How to run a cost value reconciliation on a live job
What you will learn
- A CVR compares value earned from the client against total cost incurred, including committed and accrued costs not yet invoiced - not just what the ledger shows.
- Monthly frequency is the correct cadence because it aligns with the valuation cycle; a less frequent CVR compresses margin movement into numbers that are already unrecoverable by the time they are read.
- Missing accruals for work done but not yet invoiced is the single most common cause of a CVR that shows false profit.
- Profit fade is only visible in the CVR, not in the ledger, because the ledger records invoiced costs while the CVR captures what has actually been consumed.
- The cost-to-complete forecast matters more than the cost-to-date figure: a CVR without a challenged forecast is a historical record, not a management tool.
A cost value reconciliation compares value earned from the client against total cost incurred on a live construction job. This guide covers why CVRs only work on a monthly cycle, why accruals are not optional, and how to run the process step by step.
A cost value reconciliation, known in construction as a CVR, compares two numbers on a live job: the value earned from the client - through certified interim payments, agreed variations, and anticipated future billings - against the full cost of delivering that work to date, including subcontractor payments, direct labour, materials, plant, and any costs committed but not yet invoiced. The gap between those two figures is your current gross margin. The gap between that margin and the margin you tendered at is profit fade - and it is the number a CVR exists to put in front of you while there is still time to do something about it.
Why the CVR only works on a monthly cycle
Most contractors run CVRs monthly, and that cadence is structural rather than conventional. Part II of the Housing Grants, Construction and Regeneration Act 1996 requires every construction contract to provide an adequate mechanism for determining when payments fall due. In practice, that almost always produces a monthly interim valuation cycle - and the CVR is built around that rhythm. You cannot assess the value side reliably before the latest valuation is agreed, and you cannot produce a credible margin figure without it. A CVR produced fortnightly is working from partial cost data. One produced quarterly compresses three months of margin movement into a single figure by the time it is read - too late to influence the outcome.
The RICS Commercial Management of Construction guidance makes the same point operationally: cost and value must be assessed to the same cut-off date. A subcontractor invoice that arrives while the value side is still being agreed sits outside both sides of the reconciliation simultaneously, distorting the margin in both directions. A fixed monthly commercial calendar - with a defined cut-off date that the QS, contracts manager, site manager, and finance team all work to - converts the CVR from a calculation into a control checkpoint. Without it, the report is an arithmetic exercise. With it, it is a management tool.
The RICS also notes that a CVR should be produced every month even when a project appears to be tracking well. A stable-looking job is precisely where weak discipline hides. When teams only tighten CVR practice on distressed projects, they are already working reactively.
Why accruals are the ingredient that cannot be skipped
The most common reason a CVR shows a margin that does not exist is missing accruals. Accruals are costs that have been consumed - work done on site, materials delivered, labour deployed - where no invoice has yet arrived. A groundworks subcontractor who finished their package last month may not have submitted their final application. A materials delivery that came through the site gate last week may not appear in the purchase ledger until next period. Without accruals, the cost side of the CVR understates reality, the apparent margin is too high, and profit fade is invisible.
The RICS Commercial Management of Construction is explicit: CVR must include liabilities and accruals for goods and services consumed but not yet paid for. That is not a technical nicety - it is the reason the margin figure is either reliable or misleading. On a subcontract-heavy project operating at 3-5% margin, a single package with understated accruals can eliminate the planned profit on the entire job. The ledger does not show this because the ledger records what has been invoiced, not what has been consumed. The CVR bridges that gap. If accruals are absent, the CVR is not doing its job - it is a record of invoiced costs, which is a function your accounting software already performs.
The total cost figure for a correct CVR is: costs posted to the ledger, plus committed costs from purchase orders and subcontracts not yet invoiced, plus accruals for work consumed but not yet billed. Missing any of these three understates cost and flatters the margin.
Running the CVR: eight steps
Fix the cut-off date and communicate it to the whole project team
Set a single date - matched to the valuation cycle - as the cut-off for both the value and cost sides of the CVR. Issue it to the QS, contracts manager, site manager, and finance team at the start of each commercial calendar period. Any subcontractor application, purchase order, or cost entry received after the cut-off goes into next month's CVR. A cut-off date is not administrative preference - it is the control that makes the margin figure meaningful. Without it, cost and value are assessed at different points in time, and what the report shows is not a current margin but an artefact of timing.
Build the value side from the current contract position
Start with the current contract sum, then add every approved variation at its agreed and certified value. Below that, list anticipated variations - those submitted but not yet certified - split by confidence level. Variations with written instruction go in at full value; those in negotiation or awaiting instruction go in at a probability-weighted figure with an explicit note recording the assumption. Add any recoverable claims, loss and expense, or compensation events only where there is contractual and commercial justification. Do not treat doubtful recovery as earned income. The value side is not what you have billed - it is a realistic assessment of what the project will recover in total.
