Level 1 Questions Flashcards
Where could you find guidance on pre-construction cost reporting?
New Rules of Measurement
What duties should a QS provide a client in regards to post-contract cost control?
- report all known construction costs
- report all anticipated construction costs
- report on required risk allowances for construction costs
- provide reports on a regular and frequent basis
What is the purpose of cost reporting?
To inform the client of the likely outturn cost of a construction project
The forecast outturn costs may be expressed as a variance against a budget amount, or expressed in absolute terms.
What is good project financial control?
A proactive approach to managing the financials of a project.
• Always accurately track costs and changes to costs
• Communicate the changes effectively and as and when required
• Keep a rolling final account
• Good cost reports documents to keep the client informed
• Good relationship with contractor
How do you ensure effective control of costs on a project?
- Proactive risk and contingency management
- Implementing a robust change control process
- Management of provisional sums within budget
- Regular cost reporting which is forward looking
- Rolling final account
What is the role of the QS in terms of controlling costs?
- Actively manage project costs
- Report to project team on costs, cost changes and potential cost changes (EWNs)
- Both pre and post-contract
What financial control documents do you produce at pre-contract stages?
- Cost estimates/ feasibility estimates
- Cost plans
- Cost Reconciliation (detailing the reasons for cost changes between cost plans)
- Value engineering exercises
- Early warning trackers
- Benchmarking exercises
What financial control documents do you produce at post-contract stages?
- Cost Reports
- Valuation assessments
- Early warning / risk trackers
- Change control trackers
What is a cost report?
A document produced periodically that sets out the financial position of a project at that current point. A cost report will ultimately describe the starting position (the contract sum), the current position and the estimated final account value.
What is the purpose of a cost report?
• Inform client of the likely out-turn cost of the
construction project
• Give Client an understanding of any savings or
additional monies required
• Report contract progress
• Basis of final account
What does a cost report record?
- Contract sum
- Current position & changes to contract
- Anticipated final account
- Project progress
- Expenditure of risk allowances
What types of cost report can you get?
- Construction cost report
- Project cost report
- Programme cost report
- Detailed cost report
What is a construction cost report?
Captures historic and forecast costs incurred under a construction contract
What is a project cost report?
Captures historic and forecast costs across a construction project. May include construction costs, professional fees, statutory fees, third party costs, Client direct costs, land costs, agency costs, finance costs, legal fees
What is a programme cost report?
Captures historic and forecast costs across a programme of construction works. May include (Programme management office costs, project costs)
What is a detailed cost report?
o Elemental Cost Report - reporting on an elemental level, can assist in VM/VE as budgets established elementally
o Building cost report - report for individual buildings across a project of multiple buildings
o Budget holder cost report - reports prepared for
the elements of the construction works under the control of individual budget holders (e.g. designers)
o Stakeholder cost report - cost reports prepared for
individual stakeholders in projects with multiple
stakeholders.
What are the components of a cost report?
- Executive summary
- Variations (instructions and agreed)
- Variations (instructions but not agreed)
- Anticipated instructions
- Early Warnings
- Unapproved changes
- Cashflow
- Contingency details
- Expenditure against provisional sums
How often should cost reports be issued?
Usually on a monthly basis but this should be agreed with the Client on their requirements
If a client says they aren’t interested in cost reports, what would you do?
- Speak with client, reiterate benefits
- Propose an alternative such as a one pager cost report
- If still no, I would still produce a cost report on a monthly basis as part of my due diligence and to update the client as to the project financials / progress
If there is no change during the reporting period, would you still need to produce a cost report?
- Yes, good practice to always produce an up to date cost report
- Might be some new early warnings which have a potential cost implication
- Will need to update cash flow with latest interim valuation
How would you deal with a situation where the cost report indicates the budget will be exceeded?
- Inform the client and outline reasons why
- Set up meeting to discuss with team in greater detail to plan a way to deal with the overspend
- Before meeting think of initial ideas to deal with the overspend (areas for value engineering)
How did you approach completing your cost report?
