Deceptions in project final accounting
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As part of project management, and particularly owner-side management, cost accounting is an important aspect. Here are some tactics used by engineering companies to manipulate project costs: 1. Using appropriate quotas: For example, if equipment requiring a general-purpose centrifugal fan for ventilation is needed, the device is referred to as a blower; therefore, engineering companies tend to use the quota related to blowers rather than that related to general-purpose centrifugal fans； Similarly, it refers to the quota for reaction kettles in chemical processing vessels. There are many reactors used in chemical plants that feature jacketed cooling (heating), with upper and lower heads and a volume of 10 cubic meters or less; in cost estimates, such containers with heating (cooling) and stirring devices are considered, but engineering companies often apply the standards for reactors ； 2. Weight: In the specifications, the installation of equipment is often calculated based on weight, with categories such as below 3 tons, below 5 tons, and below 10 tons being used as references; however, the weight of many devices at the site is not clearly specified. So the quotas for a device of 3 tons and 3.2 tons are different ； 3. Equipment configuration: Some equipment can be installed as a complete integrated unit, while others are installed separately. During the full installation, the engineering company will carry out the installation of each unit separately; although the total weight remains unchanged, the installation cost increases ； 4. Losses: In some projects, the volume of work is calculated based on actual measurements, and construction companies often request an allowance for material losses. In fact, this amount of loss is already included in the quota ； 5. Additional materials: For example, in valve installation, the quota includes the cost of paper gaskets and bolts, but construction companies often charge extra for these ； 6. Scaffolding: There are too many of these to count ； 7. On-site water and electricity costs: The water and electricity used by the construction company are already included in the quota; in other words, the costs associated with water and electricity consumption at the site should be covered by the construction company. For example, in some expansion projects, the construction company does not install separate water and electricity meters; it simply uses the owner’s meters, and this cost is not deducted from the installation fees ； There are many such examples, too many to list all of them. The key is to understand what a quota means; let’s discuss and share this together. This post was last edited by laiqi on 2009-2-13 09:32]
I knew it – when finalizing the project accounts, some construction teams would simply give the money in bags to the manager of the general contractor’s technical and economic department
That makes sense, but from the construction party’s perspective, the profits are currently really too low. In fact, there is a long-standing problem that plagues the construction industry: during bidding, companies compete fiercely to win contracts, and once they start a project they struggle to make a profit, which leads them to resort to cheating – using inferior materials and cutting corners. A good balance should be such that the contractor can earn a reasonable profit, while the owner/general contractor gets a project that delivers value for money. And now, the entire industry is still on a painful journey to find a reasonable balance. Just a few humble opinions; please feel free to correct me (or share this freely :)
That’s really spot-on! There are so many Mingtangs after all! Many projects are won at low prices, and it’s through tricks during construction and at the time of settlement that things get sorted out; otherwise, where would there be so many shoddy constructions, and where would there be so many new-rich people?
The key is to implement multi-level oversight: first, review by the supervisor; second, review by the on-site supervisor of the owner; third, review by the technical supervisor of the owner; fourth, audit by a third-party auditing firm. Seal off loopholes as much as possible.
For projects that are under construction, records are usually kept, and these records can be used for verification.:)
If I were in an engineering company and knew about these various levels of oversight, I could simply go and \"visit\" the managers at those levels, and eventually the problem would be resolved. But I’m the client, haha
It’s a market economy now; everything is decided by money. All talk of integrity means nothing when faced with the market.
The poster has raised many issues, and these will only become apparent after specific work is carried out. Just like in the legal field, there are always opportunities to exploit weaknesses. From the owners’ perspective, they have their own technical and financial staff who are responsible for reviewing these specific data points； From the perspective of engineering companies, these quotes must be provided at the time of bidding, and they cannot be changed after the contract is signed. However, given the fierce competition in the current market, engineering companies often have to lower their prices in order to win the bid. But as a bidding strategy, they might lower prices in some areas and quote higher prices in others, in order to win the bid while still making a profit; thus, some of these tactics are also a matter of necessity. In my opinion, the tendering party should be able to identify these so-called tricks, and there are also reasons why the bidders do such things ； What’s needed in engineering projects is a win-win outcome; such tricks are often employed as part of bidding strategies. Project cost estimation is an art, and the art of bidding is even greater!
