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Accounting Procedures for Internal Control
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CONSTRUCTION CONTRACTS
MANAGEMENT CHECKLISTS
1.0 OBJECTIVES
1.1 It is essential that contractual documents are comprehensive and relevant from the inception of a contract to the post-completion stage. The main objectives of the checklists are to ensure that:
[a] Necessary requirements of the contract works have been identified and listed. These documents should be double checked to ensure relevancy, comprehensiveness and accuracy. The person responsible should provide his/her name, position and dates of such checking to ensure accountability and instill a sense of responsibility in the person involved in checking and double-checking processes.
[b] The documents are issued promptly and in the event of any delays in their compilation, checking or dispatch, appropriate remedial action can be taken promptly and the person responsible can be identified.
[c] The prospective tenderers will be aware of their obligations and responsibilities and possess all the information that would be necessary for them to be able to provide a reasonably priced bid for the works to be constructed and a level playing field.
1.2 It is important that the checklists and
their function be reviewed regularly and also for all stages including upon
completion of the contract works. The checklists should
then be revised as appropriate. These checklists should be compiled and
complied with intelligently and not blindly. This will ensure that the checklist
continues to retain their usefulness.
2.0 USERS OF THE CHECKLIST
2.1 The primary users of these documents should be all the technical professionals involved in the planning, implementation and monitoring of the construction contracts. Others who are indirectly involved and should use these checklists would include the finance/accounting professionals and the auditors.
3.0 CONCLUSION
3.1 It is emphasized that these checklists
should be used only as a guide. Users should make necessary amendments to
ensure compatibility with the scope of work and the contract type.
CHECKLISTS ARE IMPORTANT
INTERNAL CONTROLS.
MAINTENANCE
RESPONSIBILITY RESTS WITH RELEVANT DEPT.
AUDITORS ARE TO ENSURE
THAT THEY ARE MAINTAINED.
GSK/July
04
SUMMARY OF checklists
1.
Tender/Tender
Table Documents
2.
Contract
Document Proper
3.
Variation Orders
4.
Extension of
Time
5.
Certificate of
Non-Completion
6.
Statement of
Practical Completion
7.
Statement of
Final Account
[List of Contents for each
of the above checklists is Provided Separately]
[The type of checklists
and the accompanying List of Contents are based on construction management
practices in Malaysia. These have been revised to reflect the latest
developments and current practices in the construction industry. Individual
companies should scrutinize the contents of the checklists to ensure that
they are compatible with their in-house policies, procedures and practices.
These should be reviewed and where appropriate, revise their in-house
procedures and internal controls for optimum effectiveness.
************************************************************************
Check List No. 1 -
Tender/Tender Table Documents
List of Contents
[a] Format of Contract
[b] Form of Tender
[c] Acceptance of Tender Form
[d] Instruction to Tenderers
[e] Specifications
[f] Summary of Tender
[g] Other Forms
[i] List of Works in Progress
[ii] Tender Deposit/Earnest Money Guarantee
[iii] Perf Bond/Guarantee/Advance Payment G’tee
[iv] List of Drawings
[v] List of Local Materials Approved to be used
[vi] List of Designated Approved Suppliers [To be Preferred]
[vii] Appendices:
- Price Escalation Clause for Selected Materials
- Clauses for CIDB, KWSP, SOCSO, Safety, Environment, - Others Regulatory Requirements [As Applicable]
- Day work Schedule [Labour/Plant/Equipment]
- Employment of Apprentices [Skills and Incentives]
- Mandatory Site Agent [For Work/Value]
- Any Other Forms as Approved
[h] General
[i]Verify Contractor’s Registration, Classification & Eligibility
[ii] Schedule of Rates – Comprehensive List
[iii] All Amendments/Cancellations/Insertions are initialed
[iv] All Documents and Drawings stamped with words ‘Tender Table Documents’
************************************************************************
Check List No. 2 – Contract
Document Proper
List of Contents
[a] Formal Contract Document
[b] Performance Bond/Security Deposit [On Prescribed Format]
[c] Insurances – Contractor’s All Risks’ Policy to cover
- Fire Insurance
- Workmen Compensation [and SOCSO]
- Public Liability
[d] Rates of Priced Bills of Quantities and Schedule of Rates
[e] CIDB notified of the Award[If Contract is subject of Payment of Levy]
[f] Other Relevant Departments Notified [e.g. Internal Audit, Finance, Corporate]
[g] General
[i] Amendments in ‘TTD’ incorporated in Formal Contract Document
[ii] Cost of Preliminaries/Mobilization to be reasonably priced & Apportioned
[iii] Documents to be stamped ‘Original’ & ‘Copy’ as appropriate
[iv] All hand/type written entries to be doubly checked
NOTES:
1. Separate Insurance Policies are Acceptable if provided for by Contract Conditions. ‘Cover Notes’ in place of Insurance Policies are Not Acceptable
2. Original Documents
- To be kept in safe custody
- To be Stamped [at Stamp Office except for Insurance Policies]
- Certified Stamped Copies [Extended to those eligible for copies]
- Premium Paid Receipts to be retained [By the Party entitled]
************************************************************************
Check List No. 3 –
Variation [Change] Orders
Table of Contents
[a] Reason, Justification and Authority for Variation Order
[b] Rates used for Valuation of the Variation Value
[i] V.O. Rates as per BOQ for Remeasured Works
[ii] Pro-Rata Computed Rates for Similar Works
[iii] Negotiated/Agreed Rates for New Works
[c] Day Works Rates as Included in the
Schedule of Rates
[d] Adjustments as Applicable to be Applied
[e] Arithmetical Computations to be Checked Correct
[f] Prescribed Format to be Used [with All Information to be Entered]
[g] Compliance - Prescribed Financial Regulations & DAL
[h] Cross-Checking of
Variations with Drawings &/or BOQ as applicable
[i] Value of Materials/Services/Facilities Supplied & Work Done to be Inclusive of Approved Surcharge [On-Cost] Rate [%age/Fixed] to be Included in the Variation Order Valuation
[j] General Claims to be Substantiated for Variation Orders with Substantial Increase/Decrease in Quantities even in cases where the existing BOQ Rates or Schedule of Rates are Not reasonable.
