Capital Projects – Allocating Contract Cost Policy

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screenshot of the first page of Capital Project Management Capability Maturity Model (CMM)

This policy outlines procedures to ensure that company capital allocated to projects is managed cost effectively and efficiently while minimizing project risks. It specifically addresses the application of Generally Accepted Accounting Principals (GAAP) in accounting for the performance of contracts.

In this example, company capital will be allocated to projects via the Authorization for Expenditure (AFE) Policy. The AFE amount will be based on the final project cost estimate, which becomes the established project budget when Senior Management approves the AFE. The project cost estimate will be determined during contract negotiation and finalized at contract signing.

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