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8/6/2019 Cliff Commended07GMCAG

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Contract AuditManual

GMCAGGREATER MANCHESTER

CONTRACTS AUDIT GROUP


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Contributors (Members of the Greater Manchester Contracts

Audit Group):

Blackburn with Darwen BC

Blackpool BC

Bolton MBC

Bury MBC

Halton BC

Manchester City Council

Oldham MBC

Rochdale MBC

St. Helens Council

Salford City Council

Sefton MBC

Stockport MBC

Tameside MBC

Trafford MBC

Warrington BC

Wigan MBC


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CONTENTS

PART 1 Background

SECTION 1: Introduction

SECTION 2: Training for Contract Auditors

SECTION 3: Scope for Joint Working

PART 2 Pre-Contract

SECTION 4: Project Appraisal

SECTION 5: Assessing the Viability and Competency of Contractors

SECTION 6: Tendering Procedures

SECTION 7: Contract Conditions and Tender Documents

SECTION 8: Insurance

SECTION 9: Performance Bonds

PART 3 Current Contract

SECTION 10: Monitoring Arrangements

SECTION 11: Nomination Instructions for Supplies and Sub-Contractors

SECTION 12: Valuations and Interim Payments

SECTION 13: Controlling Price Fluctuations

SECTION 14: Controlling Variations

SECTION 15: Assessing Applications for Extensions of Time

SECTION 16: Receipt and Evaluation of Contractual Claims

SECTION 17: Liquidations and Bankruptcies

SECTION 18: Site Visits

PART 4 Post Contract

SECTION 19: Completion and Accuracy of Final Accounts

SECTION 20: Calculating and Recovering Liquidated Damages

SECTION 21: Post Contract Reporting

SECTION 22: Post Completion Reviews


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Section 1

Introduction

1. In September 2001 Greater Manchester Contracts Audit Group Membersagreed a workplan to develop a risk based approach to the audit of contractsby sharing best practices and producing control matrices on Contract Auditsubject areas. The Chief Auditors Group subsequently agreed the workplanthat would lead to the production of a Contract Audit Manual for use by allmembers.

2. Membership of the Greater Manchester Contracts Audit Group is as stated inthe contributors list

3. Subject areas to be examined were mainly identified from CIPFA publicationson Contract Audit and the subject areas were allocated to Group Members(Lead Authority and Assisting Authority) for review. It was agreed that themajority of subject areas reviewed would be recorded in the format of a

control matrix to provide comprehensive practical gu idance for auditing thatsubject area.

4. The Lead Authority presented the subject area that they had reviewed atContracts Audit Group Meetings for consideration and agreement byMembers with amendments made to documentation presented whererequired. It was agreed that Bury would maintain and update the Manual andthat Lead Authorities would be responsible for updating the subject areas

allocated to them and notifying any changes and updates to Bury. Additionalsubject areas would be added to the manual a s required.

5. Guidance from CIPFA and the Institute of Internal Auditors (IIA) and theexperiences and working practices of Greater Manchester Audit Sectionshave been consulted extensively in the production of this manual.

6. The subject areas as defined w ithin the index have been reviewed andincorporated into subsequent sections of this manual.

7. Whilst the Greater Manchester Contracts Audit Group are pleased to sharethis Manual with other public sector auditors, it is expected that the source ofthe document be acknowledged in any subsequent audit reports.


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2.Training forContract Auditors

GM Contracts Audit Group SRED 15

RISKS & CONTROLS

AuditRef

Service Subject Prepared By Date Reviewed By Date

2 TRAINING FOR CONTRACT AUDITORS

RISKS LikelihoodH/M/L

ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.1 If staff are unaware of regulations,they are unable to comply with them.

Specific risks within this overarching risk:y Pre-contract

y The number of tenders requiredby Financial Procedure Rules isnot met.

y Quotation or tender thresholdsare circumvented by the divisionof an order into multiple smallerorders.

y Bonds

y Performance bonds aredispensed with after tender, butthe cost of the same is notdeducted from the account.

y Variations

y Overpayment due to AIs/SOIsincorporating duplicate items from

site instructions.y Overpayment due to site

instructions being paid at ratesother than those tendered in theBill of Quantities

y Overpayment due to fixed costsums not being removed whencalculating extensions of time

Expected All staff should have access to financialregulations, standing orders and other relevantcontrol documents.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.1 (Cont.)

If staff are unaware of regulations, theyare unable to comply with them.

y Prime Cost & Provisional Sums

y Provisional sums andcontingencies are not removedfrom the final account prior topayment.

y Prime cost sums are not adjustedprior to payment.

y Arithmetic errorsMisc.

Expected

Actual

1.2 Lack of standard documentation

causes inconsistency and difficulty inappraisal or moderation.

Expected Standard documentation is developed, and ableto be identified by contract auditors. Records aremaintained for auditing daywork accounts andextensions of time.

Actual

1.3 Lack of understanding of specificareas of contract audit that requirespecialist knowledge e.g. partnering.

Expected Identification of areas of contract audit whichrequire specialist knowledge and resultingtraining of staff working in these areas. Trainingproviders include J. R. Knowles, Stuart Kings,and Ken Odgers.

Actual

1.4 Contract auditors lack of knowledge

or understanding is not identified,causing loss of revenue or overpaymentof fees by the oversight of valid queries.

Expected Weaknesses and gaps in knowledge areidentified, and correct practice established. Staffare trained in correct procedure and correctcontacts.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.5 The raising of invalid queries causing

abortive costs from quantity surveyors orconsultants, caused by a lack ofunderstanding of construction industryterminology and procedures, and theresponsibilities of professional staff withinthe construction industry.

Expected That areas of contract audit which require

specialist knowledge are identified, and staffworking in these areas trained accordingly.Training providers include J. R. Knowles, StuartKings, and Ken Odgers.

Actual


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3. Scope forJoint Working

Section 3

Scope for Joint Working

1. Joint working is two or more internal audit sections working together on specificcontract audit projects.

2. Blackpool and Warrington explored the opportunities provided by joint workingand put forward several approaches ranging from limited working between auditsections to a total joint approach i.e. delivery of contract audit by a consortium.The following suggestions were put forward for discussion:

Area Issues

1. Joint purchase of training andtrainers shared locally

Contract Audit training providersexist and the cost per Authority couldbe reduced because of economies ofscale. Assumes that Authorities approachto Contract Audit is similar and is atthe same stage of development.

2. Joint training exercises between Authorities e.g. risk basedapproach to contract audit, use ofinterrogation software etc.

Agreed method of recharge inadvance e.g. hourly rate, reciprocalarrangements etc.

3. Sharing of contract audit skills(sharing expertise/experiences)e.g. where auditors dealing withPFI schemes get together tobrainstorm key risks.

Confidentiality may be a barrier.

4. Developing a shared database ofcontract audit related informatione.g. a Contract Audit Manual or anintranet site.

Responsibility for updating part ofthe manual could be allocated toeach Authority.

5. Purchase or provision of specialistskills between Authorities e.g.conditions of contract, PFI, M4I,computer audit techniques. Agreement would be needed ontime/costs.

Cost and allocation of time to beagreed between participating Authorities. Could be complex toadminister e.g. employmentcontract/conditions.

6. Secondment of staff fordevelopment purposes.

Formal arrangement necessary thatmay be difficult to administer e.g.employment contract/conditions,employee travelling time.

