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Cost control

A buyout log that shows savings and losses as you award work

By Review.LivePublished 3 min readHow we write

Six weeks after the contract for a science centre was signed, the company's owner asks how buyout is going. The project manager answers from memory: electrical came in well under, so the job is ahead. Mechanical was awarded on Tuesday, and nobody has compared its price with the budget.

Two people use a laptop beside a blank lined notebook.
Photo: Nhat Anh Nguyen Chi on Unsplash

Keep one buyout log with a row for every subcontract and major purchase: its budget, the awarded value and the difference, entered the day you award it, with a running net and the budget still to buy. The net is your buyout result so far. Each award turns budget into a commitment, an obligation the job must meet for work done later, and on a mostly subcontracted job most of the budget is committed early. The log shows soon whether the prices behind the estimate held.

  1. List every package to buy: each subcontract, and each purchase above a threshold you set, with its budget, buyer and award date.
  2. Level the quotes before you award, so the value you log buys the whole scope; the method is in levelling subcontractor quotes.
  3. Log each award the same day: the awarded value plus any excluded item you must still buy, the difference from budget and a one-line reason.
  4. Move budget with scope, so one package's gain is not another's hidden loss.
  5. Keep two totals: the net on packages awarded, and the budget still to buy beside your best current price.
  6. Carry the net into the month's forecast, losses as well as gains.

Common mistakes

  • Reporting gains at once and losses later.
  • Logging a low quote as a saving before its exclusions are priced.
  • Updating the log only at month-end, weeks after the award that caused a loss.
  • Spending a buyout gain on an unrelated overrun before the remaining packages are bought.

Action list

Set up the log this week

  1. A row for each package over your threshold
  2. Budget, award, difference, reason and date
  3. Exclusions priced into the award
  4. Budget moved with scope
  5. Net and budget still to buy, updated at each award
  6. The net in this month's forecast

Check your understanding

Your log shows a $39,000 net gain with four packages still to buy. The company's owner wants to count it as profit this quarter. What do you advise?

Show the answer
Treat it as a buyout result, not profit yet. The open packages can still lose it, and every award is only a price for work not yet built. Keep the gain on its own line in the forecast until the remaining packages are bought and their risks have passed.

Sources

  1. Recommended Practice 10S-90: Cost Engineering TerminologyAACE International · accessed
  2. CCDC 3 – 2016 Cost Plus Contract (public description of the form)Canadian Construction Documents Committee · Canada (industry-standard contract form; only its public description was used) · accessed

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