20 - Commercial Management (of Construction Works) Flashcards
910 - How do you proactively control costs during construction? (10)
1) Operate a robust change control procedure.
2) Regular dialogue with the design team and contractor to monitor progress and issues.
3) Operate a rigorous payment process (interim valuations and payment certificates).
4) Cash flow forecasting.
5) Regular cost reporting.
6) Manage the expenditure of provisional sums (JCT contracts).
7) Proactive risk and contingency management.
8) Monitor and agree variations / compensation events as they arise.
9) Identify and reduce the impact of claims.
10) Monitor and mitigate early warnings (NEC contracts)
911 - What is a purchase order (PO)? (2)
1) A purchase order (PO) is a commercial document issued by the buyer to the seller.
2) Sending a PO to a supplier constitutes a legal offer to buy the product and / or service. Acceptance of a purchase order by a seller usually forms a contract between the parties.
912 - What is the purpose of a change control on a construction project? (3)
Change control has three key purposes;
1) All relevant parties are consulted.
2) The change is properly assessed in terms of time, cost, quality or any other impact prior too implementation.
3) Once the change is agreed, a record is formed to capture the change
913 - What is cost / value reconciliation (CVR)? (2)
1) In simple terms, CVR is the profit and loss statement for the project, whereby the organisation calculates the amount of work done to date, and the cost incurred to date.
2) The two are then compared, with the difference being the amount of profit or loss made at that point in time.
914 - What is earned value analysis (EVA)? (2)
1) Earned value analysis (EVA) is a method of measuring a project’s progress at any given point in time, forecasting its completion date and final cost, and analysing variances in the schedule and budget as the project proceeds.
2) It compares the planned amount of work with what has actually been completed, to determine if the cost and work accomplished are progressing in accordance with the programme.
915 - How can you protect your client from contractor insolvency? (6)
1) Consider the structure of the company, a parent company guarantee could be obtained.
2) Request a performance bond.
3) Conduct a credit check (e.g. Dun & Bradstreet / Experian report).
4) Obtain references and observe if there are any industry rumours about impending insolvency.
5) Oblige the contractor to obtain collateral warranties from sub contractors and consultants.
6) Hold retention on contractor payments.
916 - Assuming the contractor has fallen insolvent, what are the next steps you would take? (9)
1) Inform all parties involved and secure the site.
2) Inform the bondsman (bank / insurance company).
3) Take ownership of materials off site (if paid for in valuations).
4) Schedule all plant and materials.
5) Consider stopping pending payments to the contractor and seek legal advice.
6) Value completed works and value any defects.
7) Monitor loss & expense incurred by the employer.
8) Review consultant and subcontractor agreements for any payment obligations.
9) Retender the project, retaining existing subcontractors where possible.
917 - What is value engineering (VE)?
Value engineering is a method used to eliminate any unnecessary costs and / or increase the value of a specification or product. The value is not necessarily related to cost; value could be increased efficiency, functionality, appearance etc.
918 - What is capital expenditure? (2)
1) Known as CAPEX
2) Funds used by a company to acquire or upgrade physical assets such as property or equipment.
919 - What is operational expenditure? (2)
1) Known as OPEX.
2) Expenditure a business incurs performing its normal business operations.
920 - Businesses typically split expenditure into capital and revenue - why?
Operating expenses and capital expenses are treated quite differently for accounting and tax purposes.
921 - What are capital allowances?
Capital allowances are a way of reducing the after-tax cost of buying plant, equipment, fixtures and fittings, and acquiring, building, fitting out or refurbishing property.
922 - What is the key reason for capital allowances?
Capital allowances are use by government as an investment incentive to encourage businesses to spend money on assets.
923 - Is there any legislation relating to capital allowances?
The Capital Allowances Act 2001 (CCA 2001)
924 - Can you explain what a public-private partnership (PPP) is please?
A public-private partnership (PPP) is often defined as a long-term contract between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility.