7. Joint (consortium service) Formal arrangement needed.


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4. Project Appraisal


RISKS & CONTROLS

AuditRef


4 PROJECT APPRAISAL


ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.0 Project Initiation

1.1. Officers and Partners are not fullyaware of their roles and responsibilities

Expected Each member of the team has receivedadequate briefing and training regarding their

individual roles and responsibilities .Actual

Expected Reporting lines and responsibilities are detailedto each member of the team.

Actual

Expected The project appraisal team consists of the rightlevel of expertise, has an adequate terms ofreference and reporting arrangements.

Actual

1.2. The project appraisal process fails toensure all projects are consistent withcorporate/service policies and strategiesand the relevant agreed priorities.

Expected An agreed strategy or plan exists for the serviceand it sets out the priorities to be achieved.

Actual

Expected The project appraisal compares each optionbeing considered with the strategy.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.2 (Cont.) Expected As part of the process each option being

considered is evaluated and ranked against thepriorities in the plan.

Actual

1.3. The project appraisal process fails toconfirm that the scheme/project is reallynecessary and that the selected solutionmeets the need in the most effective

way.

Expected The project appraisal includes a business casewhich provides a description and quantificationof the problem, adequately identifies the needand provides a costed solution, having

considered all viable alternatives.

Actual

Expected Need is assessed against a list of agreedcriteria.

Actual

1.4 Adequate budget provision is notconsidered or finalised.

Expected Financial requirements are considered andobtained before the project is progressed.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

2.0 Project Compliance

2.1. The project appraisal process doesnot comply with agreed formalprocedures and fails to consider allrelevant aspects.

Expected All schemes over an agreed limit must besubject to a formal project appraisal.

Actual

Expected The project appraisal process has agreedobjectives and follows a pre -determined brief

approved by committee.

Actual

Expected The project appraisal brief includes:. Feasibility of the scheme Availability of resources Consideration and evaluation of the

options Feedback from previous schemes Feasibility study on all the realistic

options Justification of the scheme and whether

it meets the needs and broadrequirements

Consideration of the scheme on theoverall programme and strategy

Risks of the project failing to meet its

objectives Conditions under which the project

would become non-viable Demonstrate the cost effectiveness of

the scheme after taking into account theprevious issues

Actual


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ImpactH/M/L

CONTROLS Test

Ref

EVALUATION

2.2. The conclusions of the projectappraisal process are not taken onboard.

Expected A detailed report of the project appraisal issubject to approval by committee (or to otherinterested bodies) before the preferred optioncan be selected and continue as a project.

Actual

Expected The project appraisal report covers :

y Relationship between the project and the

Councils strategic objectivesy User needs

y The detailed requirements

y Site location

y Land requirements

y Priority ratings of options

y Cost implications including total capitalexpenditure, cash flow and operating costs

y Funding streams available to support thefinancing of the projects

y Revenue alternatives to capital expenditure(if any)

y Legal and environmental constraints

y Health & Safety requirement/issues

y Project timing and phasing

y Consequences of delay in implementation ofthe project

y Full justification for using the preferredsolution in preference to th e best solution (ifapplicable)

Actual

2.3 The project is not aligned with theorganisations priorities

Expected y The appraisal report is reviewed byappropriate Members and Officers prior toinclusion in the capital programme

Actual


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3.0 Project Outcomes

3.1 The project fails to meet its objectives Expected The project appraisal details are reviewed priorto the project being approved and progressed.

Actual


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5. Assessing the Competencyand Viability of Contractors


RISKS & CONTROLS

AuditRef


5ASSESSING THE COMPETENCY ANDVIABILITY OF CONTRACTORS


Impact

H/M/LCONTROLS Test

RefEVALUATION

1.0 Competency and Viability

1.1 Works are not completed or carriedout to a satisfactory standard. Best valueis not achieved from the use ofcontractors.

Expected All prospective contractors should be subject toformal appraisal.

Actual

1.2 Contractors do not provide thenecessary information to enable theirsuitability to be properly evaluated.

Expected All prospective contractors should complete astandard application form when tendering for acontract or applying for inclusion on an

approved list.

Actual

1.3 Inappropriate contractors selected orincluded in approved list(s) becauseincorrect appraisal criteria applied.

Expected Formal appraisal procedures should be put inplace and regularly reviewed and updated

Actual

1.4 Too many contractors apply for workprolonging the selection process anddelaying the contract start.

Expected Approved contractor lists should be drawn upand categorised for different types of works andfinancial bandings.The method of tendering (e.g. restricted, open)should be considered when selectingcontractors for works.

Actual


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Impact

H/M/LCONTROLS Test

Ref

EVALUATION

2.0 Financial Appraisal

2.1 Contractor does not have thefinancial capability to carry out theworks.

Expected All contractors considered for contracts shouldbe financially appraised.

Actual

2.2 Financial appraisal is based upon

incomplete and/or out of dateinformation.

Expected Financial appraisal should be based on

sufficient and up to date financial information(including parent and subsidiary companieswhere appropriate) e.g. last three yearsaccounts.

Actual

2.3 Financial appraisal is based onincorrect or incomplete financial

information.

Expected External checking should be carried out oncontractors to support or replace internal

financial appraisals e.g. Equifax, Infocheck,Dunn & Bradstreet, Constructionline etc.

Actual


Expected Criteria should be established for financialappraisers e.g. ratio analysis, internal report,scoring process.

Actual

2.5 Contractor does not have thefinancial resources necessary tocomplete the works

Expected Financial limits should be set for the maximumvalue of work that can be awarded at any onetime to each contractor.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

2.6 There is no evidence that the

contractor has been financiallyappraised.

Expected The financial appraisal should be fully

documented.

Actual

2.7 The financial status of a contractordeteriorates resulting in a lack ofresources/bankruptcy and failure to meetcontractual obligations.

Expected Financial information should be receivedannually from contractors on approved lists sothat financial appraisals can be reviewed andupdated.

Actual

2.8 Contractors resources may beoverstretched owing to commitment toother contracts.

Expected Before awarding a contract either via opentender or from an approved list, the contractorscurrent commitments should be ascertained andan assessment made as to whether thecontractor has the resources necessary to carryout the work.The contractor should be questioned regarding

their intended use of sub -contractorsActual

3.0 Technical Appraisal

3.1 Work is not up to standard, is notcompleted on time or at an excessivecost.

Expected A technical appraisal should be carried out priorto contractors being awarded contracts or beingincluded on approved lists to ensure that theyare capable of carrying out the required work.

Actual

ExpectedContractors should provide details of recentcontracts completed and references for the workcarried out.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

Expected

References should be checked for contractors

whose work is not known to the Authority.

Actual

ExpectedSite visits should be carried out to inspectprevious works carried out by the contractor.

Actual

3.2 No evidence that the contractor hasthe technical expertise

Expected The technical appraisal should be fullydocumented.

Actual

3.3 Inappropriate contractors selected orincluded in approved list(s) becauseincorrect evaluation criteria applied.

Expected Evaluation criteria should be established fortechnical appraisals covering contractorperformance i.e. completion of works on time,quality of work, value for money, amount of

remedial work necessary, customer satisfactionetc.

Actual

3.4 Contractors performance falls belowthe required standard.

Expected Technical appraisals should be updated withdetails of contractor performance since the lastcontract i.e. post contract appraisals carried out.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.0 Health and Safety Appraisal

4.1 Fatality or serious injury occurs onsite because appropriate safetyarrangements are not in place.

Expected A health and safety appraisal should be carriedout on contractors before a contract is awardedor before a contractor is included on anapproved list and reviewed for each contractawarded from the approved list.

