Commercial Management of Construction

Question 1

What is the purpose of the CVR?

Answer 1

• Purpose of the CVR is to compare value and cost in order to determine profitability, as well as monitoring costs throughout the project lifecycle against budgets.

Question 2

How was your package mitigating COVID-19?

Answer 2

• Paused operations on site until safe measures were put in place
• Consulted the supply chain in order to source ways in order to operate safely
• Put workers into categories according to their health prior arriving to site
• Traveling through van share was not permitted
• Limited use of public transport
• Any person returning from overseas is required to self-isolate for 10 days
• Face coverings are now required whilst moving around inside all offices shared spaces and canteens.
• Temperature testing
• Homeworking undertake DSE (Display Screen Equipment) assessment
• Clear desk policy

Question 3

What other contractual issues did you advise about?

Answer 3

• Forecasts overspend

* Sewer lining design, if we were to undertake procurement there would be delays

Question 4

Why would it lead to delays in achieving a key date?

Answer 4

• The subcontractor would be rejected and wouldn’t be able to commence on site as per the programme

Question 5

What are the general rules for procuring an affiliate sub-subcontractor?

Answer 5

• There needs to be an arm’s length commercial arrangement (should be treating the same way you would treat a company that you are not related to)
• There are appropriate systems and procedures in place to operate and manage the subcontract at arm’s length i.e different cost systems, different QSs
• Fee and price are of a fair and competitive market rate.
• Was not procured in a fair and transparent competition in accordance with the works information.

Question 6

What is an affiliate sub-subcontractor?

Answer 6

• When a subcontractor is owned by parent company
Difference between subsidiary and affiliate companies is that Subsidiary are owned by more than 50%, affiliate is 20%-50%.

Question 7

What is a capital allowance?

Answer 7

• Company getting tax relief on tangible capital expenditure by allowing it to be expensed against its annual pre-tax income

Question 8

What is a purchase order?

Answer 8

• It is a commercial document issued by a buyer to a seller

* Used for materials

Question 9

What was the welfare requirements quotation about? What did you include?

Answer 9

• In my work package it was a project managers assumption that welfare would be provided by a different package.
• PM send a CI, under clause 14.3, for my package to provide the welfare and provide a quotation.
• Quotation included:
o People staff
o Subcontractor costs
o Charges i.e., energy bills
o Equipment cost like welfare units
o Risk i.e., damage, additional cost for off hiring, fluctuation fuel and energy costs

Question 10

How do you negotiate compensation events?

Answer 10

• I would send over my comments and my assessment

* If there are not accepted, I would set up a meeting to go through it

Question 11

How do you draft compensation events?

Answer 11

• I understand what the event after discussions with the site team. I would write a narrative alongside the delivery team, where , if applicable , I would use pictures , drawings and specifications to make clear what the compensation event is about.
• I would refer to the contract and see which the most applicable clause to use.

Question 12

What is an Accrual?

Answer 12

• It is the difference between the total liability and the amount already paid to the contractor.

Question 13

What are the liabilities?

Answer 13

• Total cumulative amount that is due to a subcontractor for the works up to the period end date, if no further work was to be taken place either on or off site.

Question 14

How do you measure SPI? What was if in your last forecasting and reporting

Answer 14

• Schedule performance index
• how close the project is to being completed compared to the schedule.
• Earned value / Planned Value
• Higher than 1 is indication that progressing well
• Less than 1 is behind schedule
• Project one was 0.9

Question 15

How do you measure CPI? What was it if in your last forecasting and reporting?

Answer 15

• Cost Performance Indicators
• It measures cost efficiency and financial effectiveness by comparing the total earned value vs how much was the actual cost.
• If for example, the value is above 1 that means that the project is performing well budget-wise.
• 1.13

Question 16

How do you measure profitability through the CVR?

Answer 16

• I compare cost vs Value, if the costs are lower than value then that means the project is profitable

Question 17

What is an example of preliminaries, plant, labour, materials, subcontractor costs, overheads, and risk?

Answer 17

• Preliminaries - staff
• Plant - excavator
• Labour – on site labour that excavate etc
• Materials – concrete, mesh
• subcontractor costs – utilities subcontractor
• overheads – direct fee
• risk – inefficiency of the subcontractor

Question 18

What do you mean supply chain management?

Answer 18

•	Procurement of subcontractor such as 
  o	Commercial contractual negotiation 
  o	Production of contract documents
  o	Returned price comparisons
•	Contract administration
  o	Record keeping
  o	Instructions
  o	Assessment of work done or delivered
  o	Administration and management of change
  o	Certification
  o	Payment
•	Final accounting
  o	Preparation of final account documentation
  o	Negotiation, dispute resolution
  o	Agreement of final account

Question 19

What does a commercial manager do?

Answer 19

• Commercial manager is responsible for overseeing and managing the finances of a project as it progresses.
o CM tend to resolve contractual and commercial problems
o Overseeing KPIS
o Assessing risk
o Offering financial direction and instruction to the project team

Question 20

What is value engineering?

Answer 20

• It is a process designed to maximise value through either improved design, enhanced function, reduced cost, reduced risk or reduced whole life cost of the asset being constructed.
• For example, there might be a material that costs more however it might cost less to install in terms of prelims and design costs.

Question 21

From Commercial management of construction GN, what other tools does the commercial manager use to deliver a successful project?

Answer 21

• Forecasting and reporting, accurate forecasting and reporting can identify issuing early
• Estimating – accurate price submitted to the client. Having a detailed BoQ detailing exclusions and inclusions
• Value engineering
• Valuing work – for example in an option A lump sum contract you would measure how many activities are complete and compare what the actual cost of those activities is. Measure KPIS
• Cashflow analysis
• Commercial decisions – in response to risk and opportunities identified and the related contingency amounts allowed in estimates budgets forecasted. CM needs to consider whole life cycle on that just happened.