Case Study: Catching a Cost Overrun Before It Happened

Details have been generalised and client information withheld at their request.

The situation

A property developer with a medium-density residential project in Tarneit engaged us for an independent cost review at roughly the three-month mark of a twelve-month construction programme. Their head contractor had been submitting monthly cost reports, and everything appeared to be on track.

It wasn't.

The developer's project director had a nagging sense that the cost reports weren't telling the whole story — the variation register was thin for a project of that scale and complexity, and a few items on the drawings didn't seem to have been properly priced at tender. They asked us to do an independent review before the next progress claim was certified.

What the review found

The cost review involved three parallel workstreams: a review of the original tender documentation against the contract drawings, a reconciliation of the variation register against the site instruction log, and an assessment of the subcontractor commitments against the remaining budgets.

Gap 1: Tender documentation issues. Three scope items that appeared clearly on the contract drawings were either absent from the BOQ or priced at nominal amounts. The combined gap between what had been priced and what would need to be delivered was material. These weren't variation claims — they were legitimate items that had been omitted or underpriced at tender, giving the contractor grounds to claim additional costs.

Gap 2: Unrecorded variations. The variation register held seven items. The site instruction log — a separate document the contractor's site supervisor maintained — had twenty-three. The sixteen unrecorded items weren't frivolous; most of them were legitimate scope changes. But they hadn't been priced, approved in writing, or added to the cost plan. They were approaching the end of the period within which they could be formally raised under the contract terms.

Gap 3: Subcontractor commitment shortfall. Two trade packages — hydraulics and mechanical — had subcontractor commitments lower than the budget allowances. This looked positive on the cost report. In practice, the scopes in those packages were incomplete, and the low commitments reflected gaps rather than savings.

The response

A full variation assessment was prepared, covering all twenty-three items in the site instruction log. Each was reviewed against the contract documents, priced using the BOQ rates and current market rates where BOQ rates weren't applicable, and categorised as either a legitimate variation or a scope item that should have been included in the original contract.

The developer used this assessment to open a structured conversation with the head contractor about the cost position. Rather than allowing claims to emerge unpredictably through the remainder of the project, both parties agreed to a formal variation register and a revised cost plan that reflected the true position.

The hydraulics and mechanical packages were re-scoped to fill the gaps identified. The resulting cost was absorbed within the contingency allowance that the developer had maintained — which, because they'd been running a tight contingency, was still largely intact.

The outcome

The project completed within the revised budget agreed at the three-month review. The original cost report trajectory, had it continued unchallenged, would have resulted in a significant overrun at final account.

The developer has engaged us on two subsequent projects — on both occasions, from the start of construction rather than three months in.

An independent cost review at any stage of a project is available as a fixed-fee service. Contact us to discuss what's involved.