Actual

4.2 Health and Safety appraisal is notbased on complete information.

Expected The contractors health and safetydocumentation should be examined i.e. healthand safety policies, risk assessmentmethodology etc.

Actual

Expected External assessments should be taken intoaccount i.e. Constructionline, CHAS etc as well

as the contractors track record of accidents atwork

Actual


Expected Criteria should be established for health andsafety appraisals covering contractorperformance i.e. track record of accidents,external assessments etc.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.4 There is no evidence that the

contractor has had a health and safetyappraisal that confirms that health andsafety requirements have been met.

Expected The health and safety appraisal should be fully

documented.

Actual

4.5 Contractor activities fall below thehealth and safety standards.

Expected Health and Safety performance should bemonitored.

Actual

5.0 Equal Opportunities

5.1 Contractor is in breach of equalopportunities legislation.

Expected Contractors should have an Equal Opportunitiespolicy.

Actual

5.2 Contractor treats staff and/or other

contacts unfairly.

Expected Examine contractors track record on equal

opportunities i.e. breaches

Actual

5.3 There is no evidence of appraisal ofcontractors equal opportunities policiesand procedures.

Expected The equal opportunities appraisal should befully documented.

Actual

5.4Contractor fails to maintaincompliance with Equal Opportunitieslegislation.

Expected Equal Opportunity appraisal should be carriedout regularly.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

6.0 Insurances

6.1 Contractor has insufficient insurancecover to meet any liability claims.

Expected Contractor should be required to provideevidence of insurance cover e.g. evidence ofpublic and employer liability cover, professionalindemnity and any other insurance.

Levels of cover should be specified in theCouncils Contract Procedures

Insurance cover must be valid for the fullduration of the contract period.

Actual


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Assessing the Competency and Viability of Contractors

Guidance notes

All contractors/suppliers should be subject to a range of checks designed to ensurethat contractors used by the organisation deliver the best possible contractingservices. The checks should be applied to those contractors submitting tenders forworks and those applying to be included on an approved list of suppliers/contractors.

In order that the organisation will receive at least a satisfactory level of service andworkmanship, contractor/suppliers must be able to demonstrate:

y Sound technical knowledge;y Adequate taxation certification;

y Rigorous Health and Safety policies;

y Non-discriminatory employment practices;

y Adequate insurance provisions;

y Environmental awareness;

y Financial capacity.

y Capacity in their work programme


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6.Tendering Procedures Policies & Procedures


RISKS & CONTROLS

AuditRef


6TENDERING PROCEDURES POLICIES& PROCEDURES


Impact

H/M/LCONTROLS Test

RefEVALUATION

1.0 CORPORATE RULES ANDPROCEDURES INCLUDING

EUROPEAN UNION REQUIREMENTS

1.1 Relevant Officers may not be aware of currenttendering requirements and processes.

Failure to follow EU rules could result inlegal action against the organisation.Ignorance of requirements generallycould lead to an inconsistent approach,

procedures interpreted differently,unauthorised documentat ion and stafferrors.

Expected Standing Orders relating to this area exist.

Actual

Expected Standing Orders should provide precise writteninstructions on procedures, including thosefalling within the EU Thresholds.

Actual

Expected Standing Orders should highlight theresponsibilities of Officers and Membersincluding authorisation and approval levels.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.1 (Cont.) Relevant Officers may not be

aware of current tendering requirementsand processes.

Expected Standing Orders are available to and

communicated to all appropriate staff.

Failure to follow EU rules could result inlegal action against the organisation.Ignorance of requirements generallycould lead to an inconsistent approach,procedures interpreted differently,unauthorised documentation and stafferrors.

Actual

Expected There is compliance with any corporateprocurement policy.

Actual

1.2 Policies and Procedures are out ofdate and fail to reflect current bestpractice.

Expected Standing Orders are reviewed on a regularbasis.

This could lead to current objectives notbeing met and procedures failing to coverall key control areas

Actual

Expected Standing Orders are updated, where necessary.

Actual

1.3 Policies and Procedures are out of

date and fail to reflect current bestpractice.

This could lead to current objectives notbeing met and procedures failing to coverall key control areas.

Expected Standing Orders incorporate the C.I.B. Code of

Practice.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

2.0 TENDER METHODOLOGY

2.1 The most appropriate method ofselection may not be undertaken.

Expected Appropriate/approved methods are available tomeet varied contract requirements.

This could lead to an incorrect methodbeing used, an unsuitable contractorbeing selected, a lack of accountability,collusion and non-compliance withstanding orders.

Actual

Expected The different methods of selection are describedin procedure documents.

Actual

Expected A responsible Officer documents the chosenmethod of selection.

Actual

Expected A responsible Officer documents the reasons fora particular method being chosen.

Actual

Expected Appropriate approval for the selection method issought.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

3.0 TENDER PROCESS

3.1 The process is not clearlydocumented.

Expected Procedures comply with the C.I.B. Code ofPractice for the selection of main contractors.

Thus the probity of the system could bechallenged, leading to a loss ofconfidence by tenderers, an unsuitablecontractor being selected, a lack ofaccountability, collusion and non -

compliance with standing orders.

Actual

Expected Procedures must be comprehensive and ensurefair competition and a consistent approach ismaintained.

Actual

Expected For every contract awarded the Authority mustretain appropriate documentation to support thedecision made.

Actual

3.2 Compilation and authorisation of listsis not properly recorded.

Expected A suitably approved record is maintained of allinterested Contractors.

This could lead to the use of an

unapproved list, the compilation of a listthat is not at an optimal level leading topoor value for money and an ineffectiveuse of resources. Additionally, claimsmay be made that the Authority isbehaving in an anti -competitivebehaviour and the inclusion of unsuitablecontractors (both financially andtechnically).

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

3.2 (Cont.) Expected Tender lists should be maintained at an

optimum/appropriate level to ensure maximumvalue for money.

Actual

Expected Regulations specify the maximum and minimumnumber of tenders to be invited for particularcontracts (e.g. 5,000 - 50,000 = 3 writtenquotes).

Actual

Expected Financial references must be obtained andopinions sought on the financial stability of firms.

Actual

3.3 Compilation and authorisation of listsis not properly recorded.

Expected All references and other documentation shouldbe retained.

This could lead to the use of anunapproved list, the compilation of a listthat is not at an optimal level leading topoor value for money and an ineffectiveuse of resources. Additionally, claimsmay be made that the Authority is

behaving in an anti-competitivebehaviour and the inclusion of unsuitablecontractors (both financially andtechnically).

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

3.4 All firms may not be provided with an

equal opportunity to submit tenders (e.g.public adverts). This could lead to unfaircompetition and possible legal action byfailing to comply with statutoryregulations (eg ojec)

Expected Adverts should be placed at least 4 weeks

before the list is compiled.

Actual

Expected Adverts should be placed in appropriatejournals.

Actual

3.5 The tender list does not provide an upto date record of Contractors able toundertake the contracts.

Expected The tender list should be reviewed fully on aregular basis.

This could lead to the appointment of anunsuitable contractor and a list that doesnot cover current market conditions.

Actual

Expected Where firms continually fail to submit tenders,they should be deleted from the list.

Actual

4.0 PROCESS DOCUMENTATION

4.1 Procedures for the invitation oftenders may not be documented.

This could lead to bribery and corruptionif procedures are not followed.