Collect all posted costs against the correct cost codes
Pull cost-to-date from the project ledger, cross-referenced against your cost code structure. Split by category: preliminaries, direct labour, plant, materials, and each subcontract package. Verify that subcontractor applications have been allocated correctly against their packages and that any contra-charges or back-charges have been applied. A single misallocated invoice - plant cost posted to the wrong package, for example - distorts the package-level margin and makes it harder to identify where the job is running over. At this stage, cost-to-date covers only what has been invoiced and posted.
Add committed costs that have not yet been invoiced
Committed costs are purchase orders raised and subcontracts awarded where no invoice has arrived yet. These are real liabilities regardless of whether the supplier or subcontractor has applied for payment. A subcontractor halfway through their works has an outstanding liability equal to the balance of their awarded contract value, adjusted for any variations, regardless of their billing position. If your job management system links purchase orders and subcontract records to the project, committed values can be drawn directly. If not, they need to be collected from the QS's subcontract register and reconciled to the procurement record. Excluding committed costs from the CVR is the equivalent of ignoring orders you have already placed.
Apply accruals for work consumed but not yet billed
For every package where work has been performed but no application has been received - or where the application received understates the work actually done - raise a specific accrual. Document it: site records, delivery notes, a confirmed scope of work, or a daywork sheet. An accrual that cannot be evidenced is an estimate without a basis. Match the accrual to the cost code it belongs to so it appears against the correct package when cost is compared to value at package level. Failure to reconcile accruals against site records and relying on memory instead is one of the most consistent causes of CVR error on live jobs.
Calculate current margin and compare it to the tender margin
Current CVR margin equals value to date minus total cost to date - posted costs, plus committed costs, plus accruals. Express the result as both a monetary figure and a percentage of value. Then compare it to the margin tendered at. If the tender targeted 8% and the current CVR shows 6.2%, the job has lost nearly 2 percentage points on work already done. That movement is profit fade - and this is precisely the number the CVR exists to surface. Record the works-in-progress position separately: the difference between your internal valuation of work done and the value certified externally by the client. Positive WIP that cannot be evidenced with site records is optimism, not a receivable.
Prepare the cost-to-complete and set the forecast final position
The CVR is a forecasting tool, not a historical record. The cost-to-complete is the estimated cost of all work still to be performed, plus risk allowances for known unknowns: design gaps, productivity shortfalls, materials price movement, and unresolved package disputes. Add cost-to-date to cost-to-complete to produce the forecast final cost. Subtract from the forecast final value to produce the forecast final margin. This is the number directors need - not where the job has been, but where it is going. If the cost-to-complete looks identical to last month's, challenge it: a construction project standing still commercially is unusual. In most cases, unchanged numbers mean the estimate has not been independently reassessed.
Issue the CVR with written commentary and assign recovery actions
A completed CVR with no commentary is not a management tool - it is a financial record. Each significant movement in margin, each variance from the previous period's forecast, and each area of open commercial risk needs an explanation in writing: what caused the movement, who owns the recovery, what has been agreed, and what remains unresolved. The action log that comes out of a CVR review is often more operationally valuable than the margin figure itself. Keeping job costs, purchase orders, subcontract awards, and milestone records in one place - as Zigaflow's project tracking feature supports - reduces the time spent chasing data before the cut-off and makes the monthly exercise repeatable rather than a manual rebuild each period.
The four things that make a CVR misleading
A CVR prepared on time and with the correct methodology can still produce a wrong picture. The most common failure points are: treating disputed variations as certain income before they are agreed; carrying last month's cost-to-complete forward without independently reassessing site progress; failing to separate invoiced cost from committed cost; and preparing the CVR after the valuation date rather than to a pre-agreed cut-off. Each of these errors produces an apparent margin that does not correspond to commercial reality - and each is invisible to anyone reading only the final number. A project looking profitable on paper can bleed cash for months before anyone notices when rushed data and missed accruals are the basis for the report.
The construction industry operates on margins where a single package running over its awarded value can eliminate the planned profit on an entire project. At that level of exposure, the CVR is the only tool that makes the full cost picture visible before it is too late to act. Monthly frequency. Accruals included. Cut-off date fixed. Those three disciplines, applied consistently, are what convert the CVR from a month-end obligation into a genuine commercial control.
Sources
- RICS Standards and GuidanceRoyal Institution of Chartered Surveyors · accessed 2026-09-16
- Housing Grants, Construction and Regeneration Act 1996, Part IIlegislation.gov.uk · accessed 2026-09-16
- Construction Cost Value Reconciliation (CVRs) ExplainedPlanyard · accessed 2026-09-16
- Cost Value Reconciliation Best Practices For Main ContractorsBauwise · accessed 2026-09-16
- A step-by-step guide of the cost value reconciliation (CVR) processCauseway · accessed 2026-09-16
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