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Internal Controls at Construction Site
At Godrej & Boyce, 31st August, Mumbai
Coverage Overview and Relevance of Internal Controls at the Construction Site and Role of a
Project Manager
Material & Labour Procurement Related Controls
Stores Related Controls
Control Points for Various Equipments
HR Related Controls - Labour Colony / Mess / Attendance / Vehicle Management
Statutory Compliances
Basics of MIS Preparation for various Departments - Engineering / Stores / Accounts /
HR / Safety
Role of Site Accounts and Co-ordination with Head Office
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Project Closure
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PROJECT CLOSE OUT TASK
S
Resource Management
Issue Management
Risk Management
Quality Management
Communication Management
Customer Expectation Management
Asset Management
Lessons Learned
Postproject Tasks
Project Close Out Recommendations
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Project Close Out Report is created
to
accomplish the following goals:
Review and validate the milestones and
success of the project.
Confirm outstanding issues, risks, and
recommendations.
Outline tasks and activities required to
close the project.
Identify project highlights and best
practices for future projects.
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Project Closeout Procedur
es
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Project Closeout Procedures
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Issue
In a building project, delays take place and
the contractor applies for extension of time
citing various reasons as related to the
owner before expiry of contractual
completion time. No action is taken by
owner?
Meanwhile owner levies LD on thecontractor
Is the action correct ?
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Issue
During heavy monsoon, the site of works got
completely submerged in water, including
P&M, materials and infrastructure.
Contractor raises time and cost claims
How should client respond ?
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Issue
In a civil project, the lead of stacking
excavated earth was mentioned as 100 mtr.
Due to site conditions it could not be
stacked within above distance.
As approved by owners, the same was
stacked at a distance of 500m.
Should you approve the extra claim ?
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Issue
A project was scheduled to commence on 1stJan as
per LOI
Client delayed release of Mobilisation
Even after release of Mob, the contractor nowclaimed that his equipment are deployed at some
other site
This further delays the start of the project and
later the end
Would you levy any Ld at the end of such project
with a delay?
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Project Closure
Construction Closure
Contract Closure
Financial Closure Project Managers Closure
Lessons Learnt
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Construction closure
Closure of Deficiencies
Certificate of Substantial Completion
Certificate of Occupancy Demob of Resources
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Contract Closure
Preparation of As-built drawings
Submission of O&M manual
Warranties Contractor/Vendors/suppliers/Sub-
contractors
Test Reports
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Financial closure
Final Payment
Release of BG
Release of Retention
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Project Managers closure
Preparation of As-built estimate
Analysis of cost and time overrun
Obtaining feedback from external agencies Obtaining feedback from internal people
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Lessons
Project Objectives?
Satisfaction level ?
Better Ways Level of Quality ?
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Project Closeout Procedures
A) Timeliness Bid documents
first site meeting
subsequent site meeting
Deficiencies need to be addressed
Repairing deficiencies
deductions in regular Progress Draw
Proceeding in this fashion will ensure that trades
do not leave the construction site
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Project Closeout Procedures
B) Communication quality standards
specifications
time of the bidding process
specific requirements
level of commissioning activities
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Project Closeout Procedures
C) Teamwork Something as complex and expensive as a
construction project is best built with a sense of
teamwork
take responsibility for their part of the Work
take an interest in facilitating every other team
members efforts
quality and scheduling of their Work
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IMPLEMENTING A PROJECT
CLOSEOUT PROCESS FORPROJECTS
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IMPLEMENTING A PROJECT CLOSEOUT PROCESS
A) Pre-Construction Phase Contract Requirements for Closeout
Bid documents clearly specify
Substantial Performance
all of the documentation
owner occupancy
other intended use
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IMPLEMENTING A PROJECT CLOSEOUT PROCESS
B) Construction Phase
Job Start Up Meeting
Preconstruction Meeting
Milestones for submittals
Completeness
review compliance
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IMPLEMENTING A PROJECT CLOSEOUT PROCESS
Contractors Logs
spare parts
as built drawings
commissioning reports
CBO certificate
Fire Alarm certificate
Balancing Reports
testing certificates
maintenance manuals
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QUALITY
Quality Assurance (QA) has implications throughout the
life of a project from its beginning to closeout. Consultant is in charge of Quality Assurance
Contractor of Quality Control
Drawings and specifications
Job reviewing and progresses
Specified quality standards
Communicated to Team members
Documents for quality expected
Critical importance
industry standard
Documented for bidders
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QUALITY
Consultants and Contractors Roles
Site meeting agenda
Communicate quality expectations to all members
Manage owners expectations
Consistency
Quality is higher than standard
Deficiencies
Implement the QA / QC program
Responsibility for the quality of their work The sooner the quality expectations for a project can be
communicated, understood and agreed by all parties, the
better.
