Forecasting Final Subcontract Cost

When a project is executed through a competitive lump sum subcontract, the Project Manager must frequently take a calculated risk in order to maintain the schedule and start awarding subcontracts with partially complete detailed engineering. The result is an almost certain increase in cost between subcontract award and completion. 

The increase in cost must be anticipated by adding, upon award, an adequate resolution allowance to the base subcontract cost. This resolution allowance must be reevaluated periodically as the work progresses and new information becomes available. 

The following tools are required in order to exercise project cost control and provide accurate forecasts  

This guideline addresses all three requirements and is intended mainly for electromechanical work. 

This includes work covered by the bid drawings and specifications agreed upon at the time of subcontract award. The award cost must be treated as committed. Items on hold, even if related to the initial scope, are not considered part of the initial scope. However, they must be identified and treated as uncommitted at their current estimated cost and included in the cost forecast. 

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The progress monitoring system, outlined in Section 15.9, is an excellent basis for schedule forecasting. It provides information that, when used in conjunction with daily field force reports and spot activity checks, will allow the Project Manager to make accurate schedule forecasts. The procedure for forecasting final subcontract costs in Appendix I is also a good tool for predicting the final projects cost. 

Forecasting Final Subcontract Cost Table I.l Initial Resolution Allowance Criteria... 

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