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
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
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
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.
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
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
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
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
9
Q
What benefit does client get out of cost planning?
A
- Affordability
- Helps develop design to meet budget
- Value management tool
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.)
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
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
13
Q
What are the different ways to price a project?
A
- Lump Sum
- Cost reimbursable
- Re-measurement
- Target Cost
- Guaranteed Maximum Price (GMP)
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
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
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
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
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
What is the purpose of a financial report?
- 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
What should be included in a financial report?
- 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
How is a risk register used in the post contract phase of a project?
- 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
Why might a project have a cost overrun?
- 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
What is a valuation?
- 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
What are the main elements of a valuation?
- Preliminaries
- Measured work
- Variations
- Materials on/off site
- Loss and expense
- Provisional sums (JCT only)
- Retention
31
How are interim valuations evaluated?
- 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
What is a gross valuation?
- 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
When would Dayworks rates be used to value the works?
- 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
What is a variation?
An alteration to the original scope of works:
- Addition
- Substitution
- Omission
35
What is the final account?
- 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
What if the employer doesn't pay a sum due to the contractor under JCT?
- 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
What happens to contingency as the project progresses?
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
How did you go about creating the cost estimate for the NT?
- 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
How did change control work on the F1MP project?
- 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
On F1MP, what did your change tracker include?
- 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
How did you manage expenditure of a provisional sum on F1MP?
- 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
How did you develop cash flow forecasts?
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
What is the difference between a Prime Cost and Provisional Sum?
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
What is an S-Curve?
- 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