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QUALITY
Owners Role
Authorized representative
Decisions made quickly
Communicate their needs and expectations clearly
earlyTime and effort to evaluate
Deficiency inspections
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FINANCIAL
Progress Draws
Deficiency Retainage
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FINANCIAL
Progress Draws
Manuals submit
Warranties submit
incentive to deliver
Work outstanding
deficiencies to correctsubcontractor complies
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FINANCIAL
Deficiency Retainageavoid delays
value of works early
avoid placing undue hardshipPayment Certifiers on percentage of work
complete
cost of repairing deficiencies
price deficiencies
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OCCUPANCY
An important issue is providing the
subcontractor with sufficient time to
complete deficiencies between the
preparation of the deficiency list and theowner moving in. Once the move in takes
place, it can make deficiency completion
very difficult. Good planning needs to takeplace when an owner needs occupancy
before the deficiency list is complete.
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OCCUPANCY
Phased or Partial Occupancy
Sequencing
length of time required
specific closeout
owner has beneficial use
considered for pricing
extra time and money
The owner will be responsible for operating,
maintaining, and insuring the occupied areas and
related equipment and / or systems.
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OCCUPANCY
Occupancy prior to Deemed Completion
substantial performance of the project and
Deemed Completion
Remains incomplete work or deficiencies tocomplete
careful planning and coordination by the
contractor clear communication by the owner
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INSURANCE AND BONDING
Bonding
standard one year comprehensive warranty
Surety companies
comprehensive warranty coverage the surety to address the failure of the contractor
to complete the work
contractual responsibilities are taken very
seriously
protecting the owners rights under a construction
contract
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INSURANCE AND BONDING
Insurance
owner to carry the property and liability
insurance policies
contractors policyowners policy
owner to sign an acknowledgement that
they agree with the change in coverage
Certificate of the policy
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UTILITIES
Utility charges transfer to the owner on the
date of substantial performance and, if
applicable, any accepted date of phased or
partial occupancy. This process should bedocumented in the specifications. If not, an
agreement as to sharing of costs should be
reached as early as possible, wherecontinuing contractor operations are
carried out beyond these dates.
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COMMISSIONING
Commissioning
term often misused to refer to those activities
separate and distinct service,
commence at the beginning of a project
agent to manage
Verify the design performance
specified to be critical
typical start up demonstration
Begins with the definition of the design intent
and ends with the delivery of a building
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COMMISSIONING
Commissioning
Confirms the contractors implementation of the
consultants design as defined in the contract
documents Confirms the ability of the consultants design to
satisfy the owners defined requirements
Addresses any shortcomings The commissioning plan, including the scope and
sequence of the commissioning program
The commissioning specifications, including a
manual with examples of verification forms and
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COMMISSIONING
Commissioning
Any specialized documentation related to testing,
such as CSA Standards, which may describe
options for testing methods Standards for submission and acceptance of
o Shop drawings;
o Contractors tests;o Product, systems, operations, and maintenance
manuals;
o Training programs;
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COMMISSIONING
Systems Verification
begins after all components within the system are
accepted and deficiencies are corrected
Regular commissioning meetings to ensure that allparties
prerequisites to testing
Review test procedures and acceptable results
Witness tests
recommendation of acceptance
investigation and reporting
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COMMISSIONING
Equipment Start Up
As the project nears completion, completion
dates should be set for the startup of
equipment and the review by the
appropriate consultant. Reports from the
startup process should be submitted as part
of the final submittals.
