Progress and performance control of a cost reimbursable construction contract

Cost reimbursable contracts are increasingly being used on many capital projects. This has become necessary because the conventional lump sum, fixed price contracts are not always sufficiently flexible to deal with the diverse demands of owners and contractors. Two weaknesses of simple cost reimbursable contracts are the lack of knowledge of financial commitment by the owner and the lack of incentive for the contractor to control costs. The lack of knowledge of financial commitment may be related mainly to a lack of definition of the requirements and is independent of the contract type. However, cost reimbursable contracts have many advantages for both the owner and contractor. Among other things, design and construction can coincide. This can lead to early completion, reduce the inflation effect on capital cost, and to some extent interest charges on borrowings. A further advantage in the case of a revenue earning facility is the benefit of receiving early income from sales. To achieve these benefits, an effective and practical cost and schedule control system must be established. This is needed in order to deliver the project on time and within budget. Such a system should provide the information required by the project team to compare the amount of work that was planned with what was actually accomplished. Consequently, the project team can verify whether work is in line with or deviates from the original plan. This also highlights contractor performance and any worker requirements, indications that are essential for keeping control of the project and, if necessary, for identifying corrective measures. This article examines the techniques used to control the direct expense on a cost reimbursable project. It describes the specific tools used to monitor the project's progress and examines the measurement of direct labor productivity.