There are many problems in project budgeting and accounting, and the author has covered them very well. There are also other aspects: 1) There is a disconnect between project management and budgeting/accounting management; those responsible for budgeting overestimate the actual quantities on site and underestimate them accurately, and they do not have a thorough understanding of the technical aspects related to equipment. 2. When project profits are slim, workers disassemble and choose equipment with higher quota values in order to increase profits. Using the original poster’s example, \"for reaction vessels in chemical processing equipment, factories use those equipped with jackets for cooling (or heating); there are many reaction vessels with upper and lower heads whose volume is 10 cubic meters or less. In the pricing guidelines, such vessels are classified as those with heating (or cooling) and stirring devices, but construction companies often apply the pricing standards for regular reactors\", and then they add the cost associated with stirring. 3. Substitution of materials, using higher-grade ones in place of lower-grade ones to increase the basis for charging fees. And in cases where some auxiliary materials are substituted, and property owners do not enforce strict supervision, budgets that overestimate costs compared to the actual expenses can arise, even for constructions using the same materials. 4. Material utilization rate: In the processing of containers and towers, reducing the material utilization rate increases the basis for charging fees. 5. Increase the drawing weight of the equipment charged per tonnage through design, thereby raising the basis for charging. It’s highly concealed; the weight of all the equipment is set at its maximum, and the total tonnage of the entire project is by no means a small figure.
1. Applying fixed quotas requires real expertise; however, nowadays tenders are conducted using bill of quantities, and the use of fixed quotas is intended for setting base prices, while the contractor’s bid can still be controlled. 2. The weight issue does exist. 3. It’s still about controlling the base price. 4. The loss quotas are provided, and they are generally sufficient; for large, custom-made equipment, these quotas are often set too high. 5. It is recommended that Party A have the valves, bolts, and gaskets purchased together as a set to ensure quality. 6. On-site visas for scaffolding are included in the settlement; however, standard scaffolding still needs to be provided even in the absence of such visas. 7. Both water and electricity costs can be deducted according to the established rates.
As a person involved in construction and cost estimation, I would like to analyze point by point what the original poster has mentioned, based on my humble opinions: 1. The first point is a normal phenomenon; the goal of construction companies is to make money. To address this issue, it depends on the responsibilities of the client and those in charge of oversight. 2. Regarding the second point, device weights: devices whose nameplates actually do not indicate the weight will surely have had their weight estimated by the construction party, and such estimates are certainly made in such a way as to not disadvantage them. 3. This phenomenon is relatively rare; what is common is that the cost of assembly equipment is calculated by first applying the assembly cost and then adding the cost of the entire device. 4. It does exist. 5. The original poster’s view is rather one-sided; taking valves and flanges as an example, as far as I know, the local pricing standards include the cost of bolts for corresponding sizes and nominal pressures, and there is overlap between the costs of these two elements. However, in the industry standards, for example those of China National Petroleum Corporation, bolts are not included. Other phenomena also exist. 6. Scaffolding is definitely included in the settlement statement for every construction project, without any dispute. 7. The proportion for water and electricity costs is generally agreed upon by both parties at the time of signing the contract; it usually represents a certain percentage of the machinery costs. In reality, current projects are quite difficult for contractors to handle; first of all, they have to go through various layers of procedures just to win the bid ； It’s a matter of etiquette during holidays and settlements.
Isn’t this a bit extreme? With economic development, many industries are moving toward standardization. The era of solving everything with money is over (of course, exceptions exist). When necessary, means are indeed required, but the prerequisite is still having the appropriate strength – first and foremost, the ability to do things well! Each project represents the livelihood of its owner; the practice of sacrificing greater benefits for small gains (which are not even guaranteed) – as successful projects often bring substantial advantages to the relevant leaders, and such rewards are legitimate and beneficial for a lifetime – is now a thing of the past for many leaders. As for the value of \"integrity,\" I’m afraid any successful company is well aware of its importance, and there are countless examples to illustrate this. :)