Expected Standing orders specify the procedures to befollowed.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.2 Documentation does not exist to

record the tendering procedure.

Expected Any extension of time for return of tenders or

changes in information should be notified to alltenderers in writing.

This could lead to a lack of accountabilityand no formal terms of reference tofollow.

Actual

Expected A formal record should be kept detailing theamounts tendered.

Actual

4.3 Contractors are not sent full detailsof the contract.

Expected Tender documents should contain standardstatements governing rules regarding briberyand corruption.

This could lead to bribery and corruptionand the risk that documents may be heldback by corrupt employees. In addition,envelopes could be opened in error andcontractor anonymity will cease andcould lead to disqualification.

Actual

Expected Tenderers should be required to confirm receiptof tender documents and their intention tosubmit a bid.

Actual

Expected The envelope should identify clearly that itcontains a tender submission.

Actual

Expected The envelope is not marked in any way toidentify the contractor who submitted the tender.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.4 There is no evidence to record the

receipt and opening of tenders.

Expected The envelope should state clearly to whom the

tender should be returned.

This could lead to envelopes beingmislaid, a lack of a separation of dutiesbetween the receipt and opening oftenders, potential collusion and tendersbeing received after the closing date

Actual

Expected All tenders should be passed unopened to anindependent custodian.

Actual

Expected The recipient of the tender documents shallimmediately endorse the envelope with the timeand date of receipt.

Actual

Expected All tenders shall be opened at the same timeand key details immediately recorded andsigned by the openers.

Actual

Expected Records should be kept of all tenders receivedand identify all those received late or opened in

error.

Actual

Expected Tenders received after the due date arerejected.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.5 Tenders are not opened in a timely

manner.

Expected The time and date for returned tenders should

be as close as possible to the time and datethey are due to be opened.

This could lead to documents goingastray, late tenders being included, anunfair advantage to contractorssubmitting late tenders.

Actual

5.0 TENDER EVALUATION

5.1 Insufficient time is given to evaluatetenders, leading to an inappropriatetender being selected.

Expected An adequate time period has been approvedand documented.

Actual

5.2 Tenders are not evaluated on anequitable basis.

Expected Appropriate price/quality ratios have beenagreed in advance.

This could lead to discrepancies withinthe evaluation process and a tender maybe accepted which may contain errors.Further more, legal claims could ariseagainst the authority.

Actual

Expected The role of the Evaluating Officer(s) isdocumented.

Actual

Expected The evaluation and results are documented.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

5.2 (Cont.) Expected Procedures are documented in Standing Orders.

Actual

Expected Contractors should be advised of any errorsimmediately.

Actual

Expected The above procedure should be undertaken by

the Evaluating Officer(s) to provideconfidentiality.

Actual

5.3 A lack of documentation means thattenders are evaluated using differentcriteria.

Expected The evaluation process and subsequent resultsare fully documented.

Actual

5.4 Errors in tenders are not dealt witheffectively as procedures may not beknown by all officers. This could lead tolegal action or the risk of collusionbetween officers and contractors.

Expected Procedures are documented in Standing Orders.

Actual

Expected Contractors should be advised of any errorsimmediately.

Actual

Expected The above procedure should be undertaken bythe Evaluating Officer(s) to provideconfidentiality.

Actual


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ImpactH/M/L

CONTROLS TestRef

EVALUATION

5.5 Tenders could be considered that do

not meet the requirements of theAuthority.

Expected Standing Orders specify the correct procedure

and responsibility for collection of tenders.

Actual

Expected The results of the evaluation process aredocumented.

Actual

Expected Successful and unsuccessful tenderers arenotified promptly.

Actual

5.6 Relevant documentation is not heldfor a minimum period reducing theeffectiveness of an audit trail

Expected Minimum retention periods are defined(including retention of unsuccessful bids).

Actual

5.7 The tender document is notexamined meaning that the Authoritycould be overcharged or legal disputes inthe event of an error being detected afterthe contract has been awarded.

Expected All successful tenders should be checked forarithmetical accuracy.

Actual

5.8 Tender documents are not held

securely resulting in them being mislaidor accessed by unauthorised officers.

Expected The exchanged contract should be held in a

locked safe with access restricted to authorisedpersonnel.

Actual



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Tendering Procedures policies and procedures

Guidance notes

1. There are four main forms of tendering. These are:

y Open Tendering;

y Ad hoc Select List;

y Special Select List;

y Standing List.

2. Standing Orders will explain each of these processes in detail and should be

reviewed regularly to take account of new practices in procurement (eg e -tendering, partnerships etc).

3. Open Tendering. This method should be used for contracts forexpenditure over an approved pre -determined level as laid out inStanding Orders (eg 1m), when it is in the Councils interest to invitetenders from a wide range of contractors.

Ad Hoc Select List. Public notice is given using newspaper or

journals informing potential contractors of the contract into which theCouncil wish to enter and inviting those interested parties to apply forpermission to tender.

Special Select List. A delegated Officer with responsibility for aparticular contract may draw up a select list from an existing approvedlist (eg Constructionline).

Standing List. Compiled and maintained by an authorised body, eg,

Executive Sub Board Committee for specific categories of works.

4. Any electronic system used in the tendering process should emulate themanual processes prescribed in your relevant Standing Orders Relating toContracts.

5. The matrix covers the following key areas within the tendering process.Policies/procedures, tender methodology, tender process, documentation and

evaluation.


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7. Contract Conditionsand TenderDocuments


RISKS & CONTROLS

AuditRef


7CONTRACT CONDITIONS AND TENDER

DOCUMENTS


ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.1 Works commence using terms andconditions that are inappropriate or out of

date, creating the risk of dispute, delaysand/or additional costs.

Expected The organisation should have a policy that isreviewed regularly, specifying the standard

forms of contract that should be applied to eachtype and size of project.

Actual

Expected A recognised form of contract is utilised. This isperiodically reviewed and updated.

Actual

1.2 A scheme is let without theAuthoritys interests being protected by aformal contract.

Expected All employees involved in accepting tendersfrom contractors should have access to relevantfinancial regulations & instructions (e.g. standingorders, contract procedure rules etc.), and thisshould be formally evidenced.

Actual

Expected Standing orders/financial regulations should beperiodically reviewed and updated.

Actual


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EVALUATION

1.3 A contract containing illegal or

ambiguous terms and conditions issigned by the relevant parties(contractor/council).

This may include amendments for localrequirements under frameworkagreements.

Expected Before formal contracts are sent out to the

contractor, any amendments to the standardterms and conditions of the contract should beauthorised by the organisations legal servicessection.

Actual

1.4 Works commence on a schemewhere formal documentation isincomplete or not in place. The lack ofspecific clauses could lead to the risk ofdispute or delays escalating

Expected Contracts are formally completed by Legal, andclearing memos are sent to the relevant contractstakeholders (i.e. client, Qs/engineer,finance/internal audit).

Actual

1.5 Signed agreement does not includecontingency provisions, to cover theAuthority in case the contract does notprogress as planned.

Expected Before the formal contract documents are sentto the contractor for signing, or exchange, theemployer should check that the documents arecomplete and accurate e.g. that a rate ofliquidated and ascertained damages is stated,insurances have been obtained/confirmed and,if necessary, the required performance bond hasbeen obtained.

Actual

Expected A recognised form of contract is utilised.

Actual


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EVALUATION

1.6 The contractor starts on site before

an agreement is signed.

