5. Project Financial Control and Reporting

Question 1

What is the purpose of project financial control?

Answer 1

• Report and manage construction costs i.e. variations
• Report to client Anticipated Final Account
• Cash Flow Forecasting for monies required for interim payments.

Question 2

What measures can be taken to effectively control costs during the construction phase of a project?

Answer 2

• Regular cost reporting
• Robust change control procedures
• Management of provisional sums within budget
• Rolling final account with closure process for financial impact of change
• Management of provisional sums with budget

Question 3

What is a Cost Report?

Answer 3

Financial report to client indicating changes in cost to a client during reporting period, reports to the client the Anticipated Final Account.

Question 4

Where can a QS find information of Cost Reporting?

Answer 4

RICS Guidance Note - Cost Reporting, 1st edition

Question 5

What would you expect to find in a Cost Report?

Answer 5

• Contract Sum
• Provisional Sums
• Contract Instructions
• Anticipated Variations
• Disputed Items
• Loss & Expense
• Cash Flow Forecast
• Advance Warnings
• Risk Allowance – Contingency

Question 6

What is the frequency of a Cost Report?

Answer 6

Subject to client requirements and nature of a project i.e. scope of works, size of project etc.

Typically on my projects – cost reports are produced on a monthly basis.

Question 7

How would you present a Cost Report to a client?

Answer 7

Typically within BTP Cost Reports, behind executive summary we include a ‘Summary of Changes’. Presenting a Cost Report to a client would include;

• Discussing Executive Summary period of change
• Talk client through Summary of Changes – answer any questions raised.

Question 8

How is outturn cost controlled by cost reporting?

Answer 8

Recognition of cost changes already incurred, planning for the implementation for future anticipated costs.

Question 9

What is good cost reporting?

Answer 9

• Always accurately track cost and changes
• Communicate changes effectively as and when required
• Keep a rolling final account
• Good cost report document to keep client informed
• Good relationship with contractor

Question 10

What costs would you exclude from a Cost Report?

Answer 10

A construction cost report would typically exclude professional fees, 3rd party costs, land costs, agency costs, finance cost, legal fees and VAT.

Question 11

Would you include Loss and Expense claims in Cost Report?

Answer 11

This would be included under a separate sub section in the report – Loss and Expense.

Question 12

Would you include Liquidated Damages in a Cost Report?

Answer 12

Yes this should be included within liquidated damages.

Question 13

What is a Rolling Final Account?

Answer 13

• All instructions and cost effects agreed up to the point of the latest financial report.
• Final account statement would stand if works were to complete with no further changes.

Question 14

What is a Drawdown Schedule?

Answer 14

Reports invoices due across reporting period.

Question 15

What is included within a Drawdown Schedule?

Answer 15

Summary of invoices due for payments as of reporting period.

Breakdown reflecting – Professional Role & Fee, Anticipated Final Cost, Amount Due within each Drawdown, Total Approved and Outstanding Amount.

Question 16

Why are Drawdown Schedules important?

Answer 16

• Recommendation of invoices due for payment.
• Approval process for invoices raised – reviewed by BTP.
• Reflects outstanding amount against invoiced – sufficient monies against programme

Question 17

What is a Cash Flow Forecast?

Answer 17

Projection of when payments are due to ensure finances are in place

Question 18

Why is Cash Flow Forecasting important?

Answer 18

Ensure clients have required monies in place to make interim payments.

Can be used to monitor progress against forecasted cash flow.

Reflect actual cost against budgeted costs.

Question 19

Different Types of Cash Flow?

Answer 19

• Cash Flow Forecast for company.

* Cash Flow Forecast for specific project

Question 20

What are the different methods for producing a Cash-Flow Forecast?

Answer 20

• S-Curve = Standard Curve
• Contractor’s Cash Flow
• Computer modelling
• Other special curve

Question 21

What is an S-Curve?

Answer 21

Standard Curve

Represents low expenditure at beginning of a project to reflect site set up and typically inexpensive enabling works & lower level of expenditure at the end of a project because of majority of materials on site and reduction of contractor’s overheads.

Question 22

What is a Contractor’s Cash Flow?

Answer 22

Once project tendered or contract entered into – more accurate than S-Curve.
The contractor can accurately assess cash flow requirements against programme and procurement schedule.

Question 23

What is Computer Modelling Cash Flow?

Answer 23

Computer predicted models and simulations which are based on S-Curves.

Question 24

What is other special curve?

Answer 24

Many companies have their own formulas for cash-flow forecasting.

Question 25

How would you reflect retention release in Cash Flow Forecast?

Answer 25

Subject to contract rectification period.
• ½ retention released at Practical Completion Date.
• ½ retention released at valuation after issue of Certificate of Making Good Defects.

Question 26

How would you put together a Cash-Flow Forecast?

Answer 26

Pre-Construction:
• Collect PM Programme and Cost Plan.
• On graph reflect X-Axis construction duration and Y-Axis total project cost.
• Determine each packages value and time taken.
• Reflect the anticipated monthly expenditure for overall project during construction period.
Post-Construction:
• Update S-Curve using Contract Sum and Contractor’s proposed programme
• Until Contractor provides their own Cash Flow Forecast – ask to update this regularly.

Question 27

What are the disadvantages of Cash-Flow Forecasting?