Discussed Client’s internal reporting procedures to ensure cost report met their requirements
Before issuing cost report, it was presented and discussed with the Client
What should a Cost Report generally exclude?
- VAT (Construction Cost Report)
- Capital Allowances
- Direct Works
- Works undertaken by statutory undertakers (Construction Cost Report)
- Planning costs
What can the Client do if the cost report is showing the project out-turn cost over budget?
- Omit works
- Reduce scale of works
- Reduce specification of works
- Increase budget
How might you tailor a cost report?
- Understand client’s requirements
- Expand on certain sections or simplify others
- One pager
How would you report on costs for different procurement routes?
For a traditional or D&B job you would report on the costs with one main contractor whereas CM you would need to report on the various trade packages.
Why not use interim valuations to review the current financial position?
- Valuation only shows expenditure to date
- Cost report shows current position and anticipated final account
- Valuations wont take in to account all the costs for which the client is currently liable
- Valuations do not factor in anticipated changes / EWNs
What are the typical headings for lump sum contracts?
- contract sum
- adjustment of variable costs
- adjustment of variations
- adjustment of fluctuations
- claims for loss and/or expense; and
- adjustment of risk allowances.
What are the typical headings for remeasurable contracts?
- contract sum
- adjustment of remeasurable work
- adjustment of variable costs
- adjustment of variations
- adjustment of fluctuations
- claims for loss and/or expense; and
- adjustment of risk allowances.
What are the typical headings for reimbursable contracts?
- contract sum/target cost
- adjustment of reimbursable costs incurred
- forecast of reimbursable costs to be incurred; and
- adjustment of risk allowances.
What are the typical headings for management contracts?
- contract sum/target cost
- adjustment of management fee
- adjustment of reimbursable costs incurred
- forecast of reimbursable costs to be incurred; and
- adjustment of risk allowance.
What are the typical headings for construction management contracts?
• construction management fee • adjustments to the construction management fee • adjustments to the trade contracts - contract sum - adjustment of variable costs - adjustment of variations - adjustment of fluctuations - claims for loss and / or expense - adjustment for risk allowances • adjustment to project risk allowances.
What can affect outturn construction costs?
- Fixed costs - costs agreed to be paid for known works
- Provisional sums
- Provisional quantities
- Prime costs
- Day works
- Instructions
- Anticipated instructions / early warnings
- Loss & expense
- Fluctuations
- Risk Allowances
How is loss and expense dealt with in JCT & NEC cost reporting?
- If JCT, L&E should be dealt with separately in the cost report
- If NEC, L&E is considered a variation
Describe the process of change control on one of your projects?
On Standard Chartered Bank:
• Weekly design team meeting where contractor would raise CRF’s
• CRF produced by CA
• I would put a budget price on CRF (liaised with design team when required) and this would be signed by the whole design team & Contractor
• Commercial meeting with Client to review CRF and get sign off
• CRF became CAI
• VO log and contingency updated
• Firm price for CAI provided by contractor
• Negotiation and agreement of CAI
Why is change control so important?
- So that cost and programme can be managed
- Help forecast final account
- Give Client time to review costs and instruct changes
What should a change request form include?
- Reason for change
- Who requested change
- Consequence of change (time, cost, quality, H&S)
- Who will bear the cost
- Risks associated
- Time by which change must be instructed
- Cost indication
- Supporting information (drawings, specification, emails, quotations)
How did you implement a robust change control strategy on one of your projects?
UBS example tbc
Why are interim valuations important for both Contractor’s & Clients?
- Client - so client doesnt over pay the contractor
- Contractor - so the contractor can be paid for the works they have completed in accordance with the contract
How do you value change under different contract types?
Refer to notes for table
What are the “Valuation Rules”?
All instructions must be evaluated using the valuation rules set out in the contract conditions
Options of pricing based on how closely the varied works resemble the contract documents
1) Pricing document
2) Fair Rates and Prices
3) Dayworks
What cost report format is recommended by RICS? What should you adopt?
