Project Finance Flashcards
What are the contents of a Cost Report?
Executive Summary - level of cost certainty / headlines / changes in period /contingency update Cost Summary Cash-flow Variations to Date Pending Variations Risk Analysis / claims / VE / EOT? Forecast Final Account Report Basis
What is the purpose of producing a cost report?
To monitor and manage cost throughout the project.
To inform the client on actual project cost against the budget.
Why is it important for the client to know the anticipated out-turn cost?
It gives them the best possible basis on which to base future project decisions.
Funding purposes
Your cost report compares actual cost against the budget. What is the budget?
The budget is usually ;
Cost of work under construction contract
Cost of work not under construction contract (to be advised by client)
NRM defines this as the post tender estimate
if the anticipated final account is over-budget, what could you consider doing?
Omitting elements of remaining work which are not immediately critical for the function of the project
Reduce the scale of elements of remaining work without affecting functionality
Reduce spec of elements of remaining work
The above should all be considered within the constraints of the planning consent!
How do you agree a Variation?
Variation is a modification to the design, quantity or quality of the work.
1) Use a contract rate - if there is a bill item of a similar nature
2) Use a star rate - this is based on experience of what is fair and reasonable
3) Use dayworks - Prime cost + labour + materials + plant + % additions (% addition for contractor profit is NOT included)
4) Or pro-rata
Effects on prelims, risk, fees and OH&P should also be considered
When valuing variations, what else should you advise the client on the consequential cost impact of?
Programme impacts Other cost element impacts Statutory compliance Asset value impact Funding impact
Should cost reports include VAT?
No.
Would you include LADs in a cost report?
Yes, but I would seek the client’s instruction on this.
What do you do after issuing a cost report?
Meet the client in person to review it.
What types of cashflow are there?
Turnover
Cost
What is the purpose of producing a cashflow for a client?
It informs them what and when their monetary commitments are
This is important for them in order to secure the correct funding
Obtaining loans
Checking progress
What is the PQS expected to do in terms of cashflow forecasting?
Take a brief from the client to understand their requirements for a cashflow forecast
Produce initial cashflow at feasibility stage (based on formula)
Update the forecast throughout design, tendering and construction period
Monitor actual payments made against the forecast and explain the discrepancies
What information should you seek from the brief before producing a cashflow forecast?
Who will use the cashflow forecast, contractor or client?
Is the forecast for the whole development or just for the construction contract?
Should the valuation date, certificate date, invoice date or payment date be used?
Should net or gross values be included?
Should it display cumulative payments, monthly payments or both?
Is a cashflow only important to a client if they are funding the project from borrowing?
No. It is also important to clients who are financing it themselves as their equity could be tied up in other assets or be dependant on in-coming revenue.
Are project cashflows only used between clients and contractors?
No. They’re also used between contractors and sub-contractors.
What can an organisational cashflow be used for?
It can be used to assess whether a company will be able to adequately cope with the works being considered.
What are important points when reviewing an organisational cashflow?
Overdraft level
Frequency of overdraft use
Potential effect of bank removing overdraft
Potential effect of company losing 1 or more key clients
What different payment mechanisms are there?
Stage payments - milestone
Interim valuation
How do the different payment mechanisms effect cashflow forecasting?
The level of predictability varies according to payment mechanism
Stage payments - high predictability of cashflow, low accuracy of value of work done
Milestone payments - high predictability of cashflow, low accuracy of value of works done
Payment against activity schedule - reasonable predictability of cashflow, reasonable accuracy of value of works done
Valuation of works done on site to date - Lowest predictability of cashflow, high accuracy of value of works done
Why is it important to consider the form of contract when producing a cashflow forecast?
Because different forms of contract have different payment timescales between application and payment.
What are the different ways of producing a cashflow forecast?
Pre-contract I would use an s-curve formula
Once a contractor is appointed, I would use the contractor’s programme and pricing document. I would also seek input from the contractor.
What other considerations should be made when producing a cashflow forecast?
Statutory holidays
Time of year
Weekend working requirements
December valuation date is often pushed forwards due to Christmas, therefore January payment date will be earlier!
When inputting actual expenditure to a cashflow, should you use valuation totals or payment notice totals?
Payment notice totals, as the CA may have made deductions for works carried out not in accordance with the contract.
Should risk be included in the cashflow forecast?
Yes, risk should be included to make allowance for likely variations.
Should you include the rectification period in a cashflow forecast?
Yes.
Most cashflow forecasts are produced for the construction contract only. If your client asks you to create a cashflow forecast for the development, what else should you include?
Consultant’s fees
Direct contracts cost
VAT
Internal costs
What do you include when you regularly update your project cashflow?
Actual progress on site Actual variations Changes in sequencing Formally awarded extensions of time Acceleration Partial possession
The contractor’s payment application is lower than the forecast cashflow, why could this be? (list some)
Poor site conditions Adverse weather Re-sequencing of works Materials being stored off site and not claimed for Slower progress than anticipated Late deliveries to site Inaccurate forecast
The contractor’s payment application is higher than the forecast cashflow, why could this be? (list some)
Front loading
Ahead of programme
Re-sequencing of works
Materials on site too early
Materials off site not considered in forecast
Variations
Contractor accelerating works to complete earlier and expend less prelims
Distressed contractor - financial trouble!
Inaccurate forecast
Can choice of procurement route affect cashflow forecast?
Yes.
Traditional separates construction cost from design fees and risk
D&B will include some design fees (novation) and risk within the contract sum, therefore cashflow forecast may be higher
Why might a contractor re-sequence works?
