DSJ - SoE - Contract Admin Flashcards
With regards to development monitoring, what types of project structure are there? What was the project structure in Shrewsbury?
Usually either:
Involve the lender providing debt through a loan agreement directly to a company or institution or individual who will then pay project costs directly, e.g. building contract costs and professional team fees, among other things.
The lender may provide debt through a loan agreement to a development company or similar special purpose vehicle (SPV) set up to deliver the development and capture the associated liability, thus isolating the SPV from unlimited liability. The SPV will contract a builder to undertake the works and will appoint the professional team. - less risk?
What is are SPVs? Why would they be used?
Special Purpose Vehicles (SPVs) are legal entities designed to prevent adverse risk being transferred to or from the owners of the SPV, the operations of which are limited to the acquisition and financing of specific property assets.
Most commonly, the SPV is in the form of a subsidiary company with an asset, liability and legal status that ensures independence and makes the SPVs obligations secure even if the parent company were to become insolvent. Conversely a parent company can use an SPV to finance a large project without putting the entire business at risk.
SPVs can also be used for partnering and joint ventures with the shareholding reflecting the participants contributions. It can also allow investors opportunities which would not otherwise exist, creating a new source of revenue generation for the sponsoring firm.
What is Senior Debt?
In finance, senior debt, frequently issued in the form of senior notes or referred to as senior loans, is debt that takes priority over other unsecured or otherwise more “junior” debt owed by the issuer. Senior debt has greater seniority in the issuer’s capital structure than subordinated debt.
What are the different Controls and limitations which banks providing senior debt may impose?
Loan to value (LTV) - establishes a limit to the debt facility by a percentage of the value of the completed development. For example, the bank may require that the debt facility be less than 55% of the gross development value.
Loan to cost (LTC) - establishes a limit to the debt facility based on the total estimated development costs as agreed between the lender and the borrower. What is included in the total costs may vary project to project. The LTC may, for example, require that the debt facility be less than 60% of the agreed total costs.
Peak spend limits - for example, on a private house building project where construction spend is offset by revenue from unit sales. A cash limit of peak net spend may be used against what may be drawn at any time, i.e. maximum amount does not exceed the ‘commitment’. The IMS may be required to track net spend against such limits month to month.
What are the stages of an relevant to IMS?
The role of the IMS has various key stages, including:
Appointment Technical Due Diligence Financial Close Construction Completion Exit
What was your involvement in Shrewsbury?
During Stage 2 - Technical Due Diligence
Review all the technical risks of the project (following the structure and focus of the agreed scope of service), with a view to potentially signing off the project often as a condition precedent to the lender’s debt facility agreement.
• establish lines of authority and communication routes
• issue to the borrower a required list of information
(tailored to the scope of service)
• meet the borrower and chair a kick-off meeting
• visit site and consider the development in context
• prepare an interim report with preliminary observations
• review, comment on and cross-reference incoming information, raising queries as required
• liaise with the borrower on any actual or perceived risks; and/or
• liaise with other lender advisers, e.g. legal, financial, valuation and/or insurance advisors.
Stage 3 - Prepared and initial report summarising findings from above.
What were the main risks that were identified?
The costs had not been prepared by a chartered quantity surveyor.
Planning status drawings no pre-tender estimate based on detailed design.
Not priced under an agreed building contract.
Design concept and materials seemed reasonable.
Space around site limited
Economic conditions - COVID PANDEMIC
Construction management procurement route.
Did you assess proposed costs of the project? If so, how?
Benchmarking the construction costs, whereby the estimated construction costs are expressed as a £/m2 rate and compared to appropriate historical data from similar projects, which may be taken from in-house data that the IMS may have or external industry data sources such as the Building Cost Information Service (BCIS).
It is important to adjust the project figures to ensure a like for like comparison with the benchmark data considering, for example:
• base date, e.g. using the BCIS Tender Price Index • location, e.g. by reference to BCIS Location
Adjustment Factors
• ground conditions – informed by the various site investigations; and
• external works – depending on the site wide requirements.
When benchmarking, what key figures did you focus on?
The level of cost certainty should carefully consider where costs are not fixed; the potential risk of cost increases of such project elements should be identified. These may include: • budgeted allowances • provisional sums • prime cost sums; or • general contingency. It is also common to consider the sufficiency of costs associated with, for example: • enabling works • utilities connections; and • miscellaneous site preparation.
What are the risks associated with the construction management procurement route?
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When liaising with the borrower, how did you advise on how risks could be managed?
Change in procurement route - e.g. D&B
Obtain further details with chosen Contract documents;
Are there any means of protecting against non-performance of contractors? e.g. Performance bonds, Advance Payment Bonds
LADs?? Has an accurate pre-estimate of loss been calculated. How might a delay with one package affect the others.
Who will be manage the works (Construction Manager) and what is their experience. How can they ensure delivery on budget and time.
What advice did you give to the bank about potential risks?
Advised on the risks associated with the contractual structure of the project.
Design and Build would be a more preferable approach.
Assessed price on a £/m2 basis - compared to appropriate historical data from similar projects and external industry data sources such as the Building Cost Information Service (BCIS).
What is Construction Management?
Procurement route whereby designers design, trade contractors detail and deliver their packages, and where the construction manager manages the process, leaving the client to lead and accept the risk on a project for which they are ultimately responsible.
What are the risks associated with Construction Management?
The central role of the construction manager in managing the project and in providing administrative support to the employer.
No single point of responsibility related to the delivery of the project.
The greater role of trade contractors in the completion of their design work and co-ordination of their work with other packages.
The direct relationship between the client, consultants and trade contractors.
The importance of coordination and management at interfaces between different trade packages.
What does JCT-CM include?
JCT-CM comprises a range of different documents – Construction Management Appointment (CM/A), and separate Construction Management Trade Contracts (CM/TC).
