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APC Project Management > Project Finance > Flashcards

Project Finance Flashcards

1
Q

What is the contract sum?

A
  • Amount specified at the outset (ex VAT) for completion of the works
  • Can only be altered as the work proceeds according to the contract conditions (changes, loss and expense, expenditure against provisional sum, acceleration, fluctuations)
  • Errors in the computation of the contract sum, whether arithmetic or not, are deemed to be accepted by both parties
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2
Q

What are preliminaries and what are included as standard (NRM2)?

A

Items that are not directly related to any component, element, or work section (i.e. measured works). Split in contract between:

1) Information and requirements
2) Pricing schedule

Includes as standard:

  • management/staff
  • site establishment
  • security
  • safety and environmental protection
  • control and protection
  • mechanical plant
  • temporary works
  • site records
  • completion and post-completion requirements
  • cleaning
  • fees and charges
  • insurances, bonds, guarantees and warranties
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3
Q

What is an order of cost estimate?

A

A high-level cost estimate usually based on a single quantity (e.g. cost per m2)

  • Determines possible construction costs of project
  • Used to establish whether project is viable
  • Makes employer aware of likely financial commitment
  • Completed in RIBA Stages 0&1
  • % for professional fees
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4
Q

What is a provisional sum and how is it expended?

A

A provisional sum is an allowance included at tender for a specific element of the works that is not yet defined in enough detail to accurately price.

Needs to be instructed (JCT) by Contract Administrator and should be add/omit on instruction.

Defined: PS accounted for in contractor’s price and programme. Prelims assumed to be included.

Undefined: Might relate to work not designed. PS not accounted for in contractor’s price, client takes the risk and contractor may be entitled to EoT and loss/expense.

No PS in NEC contracts.

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5
Q

What is the purpose of cost planning?

A
  • Ensure employers are provided with value for money
  • Make employers and designers aware of the cost implications of their proposals
  • Keep expenditure within cost limit approved by the employer
  • Provide robust cost information upon which the employer can make informed decisions
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6
Q

What is a cost plan?

A
  • Estimated cost into a structural element or functional format
  • Provides a comprehensive economic picture of the whole building project
  • Used by the QS to control the development of the design
  • Identifies the client’s agreed cost limit and how the money is going to be allocated to different parts of the building
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7
Q

What are the key cost planning stages?

A
  • RIBA 0/1: Order of cost estimate
  • RIBA 2: Formal cost plan 1 - based on £/m2 elemental breakdown
  • RIBA 3: Formal cost plan 2 - based on detailed measured quantities, £/m2 per item
  • RIBA 4: Formal cost plan 3 - send to tender
  • Pre-tender estimate
  • Post-tender estimate
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8
Q

Name some factors that can impact project costs?

A

Procurement:

  • Proportion of risk allocation (contractors will price for risk)
  • Contract type - lump sum / target / reimbursement

Design:

  • Complexity
  • Specification
  • Use of BIM
  • Value engineering

Construction:

  • Construction method
  • Volume of variations

External:
- Legislation / planning obligations

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9
Q

What benefit does client get out of cost planning?

A
  • Affordability
  • Helps develop design to meet budget
  • Value management tool
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10
Q

What risk allowances should be included within a cost plan?

A
  • Design development risks
  • Construction risks
  • Employer change risks
  • Employer other risks (e.g. acceleration, postponement, availability of funds, etc.)
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11
Q

What is benchmarking and what sources of benchmark cost data can be used?

A

The use of historical data from projects of a similar nature as a comparison or cost check of the cost of a project.

  • In house (previous projects)
  • Building Cost Information Service (BCIS)
  • Benchmark from previous client projects
  • Pricing books (SPONS)
  • Cost models / published data
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12
Q

What are the options for different types of pricing documents?

A
  • Bill of Quantities
  • Schedule of Rates
  • Contract Sum Analysis
  • Schedule of Work / Activity Schedule
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13
Q

What are the different ways to price a project?

A
  • Lump Sum
  • Cost reimbursable
  • Re-measurement
  • Target Cost
  • Guaranteed Maximum Price (GMP)
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14
Q

What is a lump sum contract?

A
  • Fixed sum

- Used when the employer can define what is required, e.g. drawings and specifications, or performance specifications

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15
Q

What is a re-measurement contract?

