Commercial Management of Construction Works (L3)

Question 1

How do you proactively control costs during construction?

Answer 1

• Operate robust change control procedures
• Regular dialogue with design team to monitor issues
• Operate a rigorous payment process
• Accurate cash flow forecasting
• Regular cost reporting
• Manage expenditure of Prov Sums
• Proactive risk and contingency management
• Agree variations as they arise

Question 2

What is a purchase order (PO)?

Answer 2

A commercial document issued by the buyer to the seller. Sending a PO to a supplier constitutes a legal offer to buy the product/service. Acceptance of a PO usually forms a contract between the parties.

Question 3

What is the purpose of change control?

Answer 3

To consult all relevant parties
To properly assess the time, cost and quality impact
Once agreed, a record is formed to capture

Question 4

What is cost/value reconciliation?

Answer 4

The profit and loss statement for the project, where the organisation calculates the EFC and the EFV on a project, with the difference being the amount of profit being forecast on the project - known as the EFM.

Question 5

What is earned value analysis (EVA)?

Answer 5

A method of measuring a project’s progress at any given point in time, forecasting its completion date and final cost, and analysing variances which arise.

It compares the planned amount of work with what has actually been complete, to determine if the cost and work accomplished are progressing as per the programme.

Question 6

How can you protect your client from contractor insolvency?

Answer 6

• Recommend the use of standard forms of contract, with a fair and equitable risk share
• Consider Performance Bonds / PCG’s
• Conduct a credit check (Dun & Bradsheet reports)
• Obtain references
• Obtain collateral warranties from supply chain
• Hold retention on contractor payments
• Ensure accurate valuations of work

Question 7

What steps would you take in the event of contractor insolvency?

Answer 7

• Inform all parties involved and secure the site
• Inform the bank / insurance company
• Take ownership of vested material
• Schedule all plant and materials
• Consider stopping payments, seek legal advice
• Value completed works and any defects
• Monitor loss and expense incurred
• Begin retendering the project

Question 8

What is value engineering?

Answer 8

A method used to eliminate unnecessary costs and or increase the value of a specification or product.

Question 9

What is CAPEX?

Answer 9

Capital expenditure
Funds used by a company to acquire or upgrade physical assets such as property or equipment

Question 10

What is OPEX?

Answer 10

Operational (or revenue) expenditure
Expenditure incurred whilst performing normal business operations

Question 11

Why do businesses split CAPEX and OPEX?

Answer 11

They are treated differently for accounting and tax purposes, due to capital allowances

Question 12

What are capital allowances?

Answer 12

Capital allowances is the practice of allowing tax payers to get tax relief on capital expenditure by allowing it to be deducted against their annual taxable income.

Question 13

What is the reason for capital allowances?

Answer 13

Used by the Government to incentivise businesses to invest in assets

Question 14

Is there any legislation relating to capital allowances?

Answer 14

The Capital Allowances Act 2001

Question 15

What is a public-private partnership?

Answer 15

A long term contract between a private and public party for providing a public asset or service, whereby the private party bears the risk and responsibility

Question 16

Can you explain the build-operate transfer model?

Answer 16

A private party has the responsibility to raise the financing for a project and is then entitled to retain all revenues for a certain period of time. The facility is then transferred to the public at the end of the concession agreement.

Question 17

Can you explain the build-own-operate-transfer model?

Answer 17

Government entity grants a private party the right to finance, design, construct, own and operate a project for a certain number of years. The facility is then transferred to the public at the end of the concession agreement.

Question 18

Can you explain the build-own-operate model please?

Answer 18

The private party owns the project and does not have to transfer it to the government entity at the end of the term.

Question 19

Can you explain the build-lease-transfer model?

Answer 19

Private entity builds a complete project and leases it to the government. After the expiration of the leasing period, ownership of the asset and operational responsibility transfers to the government.