the security plan is monitored by the contractor. Staff are aware of their responsibilities (training procedures).
103
SRED 1

CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected Actual Expected Actual Expected Actual
Materials/plant are securely stored.
Backup procedures/copy records of site.
Insurance arrangements are adequate.
3.1 Sanctions/fines for non -compliance with statutory requirements. Insurance invalidated
Expected
Contractor has written plans/policies eg Health & Safety Plan to ensure compliance.
Actual Expected Responsibility clearly defined & documented eg in contract.
Actual Expected Staff training.
Actual Expected Monitoring of compliance by the contractor.
Actual
104
SRED 1

CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected Actual
Sample evidenced checks by client.
4.1 Work is not carried out unauthorised work is carried out.
or
Expected
Responsibility for monitoring work on site clearly defined including levels of authority.
Actual Expected Contractors Quality Management defines the monitoring/review process. system
Actual
105
SRED 1
18. Site Visits
18. Site Visits Guidance notes Site Visits is not a system like tendering but, for example, as part of the contract monitoring system the auditor would recognise the need to visit a construction site to carry out compliance tests. The CIPFA Contract audit: JCT Guidance notes (1992) says auditors should not view site visits in isolation but as part of a larger systems audit relating to the currency phase of projects. Also, CIPFAs publication The financial management and audit of construction contracts (1999) indicates that there is a need to visit sites but that auditors have no automatic right of access to sites. Other CIPFA publications that give guidance on site visits are: y A guide to the financial management and audit of contracts (1989) covers the main purpose of site visits. y A practical guide to the audit of major construction contracts (1994) has a section on site visits. As the CIPFA guidance is fairly comprehensive we have not repeated the information as part of these Guidance notes. The site visits matrix covers site ris ks including the monitoring of the contract on site and contract records held on site. Auditors do not necessarily have to visit the site to carry out these tests, however they should assess the adequacy of the checking procedures operated by the QS/engine er. Copies of the records can be requested from the QS/engineer as appropriate. Site visits may not be appropriate for low value and/or short duration schemes although a short familiarisation visit with the QS/engineer is useful.
106 SRED 1
19. Completion and Accuracy of Final Accounts
RISKS & CONTROLS

19
RISKS
Likelihood H/M/L
COMPLETION & ACCURACY OF FINAL ACCOUNTS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Budgetary Control 1.1 That insufficient budget exists to pay the agreed final account/claim.
Expected
The Contract Administrator liaises with the appropriate member of the Authorities Finance team as to the expected value and release date for the payment of the Final a/c.
Actual Expected
The Contract Administrator is aware of the budgetary provision when negotiating/agreeing the Final account.
Actual
1.2 Budgetary provision is not made within the Authoritys accounts or external funding is lost through being outside the timescale.
Expected
The whole cost of a contract (including the final account sum) is budgeted for before contract is let.
Actual
1.3 The Contractor does not send in their Final Accounts on time.
Expected
The timely completion of Final Accounts is specified in the original contract.
Actual
107
SRED 1
19. Completion and Accuracy of Final Accounts RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2. Overpayments 2.1 Duplicate payments are made to the Contractor.

Expected
Manual and/or computer records are updated promptly to show payments.
Actual
2.2 The Authority has no evidence to support previous payments made and overpays. 2.3 Failure to make deductions for liquidated damages where there is justification to do so. 2.4 Provisional and prime cost sums are included again in the final account.
Expected
Final amounts payable take account of previous certificate payments.
Actual Expected
Final amounts payable take account of any liquidated or ascertained damages deductible.
Actual Expected
Provisional and prime cost sums included in the original contract, including any contingencies, are omitted from final accounts.
Actual
2.5 Preliminary charges are made for items where the item or service was not in fact received.
Expected
Evidence is sought to confirm that services or items were in fact received where charges for preliminary items were made.
Actual
2.6 Large variations are not verified.
Expected
Substantial differences between estimated and actual cost of variations are investigated and the reasons documented.
Actual
108
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
2.7 The contractor does not bear the cost of correcting defects.
Retention monies are adjusted where the contractor fails to remedy defective works and appropriate conditions of contract have been followed.
Actual
3. Unqualified payments 3.1 Inadequate controls over final account values.