- There is no format recommended by RICS
- Primarily based on client requirements
- Most professional practices have a preferred or standard format which is used in the absence of specific client requirements.
How often should you issue cost reports?
- Cost reports must be regularly updated to inform the
client of likely outturn costs. - UK construction industry practice is to value work on a monthly basis. It is therefore recommended that cost reports are also updated and published on a monthly basis.
- There may be specific project or client requirements to report costs on a different frequency, e.g. quarterly, but this should be at the specific request of the client.
Who do you issue your cost reports to and what are the rules on confidentiality?
- The quantity surveyor must take instruction from the
client as to who the cost report should be distributed
to. - The information contained in a cost report is
confidential and should always be marked as such and
be prepared, distributed, handled and stored in a
manner to protect its confidentiality - RICS Ethical Standard - Act with Integrity = respect confidential information of clients and potential clients
What are the two broad categories of the budget that could be reported in a cost report?
- Costs of the work; defined by the building contract sum
- Costs of other work - the financial allowance for the other items of work should be agreed with the client, under NRM this allowance is referred to as the post tender estimate.
(RICS recommend QS to obtain or issue written confirmation of the budget and its scope)
How do you deal with provisional sums in a cost report?
1) At the outset, include the full amount of each PS in the outturn cost forecast
2) adjust the outturn cost forecast as work is instructed and valued against each PS
3) any OH&P included with PS increases are to be included with the provisional sums
By reporting in this manner, the QS allows the client to react at the earliest opportunity to take action to mitigate cost increases against a PS, or to make use of any cost savings
How do you deal with prime cost sums in a cost report?
1) At the outset, include the cost of work which is subject to the inclusion of a prime cost sum as priced in the contract sum
2) As the specification of the prime cost sum becomes defined, the QS should adjust the cost accordingly and then adjust the outturn cost forecast
By reporting in this manner, the QS allows the client to react at the earliest opportunity to take action to mitigate cost increases against a PC, or to make use of any cost savings
What is the process of adjusting prime cost sums in a cost report?
1) Calculate the supply only cost of the specified material in the units of the work item that is the subject of the prime cost
2) Subtract the prime cost sum amount from the unit rate of the work item
3) Add the calculated cost of the specified material to the unit rate of the work item
4) Calculate the revised amount (qty x rate)
5) Adjust the outturn cost report to reflect the difference in the cost of the work item
How do you deal with dayworks in a cost report?
1) At the outset, include for full amount of daywork allowances as set out in the construction contract
2) QS should maintain a separate daywork account to collate, calculate and record the amount of work undertaken on a daywork basis
3) Dayworks are submitted by the contractor on a daywork sheet that sets out the quantities and the rates of plant, labour and material for each instructed item of work
4) QS review / check of contractors dayworks sheet
5) Update the forecast outturn cost
What should the QS check before including the cost of a daywork sheet in a cost report?
1) The daywork sheet has been approved and signed by the clients repreentative
2) Basic rates for plant / labour / materials are in accordance with the rates in the contract
3) OH&P rates correctly applied
4) Arithmetical check
5) The daywork sheet is correctly instructed and the correct valuation rules applied
How do you deal with risk allowances in a cost report?
- At the outset of the construction contract the QS should include the full amount of each risk
allowance which is not a fixed price risk allowance
borne by the contractor (these sums are included in the fixed prices). - As work is instructed which is to be set against the risk allowances, then the quantity surveyor should reduce the risk allowance by the cost of each such variation valued in accordance with the contract.
How do you deal with contract instructions in a cost report?
- Valued in accordance with the contract
- Once agreed with the contractor, it should be included within the cost report
- Where a contract instruction has not been agreed between the PQS and the contractor, this should be identified separately
- If there is a variance between the QS / contractors valuations, it is good practice to record this difference of opinion within the cost report
(Despite any difference in opinion, the outturn cost report should be based on the valuation of variations as determined by the QS)
How do you deal with anticipated instructions / early warnings in a cost report?
