In the past year, many states have been encountering budget crises. Projects all over the country are being suspended and, in some cases, even shut down entirely. What can happen when a project you’re working on encounters a funding shortage, gets suspended, or shut down? What should you do? Here are some factors associated with “Busting the Budget”.
- Limited Recovery Costs – A lot of contracts include some language that may limit the enforceability of the contract or recovery of damages by a contractor from a funding shortage. Be careful when reading through your contracts; there may be some limitations written into your contract that could hurt your company in the event of a budget crisis.
- Mitigation – All parties involved in a contract are responsible to mitigate their damages. Mitigation means to take reasonable measures to reduce damages that may occur by breach of contract from another party.
- Be cautious with Employment Decisions – If there were to be a project shutdown, managers could be tempted to lay off employees to reduce their costs. To avoid unnecessary employment litigation, make sure you review any applicable employment contracts and consult an attorney.
- Give Notice – Any time the project manager anticipates being impacted, foresees possible damages, or if they think the project will be delayed as a result of a suspension or shutdown, the workers should be given immediate written notice of the possible changes to the project.
- Overhead at the Home Office – If a project is suspended for a certain time period, a contractor might be able to recover home office overhead costs. If recovered, those costs may be reimbursed to the contractor because they cannot find other work during the suspension since the project is expected to restart eventually.
The Project Budget
The Project Budget is a detailed cost estimate that takes the original estimated cost and simplifies it for control and monitoring purposes. The Project Budget is then used as a guide for project management.
The original construction project schedule and associated cash flow estimates provide a baseline reference for cost control on a project. Completed schedules (construction progress) and the achievement of milestones can be used to monitor the progress when compared with the overall project schedule.
Contracts and job specifications provide the criteria within the detailed cost estimate. At this point the project is considered under financial control. Overruns signal the possibility of budget problems and give an indication of exactly what problems are being encountered.
Expense oriented construction planning and control focuses on the categories that are included in the final cost estimation. This, in particular, is important for projects that have fewer activities and considerable repetition, like paving roadways.
The procedures for project control and record keeping are the most important tools that managers and other participants in the construction process use during the execution of a project. Project control procedures are used with the intent to identify the deviations from the project plan.
These procedures have a dual purpose. First, to record the financial transactions. Second, to give managers a look at the progress and problems associated with a project. Without a project control systems, deviations can be time consuming and costly.
The best time to do major cost savings is in the planning and design stages of the project. Once the construction has begun any changes will probably just delay the project and lead to cost increases. That’s why project control is mainly focused on fulfilling the original schedule and indicating deviations from the schedule. It limits one from searching for improvements and changes after the project has started.
Follow these three points whenever you are considering a new project:
- Be aware of all contracts associated to the project.
- Understand what is included in the budget.
- Setup project controls to avoid deviations.
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