Expected
The final amount to be paid in respect of the final account should be agreed and authorised in accordance with the contract.
Actual Expected
The final account is supported by detailed documentation showing how the final account values are compiled.
Actual
3.2 Incorrect rates and may be claimed for and paid.
Expected
Rates and prices in the final account are agreed to those stated in the contract.
Actual Expected
Rates are adjusted only by persons authorised to do so and in agreement with the contractor.
Actual Expected
Alterations to rates are supported fully by documentation showing how the revised rates have been set.
Actual
109
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
3.2(Cont)
Variations are valued in accordance with the priced contract document or using agreed relevant values. Due allowance is made for any change in the conditions under which the work is carried out.
Actual
3.3 Incorrect quantities and may be claimed for and paid.
Expected
Final accounts are checked to ensure that all instructions authorised by the contract administrator have been considered.
Actual Expected
Preliminary charges are checked to ensure that they are appropriate to the nature and length of the contract.
Actual Expected
The value of provisional quantities is consistent with the relevant values in the bill of quantities.
Actual Expected
Provisional quantities and other remeasurable works are supported by adequate site measurement records completed independently of the contractor. Provisional quantities and other remeasurable works are remeasured upon completion of the works wherever physically possible.
Actual Expected
Actual
110
SRED 1
19. Completion and Accuracy of Final Accounts RISKS 3.3 (Cont.)
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
Dayworks are supported by adequate daywork sheets, verified by the engineer or contract administrator and quantity surveyor.
Actual Expected
Items not on the original bill of quantities are supported by an authorised variation order.
Actual
3.4 Inappropriate payments contractors and suppliers.
to
sub -
Expected
Sub-contractors and suppliers are engaged in accordance with standing orders.
Actual
3.5 Arithmetical errors may occur and go undetected.
Expected
Final accounts are subject to a full arithmetic check.
Actual Expected
Price adjustment formulae are checked to ensure that monthly claims have been revised applying the correctly calculated indices.
Actual
3.6 Inappropriate adjustments for tax fluctuations.
Expected
Adjustments for tax fluctuations are recorded and fully supported.
Actual
111
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
3.9 The contractor overstates the cost of items, or items are charged where the services may not have been received.
Provisional and prime cost sums are supported by invoices or receipts, and by quotations or estimates.
Actual
3.10 Inappropriate contractual claims are paid.
Expected
Contractual claims for loss and/or damage are ascertained properly and are in accordance with the contract.
Actual
4.0 Final Payment Disputes 4.1 The final account sum is disputed.
Expected
Both the Contractor and Contract Administrator signify their agreements to the final account sums in full and final settlement.
Actual
4.2 The contractor is not aware of the extent of liquidated damages.
Expected
The Contractor should be notified in writing of the amount of liquidated damages being deducted for not completing works on time.
Actual
4.3 Contract document is not physically secure.
Expected
Final accounts should be stored securely with access restricted to appropriate personnel.
Actual
112
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
4.4 Contract document is not kept for the statutory period.
Final accounts should be held in accordance with the statutory timescales i.e. at least 12 years for contracts under seal and at least six years for all others (per each Authorities Standing Orders/regulations).
Actual
5.0 Interest Payments 5.1 Delays in payment may incur penalties or interest charges to the Authority.
Expected
The Final certificate is issued within the period stated in the contract.
Actual Expected
Contractual claims for loss and/or expense should be ascertained properly and be in accordance with the contract.
Actual
Controls ensure that payment is made within the period stated in the contract.
Interim valuations are subject to sufficient checks and are agreed.
Actual
5.2 The Contractor does not send in their Final Accounts on time.
Expected
Contractors responsibility to send accounts is stated in contract.
Actual
113
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
6.0 Works remain outstanding after completion 6.1 The Final certificate is issued before work is completed satisfactorily.
Expected
Checks should ensure that a final certificate is issued only after a certificate of making good defects has been issued.
Actual Expected
There is a mechanism whereby the balance of retention is released only following the issue of a maintenance certificate.
Actual
6.2 Retention/Minor Snagging period: The value of the outstanding works at Practical Completion time is in excess of the figure held in respect of retention when the final account is agreed and the Contractor doesnt undertake the work outstanding as theyve been overpaid.
Expected
The Contract Administrator either chooses not to sign off the works until the value of the snagging works is reduced below the monies due to be retained, or withholds sufficient payments (including any cash paid/fees due for a Performance Bond) to ensure there is incentive for the Contractor to complete.
Actual
7.0 Prevent possible Legal Action 7.1 Claim for liquidated damages is deducted without prior notification of non compliance.
Expected
Give notice in accordance with contract conditions that the contract was not completed on time.
Actual
114
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS Expected
Test Ref
EVALUATION
7.2 Excess retention is made.
Controls ensure that the appropriate level of retention is deducted during the construction period, and that half the retention money is released on substantial completion of the works.
Actual
8.0 Completeness 8.1 The Authority has to rely on the Contractor after Completion of the snagging period.
Expected
As built drawings are passed over to the Employer on completion of the works, prior to release of retention.
Actual
115
SRED 1
20. Liquidated and Ascertained Damages
RISKS & CONTROLS