- The QS should identify all anticipated instructions / EWNs and make a suitable cost allowance in the cost report
- The cost report should clearly identify that these are anticipated instructions which have not yet been instructed in accordance with the contract
- Any allowance for OH&P should be included within the valuation of each variation
What should the QS review when carrying out a valuation of anticipated instructions / early warnings?
- instruction requests issued by the contractor
- drawing revisions
- specification revisions; and
- programme delays which are at the risk of the client
How are professional fees dealt with in a cost report?
- QS should note that contract variations may incur additional professional fees
- Construction cost report should exclude professional fees incurred by those working directly for the client, these are included in a project cost report
- Construction cost report should include those professional fees incurred by those working directly for the contractor
So, if the QS is producing a project cost report, then all fees need to be accounted for but separately in the report (construction cost section vs professional fees section)
How do you deal with fluctuations in your cost report?
- Refer to the contract, does it permit adjustments to the contract price for fluctuations?
- If so, the QS will include the amount of the adjustment within the cost report
- The cost report should only include the amount of fluctuation against the value of the work carried out to date; the cost report should include a note that no allowance for future fluctuations have been made
How did you deal with loss and expense in your cost report?
As the project was under a JCT form of contract, loss and expense claims are to be made separately from the variations provisions of the contract (unlike NEC where L&E = CE)
- Therefore L&E shown separately in the cost report
- Upon receipt of contractors L&E claim, the QS should assess the information submitted in support of the claim and include an appropriate allowance in the cost report
What happens if the QS has not been instructed by the client to determine the amount of L&E due?
- consult the client to understand if another professional has been appointed or whether the matter is to be excluded from the cost report
- Where the client has employed others to ascertain the amount of loss & expense, then the QS should request a cost report on this matter, to include in the cost report.
What typical headings should a simple cost report show?
- Authorised expenditure (Contract Sum, Additional authorised expenditure and Total Authorised Expenditure)
- Forecast Expenditure (PS, PCS, PQs, CI, AI, F, L&E, RA, DW)
How is VAT dealt with in a cost report?
- Always exclude VAT
- Include a clear statement that all costs are exclusive of VAT
How are capital allowances dealt with in your cost reports?
- Cost reports should not report the impact of capital
allowances. - The cost report should contain a clear statement that all reported costs are exclusive of capital allowances.
- If the quantity surveyor has been
commissioned by the client to provide advice on
capital allowances, then this advice should be provided separately to the cost report.
How are direct works dealt with in your cost reports?
- Should be captured in a separate section of the cost report and include a separate reporting line on the cost report summary
- Should state what direct works have been included in the report
- This clearly identifies the direct works costs to the client which may assist the client if these works are subject to alternative funding
How are works undertaken by statutory undertakers dealt with in your cost reports?
- Work that is required to publicly owned assets or assets privately owned by third parties may be subject to different contract conditions than the construction contract works
- QS should ascertain scope and liability for these works
- QS should seek instruction from the client as to whether these costs should be included in the cost report
- Cost report should state what work undertaken by statutory undertakers have been included in the report
How are planning costs dealt with in your cost reports?
- The planning consent granted for the construction
project may include requirements for the client to make
payments that are outside of the construction contract - E.g. Section 106 charges, Community Infrastructure Levy (CIL) etc
- QS should seek instruction from the client as to whether these should be included in the cost report
- Cost report should state what planning costs have been included
What should the QS do if the AFC is showing there will be an overspend?
- Omit elements of remaining construction work
that are not immediately critical for the required
functionality of the building. - Reduce the scale of elements of remaining
construction work without diminishing the
required functionality of the building. This may
include reducing room sizes, circulation and
communication, space and storey heights. - Reduce the specification of elements of
remaining construction work. - Advise on the whole life impact and consequential cost impacts of any cost savings
(all of the above should be considered within the constraints of the planning consent to ensure no breach is committed).
