Costing

Question 1

What is a Final Account?

Answer 1

The conclusion of the contract sum and signifies the amout the employer will pay the contractor. Represents the settlement of all claims and triggers the CA to issue the final certificate

Includes:
- Loss & expense
- Other claims due

Question 2

What is a proposed structure of a final account?

Answer 2

Variable costs: Provisional Sums, approximate quantities, prime costs, day work allowances. Ensure agreed at FA

Variations: instructed changes

Contract instructions: ensuring all variations claimed by contractor have been considered by CA /A

Loss & Expense: recorded entitlements to L&E, usually formalising previously agreed

Fluctuations: depending on contractual provisions

Risk Allowances: Client owned, Contractor owned, Transparent risk (rarely used, contractors see as entitlement)

Question 3

How does the definition of Final Account differed under various contracts?

Answer 3

NEC
- Doesn’t refer to final account. Assumes adjusted as project proceeds
- More emphasis on timescales relating to agreed variations

JCT
- Defined under clause 4.12 (D&B) or 3.5 (SFC)
- Timings vary under the different forms

FIDIC
- International market - own timescales
- Clause 14 refers to payment and subclause 14.11 refers to final account

Question 4

Under a JCT SBC, when is a Final Account to be issued? How does this compare with NEC?

Answer 4

• 3 months after receipt of Contractor information
• Information from contractor should be received no later than 6 months after issue of practical completion certificate
• NEC - FA is an ongoing procedure so no final account period as such

Question 5

What are contra-charges?

Answer 5

Where employer recovers costs from the Contractor that the Contractor has caused the Employer to incur. Construction Act states must comply with pay less mechanisms of contracts

Question 6

What are the different types of defect?

Answer 6

Patent Defects - apparent with reasonable inspection, prior to final certificate. Where different contractor repairs, the cost is contra-charged

Latent Defects - claimed against during limitation period

Question 7

What information should be supplied by the Contractor to support Final Account preparation?

Answer 7

• Substantiation to variation figures
• Subcontractor quotes where applicable
• Daywork Sheets
• Loss & expense claims
• Build up to fluctuations

Question 8

What would you typically exclude from a Final Account?

Answer 8

• VAT
• Liquidated Damages
• Interest

Question 9

What would you do when agreeing Final Accounts?

Answer 9

• Review the contractor’s submitted information to ensure that any variations which have not already been agreed have been instructed and have been valued correctly. If I dispute any of the information submitted, I arrange a meeting with the contractor to discuss the issue and attempt to reach agreement.
• Only use the valuation rules as a last resort.
• Adjust for any agreed amounts of loss and expense due to the contractor.
• Ensure expenditure of all provisional sums has been instructed and include the agreed values after omitting the provisional sum.
• Ensure all approximate quantities included within the bills of quantities have been remeasured and agreed following instruction

Question 10

What would you advise the Employer if you were unable to reach agreement on the final account with the contractor?

Answer 10

• I would advise of the position of each party and the key differences
• The Employer may wish to discuss a deal in order to quickly agree the final account if they were a private sector client, butI would need to take formal instruction before negotiating anything outside of the contract terms
• If the client wasn’t willing or was unable to consider a deal, I would advise that mediation would be a sensible means of alternative dispute resolution in the first instance
• Adjudication would be the typical first formal step if mediation could not resolve the differences

Question 11

How long do you get to settle a final account under the forms of contract you are most familiar with?

Answer 11

JCT Standard Building Contract - The contractor has 6 months from the date of Practical Completion to submit all the necessary details for the QS to make the final adjustment to the contract sum, and the QS then has 3 months in which to make the final adjustment.

JCT Design and Build Contract - The contractor has 3 months from the date of Practical Completion to submit their Final Statement. If they do not provide it within this period the Employer notifies the contractor that he has a further 2 months in which to submit it or the Employer will submit his own Final Statement in lieu of that of the contractor.

Question 12

What is the Final Statement conclusive of under a D&B contract?

Answer 12

• All extensions of time due have been awarded
• The quality of materials and goods specified are to the satisfaction of the Employer
• All claims have been settled
• Unless challenged within 28 days of the due date for final payment the Final Statement is conclusive and cannot be challenged.

Question 13

What are the benefits of using bills of quantities?

Answer 13

• Provides a detailed breakdown of the works that allows for transparent pricing of each item
• Allows for straightforward tender evaluation on a like for like basis
• Clear and simple post-contract cost control
• Easy to value the works carried out to date
• A good source of cost data

Question 14

What are the disadvantages of using bills of quantities?

Answer 14

• Lengthy and expensive production process
• Only as good as the information provided

Question 15

What is the difference between a bill of quantities and a schedule of rates?