20
RISKS
Likelihood H/M/L
LIQUIDATED AND ASCERTAINED DAMAGES

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1. Organisation 1.1. The Organisation is unable to recover compensation for loss or damage incurred as a result of the contract not being completed by the agreed date. Expected The Organisation's Standing Orders should require all appropriate contracts to include provision for liquidated damages, thus ensuring a corporate approach.
Actual Expected The relevant contracts must include within their tender documents, an estimate of the likely cost to the organisation, should the contractor not complete on time.
Actual Expected The calculated cost must be a genuine pre estimate of damage likely to be suffered. If they are not, they may be seen as a penalty and thus unenforceable.
Actual
116
SRED 1
20. Liquidated and Ascertained Damages RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2. Application 2.1. The calculation of damage is not an accurate reflection of the likely cost that will be incurred. Expected Corporate, documented guidance should exist for the calculation of liquidated and ascertained damages. This should be based on the formula as compiled by the Society of Chief Quantity Surveyors in Local Government.
Actual Expected The calculation should be undertaken by a competent officer e.g. Quantity Surveyor or Engineer.
Actual Expected Detailed working papers must be in evidence to support the calculation.
Actual 2.2 The appropriate damages are not recovered. Expected The Contract Administrator must maintain adequate records to be able to notify the client when a contract has exceeded the time for completion, taking account of any agreed extensions of time.
Actual
117
SRED 1
20. Liquidated and Ascertained Damages RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.2 (Cont.)
Expected
The value of Liquidated and Ascertained Damages must be calculated in accordance with the terms of the contract and the period of unauthorised delay. Agreed extensions of time should be taken into account.
Actual Expected Where the situation permits a deduction of damages, the decision to deduct or not is for the employer/client to make after taking advice from the contract administrator, and must be documented with reasons.
Actual Expected Procedures must be in place to ensure that damages are deducted from the appropriate contract payments as advised by the contract administrator.
Actual Expected Similar procedures must apply to any refund of damages.
Actual Expected The contractor must be informed in writing of the intention to deduct/refund liquidated and ascertained damages.
Actual
118
SRED 1
20. Liquidated and ascertained damages Guidance notes These notes supplement the previous Risk and Control Matrix. It is accepted that the use of Liquidated and Ascertained Damages is preferable to an alternative claim for general damages at Common Law of actual losses, as the employer is provided with a remedy and the contractor with a clearly defined risk at tender stage. An important point to consider when drawing up contracts is the provision for sectional completion in the various forms of contract. If the use of this is not fully understood it could mean that the deduction of liquidated damages will not be possible. E.g. in building contracts the amount of damages to be deducted is often stated to be an amount per week, per flat or house. This method is invalid without the incorporation of a sectional supplement in the cont ract. Similarly, in engineering contracts, where there is a provision to insert other amounts which reduce the overall liquidated damages figure as sections are completed. If unsuitable amounts are inserted there could be a situation where the damages are construed as a penalty and all amounts previously deducted would have to be refunded to the contractor. The relevant section within ICE 6 th and 7th Editions is clause 47. The use of a proven formula method within an organisation for calculating liquidated and ascertained damages promotes a standardised approach and indicates a genuine attempt (at tender stage) to pre -estimate the likely loss that would be suffered. Thus, it is unlikely to be set aside by a court (as a penalty) even if the actual loss differs from the estimate. The formula example below has been suggested by the Society of Quantity Surveyors in Local Government and is recommended for use. LIQUIDATED & ASCERTAINED DAMAGES - FORMULA CALCULATION & NOTES Department: Scheme: Contract Period: Estimated Costs Tender Design Team Fees Contract Monitoring Fees Total wks 314,300 34,916 13,126 362,342
(a) (b) (c) (d)
119 SRED 1
Calculation
per week
1. Interest on Capital : 2. Design Team Fees :
0.10%
X (d )
= =
362.34 387.96
20% X ( b) Contract period (wks) (c) Contract period (wks) 0.05% X (a)
3. Contract Monitoring Fees :
729.22
4. Increased Costs: (Where applicable) 5. Other Costs:
314.30
Total NOTES
= Per week
1,793.82
It is important when assessing Liquidated and Ascertained Damages that item 5 above is considered. Each contract must be assessed individually to determine any additional cost. Such costs could include - loss of rent income, temporary accommodation, storage charges, client costs (staff salaries) and interest on the loss of use of capital from associated contracts (e.g. land costs, demolition) The relevant calculation for interest on capital at 1 above is calculated as follows : The current Bank of England Lending Rate (July 2005) is 4.75%. There is a standard assume that 80% of the contract has been paid at practical completion. The weekly cost, therefore, is 80 multiplied by 4.75% divided by 52 weeks = 0.07 and rounded to 0.10%. If we restrict formula changes to 0.05%, i.e. 0.05%, .010%, 0.15%, 0.20% a table can be produced to indicate a relevant percentage for a range of bank lending rate (some 3 percentage points). The calculation at 4 above considers increased costs/fluctuat ions, which may be payable such as:
y
the relationship of fluctuations to the value of the contract i.e. rates etc. applicable at the relevant period or formula adjustment at indices prevailing at the time; the level of inflation and the governing contractual clause, say 2%; the average o/s balance throughout the contract period i.e. 50% of the contract sum (a current weekly rate of 0.05% has been calculated for the example above).
y y
Any changes to factors within the formula relating to bank lending rate and inflation rate should be monitored and notified centrally to users in order to maintain the relevance and accuracy of costs.
Client Departments must ensure that supervising officers are in possession of all relevant information relating to the as sessment of Liquidated and Ascertained Damages when compiling tender documents. The calculation details of Liquidated and Ascertained Damages are confidential and must not be divulged to the contractor.
121 SRED 1
21. Post Contract Reporting
RISKS & CONTROLS