Expected The design team (e.g. Architect) should ensure

that the contractor is authorised to takepossession of the site and commence work,immediately confirmation has been receivedfrom the employer that all the necessaryapprovals, documents (including the signedcontract), insurances etc. are in place.

Actual

1.7 The contractor could submit a claim

for loss and expense, as they were notallowed full prompt access to the site.

Expected The design team (e.g. Architect) should ensure

that the contractor is authorised to takepossession of the site and commence work,immediately confirmation has been receivedfrom the employer that all the necessaryapprovals, documents (including the signedcontract), insurances etc. are in place.

Actual

Expected Before a date is agreed on which the contractorwill commence work, the design team shouldcheck with the employer that such date is inorder e.g. that the contractor will not beprevented from having full access to the site.

Actual

1.8 Contract let with an incorrect valuefor the scheme quoted in the contract

documentation.

Expected Checks should be made to ensure that thecontract sum, or target price/guaranteed

maximum price under framework agreements,stated in the contract documents is inaccordance with the amount tendered by thewinning firm, taking into account any post tenderadjustments.

Actual


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EVALUATION

1.9 The Organisation will allow thecontractor to commence work without thesecurity of a formal contract.

Expected Checks should be made before the contractcommencement date has been agreed and thecontractor asked to commence work, thatcontract documents have been exchanged.

Actual

Expected Requisite approval obtained for any nonstandard process.

Actual

1.10 The Organisation is at risk ofreceiving a claim for delayed acceptanceof a contractors tender or an increase inthe schemes cost.

Expected Procedures during the post tender stage,including the evaluation and checking oftenders, should be planned to be completedwithin the tender acceptance period stated in theform of tender.

Actual

Expected Checks should be undertaken when contractsare about to be exchanged.

Actual

1.11 Contracts could be let to the wrongfirm.

Expected Checks should be made at the time contractsare about to be exchanged, that appropriateapproval has been obtained for the firm to be

awarded the contract at the amount stated. Thisshould also include reference to the results ofany tender evaluation exercise, which may haverecommended the acceptance of a tender otherthan the lowest.

Actual


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EVALUATION

1.11 (Cont.) Expected For partnering schemes a robust selection panelshould be in place to ensure that the contractormeets the appropriate partnering selectioncriteria with the required mix of PartneringPotential, Quality, Social Inclusion, and Price.

Actual

1.12 Contract documents may be signedby an inappropriate person.

Expected Before the design team is given clearance toinstruct the contractor to take possession of thesite and commence work, the employer shouldcheck that a formal contract has been signed orexchanged.

Actual

Expected The employer should check that the documentshave been signed by individuals who have thenecessary authority to bind their respective

organisations to the agreement.

Actual

Expected The signing of documents on behalf of theemployer should be restricted to an authorisedlist of employees. The organisations solicitorsshould ensure that only employees on theapproved list are allowed to sign.

Actual


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EVALUATION

1.13 Fire or malicious intent destroysoriginal contract documentation

Expected All contract originals are stored in a suitable,secure location such as a fireproof safe. Ensurecontract documents are filed in separate,labelled storage pouches.

Actual

1.14 Contract documents are misplaced. Expected Access to the strong room should be restrictedand a record of whereabouts of documents kept.The contents of the contracts store should bechecked for completeness on a regular basis.

Actual

Expected When a request is made to borrow specificcontract documentation, a record should bemade of who has taken the documents andwhen they will be returned.

Actual

1.15 Contract documents destroyedbefore the contract becomes statutebarred.

Expected At conclusion of the contract, a destruction dateis entered on contract/in register, and a statutoryretention period is applied. The authority that anofficer has for destroying documents should berecorded before files are destroyed.

Actual

1.16 Under partnering schemes thecontractor may submit invoices for valuesabove actual cost and agreed profitelements.

Expected The contract/framework agreement shouldspecify rights of access to contractors recordsunder open book accounting arrangements.

Actual

7 C t t C diti d T d D t


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EVALUATION

1.17 Disallowed costs, which theAuthority is not liable to pay for, may becharged by the contractor.

Expected The Authority should specify their approach todisallowed costs in tender documentation.

Contract documents should also clearly definewhat is deemed to be a disallowed cost.

Actual

1.18 The contractor may submit invoicesfor sub contract work which has not beencompleted, or for materials not yet onsite.

Expected The contract documents should clearly definethe payment terms for sub contractor andsupplier payments. Any agreements to pay onan accruals basis should be recorded in thecontract, specifying that payments will only bemade on actual costs incurred.

Actual

Expected It should be specified in the contract documentsthat any materials paid for should have been

delivered to site and are the property of theCouncil.

Actual

8 Insurance


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8. Insurance


RISKS & CONTROLS

AuditRef Service Subject Prepared By Date Reviewed By Date

8 INSURANCE


ImpactH/M/L

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EVALUATION

1.0 Qualification

1.1.Contract works and services are notadequately insured, or do not complywith a corporate policy, giving rise tofinancial loss to the Authority.

Expected Approved minimum insurance requirements forcontractors and consultants must be in placeand their adequacy reviewed centrally by anominated officer.

Actual

Expected Regular and comprehensive training isundertaken for all contract administrators toensure awareness and understanding of thoseminimum requirements and any additional coverrequired under the contract.

Actual

Expected Verification and monitoring of the requiredinsurance cover of contractors/consultants to beundertaken centrally and included within thenormal contract process.

Actual

Expected Decision on the appropriate provision for eachcontract to be taken by the contractadministrator and notified to the sectionundertaking the verification/monitoring process.

Actual

8 Insurance


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8. Insurance


8 Insurance


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8. Insurance



ImpactH/M/L

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EVALUATION

1.1.(Cont.) Contract works and servicesare not adequately insured, or do notcomply with a corporate policy, givingrise to financial loss to the Authority.

Expected Regular reviews, at least annually, of theprocedures to ensure that minimum insuranceprovision (Employers and Public Liability) is inline with Insurance Market conditions.

Actual

1.2 Incomplete tender documentationprevents the Council from making theappropriate insurance provision underthe contract.

Expected All tender documents and conditions issuedmust specify the insurance requirements underthe contract.

Actual

2.0 Verification

2.1 Appropriate insurance cover may notbe in place prior to commencement ofthe contract.

Expected Verification that the necessary insurance is validfor the required period must be undertakencentrally prior to commencement of the contract.

Actual

2.2 The contractor/consultant may cancelthe policy without the knowledge of theCouncil.

Expected The Council's interest must be registered withthe insurer. This must be done centrally as partof the verification process.

Actual

2.3 Insurance companies may not be

able to meet their obligations under thecontract.

Expected Proposed insurance companies must be

assessed centrally as to their ability to meet theircommitments.

Actual

8. Insurance


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ImpactH/M/L

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EVALUATION

2.4 Insurance claims are not pursuedwhere appropriate.

Expected Documented procedures must set down forprompt processing of claims. All relevantpersonnel must be aware of and comply withthese procedures.

Actual

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Insurance

Guidance notes

CIPFA control matrices (ICQ's, Compliance Tests and Risk Identifiers) present acomprehensive and detailed assessment of the requirements under the system forcontract insurance.

The following notes should be used as a summary of the main practical points whenundertaking an audit review of this system.