A
  • Contractor paid for the actual work done (quantities)
  • Price based on approximate quantity rates in BoQ or Schedule of Rates provided
  • Actual work is priced against agreed rates
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16
Q

What is a reimbursable / prime cost contract?

A
  • Contractor completes work then is paid for their costs plus a pre-agreed mark up
  • Used where the definition of work is inadequate for the contractor to price, yet an early start is required
  • Suitable for maintenance / refurbishment / emergency work
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17
Q

What is a target price contract?

A
  • Reimbursable contract with target price to incentivise the contractor
  • Target price includes contractor’s cost plus % for OH&P
  • Risk is shared through pain/gain
  • At end of contract the contractor is paid (or pays) his share of difference between target and actual cost plus OH&P
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18
Q

What is a Guaranteed Maximum Price (GMP) contract?

A
  • A lump sum contract under which there is no adjustment of tender price unless the scope changes
  • Contractor includes additional risks involved in the design development process in tender price
  • Savings made on packages are shared on an agreed basis - gain share - but extras are the contractor’s responsibility
19
Q

What are the advantages and disadvantages of a reimbursable contract?

A

Advantages:

  • Flexibility to alter design, programme and quantum of work
  • Enables early start on site
  • No premiums for abnormal risks in tender

Disadvantages:

  • No time or cost certainty
  • No incentive for efficiency
  • Difficult to monitor true costs
20
Q

What are the advantages and disadvantages of a Guaranteed Maximum Price (GMP) contract?

A

Advantages:

  • Greater price certainty, contractor carries development risk
  • Greater cost control; contractor’s interest to alert team to expensive items of design development
  • Quicker settlement of final account

Disadvantages:

  • Client may pay too much; contractor’s risk allowance could be inflated
  • Scope changes are expensive
  • Adversarial
21
Q

What are prime cost sums?

A
  • Allowance for the supply of work or materials to be provided by a contractor or supplier that will be nominated by the client
  • Allowance is exclusive of any profit mark up or attendance by the main contractor
22
Q

What is a Bill of Quantities?

A
  • Document consisting of all items which make up components of a building as well as preliminaries
  • Includes measures and rates for each items
  • Usually based on full production of drawings and project specifications
  • Used to manage variations (provide rates) and monitor expenditure
  • Contractor paid on basis of BoQ not quantities used
  • Any inconsistency between BoQ and drawings would be a variation

Consists of:

  • Preliminaries
  • Preambles (description of works / workmanship)
  • Measured works
  • Provisional sums
  • Prime Cost sums
  • Dayworks
  • Appendices (bonds, warranties, etc)
23
Q

What’s the benefit of cashflow forecast for the Employer?

A
  • Understanding of financial requirements over duration of project
  • Check against valuations
  • Can indicate whether the project is ahead/behind schedule
  • Plan expenditure
  • Ensures appropriate level of funding in place / suitable draw-down facilities available
24
Q

What would payments being either behind or ahead of the cashflow forecast imply?

A

Behind: Project behind programme or under-budget

Ahead: Ahead of programme or contractor has been claiming more than due/ahead of when due

25
Q

What is the purpose of a financial report?

A
  • Report against budgeted values and act as a working cost check on the project budget
  • Give client an understanding of any savings or additional monies required
  • Report on contract progress against pre-contract predictions
26
Q

What should be included in a financial report?

A
  • Executive summary
  • Contract sum
  • Instructed variations
  • Potential future variations
  • Provisional sums
  • Claims
  • Anticipated final account (forecast)
  • Risk allowances
  • Cashflow forecast
  • Next steps and recommendations
27
Q

How is a risk register used in the post contract phase of a project?

A
  • Any risks that have not materialised can be closed down

- Risk register can be used to reallocate client risk allowances, or obtain additional risk allowances if required

28
Q

Why might a project have a cost overrun?

A
  • Employer’s requirements unclear or changed
  • Unrealistic cost estimates
  • Risk allocation is ambiguous
  • Inadequate management control
  • Design doesn’t meet Statutory requirements
  • Uncoordinated design
  • Buildability of design
  • Design doesn’t meet procurement strategy
  • Unforeseeable events
29
Q

What is a valuation?

A
  • A detailed breakdown of the works
  • Appraisal of the price of the works carried out to date
  • Pre-cursor to issuing an Interim Certificate
30
Q

What are the main elements of a valuation?

