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QS APC > C - Project finance (Control and Reporting) > Flashcards

C - Project finance (Control and Reporting) Flashcards

1
Q

What is the purpose of a Cost Report?

A

To report against budgeted values, acts as a working cost check on the project budget.

To inform the Client of the likely out turn cost for a construction project.

This can empower the Client to make changes / secure funding / mitigate forecasted costs.

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2
Q

What will you include in a cost report?

A
  • Budget
  • Orders placed to date
  • Orders yet to be placed
  • Variations - Anticipated / Pending / Agreed
  • Provisional Sums
  • Risk allowances
  • Contingency position
  • Anticipated Final Cost
  • Cash Flow Forecast

All broken down in a work breakdown structure agreed with the Client

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3
Q

What subsections would you expect to see in a CONSTRUCTION cost report for a lump sum contract?

A
  • Contract Sum
  • Adjustments to Provisional Sums
  • Adjustments for variations
  • Adjustments for fluctuations
  • Claims for loss and expense
  • Adjustment for risk allowance
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4
Q

What subsections would you expect to see in a PROJECT cost report for a lump sum contract?

A
  • Construction Costs
  • Professional Fees
  • Statutory fees and charges
  • Third party costs
  • Direct works costs
  • Land costs
  • Agency fees
  • Finance costs
  • Legal fees
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5
Q

Where can a QS find information of Cost Reporting?

A

RICS Guidance Note - Cost Reporting, 1st edition

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6
Q

What are the two types of cash flow forecast relevant in construction?

A

1) Cash Flow for a Company

2) Cash Flow for a construction project

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7
Q

How long will company cash flow be forecast?

A

A year

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8
Q

What is the value of cash flow forecast for a company?`

A
  • Resource and business planning

- Analysing the companies health

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9
Q

What is the purpose of a construction project cash flow?

A
  • To project when payments are due to ensure finances are in place
  • Construction cash flow will inform companies cash flow
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10
Q

What may be included in a Contractor’s cash flow?

A
  • Cash IN from Employer
  • Cash OUT to Sub-Contractors
  • Cash OUT to Suppliers
  • Cash OUT to Employees
  • Retention monies IN
  • Monies OUT to their Consultants
  • Tax payment
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11
Q

Why is Construction cash flow useful for a PQS?

A

To monitor progress on site

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12
Q

How would you forecast cash flow?

A

1) Need to know construction value and programme

2) Use a cash flow computer programme

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13
Q

If a cash flow computer programme was not available, how would you create a cash flow?

A

Split the works into packages as shown on the contract programme
Apply individual s-curves to each package

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14
Q

What is an S-Curve?

A

Standard Curve

A generic cash flow forecast in the shape of an ‘S’ typical of most projects.

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15
Q

Why would you ask for the Contractor to produce their own cash flow based on the programme?

A

More accurate than an S-Curve, as it will account for anomalies relevant to the project, where as an S-Curve is generic.

It is important to watch out for front-loading

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16
Q

What is front-loading?

A

Where the Contractor forecasts costs at the start of the project to be greater than they actually will be, in order to coerce the PQS into thinking higher payments are due earlier.

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17
Q

What are the risks of over-payment?

A
  • Improves the contractor’s cash flow, but leaves the Client at risks as they may be paying more than has actually been carried out.
  • If the Contractor stops work / goes into liquidation, the Employer may lose out as they have paid for more than they received.
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18
Q

What is the most accurate form of measurement of works completed on site to date

A

By attending site and carrying out an assessment.

NOT JUDGING BY CASH FLOW FORECAST

19
Q

What should you look for in a company cash flow of a tendering contractor?

A
  • Overdraft size
  • How often they use their overdraft
  • If their overdraft was removed, what effect would it have?
  • Is it bringing in as much money as it is spending?
20
Q

What stakeholders may be interested in a companies cash flow?

A
  • Funders e.g. banks, local authorities, guarantors
  • Shareholders
  • Employers
21
Q

What are some of the liabilities that a consultancy may have?

A
  • Staff wages
  • Premises
  • Training
  • Equipment
22
Q

What are the four types of payment mechanism in construction contracts and which are the most / least accurate?