INSURANCE

(i) Insurance held by the contractor, ie Employers Liability and Public Liability -Minimum requirements must be state d on all tender information. Thoseminimum requirements must have been assessed by the Council'sRisk/Insurance Manager. Actual policy details must be verified and theinsurance company vetted by the Insurance Section prior to the contractorbeing allowed on site. Insurance claims statistics generally determine whatthe current minimum levels should be on construction EL and PL, so theInsurance Section should review these periodically. Currently OMBCs

minimum requirements are: EL 10m, PL 5m (Oct. 03).

(ii) Insurance of the work - The contract form being used will normally determinethe responsibility for insuring the various elements within the contract. ThusSupervising Officers must assess what is to be insured and the value andmust liaise with the Insurance Section to verify that the contractor and/or theCouncil has the required cover prior to the start of the contract.

(iii) Insurance held by consultants, ie. Professional Indemnity Insurance -

Minimum requirements must be stated on all tender inf ormation and again theInsurance Section must have assessed those requirements, verified theactual policy details and vetted the insurance company prior to contractfinalisation. This type of insurance is on a claims made basis, therefore itmust be in force at the time of the claim. Thus contract documents muststipulate that the insurance is maintained for a suitable period. Also the coveris "per event and in the aggregate per annum" and so a claims history may berelevant intelligence prior to sele ction of consultants for tender. CurrentlyOMBCs minimum requirements are: Prof. Ind Ins.2m (Oct.03)

LATENT DEFECTS INSURANCE

This is a possible solution to the problem of resolving the question of "Latent Defects"on a contract ie defects that arise a fter the end of the maintenance period.

8. Insurance

The Latham Report (page 106) recommended the introduction of compulsory


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The Latham Report (page 106), recommended the introduction of compulsorylatent defects insurance over a ten year period, the premium to be shared by theprincipal parties to the contract. This would appear to be the best way forward toachieve a practical solution to the problem, but one for the future.

NB. Full involvement by the Council s Legal and Insurance Sections isessential during audit review of the system of contract insurance.

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RISKS & CONTROLS

AuditRef


9 PERFORMANCE BONDS


ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.0 Organisation

No provision exists for additional costsincurred due to a contractor's non -

performance, or there is no corporateapproach to the provision.

Expected An approved policy must be in place and itseffectiveness monitored by a nominated officer.

Actual

Expected Decision on the appropriate provision for eachcontract to be taken centrally by a nominatedofficer, following an assessment of thecontractual risk and the most cost effectivemethod of providing for that risk.

Actual

Expected Contract Administrators are aware of andunderstand the Policy.

Actual

Expected Regular and comprehensive training isundertaken for all involved in the contractprocess.

Actual

Expected A regular review, at least annually, of the Policyto ensure that decisions on provision are in linewith the contractual risk and are cost effective.

Actual


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RISKS Likelihood

H/M/L

ImpactH/M/L

CONTROLS TestRef

EVALUATION

1.2 Incomplete tender documentationprevents the Council from making

appropriate provision for contract non -performance.

Expected All tender documents and conditions issuedmust specify the bonding policy and its

requirements.

Actual

2.0 Application

2.1 Appropriate provision may not be inplace prior to commencement of thecontract.

Expected The legal documentation must be completedprior to the commencement of the contract.

Actual

2.2 The provisions may not giveappropriate protection to the Council'sfinancial position.

Expected The terms and conditions of the bond must bedrafted/agreed centrally by the Council's LegalDivision.

Actual

2.3 External sureties may not be able tomeet their responsibilities under theprovisions of the bond.

Expected The Council's minimum requirements forexternal sureties must be stated within thebonding policy and notified to tenderers.

Actual

Expected There must be a procedure in place to verify thatsureties conform to Council requirements priorto progressing the bonding process.

Actual


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pH/M/L

CONTROLS TestRef

EVALUATION

2.4 The provisions of an external bondmay cease before the contractor has

been absolved from financial liability.

Expected The bonding policy must state at what stage ofthe contract the bond will be released.

Actual

Expected The Council's Legal Division will not release thebond until the contract supervisor/authorisedofficer has evidenced that the necessary stageof the contract has been achieved.

Actual

2.5 Additional costs are not pursuedfollowing non-performance by thecontractor.

Expected Documented procedures must be set down forprompt recovery of costs under the bond. Allrelevant personnel must be aware of and complywith these procedures on every occasionfollowing non-performance.

Actual


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g

Guidance notes

CIPFA control matrices (ICQ's, Compliance Tests and Risk Identifiers) present acomprehensive and detailed assessment of the requirements under the systems forcontract performance bonding.

The following notes should be used as a summary of the main practical points whenundertaking an audit review of this system.

PERFORMANCE BONDS

(i) Contract bonding, is part of a family of contract procedures and so must notbe reviewed in isolation. The degree of contractor vetting and perfo rmancemonitoring undertaken by the organisation will affect the policy and proceduresadopted under performance bonding.

(ii) Is current policy cost effective and does it offer real prospect of recovery ofadditional cost?

A disadvantage of performance bonds is that payments are not received until

well after completion of the contract.

The Institution of Civil Engineers has incorporated a default bond, inconjunction with ICE 7th Edition standard form of contract, which enables theemployer to claim under the bond, prior to completion of the works.

Thus it may be possible to adapt the bond for use with other contracts if it is deemedsuitable. this would have to be done via the proper legal procedures.

(iii) Sureties must be vetted., eg. Oldham will only accept a bank or buildingsociety deemed suitable by the Treasury Management Section, or an insurancecompany that has at least a 'BBB' rating on the latest monthly Standard and Poor'sInternational Insurer Ratings List.

(iv) All parties involved mus t be aware of the requirements under the bondingrules and all Council officers must understand their role.

i.e. Contractor (at tender stage)

Contract supervisorLegal SectionInsurance Section

(v) Members will find the results of the questionnaire on external and internalbonding policies of Greater Manchester Councils carried out by Tameside MBC, in

10. Monitoring Arrangements


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RISKS & CONTROLS

AuditRef


10 MONITORING ARRANGEMENTS


ImpactH/M/L

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EVALUATION

1.0 Progress

1.1 Progress may not be in line with the

plan.

Expected A system to monitor predicted or anticipated

delays should be in place.Actual

Expected Regular reports (to a predetermined timescale)should be submitted to the client comparingactual progress to the planned progress.

Actual

1.2 The asset may not be available on

schedule.

Expected There are clear lines of communication and

responsibilities for taking remedial action.

Actual

Expected The contract provides for the recovery ofadditional costs ie liquidated and ascertaineddamages.

Actual

1

.3 Progress may be hindered byunavoidable delays. Expected A formal reporting process detailing the causesand proposed corrective action of any delaysshould be in place, and be subjected to anapproval process.

Actual



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H/M/L H/M/L

Ref

1.3 Identified problems may not berectified promptly or in line with

requirements.

Expected Progress on any applied corrective action shouldbe reported detailing its success and illustrating

how it is complying with requirements.

Actual

1.4 Inappropriate working practices mayresult in delays due to personal injury.

Expected Incident logs should be maintained on site with aperiodic report (or performance measure whereapplicable) completed. A record of all sitevisitors should be maintained. Safetyprecautions should be clearly visible and

compliance enforced, with any breachesrecorded.

Actual

1.5 Quality of materials, finishes andwork may not meet the requiredminimum level, resulting in delays incompletion.

Expected Evidence should be retained to support thecontractors compliance to quality requirements,variance should be reported and correctiveaction initiated immediately any failures are

identified.

Actual

2.0 Reporting

2.1 Reports may not contain the level ofdetail required to support themanagement function, they may be

incorrect or incomplete.