Answer 27

• Projection only – level of accuracy limited.

* Unforeseen factors – COVID-19, strikes – therefore cash flow must be updated regularly

Question 28

What is front-loading?

Answer 28

Forecasts costs at start of project higher than they will be, providing higher payments earlier i.e. Demolition.

Question 29

What is contingency?

Answer 29

Risk Allowance for any foreseen or unknown risks on a project.

Question 30

How is contingency calculated?

Answer 30

Quantification of Risk.

Question 31

How would you calculate contingency allowance?

Answer 31

At BPT we typically use Percentage Addition - %.

This is because we have multiple projects across different sectors to benchmark across, rare where the contingency % is exceeded.

Question 32

How frequently should contingency be reviewed?

Answer 32

Every time budget and forecast updated.

Question 33

What are the different categories of contingency?

Answer 33

• Allocated contingency – likely costs allocated to specific items.
• Unallocated contingency- likely costs not specified – unlikely/can’t be accurately predicted.

Question 34

How do you manage contingency?

Answer 34

• Typically held and released at the end of a project

* Or can be deducted to account for any changes/variations during the works.

Question 35

What is final account?

Answer 35

Conclusion of Contract Sum – determination of final monies employer will pay contractor, including any changes throughout the duration of the works.

Question 36

Where can a QS get guidance on Final Accounts?

Answer 36

RICS Guidance Note – Final Account Procedures

Question 37

What would be included in a Final Account?

Answer 37

• Contract Works
• Provisional Sums
• Fixed Costs = Contract Sum
• Day works
• Contract Instructions
• Anticipated Variations
• Loss and Expense

Question 38

How should a Final Account be structured?

Answer 38

No firm rules about structure of final account.

Question 39

What is the Final Account procedure under JCT?

Answer 39

Depends on Contract Selection.

Question 40

What is the process for agreeing Final Account under JCT Standard Building Contract?

Answer 40

Within 6 months of Practical Completion – Contractor submits documents necessary for adjusting Contract Sum to Architect/CA or Quantity Surveyor (if so instructed).

Within 3 months after receipt Architect/CA or Quantity Surveyor (if so instructed);

• Ascertain loss and/or expense notified by Contractor and or not previous ascertained.
• Quantity Surveyor shall prepare statement showing all adjustments.
• Architect/CA shall issue contractor copies of Final Statement.

Question 41

What happens if Contractor fails to issue supporting information?

Answer 41

After expiry of 6 months, Architect/CA may give contractor one-month notice – otherwise Final Statement can be determined based on their own documentation.

Question 42

What is included in a Final Certificate?

Answer 42

• The Contract Sum, as so adjusted and;
• Sum of amounts already stated in Interim Certificates plus advance payments and any sums paid after issue of the latest interim payment certificate

Question 43

When is a Final Certificate issued under Standard Building Contract?

Answer 43

2-months from whichever of the following occurs last:

• End of Rectification Period.
• Certificate of Completion of Making Good.
• Date of Final Adjustment issue.

Due date Final Certificate or within 2 months of whichever occurs last.

Question 44

What is the process for agreeing Final Statement under JCT Intermediate Contract?

Answer 44

• Same as SBC
• 6 months – contractor submit documentation
• 3 months – Final Valuation (Adjusted Contract Sum)

Question 45

When is a Final Certificate issued under Intermediate Building Contract?

Answer 45

Within 28 days of whichever occurs last – Final Certificate to be issued:

• End of Rectification Period.
• Certificate of Completion of Making Good.
• Date of Statement / Adjusted Contract Sum issued to contractor.

Due date Final Certificate or within 28 days of whichever occurs last.

Question 46

What is the process for agreeing Final Statement under JCT Minor Works Contract?

Answer 46

Within 3 months of Practical Completion (if not stated otherwise) – Contractor submits documents

Architect/CA to determine final payment within 28 days of receipt.

Due date for Final Payment with be 14 days from due date of final payment.

Question 47

What is the process for agreeing Final Statement under JCT Design & Build Contract?

Answer 47

Within 3 months of Practical Completion – Final Statement to be submitted by Contractor.

Employer to agree final account [No reference to time period]

Contractor must also provide supporting documents as reasonably required.

Question 48

What if contractor does not submit within 3 months?

Answer 48

Employer can issue notice to contractor – if not submitted within 2 months, following expiary the employer can issue their own final statement.

Question 49

What is included under a Final Statement?

Answer 49

• The Contract Sum, as so adjusted and;
• Sum of amounts already paid by the Employer to the Contractor
• Final payment – difference between two sums (balance due to contractor or from contractor).

Question 50

What is the final payment date under Design and Build?

Answer 50

1-month from whichever event occurs last:
• End of Rectification Period.
• Notice of Making Good Defects.
• Final Statement.

Question 51

What if Final Account cannot be agreed?

Answer 51

Employer or Contractor can issue notice of dispute prior to due date of final payment.

JCT contract provides provisions to refer to adjudication, arbitration or legal proceedings.

Question 52

How are Final Accounts determined under NEC Contracts?

Answer 52

No reference to final accounts as assumed final account is adjusted as project proceeds on basis of compensation event procedure followed.

NEC Requirement to report Early Warning Notice for Risk.

Effectively rolling final account therefore, last valuation date of last valuation and payment timescale.