CO SS O G
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COMMISSIONING
System Demonstration
take place just prior to turnover
allowing enough time
understanding of the operations
carry out the demonstration
Special requirements
owners train others or refresh the personnel
record the training sessions
DEFICIENCIES
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DEFICIENCIES
Deficiency Inspections
As part of establishing substantial
performance, it is necessary to place a
value on project deficiencies. The contractor
and subcontractors will prepare
lists of deficiencies; address as many of the
deficiencies as possible, and then
hold a formal deficiency review. This review
requires the participation of the
TURNOVER DOCUMENTS
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TURNOVER DOCUMENTS
Documents
Shop Drawings
Operation & Maintenance Manuals
Spare Materials, Parts and Tools
As Built Drawings
Record drawings Measured drawings
Source List Subtrades, Suppliers
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Documents
The owner will be relying on the as built
drawings and manuals for as long as
the structure is in use. A monetary value
may be assessed to the value of
these documents up front so they are part of
the Schedule of Values in the
monthly Progress Draw system (in the bid
specification). Make them a line
WARRANTY PERIOD
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WARRANTY PERIOD
Warranty Administration Process
Warranties
Warranty Period
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Warranty Administration Process
Meet to discuss Warranty Administration
Process the consultants role
generally continues throughout the
Warranty period owner consultant
contractor subcontractor, often the owner
goes directly to the subcontractor,
which is okay in an emergency. However, the
warranty chain is ideal - it lets all
O f U fi i h d B il
di
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Occupancy of Unfinished Building
Occupancy Permit
Conditions for Residential Occupancy
Notification
P j t Cl t C t l F
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Project Closeout Control Form
ARCHITECTURAL
MECHANICAL
ELECTRICAL
S H O P D R A W I N G S A N D S A M P L E S
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Closure of Construction Business
CLAIMS
&
TECHNIQUES TO COMBAT
PROJECT FROM CLAIMS.
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CLAIMS
A claim is a request or a demand for
extension of time and/ or payment of cost
compensation for the loss of time and/ or
extra costs arising from changed situationsincluding errors, omissions, inactions, and
ambiguities.
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Claims
Contractorsclaim against
the owners.
Owners claimagainst the
contractors.
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Reasons for Claims
Alteration of the work, what was originally setfor in contract documents.
Change in the contract plan or method of work.
Change in contract specifications.
Inadequacy of design
Change in site conditions
Technological improvement after award of the
contract. Modification of equipment to take care of any
non availability of materials or equipment.
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Impact on Construction Management
Price:
1. Due to changes on the part of ownersmanagement the price is bound to increase,
a owner has to keep in mind.2. A contractor can quote any price whichcan impact on margin of owner for theclaims made.
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Impact on Construction Management
Cost:
1. Cost of Additional direct and indirect material.
2. Cost escalation supplies on original supplies
beyond what is to be absorbed under basecontract.
3. Increased cost on construction equipmentincluding depreciation, distributable expenses
and on site expenses.4. Financial charges including working capital.
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Impact on Construction Management
Time
Time can affect claim in two ways for the
base
1. Finance
2. Cost
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Precautions
To overcome the Reasons of Claims & Impact
of Construction Management, Owner shall take
some precautions as to minimize his claim.
To keep design and drawings up to date.
Specifications are required to be clearly
furnished.
Stay in touch always materials or equipmentdepartment, which is forming part of owners
free supply.
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Precautions
Aware of the implied duties of contract.
Aware of the site conditions at Initial level.
Be clear about sub contractor work if any,
as delay in work affect negavetively to
project.
Rescheduling of work for financial reason
can cause high claims.
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Precautions
Site shall be clear from every obligations before
it is hand over to contractor.
Safety measures regarding Natural calamities
like earthquake, fire, floods, etc. shall be taken,provision for it in contract shall be made as to
initiate a project after its impact.