21
RISKS
Likelihood H/M/L
POST CONTRACT REPORTING

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.0 Reporting Arrangements 1.1 Any issues identified after completion may be reported to the wrong level of management. This increases the risk that any remedial action required following completion may not be undertaken. Expected There is a clear line of reporting to ensure that the correct level of management is informed of progress.
Actual 1.2. Management may be unaware of the progress of the contract, which may lead to the performance of a poor performing contractor going unnoticed by management. Expected Contract staff should produce regular progress reports to management explaining the reasons for any delay in the completion of the contract.
Actual 1.3 Important decisions may not be acted upon. Expected Contract staff should produce regular progress reports to management explaining the reasons for any delay in the completion of the contract.
Actual Expected There is a clear line of reporting to ensure that the correct level of management is informed of progress.
Actual
122
SRED 1
21. Post Contract Reporting RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
Expected
There is a formal process for considering and responding to reports.
Actual 1.4 Claims for damages may be omitted. Expected Contract staff should produce regular progress reports to management explaining the reasons for any delay in the completion of the contract.
Actual Expected There is a clear line of reporting to ensure that the correct level of management is informed of progress.
Actual 1.5 Responsibility for actions may be forgotten. Expected There is a clear line of reporting to ensure that the correct level of management is informed of progress.
Actual Expected All reports and action taken are retained on file as documentary evidence.
Actual
123
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.0 Performance of Contractors 2.1 Significant variations may occur between final cost and tender sums if there is inadequate planning at the pre contract stage to agree such variations. Expected Management should agree significant variations (e.g. +/- 5%) of final cost to tender sums at an early stage.
Actual Expected Significant variations (e.g. delays) are reported on regularly by management.
Actual Expected Contract staff submit final cost reports explaining the reasons for variations outside the range identified in 2.1 above.
Actual Expected Architects/Contract Administrators provide written explanations for any significant variations to contracts, with reference to original designs.
Actual 2.2 Incorrect claims are submitted. Expected Contract staff submit reports outlining any delays in the settlement of claims and final accounts and the reasons for these.
Actual
124
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.3 Poor performing Contractors could be used again.
Expected
Reports are produced on Contractor performance to include a range of criteria including: quality of finished product, labour, supervision and costs against tender.
Actual 2.4 Poor quality work may affect the reputation of the Organisation. Expected Reports are produced on Contractor performance to include a range of criteria including: quality of finished product, labour, supervision and costs against tender.
Actual 2.5 The organisation may be at risk to compensation claims. Expected Reports are produced on Contractor performance to include a range of criteria including: quality of finished product, labour, supervision and costs against tender.
Actual 2.6 Poor performing Consultants could be used again. Expected Reports are produced on the performance of any outside Consultants used during the contract.
Actual 2.7 Any weaknesses in the contract documentation and variation orders may not be addressed resulting in increased costs to the organisation. Expected Review of contract documentation and analysis of variation orders is undertaken.
Actual
125
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.0 Timeliness 3.1 Untimely reports will have no impact. This will reduce the effectiveness for remedial action and lead to poor management decisions. Expected Reports are timely and directed appropriate level of Management. at the
Actual 3.2 Responsibilities for making improvements may not be laid down. Therefore, problems from the contract may recur in future contracts. This may result in delays and increased costs of future contracts. Expected Reports recommend improvements (where necessary) to future contracts along with named responsible Officers.
Actual 3.3 Ineffective post contract project appraisal due to a lack of accurate and timely management information. Expected Reports contain Action Plans agreed with an appropriate level of Management which, when used, will ensure an effective system of post contract project appraisal.
Actual
126
SRED 1
21. Post Contract Reporting
21. Post-contract reporting Guidance notes An audit review of the above two areas should focus on the following main issues:
y y y
y y y
y y y y y
Project Briefs should include details of the clients requirements for taking over completed work. The clients arrangements for taking responsibility for completed facilities should be satisfactory. Defects Liability Inspections should be properly administered to ensure that any defects are corrected by the contractor at no additional cost. Contractors final accounts should be produced and agreed asap after completion of the works. There is adequate evidence to support any explanations of variances in cost from that originally approved. There should be effective systems in pl ace to collect, evaluate and use information from all stages of the project, to improve future performance. Project Teams should undertake thorough post completion reviews. The Project Team should examine whether the project has succeeded in achieving bene fits that were expected at the outset. The success of each project should be measured by comparing the outcome with the success criteria established at pre -contract stage. Adequate procedures exist for reviewing the performance of the contractor and each member of the Project Team. Actual running cost should be compared with those projected at the feasibility stage and explanations sought for any significant variances.
127 SRED 1
22.. Post Completion Reviews
RISKS & CONTROLS

22
RISKS
Likelihood H/M/L
POST COMPLETION REVIEWS

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 Relevant staff may be unaware of the procedures to undertake.
Expected
The procedure for completing post completion reviews should be documented.
Actual Expected A requirement to undertake a post completion review should be incorporated in Standing Orders Relating to Contracts and other policy documents.
Actual Expected Policies must be communicated to all relevant staff involved in the process.
Actual 1.2 Reviews may not be undertaken. Alternately, there may be an inconsistent approach for undertaking such reviews. Expected The procedure for completing post completion reviews should be documented including being undertaken in a timely manner after project completion.
Actual
128
SRED 1
22.. Post Completion Reviews RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.2 (Cont.) Reviews may not be undertaken. Alternately, there may be an inconsistent approach for undertaking such reviews.
Expected
A requirement to undertake a post completion review should be incorporated in Standing Orders Relating to Contracts and other policy documents.
Actual Expected Policies must be communicated to all relevant staff involved in the process.
Actual 1.3 Important decisions may be delayed. Expected A review should be undertaken in a timely manner after project completion.
Actual 1.4 Problems identified too late to incorporate into other projects. Key issues may not be identified or acted on. Expected A review should be undertaken in a timely manner after project completion.
Actual Expected Actual Expected Actual The terms of reference for the review should be noted and agreed prior to starting the exercise. A review should involve all key Officers.
129
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.5 Review may be ineffective or omit key areas of concern.
Expected
The terms of reference for the review should be noted and agreed prior to starting the exercise.
Actual 2.1 Similar mistakes in the design stage of the contract may happen in future contracts. Expected Feedback in changes/amendments in design during the project is obtained and necessary corrective action taken for similar future projects. (Through established formal procedures).
Actual 2.2 Financial implications of any changes may go unnoticed or hidden from management. Expected Feedback should include any financial implications, i.e., additional costs or savings presented in a standard format, which incorporates a section on financial implications.
Actual 2.3 The project may be ineffective in what it is actually delivering. Expected All stakeholders should report on whether the project has achieved its overall objectives. (Procedures should specify input requirements from all relevant stakeholders).
Actual 2.4 Variations may go unnoticed. Expected Revenue costs/income arising from the project should be compared to budget data on a regular and timely basis. (e.g., running costs, salaries, maintenance).
Actual
130
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.5 Poor performance may go undetected or poor performing sections may be used again on future projects. In addition, training needs may not be identified.
Expected
Performance of key players (e.g., contractors, consultants, project team) should be reviewed and reported on.
Actual 2.6 Findings may be interpreted differently by different groups. Expected The outcomes of the review should be noted down in the form of a report.
Actual 2.7 Key business decisions may not get made. Expected The report should be given to appropriate levels of management.
Actual 2.8 Recommendations for future improvement may not take place. In addition, a lack of accountability and ownership for implementing the agreed recommendations may exist. Expected An Action Plan should accompany the report that identifies recommendations for improvement.
Actual Expected Responsible officers should be named in the Action Plan along with appropriate timescales for undertaking the recommendations
Actual
131
SRED 1
22.. Post Completion Reviews
22. Post-completion reviews Guidance notes An audit review of the above two areas should focus on the following main issues:
y y y
y y y
y y y y y
Project Briefs should include details of the clients requirements for taking over completed work. The clients arrangements for taking responsibility for completed facilities should be satisfactory. Defects Liability Inspections should be properly administered to ensure that any defects are corrected by the contractor at no additional cost. Contractors final accounts should be produced and agreed asap after completion of the works. There is adequate evidence to support any explanations of variances in cost from that originally approved. There should be effective systems in place to collect, evaluate and use information from all stages of the project, to improve future performance. Project Teams should undertake thorough post completion reviews. The Project Team should examine whether the project has succeeded in achieving benefits that were expected at the outset. The success of each project should be measured by comparing the outcome with the success criteria established at pre -contract stage. Adequate procedures exist for reviewing the performance of the contractor and each member of the Project Team. Actual running cost should be compared with those projected at the feasibility stage and explanations sought for any significant variances.
132 SRED 1
23. Partnering
RISKS & CONTROLS