NOTE: Contractors will substantiate with documentary evidence the value quantum for any VO with substantial increases. The client’s representatives should monitor for any VO with substantial decrease in any quantities and value. There may be possibilities that appointed technical consultants may not strive for the highest value reduction of any VO that may have a substantial decrease in the final cost of the contract as it may adversely affect their quantum of professional fees. Management should monitor this aspect.
************************************************************************
CHECK LIST NO. 4 –
EXTENSION OF TIME
LIST OF CONTENTS
[a] Reason for Extension to be Justified
[b] Relevant Clause Authorizing Extension
[c] Performance Bond/Insurance Policies Correspondingly Extended
[d] Application for Extension to be made in Advance and Approved When the Reason for Extension can still be Verified
[e] If Extension for Time involves Claim by Contractor
Client to Re-examine Application
[f] Relevant Financial Institutions to be informed of Approved Extensions
[g] Extensions Not to be Approved if Due to Default by Sub-Contractors or Sub-Suppliers unless Contractually and Specifically Provided
************************************************************************
Check List No. 5 –
Certificate of Non-Completion
List of Contents
[a] Prepare ‘Summary of Incomplete Works’ with Brief Description
[b] Complete with Relevant Documents [to be attached to the ‘Summary’]
[c] L. & A. D [or Penalty] Rates to be in Terms That are Similar to those Prescribed in the Contract
[d] Certificate of Non-Completion to be signed by [Authorized] S.O. only
[e] Relevant Correspondence Copies regarding the Contractor’s Poor and Unsatisfactory Performance, together with the Signed Certificate of Non-Completion, to be forwarded to the Relevant Bank and Ins. Co.
IMPORTANT:
Advice and Assistance of a Legal Professional should be Utilised to
Avoid any Procedural Errors.
************************************************************************
CHECK LIST NO. 6 -
STATEMENT OF PRACTICAL COMPLETION
LIST OF CONTENTS
[a] Certificate to be Issued
[b] Variation Orders & Any Claims Aspects Adjusted - ‘P.C.’ ‘Provisional’ and ‘Contingency Sum’] [Contingency should NOT have been Included in the LOA Sum. If Included, it should have been OMMITTED, at the Beginning]
- Profit and Attendance to ‘P.C. Sum’ Adjusted
- Provisional Quantities are Remeasured
- All V. Os to be Correctly Accounted, especially Omissions
- Price Variance Claims to be Correctly Computed
[c] Computation of Contract Sum and Calculations to be Correct
[d] Progress Payments
- All Advances are Fully Recovered and Deductions for Materials/Services/Facilities/Work Done on Behalf of Others - All to be Correctly Computed and Adjusted
- Progress Payments Certified
[e] All Extensions of Time/Cert. of Non-Completion Approved by Authorized Officers only
[f] All Relevant Certificates regarding Settlement of Wages, Contributions to IRB, KWSP, SOCSO, CIDB Levy, Dues to Other Statutory Authorities and Utility Companies are attached. Also Ensure All Dues to Nom. Sub-Contractors/Suppliers Settled
[g] All Blank Spaces - Filled/Deleted as Appropriate
[h] Signatures are of duly Authorized Officers only
[i] All Contract Terms & Conditions are Complied especially for
- Ownership of Capital Assets procured under Contract as Prescribed. [Example: Vehicles, Survey Instruments, Loose Furniture, Office Equipment – Computers, Fax, Photostat, Drawings Machines, Cameras with Negatives/Diskettes, Surplus Buildings]
- Indexed Working Manuals & As-Built Drawings Received
- Cert. of Fitness & Other Approvals from Relevant Authorities Received
************************************************************************
Check List No. 7 –
Statement of Final Account
List of Contents
[a] Statement of Final Account Prepared and Approved by Both Parties
[b] All entries correctly Included and Accounted
[c] All P.C./Provisional [Remeasured] Items Accounted Correctly
[d] All Payments/Deductions Correctly Computed and Accounted
[e] Certificate of Fitness/Occupation, Approvals/Licenses/All Other Certificates, Warranties, Guarantees received from the Relevant Authorities BEFORE issue of Final Payment to the Main Contractor and other relevant Sub-Contractors
[f] Claim all Deposits that were paid for any aspect of the Project to any Regulatory Authority/Utility Company/Others. Claim to be in Full or in Part and substantiated by Original Receipt
[g] Request for Final Accounts for any Advances given to any Authority where a Refund is Possible. Again Original Receipts are required.
******************************************************************
GSK/July 04