Commercial Management (of construction works) Flashcards
How would manage/monitor overall project costs?
- Cashflow forecasting
- Operate change control processes
- Regular cost reporting
- Manage expenditure of provisional sums
What is “Cost Value Reconciliation”?
- CVRs are carried to monitor expenditure against budgets on construction projects.
- Value (Revenue) - Cost = Profit (Reconciliation)
How would go about undertaking financial due diligence of a contractor?
- Credit check at PQQ or tender stage - identify % risk of going insolvent.
- Request company financial reports.
- Consider the structure of the company - can PCG be obtained?
How can we proactively control costs during construction for a client?
- Robust change control procedures
- Regular attendance on site to keep track of the works
- Regular dialogue with design team and contractor to keep informed of progress and issues
- Risk management meetings
- Rigorous payment process - interim valuations - payment certificate
- Hold retention on payments
- Use of cashflows to forecast future payments
What is a “Purchase Order”?
- a PO is a commercial document issued to a buyer by a seller
- Client arranges for the PO to be raised
- Sending a PO to a supplier constitutes a legal offer to buy a product / service
- Acceptance of a purchase order by a seller usually forms a contract between the buyer and the seller, so no contract may exist until the purchase order is accepted.
What are “Capital Allowances”?
Capital allowances is the practice of allowing a company to get tax relief on tangible capital expenditure by allowing it to be expensed against its annual pre-tax income.
What is the reason for capital allowances?
Capital allowances are used by the government as an investment incentive to encourage business to spend money on assets that are desirable for policy reasons.
Is there any legislation related to capital allowances?
Capital Allowances Act 2001 (CAA 2001).
What is “Earned Value Analysis”?
In its most simple terms, EVA can be seen as an extension to the CVR, as it brings the project programme into the equation, linking cost, value and time. The additional dimension of time is used to
assist in forecasting and to provide a cross-reference to
operations as a further indicator of performance and
delivery output.
What is a “Cost to Complete” exercise?
A Cost-To-Complete estimate allows us to account for performance, progress, revenue and costs to-date on the project, and forecast the remaining revenue, budget and profitability for the rest of the project.
What are “Accruals”?
Accruals are made in the financial accounting system of a contracting organization to represent the difference between the total liability assessed as owed to a
subcontractor and the amount already paid to that
subcontractor.
What are the two key areas that should be considered in the UK in regard to subcontract payment timescales?
- The Construction Industry Scheme (CIS), under which
contractors must deduct accrued amounts for tax and
National Insurance from a subcontractor’s payments
and pass it to HMRC. - The HGCRA. Among many other matters, this piece of
legislation sets out the key documents, stages and
timescales that define the payment for works under a construction contract in the UK.
What is CAPEX?
- “Capital Expenditure”
- They are funds used by a company to acquire or upgrade physical assets such as property or equipment
What is OPEX?
- “Operational Expenditure
- Expenditure a business incurs performing its normal business operations
Businesses typically split expenditure into capital and revenue - why?
You can claim capital allowances on qualifying capital expenditure but not on revenue expenditure. Capital expenditure goes onto your balance sheet whereas revenue goes onto the profit and loss account.
