Financial Control / Cost Reporting Flashcards
What are the different types of contingency?
Design - % if the concept budget allowed for design changes
Construction - % of the concept budget allowed for unforeseen changes during construction
Project – Design Contingency + Construction Contingency
Why would a cashflow be below the target cash flow?
Site conditions Adverse weather Resequencing of works Materials being stored off site (and not claimed for) Project behind programme Materials not being delivered on time Cashflow not accurate
What is a provisional sum?
Money included in the contract for work that cannot be fully defined at time of tender or work that is not sure if required (i.e. hazardous excavation)
What is the difference between a defined and undefined provisional sum?
Defined – A provisional sum of which an allowance is carried for programme and prelims
Undefined – No allowance for programme or prelims is allowed for within the contract sum
What is a final account?
A fair valuation of all works undertaken by the contractor
Includes all variations, provisional sums and loss and expenses
What are risks on construction projects?
External risks – economic, legal, political
Procurement risks
Choice of contract
Financial risks – exchange rate, funding
Site risks – occupied site, planning difficulties, unforeseen problems – ground conditions
Client risks – inappropriate consultant team, poor brief / coordination, incomplete design
Construction and delivery risks – weather, constructability, H&S
What are the risks in NRM?
Employers change risks
Employers other risks
Construction risks
Design development risks
What is the purpose of a Cost Report?
Monitor and manage cost throughout the project
Inform client on actual project cost against the budget
What would you include in a Cost Report?
Executive Summary Cost Summary Report Basis Contingency / risk Analysis Cash Flow Forecast Final account - VIP Variations to date Pending variations
What can a cash flow show?
If a project is running ahead / behind of programme
Project is failing
Contractors are experiencing problems / possible liquidation
The cost report compares actual cost against the budget, what is the budget?
Cost of work under the construction contract
Cost of work not under the construction contract (client advised) – contingency
NRM defines it as the PTE
How do you agree a variation?
Use a contract rate / similar BOQ item
Use a star rate – based on experience of what is far and reasonable
Use dayworks – Prime Cost + Labour + Plant + % addition
Should VAT be included within a cost report and why?
No, I am not qualified to advise on the VAT included on various items
What are the different payment mechanisms?
Stage payment
Milestone payments
Payment against activity schedule
Valuation of works done on site to date
How do the different payment mechanisms effect cashflow forecasting?
Level of predictability varies according to the payment mechanism
Stage payments – high predictability, low accuracy of work done
Milestone payments – high predictability, low accuracy of work done
Payment against activity schedule – okay predictability, okay accuracy of work done
Valuation of works done on site to date – Lowest predictability, high accuracy
What is a cashflow used for?
Monitor incoming and outgoing of cash on the construction project
Inform the client on when payments are required
Inform client / lender of when to release funds
Obtaining loans and bank monitoring
Contractor progress monitoring
Managing cash within a business
Forecasting business performance
Stakeholder management
How would you agree a Post Contract variation?
Variations are modifications to the design, quantity or quality of the work.
- Use a contract rate if there is a bill item of a similar nature
- Use a star rate based on experience of what is fair and reasonable
- Use dayworks – Prime Cost + Labour + Plant + % Additions
What law refers to the right to interim, period or stage payments?
Construction Act 1996 and 2009
What does the construction act require?
The right to payment
Contractors provide a mechanism to determine when payment becomes due and when
Requires the payer gives the payee early notice of the amount they intend to pay them
The payee may suspend performance where a sum due is not paid in full
Banning paid when paid clauses
Gives a statutory right to adjudication
What are the different ways of producing a cashflow forecast?
Pre-contract – S-curve formula – AECOM produce their own
Post-contract – use a contractor’s programme and CSA + seek input from the contractor
If a contractor’s payment application is lower than forecast cashflow what may this mean?
Poor site conditions Adverse weather Re-sequencing of works Materials stored off site and not claimed for Slower progress than expected Late deliveries to site Inaccurate forecast
If a contractor’s payment application is higher than forecast cashflow what may this mean?
Front loading Ahead of programme Re-sequencing of works Materials on site too early Materials off-site included in forecast Variations Distressed contractor – financial trouble
Can procurement route affect cashflow forecast?
Yes
Traditional separates construction cost from design fees and risk
D&B includes design fees and risk within contract sum
Why may a contractor re-sequence work?
Recover time due to slow progress Late procurement of sub-contractors Accommodate employer variations Site conditions Adverse weather
How are provisional sums dealt with in final account?
Provisional sum is included in the contract and then deducted, and the actual value added back in as a variation
What would you include in a final account?
Contract sum Variations Provisional sums Loss and expense Statement of final account
How do JCT contracts define change?
Alteration, modification to the design, quality or quantity of the works
Can a contractor refuse to provide a Schedule 2 quotation?
Yes, they must notify the EA within a defined period
Variation will be valued by the QS instead
Can a contractor claim for the cost of preparing a schedule 2 quotation?
Yes, a fair and reasonable amount is due for the time even of not accepted
Under JCT what constitutes a change of character (therefore a variation)?
Change in material
Change in fixing method
Change in background of other work
Under JCT what may constitute a change of conditions (therefore a variation)?
Work carried out to a different depth
Seasonal variation of work compared to agreed programme
Work in completed areas (additional protection)
attendances
What must you consider when valuing variations?
Effects on other work
If costs are being claimed within L&E claims that should reasonably be claimed as variations
Programme
OH&P
What should be included within a change control procedure?
Reasons for change Who requested the change Consequences of the change (time, cost, quality) Proposals for mitigation Risks associated with the change Alternatives Deadline for instruction
How does Cost Planning aid financial control?
Breaks down the total project cost into works elements which can be used to create the package split
It gives a project budget
Why is change control important?
Gives a method of highlighting potential changes when first recognised
Gives a format for assessing programme and cost implications so the client can make informed decisions on whether they want them instructed
What was required to validate the contractor’s loss and expense claim?
L&E breakdown
Narrative
Supporting evidence / invoices
Delay notice / EOT request
Kier assessment of sub-contractors EOT claim
Evidence of Kier Ascertainment of s/c L&E
S/C Payment certificate and proof of payment
What must be proved for a L&E to be granted?
That on a balance of probabilities, if the delay had not occurred, it would have secured work which would have resulted in a profit / contribution to head office overheads
How can a contractor prove their L&E?
Emden Formula – calculates the actual head office OH&P as a percentage
(OH&P/100) x (CSA x (delay period / contract period)) (actual OH&P)
Hudson Formula – calculates the tender head office OH&P as a percentage
(OH&P/100) x (CSA x (delay period / contract period)) (OH&P submitted in the tender)
What have you advised a client are the limitations of your cashflow?
It is only as accurate as the data it is based on
Changes in legislation may affect it
Any assumptions or exclusions that I may have made
What is the Emden formula
calculates the actual head office OH&P as a percentage
OH&P/100) x (CSA x (delay period / contract period)) (actual OH&P
What is the Hudson formula
Hudson Formula – calculates the tender head office OH&P as a percentage
(OH&P/100) x (CSA x (delay period / contract period)) (OH&P submitted in the tender)