A
  • Stage payments (Highest accuracy of cash flow forecast, but lowest accuracy of value of work done to date)
  • Milestone payments
  • Payment against an activity schedule
  • Valuation of work done to date on site (lowest accuracy of cash flow forecast, but highest accuracy of value of work done to date)
23
Q

What is a variation?

A

Alterations or modifications to the design, quality or quantity of the contract works, to site access or working conditions

24
Q

Why might a variation arise?

A

1) Change to specification etc
2) Addition / Omission / Substitution of any work
3) Discrepancy between contract documents
4) Discrepancy with statutory requirements
5) Errors or omissions
6) Deficiency in Employer’s Requirements
7) Limitations to site access / working hours
8) The execution or completion of the work in any specific order
9) Opening up work for inspection

25
Q

How are variations directed?

A

Contract specific

Typically should be in writing

26
Q

How are variations priced?

A

As directed in the Contract.

AS4000

a) Prior agreement
b) Applicable rates or prices in the Contract
c) Rates or prices in a priced BoQ, SoR, even though not Contract Documents, to the extent that it is reasonable to use them
d) the net cost to the Contractor plus the amount or percentage stated in Item 27A for all profit, overheads, preliminaries and any other mark-up

27
Q

What is a Star Rate?

A

A rate that is based on the BoQ, but includes a fair allowance

28
Q

What are ‘fair rates and prices’?

A

A market rate, or price based on actual costs, or in line with current cost data

29
Q

What is Day Works?

A

The prime (actual) cost of all materials, labour and plant used.

30
Q

What information is necessary to assess day works?

A

1) Day works sheets showing time spent on each activity
2) Names of the workmen
3) Plant and Materials used

31
Q

If you and the Contractor’s QS cannot agree on something, how should you resolve it?

A
  • Discuss with your line manager and Client to try seek a resolution with the Contractor
  • Your valuation stands for the purposes of payment
  • The Contractor could take the dispute to adjudication if necessary but should try to resolve it
32
Q

What is ‘Quantum Meruit’?

A

“WHAT HE DESERVES”

Fair and reasonable

33
Q

What is a risk?

A

A potential event that, if it occurs, may cause the project to fail to meet one or more of its objectives

34
Q

What is the difference between a risk and an issue?

A

An issue is something that is happening now that is, or will soon jeopardise the delivery of the project objectives.

A risk may turn into an issue.
When the probability of a risk reaches 100%, it is an issue.

An issue cannot turn into a risk as it is already happening.

35
Q

What are the different types of risk?

A
  • Project risks
  • Business risks
  • Environmental risks
  • External environment risks (Force Majeure, strikes etc)
36
Q

What does risk management seek to do?

A

1) Identify risks
2) Assess probability and impact of each risk
3) Identify actions to avoid, reduce, or mitigate each risk
4) Implement and monitor actions that are cost effective solutions to ensure project objectives are achieved
5) Provide feedback on the above for future.

37
Q

Risk management can be divided into two phases. What are they?

A

Risk Analysis - Identification and Assessment

Risk Management - Mitigation and Control

38
Q

Where can a QS learn more about Cash Flow?

A

RICS Guidance Note - Cash Flow Forecasting, 1st edition

39
Q

What is a Final Account?

A

A statement provided by the QS which details the adjustments to the Contract Sum and therefore the total amount that the Client is liable to pay, together with the basis on which it was calculated.

Signifies the agreed value that the Client will pay the Contractor.

40
Q

What is a rolling final account?

A

Where all instructions and cost effects are agreed up to the point of the latest financial report.

It would represent the final account if works were completed with no further changes.

41
Q

What is change control?

A

The administrative process that implements the contract mechanism for instructing change.

Must adhere to contract requirements for notification and approval of change.

42
Q

How would you structure a final account?

A

No firm format, but an example would be:

1) Contract Sum
2) Variable Cost Adjustments (Provisional Sums, PC Sums, day work allowances)
3) Variations / Contract Instructions
4) Loss & Expense
5) Fluctuations

43
Q

At final account, must all variations be instructed?

A

All changes should have a contract instruction, but it is not uncommon for some not to have received a formal instruction by Final Account.

Good practice to notify the Superintendent to ensure an instruction is issued.

44
Q

When would you release / hand back contingency on a project?

A

I would review contingency levels as the project progresses, reducing outstanding contingency as risks are mitigated or reduced.

Contingency should be released entirely once all project risks have been resolved.

QS APC (18 decks)

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