A
  • Preliminaries
  • Measured work
  • Variations
  • Materials on/off site
  • Loss and expense
  • Provisional sums (JCT only)
  • Retention
31
Q

How are interim valuations evaluated?

A
  • Site review of valuation with contractor
  • Check work done, materials on/off site
  • Value preliminaries, agreed variations and any claims
  • Valuation amount is gross valuation, less retention, less previous payment
  • Send a recommendation to Contract Administrator to issue the payment certificate
32
Q

What is a gross valuation?

A
  • Calculating the total amount of works completed to date, then deducting the previous month’s total
  • Gives the value of work completed in the current month
33
Q

When would Dayworks rates be used to value the works?

A
  • Used when work cannot be priced in the normal way
  • No comparative rates in a bill of quantities
  • Fair and reasonable rate cannot be agreed
34
Q

What is a variation?

A

An alteration to the original scope of works:

  • Addition
  • Substitution
  • Omission
35
Q

What is the final account?

A
  • Financial statement of all of the adjustments to the contract sum
  • Total amount the employer is liable to pay
  • End financial position of the contract
  • Includes all additions and omissions
36
Q

What if the employer doesn’t pay a sum due to the contractor under JCT?

A
  • In addition to the unpaid sum, the employer must pay interest on that amount until the payment is made
  • Contractor can exercise right to suspend works
37
Q

What happens to contingency as the project progresses?

A

Design development - reduced as design develops

Construction risk - assessed based on construction risk, adjusted when more info is available, kept through construction phase. Any leftover = saving for client

Employer change risk - reduces as design develops and likelihood of client changing decreases. Kept during construction for any employer changes, leftover = saving

Employer other risk - kept through construction, allowance for any issues caused by client that have commercial implications

38
Q

How did you go about creating the cost estimate for the NT?

A
  • Determined which roles were required and whether they could be identified within or external to the client organisation
  • Identified specialist roles, such as Conservation Accredited designers
  • Identified survey and other professional fees required
  • Used estimated or known day rates
  • Created a schedule
  • Mapped out the likely consultant involvement against the master programme
39
Q

How did change control work on the F1MP project?

A
  • I completed a change request form and issued to the contractor
  • The form included the details of the change, design drawings and specification (if applicable), priority, and time for response
  • The contractor would then issue a quotation
  • Quotation reviewed alongside the QS, I did a check for overall reasonableness, plus checked against the contract specification documents
  • I would then review the change with the client to get approval for the spend, then issue an instruction to the contractor
40
Q

On F1MP, what did your change tracker include?

A
  • The change reference, shared with the contractor
  • The description of the change
  • The contractors quotation
  • The PM’s assessment if different
  • Status: New, Accepted, Rejected.
41
Q

How did you manage expenditure of a provisional sum on F1MP?

A
  • Once provisional package was identified I established a brief for the works, and got a design prepared
  • Defined PS: contractor made allowance in price and programme
  • I requested a quote from the contractor
  • Reviewed the time aspects of the quote and liaised with QS to review the costs
  • If the costs were higher than the PS I would make the client aware, and the reasons for this
  • Once verified I instructed the contractor to omit the PS and replace with the quoted work
42
Q

How did you develop cash flow forecasts?

A

1) Developed a schedule showing
- consultant costs
- client direct costs
- construction costs

2) Gathered cost information
- consultant costs: based on invoicing schedule provided by consultants
- client direct costs: based on quotations provided to client
- construction costs: based on pre-tender estimate from QS

3) Ongoing monitoring and updating of the cash-flow throughout the project

43
Q

What is the difference between a Prime Cost and Provisional Sum?

A

Prime cost - an allowance for the supply of labour, plant and materials to be provided by the contractor that will be nominated by the client. The allowance is exclusive of OH&P.

A prime cost contract (cost plus or cost reimbursement) - contracts in which the contractor is paid the prime cost (actual cost) and a fee for OH&P.

Provisional sum - an allowance, usually estimated by a cost consultant, that is inserted in tender documents for a specific element of the works not defined in enough detail for tenderers to accurately price. This is a called a defined provisional sum and includes OH&P.

44
Q

What is an S-Curve?

A
  • Chart showing construction cash-flow over a project lifecycle
  • % of value of work completed vs % time completed
  • At beginning of a project the % time is greater than % value, therefore contractor cash flow will remain flat before increasing towards the middle of the project

APC Project Management (26 decks)

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