23
RISKS
Likelihood H/M/L
PARTNERING
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1. Partner Selection 1.1 The contractor selected is not capable of operating effectively under a partnering contract. This may lead to a failure to achieve contract /project objectives. Expected An appropriate (rigorous) selection process is formally defined and incorporates adequate quality checks (i.e. method statements, contractor presentations).
Actual Expected An appropriate quality /price ratio is determined and approved.
Actual Expected A suitable evaluation /scoring mechanism is utilised (i.e. quality weightings, CIPFA price formula).
Actual Expected Quality submissions are evaluated by an appropriate panel of suitably qualified staff.
Actual
133
SRED 1
23. Partnering RISKS

CONTROLS
Test Ref
EVALUATION
1.2 Contractual /partnering requirements are not clearly defined and agreed. This may lead to disputes & potential legal action against the Council.
Expected
All tendering contractors are informed of the basis/selection criteria for the evaluation (e.g. via Partnering Information Packs).
(N.B. The Freedom of Information Act (2000) places an additional onus on councils to justify/evidence its decisions.)
Actual
Expected
Tender (price/quality) requirements are clearly defined such that all bids are submitted on a like for like basis.
Actual Expected An appropriate form of partnering contract is utilised (e.g. PPC 2000, ECC).
Actual Expected All key members of the team (council officers/contractor staff) agree to key project objectives and principles (e.g. via a Partnering Charter).
Actual
134
SRED 1

CONTROLS
Test Ref
EVALUATION
2. Project Management 2.1 The target cost is set at a level that may either reduce incentives to be efficient (i.e. too high) or compromise quality (i.e. too low). This may lead to the contractor sharing in unearned gain or may lead to a failure to deliver the pr oject to the required standard. Expected The contract is operated on an ECI (Early Contractor Involvement) basis.
Actual Expected Appropriate workshops are held (financial, risk, technical) to ensure that all relevant information is considered within the cost build up process.
Actual Expected Risk ownership is clearly defined and formally agreed.
Actual Expected Direct and indirect (overhead) costs are clearly defined and formally agreed.
Actual Expected Target cost build-ups are rigorously checked by the councils designated project manager and formally agreed.
Actual
135
SRED 1

CONTROLS
Test Ref
EVALUATION
2.2 The contract is not completed within the planned timescale and /or to the requisite quality. This may lead to additional costs to all stakeholders (client, contractor, service end -user)
Expected
Start and completion dates are clearly defined.
Actual Expected Actual Expected Actual Expected Actual Expected Actual cost is monitored against the target cost profile, with significant dev iations reported to the client. Performance is monitored with reference to agreed KPIs. Regular progress meetings (financial, technical) are held between contractor and council. An appropriate schedule of work is in plac e, and is regularly monitored.
Actual 3.0 Financial 3.1 Incorrect or fraudulent payments are made to the contractor. Expected Direct costs and overheads are clearly defined (such that they can be checked against the direct/overhead schedule; as per 2.1 - control 4).
Actual
136
SRED 1

CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected
Valuations are supported by appropriate cost build up schedules.
Actual Expected Sub-contractor discounts are accounted for :

y y
on individual invoices re. annual volume discounts contractor may be entitled to.
that
the
Actual Expected Labour costs attributable to the partner are supported by adequate records (i.e. timesheets.)
Actual Stocks/assets/plant received and utilised are supported by appropriate records (e.g. delivery notes, inventories).
Expected
Actual Expected Records are promptly made available for inspection in accordance with the open book ethos.
Actual
137
SRED 1

CONTROLS
Test Ref
EVALUATION
3.2 The contractor undertakes work that is outside of the agreed specification. (N. B. compensation events can either increase or decrease the scope of works)
Expected
Compensation events are formally agreed, documented and authorised by the council.
Actual Expected Compensation events are sequentially numbered (such that there is a clear trail to the revised target cost).
Actual Expected The client (budget holder) is formally notified of changes to the target cost.
Actual
138
SRED 1
23. Partnering
23. Partnering Guidance notes A definition of partnering: A relationship between purchasers and providers of goods and services throughout the supply chain. The relationship is designed to achieve specific business objectives by maximising the effectiveness of each participants resource. The relationship is based on mutual objectives, an agreed method of problem resolution and active search for continuous measurable improvements. Source: Constructing Excellence
Whilst teamwork, trust and co-operation are essential components of successful partnering, partnering arrangements should always operate within a framework of strong financial controls. Within this programme, the key areas of financial control are identified as: 1 2 3 4 - Partner Selection - Partnering Conditions - Project Management - Financial
It is important to note that in auditing a contract operated under partnering arrangements, this section of the manual should not be used in isolation but in conjunction with other relevant sections of the manual.
139 SRED 1
24. Private Finance Initiative
RISKS & CONTROLS