Answer 15

Schedule of rates sets out staff, labour and plant hire rates used for pricing cost reimbursable work.
Does not contain any quantities
Generally prepared by designers rather than cost consultants
Used for small projects or alteration works where nature is known but not the quantity

Question 16

What is the difference between a bill of quantities and a schedule of works?

Answer 16

Bills of quantities are a breakdown of each individual component of a building based on detailed design information, allowing them to be priced individually. QS produces
Schedule of works states an activity to be carried out which is priced holistically. Used more typically for maintenance such as alterations and new work. Designer produces and reviewed with QS

Question 17

What are the advantages of using Schedule of Works?

Answer 17

• Responsibility of quantities is transferred to Contractor (client attitude to risk is a driver in using)
• Can be used to inform works programme and progress on site
• Creates a rolling final account

Question 18

What are the disadvantages of using Schedule of Works?

Answer 18

• Require clarity in the detail in contract drawings, specification or schedule of works to avoid claims of lack of clarity
• Can be difficult to assess tender returns
• Possible for contractors to front load prices

Question 19

What are the different means by which bills of quantities can be measured under NRM2?

Answer 19

• Elemental breakdown structure
• Work section breakdown structure
• Work package breakdown structure i.e. groundworks, ironmongery

Question 20

What is a CSA?

Answer 20

• Pricing document prepared by EA on D&B contract
• Can be prepared in BoQ / SoW format but unlikely due to level of design. Can be used for negotiation of CS but doesn’t form part of contract
• Requirement for tenderers to return in the same format
• Referred to in Article 4 of JCT

Question 21

What are the advantages of using a CSA?

Answer 21

• Where items are missing from CSA but within ER’s, Contractor is obliged to complete at those costs
• Allows for comparison of tenders
• Used as a basis for assessing contractor progress and payments

Question 22

What are the disadvantages of using a CSA?

Answer 22

• Front loading can occur if all OH&P’s are applied to items early in construction eg. Substructure
• Valuation of design development, the contractor may reduce the design at a later stage to one that just meets the ER’s

Question 23

What types of pricing schedule are you aware of?

Answer 23

BoQ, Schedule of works, Schedule of Rates, CSA

Question 24

How do schedule of works differ from a CSA?

Answer 24

Schedule of works priced holistically, not with quantities. Priced as an item rather than quantities
CSA is priced in a way specified within the ER’s. Can take different forms depending on the level of information available

Question 25

What are provisional sums?

Answer 25

An allowance included for a specific element of works where it is not yet defined enough for accurate pricing

Question 26

What are prime costs?

Answer 26

Supply only rate or materials or goods where quality of those materials are unknown.

Exclude:

• Fixing / installation
• Ancillary & sundry materials
• Sub-contractors & MC’s Design fees, prelims & OH&Ps

Question 27

What are dayworks?

Answer 27

Method of valuing works based on time spent on labour, plant and materials.
Labour time charge rates for works carried out in productive (normal working hours) or non-productive (outside of normal working hours) as defined by preliminaries or schedule of day works
Used where quantity and specification is unknown.
A contingency allowance for any ad-hoc work throughout the contract

Question 28

What are the different type of provisional sums?

Answer 28

Defined - specification of the works is unknown but the extent of the works is sufficiently known for programme and management

Undefined - specification and extent is unknown at the date of contract. Contractor cannot make allowance for programming, planning and pricing preliminaries so may be entitled to EoT / additional payment. E.G. works required below an existing structure where ground conditions cannot be determined until structure is demolished

Question 29

What is the difference between S106 and CIL?

Answer 29

• CIL is newer power to local authorities allowing them to instruct developer payment towards community infrastructure. Spread the cost over more developers. CIL rates are transparent as they are in local authority charging schedules and so not negotiated
• S106 now used more for site regulation infrastructure. Subject to statutory testing since 2014

Question 30

What is the difference between S106 and S278?

Answer 30

• S278 are allowances for improvements / alterations to public highway as a condition of planning approval
• S106 now used more for site regulation infrastructure eg. The likes of contribution to affordable housing. Subject to statutory testing since 2014

Question 31

What is the difference between provisional sums and prime costs?

Answer 31

• Provisional sum is an allowance where insufficient information is available for costing.
• Prime cost related to suppliers or sub-contractors that are nominated by the client e.g. specialist equipment

Question 32

What difficulties can arise when tendering schedules are issued to contractors?

Answer 32

• May be returned in different formats
• This can result in different assumptions, exclusions and break downs of cost making it difficult to compare
• In my experience on Eddington, it was stated during the tender documents that items were required to be completed with a price and any non-compliance would be reviewed

Question 33

How is risk included in pricing documents?

Answer 33

NRM 2 (BoQ)
Separate item following prelims, prior to OH&P’s
Includes for programming and planning
Schedule of Construction Risk - set out each risk and cost of taking