Cost value reconciliation (CVR)

Cost value reconciliation, known in UK construction as a CVR, is the monthly report that tells a contractor whether a project is making money. Value is what the job has earned: certified interim valuations, agreed variations and work done that will be billed. Cost is what it has consumed: invoices received, subcontract liabilities, accruals for work done but not yet invoiced, and committed costs on orders already placed. The difference is the margin.

Margin to date = value earned to date - cost incurred to date

Forecast final margin = forecast final value - forecast final cost

The second line is the one the project director reads. The first says where the job is; the second says where it ends up if nothing changes, which is the only version there is still time to act on.

A worked CVR

A contractor is nine months into a £2,000,000 contract tendered at an 8% margin, which is £160,000 of planned profit.

1. Value earned to date, from certified applications plus agreed variations: £1,200,000.
2. Cost invoiced to date: £1,050,000.
3. Subcontract accruals, for work done on site but not yet invoiced: £75,000.
4. Committed cost on purchase orders raised but not yet received: £30,000.
5. Cost incurred to date = 1,050,000 + 75,000 + 30,000 = £1,155,000.
6. Margin to date = 1,200,000 - 1,155,000 = £45,000, which is 3.75% of value earned.

Against a tender margin of 8%, that is erosion of 4.25 percentage points, with £800,000 of value still to earn. Read on invoiced cost alone the same job shows £150,000 of margin at 12.5%, which is comfortably above tender and completely wrong. The £105,000 difference is the accruals and the committed costs, and it is the single most common reason a CVR looks healthier than the project is.

Profit fade and what the CVR is for

Run the same report every month and the forecast final margin becomes a line rather than a number. When that line drifts down month after month, the pattern has a name: profit fade. It is rarely one event. It is unagreed variations carried at full value for too long, risk allowances quietly spent, a subcontract package let above the estimate, and prelims running past the programme, each small enough to survive a monthly review on its own.

That is why the forecast matters more than the current position. A CVR that only reports where the job stands tells you about money already spent. A CVR that carries a cost-to-complete forecast by package tells you which packages still have room in them, while there are still packages left to let.

Who prepares it, and how it relates to the client cost report

The quantity surveyor normally owns the CVR, pulling together the cost ledger, subcontract records, the latest payment application and a cost-to-complete forecast by package. In smaller contracting businesses the contracts manager or the owner compiles it. Whoever does it should be able to explain every movement in margin since last month, and a CVR that cannot be explained line by line is a spreadsheet rather than a control.

The CVR is internal. It is not the cost report issued to the client, which RICS guidance covers as a separate document prepared by the quantity surveyor for the client during construction. The CVR can carry assessments of unagreed variations and forecast change that would never appear in a client-facing report or a payment application, and that is precisely what makes it useful.

Assembling one is mostly a data problem. Where costs, committed purchase orders and milestone-linked invoicing all sit against the job rather than in separate systems, tracking the project produces most of the CVR inputs as a by-product of running it. The guide to running job costing on a construction project covers the cost side that feeds it.