24
RISKS
Likelihood H/M/L
PRIVATE FINANCE INITIATIVE

Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 PFI may not be the best option for the project.
Expected
Clear valid well -defined objectives should be determined for the PFI scheme.
Actual Expected Other options should be considered with relative merits and feasibility of funding being discussed and reasons for the final decision being comprehensively documented.
Actual Expected Relative benefits of the PFI option should be considered, particularly in relation to whether the transfer of risk to the private sector is of sufficient benefit to justify any potential extra costs being incurred by choosing the PFI option.
Actual 1.2 The PFI scheme may not deliver expected Value for Money benefits. Expected The specification for the scheme should clearly state the transfer of major risks to the contractor relating to the design, building, financing, and operating of the asset. It should be made clear that the authority is not responsible for any costs relating to overruns or additional costs.
Actual
141
SRED 1
24. Private Finance Initiative RISKS
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.2 (Cont.)
Expected
The specification should contain clearly defined and easily measurable performance indicators to allow payment to be made on a performance related basis for the use of the asset and for its continuing management. This will provide incentives for the contractor to consider whole life asset issues improving the build quality and maintenance standards.
Actual 1.3 Considerable time and expense may be spent in preparing for a PFI project, which is subsequently not approved. Expected Authorities should work closely with the Public Private Partnerships Programme (the 4 Ps), which acts as a private finance unit for local government helping to develop viable projects, determining whether PFI is a suitable procurement route and advising on how best to present the case.
Actual 1.4 The most favourable price may not be obtained for the scheme. Expected Sufficient competition should be sought for the contract, by seeking bids from a number of suitable contractors, and considering the most appropriate mix and variety of build and service provision.
Actual
142
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 An unsuitable or inappropriate Contactor may be appointed for the scheme.
Expected
Robust selection procedures should be followed utilising similar criteria used for selection of partners under rethinking construction partnering schemes.
Actual 2.2 Selection criteria may not be sufficiently transparent leading to risk of fraud and/or poor value for money. Expected The employer should ensure that adequate checks are contained within the selection process to ensure that the selected nominee is the most appropriate and best value in the circumstances.
Actual Expected In addition the employer should ensure that the selection criteria is fair and is applied equally to all potential nominees.
Actual Expected The employer should ensure that all documents relating to the selection process are retained for future inspection if required. In particular, the decision making process by which firms were included on the tender short list, and the methods of evaluating tend ers received and identifying the most suitable should be formally documented. If other selection criteria under partnering arrangements are used this should be clearly documented to demonstrate the reason for selection. This should be applied to all parties including contractors and consultants appointed as part of the scheme.
Actual
143
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 The Private sector partner may not perform efficiently and effectively, in either the building of the facility, or the management and operation of the service.
Expected
Genuine risk transfer - There should be a genuine risk transfer. Risks should be allocated between the public and private sectors to the party best able to manage them to ensure best value for money. Typically, PFI projects transfer to the private sector substantial risks relating to the design, building financing and operation of an asset (BBFO).
Actual Expected Output specification - Contracts should specify the service outputs required by the public sector client from the private sector rather than the configuration of the capital asset itself, or how the service is delivered.
Actual Expected The emphasis is on defining the type of service and performance standards required. No unnecessary constraints should be placed on the private sectors discretion to deliver these outputs through innovation in the design and construction of the physical assets, or on the method of subsequent ope ration.
Actual
144
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.1 (Cont.)
Expected
Whole life asset performance - PFI contracts commonly require the contractor to take responsibility and assume risk for the performance of the asset over a long term, at least for a significant part of it useful life, so that efficiencies arising from long -term asset management can be realised.
Actual Expected Performance related reward - Payments to the contractor under a PFI contract are characterised as a regular unitary fee for services. Payment will be subject to performance in relation to specific and quantified criteria in the contract. These will be derived from the specification of the standard of service required.
Actual 3.2 The Local Authority may not be able to deliver key services, which it has a statutory responsibility to deliver, due to poor performance by the contractor during the contract term. The contract is structured so that during the contract period the facility can revert (with or without compensation) to the authority in certain specified circumstances should the contractor fail to perform as required. This should, however not occur except in extreme circumstances.
Expected
Actual
145
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.3 The Local Authority may not be able to deliver key services, which it has a statutory responsibility to deliver at the end of the concession period for which the private contractor is allowed to deliver the service.
Expected
Any contract awarding concessions to the private sector to operate facilities should allow for reversion to the Local authority at the end of concession period again with or without payment. This is especially important where the facility occupies a strategic site.
