How effective cost assurance can strengthen alliances

Effective cost assurance can help to build mutual trust and understanding and strengthen alliances. It can answer basic questions like:

• Are there aspects of the commercial management of the Alliance which aren’t working?
• What needs to be done to fix those problems?
• What do the parties to the Alliance need to do to strengthen commercial management?

Effective cost assurance can also go beyond identifying and fixing problems to uncover opportunities to do things better and more efficiently.

For cost assurance to be effective, both parties must see the value in it. It must also be carried out be auditors who are independent, properly trained and experienced and who understand the culture of working in an alliance.

Here are some examples of how effective assurance builds trust and common understanding:

Defined costs

Cost certainty is an important basis for an alliance. Clients want no cost surprises and Contractors want certainty of margins. These goals lead to a common need for cost certainty.

Assurance activities can provide independent evidence that costs are charged in line with the Contract, and free from accounting and arithmetical errors. They can also identify any potential uncertainties within the Contract over what can and cannot be charged. By recognising potential problems early through timely assurance activities and dealing with them quickly, the risk to cost certainty can be minimised.

Commercial activities

Effective and timely commercial management is also a key factor in building trust and common understanding.

Again assurance over the effectiveness of commercial activities such as project controls, contract administration, sub-contracting and procurement can avoid problems and help prevent issues which might damage an alliance. It can also send an independent, clear and reliable message that things are being well managed.

Improving efficiency

Alliance arrangements offer greater transparency of costs and supporting data and provide greater opportunities for improving productivity and efficiency for all parties. Where target cost arrangements exist, for example, analysing and understanding the reasons for gain or pain at final account can provide useful learning to avoid problems and to recognise and carry forward efficient working practices.
By recognising that both the contractor and the client may be driving inefficiencies or efficiencies, the alliance can be strengthened.