Level 2 - Commercial management of Construction Flashcards
N1. What is a Cost Plan?
• Cost planning is producing an estimate based of historic data, such as data from BCIS. It gets constantly updated with real time prices over the lifetime of a project to give a comprehensive price breakdown.
N2. Who prepares a cost plan?
• The Cost Consultants.
N3. What types of cost plan are there?
- Elemental Cost Plan.
- Initial Cost appraisal.
- Approximate quantities cost plan.
- Pre-tender estimate.
N4. What is an initial cost plan?
• A pre-estimate of the various cost options available at feasibility stage.
N5. What is a feasibility study?
• Preliminary studies undertaken in the early stages of a project, analysing whether a project is viable, and what options there are relating to construction methods etc.
N6. What is an Elemental Cost plan?
• A cost estimate prepared at the project brief, which is developed throughout the detailed design.
N7. How does an Elemental Cost Plan evolve?
• Initially each item is a percentage of the overall figure, or budget. This gets more detailed as the design develops, through measuring drawings, using sub-contactor prices etc.
N8. What is an approximate quantities cost plan?
• A cost estimate carried out at detailed design stage, based of approximate quantities.
N9. What is a pre-tender estimate?
• Prepared alongside the tender documents, they are an estimate of the total build cost at tender stage.
N10. What is the Contract Sum?
• The agreed value for carrying out the works in accordance with the contract.
N11. What is a Contract Sum Analysis?
• A pricing document, typically used in Design and Build Projects, which breakdowns the cost of a project.
N12. What is an Estimate?
• The likely cost of something based of the limited information provided at the time.
N13. What can you use to value a estimate?
- Use Build Construction Information Service, value a building on a price per square foot.
- Can use historical data, i.e. for care homes we work on, we can provide budget prices based on a price per bed etc.
N14. What is a tender letter?
• A letter completed by the contractor, and is submitted along with the tender outlining their tender proposals.
N15. What is included within a tender letter?
- Cover letter.
- Executive summary.
- Assumptions.
- Exclusions
- Cash Flow Forecasts
- Risk Register
- Value Engineering Proposal.
N16. What information would you require to potentially establish a budget?
- Size or number of beds etc.
* Location
N17. What is a Cash Flow Forecast?
• A prediction of the incomings and outgoings of cash with in a business/project.
N18. What are the two types of Cash Flow Forecast?
- Organisational Cash Flow.
* Project Cash Flow.
N19. What is Organisational Cash Flow?
- Used for planning and analysing company health.
* It is used to predict the incomings and outgoings of cash within a business over a specific period.
N20. What is Project Cash Flow?
- Used for determining he amounts of cash that will be paid to a contractor, and the time they will be paid.
- Can be used to monitor performance by comparing value of interim valuations against cash flow forecasts.
N21. What are the different payment/valuation methods?
- Stage Payments
- Milestone Payment
- Payment from an activity schedule
- Third party certification.
N22. List in order which offers the most certainty in terms of value and time it will be paid.
- Stage payments.
- Milestone payments.
- Payment from an Activity Schedule.
- Third Party Certification.
N23. List in order which offers the most accuracy in terms of the value of works completed on site for valuations.
- Third Party Certification.
- Payment from an Activity Schedule.
- Milestone payments.
- Stage Payments.
N24. What is are Stage Payments?
- Pre-determined values that will be paid on a specified date.
- They do not offer much in terms of value accuracy, as they might not reflect the value of works completed on site.
N25. What are Milestone Payments?
• Pre-determined values against specific items, which are broken down into smaller stages.
o I.e. footings 25%, 50% 75% and 100%.
• They are fairly accurate in terms of value completed on site.
N26. What are Payments against an Activity Schedule?
• Payments which are made against the completion of a pre-determined activity, i.e. completion of the footings.
N27. What is Third Party Certification?
• Were the works completed to a specific date are measured, valued and certified for payment by a third party, i.e. a PQS.
N28. What other methods of Cash Flow Forecast do you know?
• The ‘S’ Curve Method.
N29. What is the ‘S’ Curve method?
• A general principle, that a typical construction will follow:
o Low initial start costs.
o High costs in the middle as the majority of the works is undertaken.
o Low finish costs from demobilisation etc.
N30. What should you consider when producing a cash flow forecast?
- Who the forecast is for, Client, Contractor, Company, Whole project cashflow.