Actual Expected The contract should specify how the residual value of the asset is allocated between the public and private sectors, to allow for continuation of the service on the site, operated by the Local Authority or another service provider.
Actual 4.1 New technology or working methods may become available during the period of the contract, to improve service delivery and/or reduce costs. Expected The PFI Contactor can be asked to provide a proposal for changes in service requirements or delivery. If the Authority is not satisfied with the proposal the contract should allow for seeking the service from another supplier. These terms would allow competition and ensure any proposal delivers value for money.
Actual Expected The contractor should be encouraged to identify new working practices or other technical improvements. They could benefit from this by reducing their costs or increasing additional uptake of their services from the contract.
Actual
146
SRED 1
24. Private Finance Initiative (PFI) Guidance notes Introduction PFI was introduced by Central Government in 1992 and involves the design, build, and operation of major capital projects. A defining feature of PFI is the transfer of the operational risk from the public sector to the private sector. PFI is intended to offer better value for money for taxpayers. It was envisaged that improved competition would result between contractors, exploiting greater efficiency, and innovation, which is often perceived to be f ound within the private sector. In many instances Local Authoritie s had limited funds available for major capital projects. Central Government policy imposed strict annual borrowing limits, constraining freedom, and flexibility. Therefore, financing large -scale Capital Projects through a PFI partnership may on occasions have effectively been imposed by government policy. Stages of the PFI Contract
y y
Expressions of interest - sought in the Official Journal of the European Union (OJEU) Invitation to Submit Outline Proposals (ISOP) all submissions are initially evaluated, based on: design and construction; service provision; corporate structure and financing proposals; legal and risk transfer. Invitation To Negotiate (ITN) this is based on the output draft specification at the time. It is used as a reference so that compa risons can be made between competing consortia, and any costs submitted can be compared to the OBC to see if the scheme is viable. Best And Final Offer (BAFO) this is based on the output specification at the time and is used as a reference for compariso n between two (or more) bidders, to come up with a preferred bidder (and a reserve). Negotiation with the preferred supplier to finalise the design, facilities management proposals, and to agree the legal and financial structure of the contract. Negotiat ions take into account new requirements such as sites, planning requirements, environmental issues, and new operational requirements. Each of these is assessed and the price adjusted accordingly. Public Sector Comparator Exercise (PSC) this must be undertaken prior to Financial Close. The exercise needs to reflect any changes to the service specification agreed during negotiations and to compute the comparable price of the public sector providing the equivalent level of service. For a PFI scheme to obtain the go-ahead, this comparison has to show that, over the life of the scheme, the PFI option will be more economic than the public sector comparator. In addition, the PFI scheme also has to be seen to be affordable. Financial Close the time the price is fixed, the specification agreed and the risk transferred. Until this stage there is no risk transfer. Any subsequent requests for amendment are costed and included within the price.
147 SRED 1
Unitary payments Unitary payments are monthly payments made for services provided and to repay the original debt. These services can, for example, include the provision of premises together with hard and soft facilities management services, such as the mainten ance and cleaning of buildings. Payments should only be made if the facilities are operating in accordance with specified criteria. The contract can provide for financial penalties to be levied if these criteria are not met. Re-Financing It may be possible after completion of the construction phase (when traditionally th e scheme is exposed to the greatest risk), or as a result of a reduction in interest rates, that more favourable borrowing terms may be available, providing an opportunity to refinance a PFI project. Any saving made may be shared between the Authority and the Contractor in accordance with the terms of the contract. Savings can be taken as an upfront payment or as a reduction in the annual standard payment. Risk Transfer One of the key aspects of the PFI procurement approach is the transfer of risk to t he private sector for all the design and construction, delivery of facilities management, financing, taxation, and residual value risks. Some risks may remain with the Authority, whilst others may be shared between the Authority and the private sector. Benefits realisation Whilst resistance to PFI projects by many organisations has been widely publicised, a major benefit realised can be the completion of a large project within a short timeframe, which may not have been achieved under traditionally funded p rojects. It should be recognised from the outset that a PFI scheme is unlikely to be a cheap option but one of the benefits of a PFI project is that it gives, for the most part, certainty over the pricing structure of the arrangement. In addition, a degre e of control exists, in that the scheme is required to provide value for money when compared with the public sector comparator. PFI contracts can also have the provision for benchmarking of services on a regular basis, providing evidence of the Authority s continued obligation to secure Best Value throughout the life of the project. Financial penalties can be imposed on the facilities management providers, giving a good degree of assurance that standards will be maintained. A PFI contract specifies over t he length of the contract (usually a long term arrangement to enable the capital outlay to be fully written down), the standards to be maintained. It becomes much more difficult to seek savings from within the contract, but the asset is also less likely to deteriorate due to under investment. Additionally the unpredictability of the upkeep of buildings will remain with the PFI Contractor for the period of the agreement.
148 SRED 1
25. Programme and Project Management
RISKS & CONTROLS