To recover time due to slow progress Late procurement of sub-contractors Change of sub-contractor or supplier To accommodate employer variations Site conditions Adverse weather Insolvency of a sub-contractor
How do you value a Provisional Sum?
The same way as a variation
How is a Provisional Sum expended?
The architect / contract administrator has to issue an instruction
How are Provisional Sums dealt with in the Final Account?
The provisional sum is included in the contract and then deducted and the actual value added back as a variation.
Provisional sum is therefore an allowance for work that may or may not be carried out.
What would you expect to see in a Final Account Statement?
Contract Sum Contract Administrator's Instructions Provisional Sums Any Loss and Expense Statement of Final Account Dates Signed
Is a Final Account legally binding?
Yes.
Why would project cash-flow be behind target?
Site conditions Adverse weather Re-sequencing of works Materials being stored off-site Materials not being delivered on time Inaccurate cash-flow forecast
What is a Rolling Account?
A forecast final account that is issued monthly to the client and design team.
Makes them fully aware of the anticipated out-turn cost.
Enables quicker agreement of the final account.
How does NRM classify risks?
Employer change risk
Employer other risk
Design development risk
Construction risk
How do JCT contracts define change?
Alteration or modification to the design, quality or quantity of the works
The imposition by the employer of any additional obligations or restrictions
What other consideration should you make when assessing a variation to CDP work?
Addition or omission of design work
Can a contractor refuse to provide a schedule 2 quotation?
Yes. They must notify the CA within a defined time period, disagreeing with the approach of producing a quotation.
They are then not obliged to produce a quotation unless instructed further by the CA.
The variation will be valued by the QS.
The usual reason that a contractor would refuse is due to a lack of info.
Can a contractor claim for the cost of preparing a schedule 2 quotation?
Yes a fair and reasonable amount can be claimed and paid even if the quotation is not accepted
Under JCT what would constitute a change of character? (and therefore could be a variation).
Change in material
Change in method of fixing
Change in background of other work
Under JCT what would constitute a change of conditions? (and therefore could be a variation).
Work carried out at different depth
Seasonal variation of work compared to agreed programme
Work in completed areas (required more protection)
Work with varied access restraints
Attendances
What might you use dayworks for?
Minor alterations to quality of completed work Opening up of works for inspection Emergency works Cleaning / clearance operations Repair
What must you consider when valuing variations?
The effects on other works
Are costs being claimed for L&E that should be reasonably included as a variation
Programme
OH&P
What is a Defined Provisional Sum?
Sum included in contract for work that has not been completely designed at time of tender but for which there is some specific information.
Contractor is deemed to have made allowance for the works in their programme and prelims.
What is an Undefined Provisional Sum?
Sum included in the contract for which there is minimal or no information at time of tender. The contractor is not deemed to have made allowance in their programme and prelims.
How would you produce a cashflow forecast?
It depends on the stage of the project.
Pre-contract I would use an s-curve formula,
Post contract I would use the contractor’s pricing document and their programme
How do you account for variations in a cost report?
Instructed variations
Anticipated variation
What should be included in a change control procedure?
Reasons for the change Who requested the change Consequences of the change (in terms of time, cost, quality, H&S) Proposals for mitigation Risks associated with the change Alternatives Deadline for instruction
How does cost planning aid financial control?
It breaks down the total project cost into works elements which can be used to help create the package split
It gives a total cost for the project
What are the contents of a cost report?
Contents QA sheet Executive summary Cost summary Changes from last cost report Instructed variations Anticipated variations Forecast final account Risks Cashflow Report basis
Why is a change control process important?
To have a way to highlight potential changes when they are first recognised
To then have a format for assessing programme and cost implications of these so the client can make an informed decision on whether or not they want the CA to instruct them
What change control processes have you used?
The early warning system
CEN
Tracker
What was included in the Final Account that you prepared?
Contract sum Provisional sum expenditure Instructions Total value Previously paid
You have worked on construction management projects. What are some considerations when producing a cashflow forecast for this procurement route?
Payment dates for the trade contractors may be spread throughout the month
The payment terms of the trade contractors could be different
The construction manager’s fee needs to be taken into account
Usually you would plot an s-curve for each trade contract and combine them into one cashflow forecast
What have you advised a client are the limitations of your cashflow forecast?
It is only as accurate as the data on which it is based
Changes in legislation can affect it
I have included the information I used to produce the cashflow
I have included the assumptions and exclusions I made
What is change control?
Process of dealing with any changes on a project
How would you deal with a provisional sum
Instruction to spend first then value /assess the same as a variation
How do you report on risk allowance
Have a category for each below the line - Employer change risk / Employer other risk/ Design development risk/ Construction risk
How do you manage cost control on a project
Regular cost reporting, rolling FA, risk management, design management
Prime cost sum
Prime cost - extent but not design, unit rate for material cost only plus labour contracts prelims & OHP (material element changes only)
What is a daywork allowance?
Daywork allowance - LPM plus % uplift against base price
Cost report
Contract works variations prov sums risk allowance fees
Cost v Price
Cost - LPM & management
Price - cost plus profit
Risk Reg post contract
manage and monitor reulary to see ifenough risk allowance in project, owners, close out, anticipated varis / risks
LCC
constuction
maintenance
Opp
End of life
WLC
As above plus pre con incl non construction costs, LCC & income
Who prepares FA
QS or
EA - on D&B
Timescales in JCT & NEC
NEC 3 - Normal procedure
NEC 4 - 4 weeks
JCT - 3 months within PC & certifiy in 2 months