Quantity of materials shall be supplied on timeand taken in to account. If any variations,
owner have provision regarding this.
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Advantages to Precautions
If Owners management is taken care of abovePrecautions than will have following benefits :
Against Defective Work: Management will
come to know about the defects if it is on partof contractor than claim can be made to owner.
Against Delays: After taking precaution on thepart of delays, it can be arise on part of
contractor in way of inadequate mobilisation,in competent workmen, inefficient supervision,etc
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Advantages to precautions
Against Time: As due to contract will beschedule and owner will have a huge advantageto complete the project on time.
Against Cost: A cost control can be establisheddue to such precautions and owner margin canbe saved.
Against Transparency: In the business world a
sign of trust is important, due to theprecautions a businness relationship can bemaintained.
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Techniques to Overcome Claims
Project overrun is a serious economic problems inthe developing countries like India.
In the fiscal year 2010-2011, the Ministry ofStatistics & Program Implementation have revealed
some disturbing figures as the poor implementationof the central sector infrastructure projects likeRoads, Railways, And Power would result in costover run of 1.24 lakh crore.
Out of 600 projects cost of over 150 crore projectsare approved without dates i.e 73, 203 are cost overruns and 306 are time over runs.
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A few techniques to overcome
Involve all agencies and integrate their plan.
Integrated Procurement Plan
Set Daily Targets
Daily Monitoring By Headquarters Intergrated Resource Management
Engage A Competent Consulting Organisation
and use it fully. Support vendors and contractors with fairness.
Create a fearless working atmosphere.
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Claim
Unresolved Issues among project
participants
Time Extension
Additional cost reimbursement
Claims are unavoidable due to high
expectations from Project Owners
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Source of Claims
Dual meanings in contract documents
Delay in release of fronts
Owners desire for early completion
Delay in supply of FIM
Delay in release of drawings
Infrequent release of payments Changes in scope of work
Improper mobilisation from the contractor
Weather
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Claim Management
Claim Identification On the basis of drawings /
BOQ / Contract Terms
Claim Notification Intimation to the other party
Claim Substantiation Calculations / SupportingDocuments / Fairness
Owners Decision Final Stand within a proper
Time Frame Further action by Contractor Legal Action
The top five causes of disputes in Asian
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p p
construction projects during 2011 were:
1. Failure to make interim awards on
extensions of time and to give associated
compensation 2. Unrealistic risk transfer
from employers to contractors 3. Conflictingparty interests 4. An unrealistic contract
completion date being defined at tender
stage 5. Incomplete design information oremployer requirements.
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Avoiding Disputes
Recession - Idle Overheads Under Quote
Failure
Immediate Closure of Claims
Ego Barriers Owners assume that all risks are covered in quote
Relevance of CPM Network to assess delay
Train lower staff to avoid escalation of issues Understanding of contract conditions and local
laws
Submission of Claims
Issue Review Anal ssis Pers ective
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Communication
Specific
Response in all cases Proper Documentation
References of earlier communication / Followup
Communication Rejection of extra claims with proper basis
Correctness of Facts
Simple and Understandable Language Contractor specific email id
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Session 3
2.1 Time claims by contractor analysis & verification
2.2 Cost claims by controller analysis & verification2.3 Project Completion:
a) Final Bill preparation and Certification
b) Final Material Reconciliation FIM & Raw
c) Fulfillment of client work completion procedure
d) Status clearance of Receivable & Liability
e) Statutory Compliance by agencyf) Possible reasons for delayed in submission of Final bill
g) Site Demobilisation
h) Release of Retention Monies
2.4 Engineering MIS formats & its Advantage
R ili ti FIM & P i i l M t i l
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Reconciliation FIM & Principal Material
Standard Consumption norms to be defined for every item in the WO.
For e.g. For 1 CUM of M20 - concrete production Cement 140 Kg, Sand 875 Kgs, Agg 1100 Kgs
Some issues-
Physical verification on the closing day of billing cycle
Material scattered at various locations Consumption for unbilled extra items to be excluded.
Stock records to be updated regularly.