Expected Quality standards detailing content, minimumrequirements and verification processes appliedshould be defined at the outset of any contract.

Actual



ImpactH/M/L



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H/M/L H/M/L

Ref

2.2 Reports may be inappropriatelydirected to the wrong level of

management or staff resulting inappropriate actions not being taken orthe wrong conclusions being drawn.

Expected Responsibilities relating to the contract shouldbe fully defined with frequency and report

requirements defined.

Actual

3.0 Valuation Payments

3.1 Contract costs may escalate andexceed the available funding or budgets.

Expected There should be a system for monitoringexpenditure against the spending programme.

Actual

Expected There must be procedures for approving andproviding additional funding as a result ofagreed cost increases.

Actual

Expected The financial position of the contract should bereported regularly to the managing body.

Actual

Expected The financial position of the contract should bereported in line with defined frequencies to therelevant officers.

Actual



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EVALUATION


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Ref

3.1 (Cont.) Expected There must be documented procedures for theapproval and valuation of contract cost

variations.

Actual

3.2 Incurred costs through stagepayments may not be adequatelysupported or the information tosubstantiate charges may not beavailable to support costs.

Expected Detailed records to support all payments shouldbe maintained. This should be supported bycomprehensive records on site which detailoperatives, site condition, variations (withapprovals), materials and photographic

evidence of any possible area which couldresult in dispute.

Actual

Expected Detailed records to support all payments shouldbe maintained. All payments should beauthorised and supported by confirmation thatpayments actually reflect the work carried out.

Actual

3.3 Claims costs may escalate out ofcontrol.

Expected Clear well defined procedures to promoteprompt resolution of contractual disputes at thelowest possible level of contract administration.

Actual



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Ref

3.4 The client or contractor may disputeclaims or payments.

Expected There should be comprehensive records on sitewhich detail operatives, site condition, variations

(with approvals), materials, downtime andphotographic evidence of any possible areawhich could result in dispute.

Actual

4.0 Improvements

4.1 Inexperienced or inadequately

qualified staff may be tasked withessential roles in the contract monitoringprocess.

Expected Essential officer skills are defined and

adequately skilled, trained or qualified personsfill posts. A process to identify training needs isin place and applied.

Actual

Expected Compliance to statutory, corporate, legislativeand best practice is verified through prescribedmanagement checks.

Actual

4.2 Improvements in working practicemay not be identified for future use andpoor practice perpetuated.

Expected Process of assessment and review of theproject and a forum for collating new ideas,methods & also pitfalls to be avoided for futurereference.

Actual




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Guidance notes

1 The key concerns within any contract is that it is not completed on time andexpenditure exceeds the available budget. This section seeks to identify thekey risks associated with monitoring the contract and classifies them into fourareas:

y Progress - risks and controls concerned with the completion of the contracton time.

y Reporting - risks and controls to evaluate the distri bution of the monitoringinformation.

y Valuation payments - risks and controls concerned with costs of thecontract.

y Improvements - risks and controls to ensure that officers tasked withcontract control are suitably qualified and any lessons learned aredisseminated to develop best practice.

2 The majority of information relating to a contract will be available throughvarious officers of the Authority (Partner organisation /consortium), includingEngineers, Quantity Surveyors, Site Supervisors, Project Ma nagers and

Procurement staff.

3 Throughout the audit process and for each of the above elements thefollowing four criteria should remain as a focus for the review:

y frequency - that staff are carrying out a formal review of the contractposition.

y timeliness - that information used to inform the contract evaluation processis as up to date as possible.

y completeness - all information relevant to the contract is incorporated inthe monitoring process.

y accuracy - that the information used is accurate.

The above points should be linked to the relevant procedure guides, standingorders and regulation of the Authority to form the basis of evaluation.

4 This section acknowledges that variations, unavoidable delays, and damagesare mentioned and the proces ses around the administration and management

of these elements should be considered as part of the monitoring process. Itshould be noted, however, that detailed matrices on these elements of thecontract process are contained within their own sections of this manual.

11. Nomination Instructions forSuppliersand Sub Contractors

RISKS & CONTROLS


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RISKS & CONTROLS

Audit

Ref


11NOMINATION INSTRUCTIONS FOR

SUPPLIERS AND SUB-CONTRACTORS


ImpactH/M/L

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EVALUATION

1.1 The tendering process may not betransparent, leading to the risk of fraud(i.e. connected parties), and poor value

for money being obtained for workscommissioned.

Expected The employer should have a policy document(e.g. standing orders) that specifies the meansof appointing sub-contractor work. This could be

by competitive tender or use of other selectioncriteria under partnering arrangements.

Actual

Expected The employer should ensure that adequatechecks are contained within the selectionprocess to ensure that the selected nominee isthe most appropriate and best value in the

circumstances.In addition, that the selection criteria is fair andis applied equally to all potential nominees.

Actual

Expected A reasonable objection against the appointmentof a nominated sub-contractor, made by themain contractor, should lead to another sub -

contractor being put forward.(This may not be applicable under partneringwith partner contractors usually choosing theirown sub contractors or their own companysubsidiaries).

Actual



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EVALUATION


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1.1 (Cont.) The tendering process maynot be transparent, leading to the risk of

fraud (i.e. connected parties), and poorvalue for money being obtained for workscommissioned.

Expected The employer should ensure that all documentsrelating to the selection process are retained for

future inspection if required. In particular, thedecision making process by which firms wereincluded on the tender short list, and themethods of evaluating tenders received andidentifying the best should be formallydocumented. If other selection criteria underpartnering arrangements is used this should beclearly documented to demonstrate the reasonfor selection.

Actual

Expected When compiling tender short lists, the employershould ensure that the requirements of the ECWorks Directive and, if appropriate, the ECSupplies Directive, are adhered to.

Actual

Expected Tender documents should provide for the maincontractor the opportunity to price for profit andattendance on the nominated works. Theseprices should be properly applied in theevaluation of the nominated works.

Actual



ImpactH/M/L



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Ref

2.1 Poor Value for Money may be

provided by suppliers.

Expected Works carried out by the nominated sub -

contractors and appropriate personnel shouldproperly and adequately supervise goodsdelivered by the suppliers. Also, the work to beundertaken or goods to be supplied on eachproject should be clearly identified.

Actual

Expected Procedures should exist that check the quantity

and quality of materials prior to their inclusion inthe works.

Actual

2.2 Sub Contractors may not operate inaccordance with main contractconditions.

Expected The nominated sub-contractors application foran extension of time or other contract variationsshould be processed in accordance withconditions in the contract.

Actual

Expected In the event of re-nomination of a sub contractor,all terms should be in accordance with thecontract.

Actual

Expected Any extensions to or over run of the contractshould be dealt with in accordance with theconditions of the contract.

Actual



ImpactH/M/L

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EVALUATION

3 1 I /i i E d Th l i f k l d h ld b d


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3.1 Incorrect/inappropriate payment maybe made to sub contractors.

Expected The valuation of work completed should be donein accordance with the conditions of the

contract.

Actual

Expected Such advice or notification regarding the amountpayable should be documented in the contractfile.

Actual

Expected Payment should only be made to the maincontractor for sub contracted work, after proofhas been received from the main contractor thatthe sub contractor has been paid.

Actual

Expected If the main contractor failed to pay the certifiedamount to the nominated contractor/supplier, the

Employer can make direct payment out of themoney due to the main contractor to thenominated sub-contractor/supplier. However, ifthe main contractor goes to liquidation, suchpayments should cease forthwith.