Audit Ref 25
RISKS
Service
Subject
Prepared By
Date
Reviewed By
Date
PROGRAMME & PROJECT MANAGEMENT

1.0
Characteristics
Expected Programme or Project Management Guidance exists for planning, organising, monitoring and controlling.
1.1 Scope and plan not in line with needs, potential consequences being: time delays; cost overruns; failure to meet objectives and failure to meet required quality.
Actual Expected A decision making process determines whether or not a programme or project is undertaken and assigns the programme/project a corporate or recognised management structure.
Actual Expected Evidence solutions. of alternative approaches and
Actual Expected Customer and stakeholder needs are analysed to ensure the programme /project is focussed to meet need.
Actual
25. Programme and Project Management
150
SRED 1
25. Programme and Project Management RISKS

1.1 (Cont.)
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
Expected
Programme/Project objectives exist and are clear.
Actual Expected Actual Expected Actual Expected Estimated programme/project costs exist and involve costs related to risk. Outputs and outcomes are defined. Programme/project scope has been established.
Actual Expected Actual Expected Programme or project is divided up into sub sections (micro plans) and identifies key events, milestones, progress evaluations, and critical activities. An overall programme/project plan exists and is owned by a named officer.
Actual
151
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1. (Cont.)
Expected
Activities or work packages to support the programme/project have been defined with measurable outputs and planned reviews involving those responsible for delivery.
Actual Expected Risks should be identified including an assessment of probability and impact, prioritisation. Risk register(s) set up and maintained, risks are allocated and owned by named individuals.
Actual Expected Programme or project should have an appropriate structure to support the objectives.
Actual Expected Roles, responsibilities, accountabilities and authorities of all parties involved in the programme/project have been defined, including the Project Manager.
Actual
152
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
1.1 (Cont.)
Expected
Independent, but related documented processes exist in respect of: y Cost y Resource y Time y Risk and Issues y Change control y Decisions y Communications
Actual 2.0 Delivery Stages 2.1 Scope and plan are not in line with needs, potential consequences; being: time delays, cost overruns; inadequate resources to meet objectives; Inappropriate personnel/structure to service the programme or project; failure to meet objectives; failure to achieve quality; actions exceed perceived authority; mistakes repeated; waste, extravagance and fraud may arise. Expected The programme/project plan is monitored, managed and kept up to date by named officer.
Actual Expected Actual Programme/project plan includes for measuring and assessing objectives and deliverables.
153
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected
A reporting structure exists to deliver relevant and timely reports of progress, cost and quality.
Actual Expected The management of programme/project interfaces are reviewed. e.g. higher level management and other stakeholders.
Actual Expected Activities or work packages are reviewed to ensure they continue to effectively support the programme/project.
Actual Expected Identified risks are reviewed, monitored, reported upon and appropriate action taken throughout the programme lifecycle, including an assessment of probability and impact, prioritisation.
Actual
154
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected
Programme/project have contingency plans for risks that may occur and the process is co ordinated with maintenance of the risk register.
Actual Expected Programme/project funding, costs, progress and quality is evaluated, recorded, monitored, managed and reported upon to ensure objectives are fulfilled.
Actual Expected Variances and adverse events of any nature (costs, progress and quality) are recorded, monitored, managed, action plans devised and decisions and approvals secured from appropriate personnel.
Actual A process for purchasing and expenditure exists and is communicated to all appropriate officers.
Purchasing/procurement records exist where appropriate evidence exists of thorough and proper evaluation of competition.
Actual
155
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected
Arrangements/contracts following procurement, ensure that programme/project deliverables are met.
Actual Expected Actual Expected Actual Expected Variations to time, cost and quality, assessed, recorded, and approved authorised personnel. are by Outputs and outcomes are recorded, monitored, reviewed and reported upon. Guidelines exist to ensure quality is secured.
Actual Expected Roles responsibilities, accountabilities and authorities of all parties are reviewed throughout the lifetime on the programme/project.
Actual
156
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
2.1 (Cont.)
Expected
Quality attributes are subject to throughout the Programme or Management:

y y y
review Project
y y
Progress is evaluated and corrective actions put in place where necessary. Inspections/audits are undertaken. Communications are effective and minutes shared amongst all relevant parts of the structure Decisions and approvals are based on timely and relevant data. i.e. Action Plans, Risks and Issues
Actual Expected Programme or project structure is reviewed to ensure it continues to effectively support the objectives.
Actual Expected A repository of information exists to collect, collate and analyse information for programmes and projects to be used for continual improvement.
Actual
157
SRED 1
Likelihood H/M/L
Impact H/M/L
CONTROLS
Test Ref
EVALUATION
3.0 Closure
3.1 The actions taken are illegal, not in line with council policy and mistakes repeated. Expected Retention of programme/project records are managed and retained in accordance with requirements.
Actual 3.2 Completed works fail to meet the objectives and mistakes repeated. Expected On the closure of a programme/project or stage, reviews are undertaken that consider budget, objectives and quality.
Actual 3.3 A process of continuous improvement is not pursued. Expected The closure review includes a process of recording and reporting improvements etc. for possible incorporation in future projects and those issues that should be omitted. This should be co-ordinated at a corporate level for dissemination to all projects within the organisation.
Actual
158
SRED 1

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Contract Audit Manual

Highly Commended in the CIPFA 2007 Cliff Nicholson Awards.

GM Contracts Audit Group

Contributors (Members of the Greater Manchester Contracts Audit Group):

GM Contracts Audit Group

GM Contracts Audit Group

2.Training for Contract Auditors

RISKS & CONTROLS

TRAINING FOR CONTRACT AUDITORS

Actual GM Contracts Audit Group 5 SRED 1

2.Training for Contract Auditors

GM Contracts Audit Group

2.Training for Contract Auditors RISKS

GM Contracts Audit Group

2.Training for Contract Auditors RISKS

GM Contracts Audit Group

3. Scope for Joint Working

GM Contracts Audit Group

RISKS & CONTROLS

GM Contracts Audit Group

4. Project Appraisal RISKS

Actual Expected Need is assessed against a list of agreed criteria.

GM Contracts Audit Group

4. Project Appraisal RISKS

4. Project Appraisal RISKS

Actual Expected The project appraisal report covers :

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors

RISKS & CONTROLS

ASSESSING THE COMPETENCY AND VIABILITY OF CONTRACTORS

5. Assessing the Competency and Viability of Contractors

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L

The financial documented.

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L

The technical documented.

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L

The health and safety appraisal should be fully documented.

Health and Safety performance should be monitored.

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors Likelihood RISKS H/M/L

GM Contracts Audit Group

5. Assessing the Competency and Viability of Contractors

GM Contracts Audit Group

6. Tendering Procedures Policies & Procedures

RISKS & CONTROLS

TENDERING PROCEDURES POLICIES & PROCEDURES

1.0 CORPORATE RULES AND PROCEDURES INCLUDING EUROPEAN UNION REQUIREMENTS

Standing Orders relating to this area exist.

GM Contracts Audit Group

6. Tendering Procedures Policies & Procedures RISKS

Standing Orders are available communicated to all appropriate staff.

There is compliance with any corporate procurement policy.

Standing Orders are updated, where necessary.

Standing Orders incorporate the C.I.B. Code of Practice.

GM Contracts Audit Group

6. Tendering Procedures Policies & Procedures RISKS

The different methods of selection are described in procedure documents.

Actual Expected A responsible Officer documents the chosen method of selection.

Actual Expected Appropriate approval for the selection method is sought.