There are emerging COVID-19 related risks around People and Design charges relating to Clients operating cost reimbursable style contracts. These risks may even be present and need assessing relating to change on fixed price contracts.
Construction has been one of the biggest recipients of the Coronavirus Job Retention Scheme or “furlough” scheme across all business sectors. 53% of construction workers were furloughed at the peak of the epidemic. Construction has also seen the biggest fall in individual’s pay of any industry in the UK during 2020.
The statistics below illustrate the significant impact COVID-19 had on construction in 2020.
Impact on cost assurance reviews
In the last 6 months, our audits have identified significant reductions in staff and labour costs, through reduced hours, reduced bonus payments, voluntary pay cuts, reduced day to day expenses and other allowances.
A typical project may have over 50% of its costs relating to people, including staff, labour and designers. There is a significant and real risk that people costs or rates presented to clients could (at the current time) be overstated due to:
- Furlough payments not being credited to the contract
- Reduced bonuses and performance related payments
- Potential voluntary pay cuts
- Sick pay, self-isolating and holiday allowances
- Hours charged that were not worked
- Reduced expenses and other travel and subsistence allowances
- Inappropriate redundancy charges
It is also worth noting that some 35% of construction staff worked remotely in April. This pattern will continue largely into 2021. If your contractors are working under NEC terms, then working areas and working area overhead percentages may need to be reviewed and potentially amended, to ensure contractors do not overstate their true cost position.
Complex financial administration of COVID-19 needs qualified experts to unpick people cost implications
There are additional complexities in auditing people costs in 2020 which require contract knowledge and technical accounting expertise. Without this you may be unable to identify issues that go to the heart of complex accounting, payroll, pension costs and insurance matters and may miss overcharges.
Timing is key
Timing is key to ensure contractor and subcontractor final accounts are not agreed prior to completing effective COVID-19 Cost Assurance. Also, any changes to contracts should be completed as soon as possible.
Sources: ONS Business Insights and Impacts UK, CJRS Claims HMR&C and ONS EARN01
