Cost Value Reconciliation (CVR) Explained for Contractors
CVR is how you find out whether a job is making money while you can still do something about it. What goes in a CVR, how to handle accruals and WIP, and the adjustments that stop a profitable-looking job losing money at the end.
Short answer: A CVR sets the value earned on a project at a date against the cost incurred to earn it, and reports the resulting margin plus a forecast to completion. Its whole purpose is timing: it tells you a job is losing money while there is still job left to fix.
Why the final account is too late
Contracting businesses fail with full order books. The mechanism is nearly always the same — jobs that were losing money for months while everybody assumed they were fine, discovered at final account when nothing can be changed.
A CVR is the control that closes that gap. Done properly and monthly, it answers three questions:
The third question is what makes it a management tool rather than a report. A CVR that only measures the past is a slow accounting exercise; one that forecasts to completion is a decision document.
The two sides
Value
Value is what you have earned, not what you have invoiced or been paid.
It includes:
- Measured work completed, at contract rates.
- Variations — instructed and valued, plus instructed and not yet valued at a realistic assessment.
- Claims, at a prudent assessment. This is where optimism does most of its damage.
- Materials on site, where the contract permits their inclusion.
- Fluctuations, where applicable.
Value what is done, not what was applied for. Your application is a negotiating position. If you applied for £310,000 and expect certification at £280,000, the CVR carries £280,000.
Carry claims prudently. A £90,000 claim with a genuine basis and a hostile client is not £90,000 of value. Many contractors carry claims at nil in the CVR and treat any recovery as upside — which is conservative, and conservative is the correct bias in a document you are using to decide whether to keep going.
Cost
Cost is everything incurred to earn that value, whether or not it has been invoiced, approved or paid. This is the half that gets understated, and understated cost is what makes a doomed job look healthy.
It includes:
- Labour, including on-costs — not just the hourly rate.
- Materials delivered, including those not yet invoiced.
- Subcontractor cost for work done, not for applications received.
- Plant, hire and consumables, including hire still running on items nobody has returned.
- Preliminaries: supervision, welfare, scaffolding, temporary works, security.
- An allocated share of overhead, where your method does that.
- Accruals for everything above that has happened but has not yet arrived as an invoice.
Accruals are the whole game
If you take one thing from this: an unaccrued cost is a lie in your CVR.
A groundworks subcontractor has been on site four weeks and has not applied for anything. Their work is in your value. If their cost is not in your cost, your margin is overstated by their entire four weeks, and it will correct itself in one brutal month when the application finally lands.
Common unaccrued costs:
- Subcontractor work done but not yet applied for.
- Materials delivered but not invoiced.
- Hire running on plant that has not been off-hired.
- Instructed variations where you have incurred cost and not yet valued the income.
- Remedial and defect work being carried out quietly.
- Design fees, testing, commissioning and statutory charges.
The adjustments that decide the answer
Beyond the raw two sides, a CVR carries adjustments for what is known and not yet crystallised:
| Adjustment | Why it belongs |
| Retention | Held and at risk. Not certain money, and not free of the cost of financing it |
| Defects provision | You will spend money in the rectification period. Carrying nil says you will not |
| Liquidated damages risk | If you are in delay with no entitlement to extension, provide for it now |
| Contra-charge exposure | Charges the client or main contractor has flagged but not yet levied |
| Disallowed cost | Cost you have incurred that will not be recovered — abortive work, rework, waste beyond allowance |
| Final account risk | The general provision for the fact that final accounts settle below application more often than above |
Forecasting to completion
The cost-to-complete estimate is the hardest part, and the one most often done by subtraction: budget minus spent equals remaining. That method assumes the budget was right, which is precisely the assumption a CVR exists to test.
Build the forecast from the work left:
- Remaining measured work at current actual rates, not tender rates. If the blockwork is running 15 per cent over tender, the remaining blockwork will too.
- Remaining preliminaries by duration — and if the programme has slipped, prelims run for the extended duration whether or not you recover them.
- Known variations not yet executed, on both sides.
- Risk items with a realistic probability applied.
Reading a CVR properly
Compare month to month, not just against budget. The trend is the signal. A job at 6 per cent that was at 11 per cent two months ago is in trouble regardless of what the budget said.
Look for the value/cost mismatch. Value moving with cost flat means unaccrued cost. Cost moving with value flat means work being done that is not being valued — usually unvalued variations, which is recoverable if caught early.
Interrogate improvements. A margin that jumps without an obvious cause is usually a cost that has been missed, not a genuine gain.
Read the provisions. A CVR where every provision is nil has not been thought about.
Making the numbers real
The reason CVRs go stale is that assembling one is a data-collection exercise. Costs sit in the accounts system, value sits in a surveyor's spreadsheet, subcontractor applications sit in an inbox, and hire sits with whoever set it up. By the time somebody has reconciled it, it describes a month that has already gone.
The fix is structural rather than clerical: cost has to land against the job as it is incurred, not when it is invoiced. When timesheets allocate labour to the job as hours are worked, when bills arrive against the job they belong to, and when hire is tracked against the item and the site, the accrual position is a query rather than a fortnight of chasing.
ScopeKit gives every project and job a single financial-health status — budget against actual against forecast, with a red, amber or green indicator — and a cost-change trail tying every budget movement back to its cause, whether that was a variation, a defect or a back-charge. Labour, bills, hire and variations land against the job as they happen, so the reconciliation starts from data rather than from a request for data.
A monthly rhythm that works
Related reading
- Dayworks explained — a common source of unrecovered value.
- Retention in construction — what is held and when it returns.
- Cash flow in a construction business — the companion problem, and the one that actually kills firms.
- The RFI process — where unvalued variations usually begin.
Frequently asked questions
- What does CVR stand for in construction?
- Cost Value Reconciliation. It compares the value earned on a project at a point in time against the cost incurred to earn it, so the margin being made is visible during the job rather than after it. It is the core commercial control document on most UK contracting projects and is normally produced monthly.
- What is the difference between CVR and a profit and loss account?
- A profit and loss account reports what has happened across the business over a period, on an accounting basis. A CVR forecasts and controls a single project, matching value earned to cost incurred at a point in time, including work done but not yet invoiced or paid. CVRs feed the P&L, but they exist to change decisions on live jobs, which the P&L is too late and too aggregated to do.
- Why does a job look profitable in the CVR and lose money at the end?
- Almost always because cost was understated rather than value overstated. The usual causes are unaccrued costs for work done but not yet invoiced by subcontractors, unvalued variations claimed as value with their cost omitted, retention treated as certain, and final account risk — defects, liquidated damages, disputed contra-charges — carried at nil until it crystallises.
- How often should a CVR be produced?
- Monthly is standard on most projects, aligned with the valuation cycle so cost and value are cut at the same date. Short or fast-moving jobs may warrant fortnightly review. What matters more than frequency is that cost and value are measured to the same date — mismatched cut-offs are the single most common way a CVR produces a fictional margin.
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