Recovery from sub-contractors In case of excess consumption
Proper justifications for abnormal differences
FIM material return without proper documents
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FIM and Raw Material Reconciliation with bill and balance qty.:
Some of the Common Issues Faced in Steel:-
12 mm TOR Steel has been consumed instead of 10mm TOR steel (as per
drawings) without communication to the client.
Definition of scrap
Returning servicable steel as scrap stock.
Lack of Control on timely return of servicable steel.
Rework
Use of FIM in Own Structures like cement stores / office / labour colony
Client has to plan Inter-contractor transfer But with docs
Pilferage not being tracked
Smart Client Issue steel MM wise
Project Completion cont.
Client Perspective: - FIM is very critical
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Reconciliation Shuttering
Reconciliation on a Quarterly basis.
Basic benchmark for shuttering wooden consumption for single repetition
= 1 cum of concrete 4 sq mtr of shuttering.
For housing projects, PVC shuttering can be very cost effective.
It is advisable to give one structure per sub-contractor so that issue of wooden
material can be tracked and debited in case of extra consumption.
Crucial Role of PM Deciding Shuttering Mix Metal / Wooden / Combined
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Billing Engineer
A. Client & Sub Contractor billing and Certification: Same Billing period for both client & sub contractor
Match the Quantities
Facilitate preparation of MIS
Identification of Extra Items
DPR should be generated.
RA bill preparation on Time as any delay
Affects Fund management
MIS
Client Perspective: - Client has to ensure that no excess billing or qty for
incomplete activity or unauthorised extra items are claimed by contractor.
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Project Closing Phase
Maintenance close
Administrative close
Contract Close out
Lessons Learnt Report
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A properly closed project is an invaluable asset to theorganisation. Project manual should be prepared:-
Project History
Important Events
Schedule of Work
Salient features of contract documents
Addresses of suppliers
Problems encountered during execution Lessons Learnt
Post completion maintenance requirements
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Project Completion
Checklist for Project Completion
Pending / Hold / WO Amendment
Idling
Final bill certification
FIM Reco Work completion NOC
Receivable & Liability status
Statutory compliances
Demobilization
Delayed in project completion
Work completion certificate
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Reasons for Delay in preparation of Final RA Bill
S. N. Points Corrective Action
1 Non updation of FIM data with stores. Physical verification of FIM with stores
records
2 Reconciliation of FIM Required with each RA Bill
3 Work order Amendment Little foresightedness
Strong Followup
4 Change in Project Manager / Billing Engg. Documentation-JMR/BBS/Stores
Good Back up at HOHanding over Checklist
5 Proper compilation of Hard and soft copies of all the
Running Bills
Data Control and Regular Audit
6 Insistence to satisfy requirements of Labour Inspector
If you are under EPC
Clarity in Work Order Terms
7 Quality compliance after defect liability You should argue that it is client responsibility
8 Idling Claims depending on locations like Orissa /
Kerela - Local problems
Record / Emails to client on regular basis
9 Direct Payments by the client Documentary Evidence
P j C l i
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Work completion certificate:
Dontforget to collect the work completion certificate from the client
Demobilization:
Dehire all types of equipment and machinery.
Make proper plan for shifting of own material to other sites / Central Stores.
Proper plan to shift staff.
Dehire idle camp / mess and do not forget to recover the rent deposit or set off deposit against
rent.
Check, get and release Bank Guarantee from client after defect liability period is over
Project Completion cont.
Planning - Lalu
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Release of Retention Money
Checklist compliance
Certification of Final bill
Completion of work upto Defect liability period
No local liability Site and area clearance
Return of all FIM
Premature Release Against Bank Gaurantee Till DefectLiability
R f P j F il
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Reasons for Project Failure
Poor Field Investigation
Inadequate Project Information
Bad Cost Estimate
Lack of Experience
Inadequate Project Feasibility Analysis
Poor Project Appraisal leading to incorrect investment
decisions
Deliberate Manipulation to start the project Incorrect Organisational Structures
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Engineering MIS
Client Perspective: - Client have to set DPR mechanism to check work progress.
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