- If for the client for a specific project, what you are projecting to, i.e. Due date, final date for payment, Cumulative.
N31. What would you do if you received a valuation from a Contractor that was massively over the Cash Flow Forecast value?
- Check contractors progress on site, to see if they are ahead of programme.
- See if they have re-sequenced the works.
- It may mean that the contractor is in distress.
- It might mean that the Cash Flow Forecast is incorrect.
N32. What would you do if you received a valuation from a Contractor that was massively less than the Cash Flow Forecast Value?
- Check progress on site, they might have re-sequenced the works.
- Might mean that the contractor is behind programme.
- It might mean that the Cash Flow Forecast is incorrect.
N33. How do you report progress against budget?
- Cost Value Reconciliations.
* Works Breakdown Structure.
N34. What is a Works Breakdown Structure?
- It organises the project into manageable sections, comparing budget against the actual value of the works in a hierarchy structure.
- From this you are able to analyse each aspect of a project for its profitability.
N35. What is a Cost Value Reconciliation?
- A Reconciliation of the costs for the project, against the value. Including for any adjustments for liabilities such as late invoices, over/under measures etc.
- It provides a running account of the profitability of a project.
N36. What is a Surveyor Report?
• A report that advises on the amount of cash we are expecting to receive, the amount of cash outstanding from previous valuations and certifications, and the final date for payment.
N37. What is a Materials Reconciliation?
• A report that advises on the material buying gains, by comparing the price allowed at tender to the actual buying price.
N38. What is the Construction Industry Scheme (CIS)?
• A system where typically 20% of a payment to sub-contract labour is deducted at source and paid straight the HM Revenue.
N39. What are the benefits of using hired plant?
- Well maintained plant.
- Can be supplied with an operator.
- Can get recommendations on the best plant for the job.
- Options on lease lengths etc.
N40. What tax benefits can you get when purchasing plant?
• Capital Allowances.
N41. What should you consider when employing a sub-contractor in Cash Flow Terms?
- Set payment terms to reflect the main contract.
- Schedule of valuation dates, with valuations to be submitted before yours to allow for incorporation into your valuations.
- Extend payment terms beyond yours to improve cash flow.
N42. What are the Four Stages of a risk assessment?
- Identify the risk.
- Evaluate the risk in terms of severity and impact.
- Produce a response to the risk, i.e. take measures to mitigate it.
- Report back how successful the mitigation method was for future application.
N43. What is Value Engineering?
• An approach undertaken to try and deliver the employers requirements at minimum cost, without compromising the quality or function required.
N44. What is Value Management?
• A method of identifying the most important aspects of a project from the client’s perspective, and ensuring that they are achieved to the required standard. Any left over budget can be used on the less important aspects.
N45. What is included within preliminaries?
- Supervisions.
- Welfare.
- Mobilisation/demobilisations.
- Temporary Service
- Site Offices.
N46. What is the full name of the construction act, and the act that amended it?
- Housing grants, construction and regeneration Act 1996.
* Local Democracy Economic Development and Construction Act 2009.
N47. What did the construction act introduce?
- Removed paid when paid clauses.
- Statutory right to adjudication.
- Right to interim payments for contracts over 45 days.
- Right to know how much is to be paid, informed about the amount due.
- Right to Suspend performance for non-payment.
- Dates for payment should be set out in the contract.
- Payless Notices.
N48. What is considered to be good commercial management?
- Regular reporting.
- Regular Cash Flow Forecasting to understand position.
- Forecast Final Accounts.
- Valuing and agreeing variations early.
- Clear accurate valuations.
N49. What would you say the difference between a Commercial Manager and a Quantity Surveyor is?
- A Commercial Manager is there to maximise profits.
* A Quantity Surveyor is there to run the financial aspect of a project efficiently.
N50. What is a cost?
• Any outlay for a building project.
N51. What is value?
• Money in and assets.
N52. What factors affect the cost of a building?
- Location.
- Time of year.
- Shape.
- Materials.
- Site conditions.
- Ground Conditions.
- Access to services.
- Access to site.
N53. What is a Project Bank Account?
- An account which all payments down the supply chain are made from.
- I.e. the client will pay the main-contractor, whilst also certifying payment for the sub-contractors etc.
N54. What are the issues with Project Bank Accounts?
- They undermine the Main contractors responsibility to manage and pay sub-contractors.
- Can completely undermine the Main Contractor as the client can see the margins the Main Contractor is making on its sub-contractors.