Actual

3.2 Incorrect/inappropriate payment may

be made to sub contractors.

Expected Direct payments to nominated sub -contractors

should only be made within the terms of thecontract.

Actual



ImpactH/M/L

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EVALUATION

3 2 (C t ) E t d E l fi l t t b t t h ld b


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3.2 (Cont.) Expected Early final payment to sub contractors should bedealt with, within the conditions of the contract.

Actual

Expected A sample of payments should be checked fortheir compliance with the terms and conditionsof the contract.

Actual

12 Valuationsand Interim Payments

RISKS & CONTROLS


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Audit

Ref


12 VALUATIONS & INTERIM PAYMENTS


ImpactH/M/L

CONTROLS TestRef

EVALUATION

1. Authority

1.1 Payments to contractors are notmade in accordance with standing or ders

and financial regulations.

Expected Financial regulations and/or standing ordersshould outline the procedures and

responsibilities for payment to contractors.This may lead to incorrect, unauthorisedor invalid payments being made tocontractors, disputes, and potential legalclaims against the Authority.

Actual

Expected All payments to contractors should be cert ifiedby an authorised officer.

Actual

Expected A list of employees authorised to certifypayments to contractors is maintained,including, where applicable, a sp ecimensignature.

Actual

Expected Where electronic authorisation is allowed,authorised officers use passwords. A log ismaintained of all authorisations and this is

independently checked on a regular basis.

Actual



ImpactH/M/L

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Ref

EVALUATION


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Ref

1.2 Payments to contractors may not be

properly calculated and checked.

Expected A second employee checks certificates before

payment is made.This may lead to incorrect paymentsbeing made to contractors, disputes, andpotential legal claims against the Authority. Overpayments will have afinancial impact on the Councils monies.

Actual

Expected Detailed valuations should be prepared tosupport the issue of interim certificates. Theseshould be signed by an authorised officer .

Actual

Expected Measurements submitted by the contractor, orprepared by the quantity surveyor or engineer,should be checked and agreed before issue ofthe valuation.

Actual

Expected Records maintained by the employer, or by the

quantity surveyor or engineer, should besufficient to allow the verification of previousvaluations and certificates issued.

Actual

Expected Valuations should be endorsed to show that thedocument has been checked by the personresponsible.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

1 2 (Cont ) Expected Where the verification of valuations is carried


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1.2 (Cont.) Expected Where the verification of valuations is carriedout by more than one person, there should be a

means by which each is aware of theirrespective duties.

Actual

Expected There should be a record of all payments madeto each contractor and details of to what thepayment relates (e.g. period of work chargedfor).

Actual

Expected Amounts included in respect of nominated sub -contractors and suppliers should be supportedadequately (e.g. invoices prepared inaccordance with tender or quotation).

Actual

2. Completeness

2.1 Records are not updated whenpayments are made.

Expected Manual and computer records should beupdated promptly and fully to show paymentsmade, with responsibility for this function clearlydefined.

This may lead to duplicate /incorrectpayments, disputes and claims againstthe Authority.

Actual

Expected Certificate numbers are marked sequentially.

Actual



ImpactH/M/L

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EVALUATION

2.1 (Cont.) Expected There should be sufficient reference within


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( ) pvaluations regarding the method of

measurement, bill references, etc.Actual

2.2 There is a lack of managementcontrol within the system.

Expected Items such as forecasted overspends, variationsexceeding the contingency sum, significantvariances in quantities, etc should be identifiableby management and investigated independently.

This may lead to incorrect payments,

disputes and claims against theAuthority.

Actual

3. Measurement

3.1 Incorrect rates and prices are used. Expected All rates and prices included in interimvaluations should be checked and agreed to thecontract.

This may lead to incorrect payments,potential disputes and claims against theAuthority.

Actual

Expected Valuations should be checked for arithmeticalcorrectness.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

3.1 (Cont.) Expected Variations should be valued in accordance with


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( ) pthe contract terms (e.g. dayworks should be

used only if it is not possible to apply the ratesand prices stated in the contract specificationand/or bill of quantity).

Actual

Expected On variable price contracts, the contract pricefluctuation calculations should be checked toensure that they are in accordance with thecontract.

Actual

Expected Deductions in respect of retention paymentsshould be calculated in accordance with theterms of the contract and applied correctly toeach interim valuation.

Actual

Expected Appropriate allowance should be made fordeletion of prime cost sums, provisional sums,credits and contingencies.

Actual

Expected Previous payments on account should bededucted from the total work value in order toobtain the appropriate net payment due.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

3.1 (Cont.) Expected Liquidated damages should be calculated in


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accordance with the contract and deducted,

where appropriate, from the net amountpayable.

Actual

Expected The employee responsible for certifyingpayments should be aware of the contract sumand the procedure to be followed when aninterim certificate is received which would, ifpaid, cause the expenditure on the contract to

exceed the original approved budget .Actual

Expected Preliminary costs should be verified asappropriate to the stage of the contract (e.g.setting up and dismantling costs).

Actual

4. Timeliness

4.1 Contract payments and /or valuationsare undertaken later than defined withinthe terms of the contract.

Expected Measurements should be verified promptlywhere the work is to be enclosed or concealedby subsequent works.

This may lead to disputes/claims againstthe Authority for late payment

Actual

Expected Interim valuations should be prepared by thequantity surveyor or engineer in accordance withthe terms of the contract (e.g. at intervals of noless than four weeks).

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

4.1 (Cont.) Expected The architect or engineer in accordance with thet f th t t h ld i i t i


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terms of the contract should issue interim

certificates.

Actual

Expected Payment should be made to the contractorwithin the timescales specified in the contract.

Actual

Expected The certificates should indicate the date bywhich payment is due.

Actual

Expected Checks should be undertaken to ensure that theperiod between valuations remains consistent.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

5. Regularity


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5.1 Incorrect tax deductions /VATpayments are made.

This may lead to penalties /legal actionagainst the Authority.

This could have financial implications forthe Authority.

The reputation of the Authority could bedamaged if tax/vat rules are not adheredto.

Expected Procedure for the treatment of tax should beclearly defined, and staff responsible shouldsign to evidence awareness.

Actual

Expected Payments should only be paid gross to

contractors having a valid 714 sub-contractorstax certificate (or certifying document, forcompanies).

Actual

Expected Tax certificates and documents should beconfirmed as being valid, up to date and signedby the company secretary.

Actual

Expected The organisation should insist on sight of theoriginal certificate where appropriate.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

5.1 (Cont.) Expected Sufficient records and copies of the details ofcontractors 714 certificates should be


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contractors 714 certificates should be

maintained.

Actual

Expected Where the contractor does not have a valid taxcertificate or document, the organisation shouldcalculate tax deductions in accordance with theInland Revenues directives.

Actual

Expected The organisation should ensure that VAT is onlypaid where a bona fide VAT invoice or VATreceipt is received from the contractor.

Actual

6. Ownership

6.1 Payments may be made in relation toassets not used within the contract.

Expected All materials/stocks/assets should beappropriately recorded at the point of receipt.

This may lead to fraudulent valuations,additional costs to the Authority, disputesand potential legal proceedings.

Actual

Expected Periodic on site stock checks should beundertaken and recorded /evidenced.

Actual



ImpactH/M/L

CONTROLS TestRef

EVALUATION

6.1 (Cont.) Expected Amounts payable in respect of any goods ormaterials on or off site and not yet included as


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