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APC - PM - 2022 > Project Finance > Flashcards

Project Finance Flashcards

1
Q

What do you include in pre-construction cashflow?

A
  • Design team fees
  • HR fees
  • Legal
  • Surveys
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2
Q

Project Finance Periods.

A
  • Pre- contract
  • Tendering and contractor bid analysis
  • Post-contract
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3
Q

Steps to issue/write a variation.

A
  1. Characterise the nature of your entitlement. …
  2. Check the contract. …
  3. Notify the client. …
  4. Wait for a direction to proceed before instructing. …
  5. Perform the work and claim payment (and an EOT if needed)
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4
Q

What is a variation order?

A

Ordinarily this would be in the form of an instruction, usually in writing, from the person named as administering the contract terms. So a “Variation Order” may also be referred to as an architect’s (or engineer’s) instruction, or “Change Instruction

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5
Q

How do you manage risk allowances?

A

Regularly review the element of risk, assess if there are mitigation measures to reduce cost/impact.
Example. Potential ground contamination was identified at ground investigations.

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6
Q

What is a risk allowance?

A

‘risk allowance’ refers to:

‘…the amount added to the base cost estimate for items that cannot be precisely predicted to arrive at the cost limit.’

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7
Q

What is contingency?

A

downside risk estimates that make allowance for the unknown risks associated with a project. Typically, contingencies refer to costs, and are amounts that are held in reserve to deal with unforeseen circumstances.
Standard 5%

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8
Q

How do you present the information (variation) to the client?

A

I :

  • collate all the information
  • organise
  • refer to which element of the works it refers and any implications to other elements of the project
  • arrange with the client to discuss the information
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9
Q

Sub-consultants appointment. What did you do?

A

Due diligence checks.

  • Capability
  • Check that the company exists
  • Financial status. Credit check, involving accounts filed at Companies House
  • Past work examples and references.
  • Sign the client terms of payment. that were 60 days.
  • Check their PI cover levels
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10
Q

How do you draft a subcontractor agreement?

A

I managed the appointments not drafted the agreement.
I provided the:
- Needs of the project and scope of works. I checked with the relevant parties before issuing.
- Clarified the terms of payment
- Ensure that they returned the documents signed and that the client signed them
- I agreed the time scales for the surveys under their appointment.
- I also reviewed the PI levels
-

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11
Q

How did you review the invoices issued to you?

A

The invoices were sent to our finance team with the PO for that specific survey. On recipe the Finance team will contact be asking for legitimacy, once confirmed it was issued to the client for payment.
Following the confirmation I log the invoice and review the cash flow.

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12
Q

Boston £1m.

How did you managed the variations? Example

A

Drainage design.
assess against the contract if the contractor was entitled to the variation.
I requested revised design, and associated costs. Review them with the QS.
Arrange meting with the client to present the information.

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13
Q

Boston. Time scales to review the variation?

A

Boston was JCT contract. I ensured the variations were dealt with diligence to avoid any potential delay in the project.

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14
Q

Toilet refurb. Unforeseen existing conditions. Can you name one?

A

A structural bracing was found when stripping out the existing toilet.
The drainage connection point wasn’t in the specified location and a re-design was required.

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15
Q

What is the difference between funding and financing?

A

Funding
• A funding source provides money that will be used to as capital for a project without any
repayment being required
• Common sources of funding include government grants and private donations.
Financing
• Financing refers to arrangements that make capital available in return for future repayments.
• Financial capital often comes in the form of debt such as a mortgage loan or a development
loan from a bank
• The repayments are normally made over an agreed period of time plus interest

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16
Q

What is meant by the term SPV?

A

• An SPV or Special Purpose Vehicle is created as a separate company with its own balance sheet.
• The SPV creates a commercial entity that is separate from a parent company
• SPV’s are normally utilised to undertake higher risk projects whilst minimising the negative
financial affects the project may have on the parent company in the event they become loss making.

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17
Q

What is the difference between corporate financing and project financing?

A

Corporate Finance
• Corporate finance is where the borrower, developer or sponsor company look to leverage their
organisations financial strength to borrow working capital for the project under consideration
• The corporate entity requests capital from private lenders based on the demonstration of its
financial strength
• If the organisation can demonstrate that is has sufficient assets to serve as collateral to
cover the loan amount, a good credit rating and stable revenue projections it should be approved by
the respective lender in their application

Project Finance
• Project Finance works on the basis of an SPV (Special Purpose vehicle) seeking to borrow
finance from a private lender
• Instead of looking to use an existing companies’ assets as collateral against the borrowed
amount, only the assets of the project company are used
• SPV’s are commonly used by project sponsors to ensure the project is built, financed and
operated
• Because the SPV does not possess a credit rating, private lenders will focus on the
sustainability of the project and its business model prior to approving the loan amount

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18
Q

How would you create a cashflow forecast?

A

• Establish the construction programme and contract value
• The costs from the contract sum would be allocated to each of the activities shown on the
programme
• Fee draw down schedules could also be used to plot expenditure on the cash flow
• Alternatively historic project cashflows or computer programmes could be utilised to undertake
a high level cashflow forecast typically based on an S-curve graph

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19
Q

What are the benefits of compiling a cashflow forecast?

A

• This allows the employer to gain an understanding of financial requirements over the duration
of the project
• It can also serve as a benchmark to check valuations against
• Lag of expenditure can be an indication of financial difficulties
• The cashflow can also be compared against the valuations to determine if the contractor is
behind or ahead of programme

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20
Q

What would you include in a financial report?

A
  • a) Contract sum
  • b) Instructed variations
  • c) Potential future variations as advanced warnings
  • d) Claims
  • e) Anticipated final account total
  • f) Total of certified payments
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21
Q

What is the purpose of a financial report?

A
  • To report against budgeted values and act as a working cost check on the project budget
  • To give the Client an understanding of any savings or additional monies required
  • To report on contract progress against pre-contract predictions.
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22
Q

RICS Practice Standards - Valuing Change 2010

A

Includes JCT and NEC

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23
Q

JCT What 3 methods are there of obtaining a cost for variations?

A
  • On project X under the JCT form adopted:
  • Agreement between the employer and contractor
  • A schedule 2 quotation
  • Valuation by the QS under the valuation rules
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24
Q

What costs does the quotation contain?

A
  • a) Value of the work
  • b) Any adjustment of time
  • c) Money in lieu of direct loss and expense
  • d) The fair and reasonable cost of preparing the quotation
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25
Q

What costs is the contractor entitled to if the quote is rejected?

A

• The fair and reasonable cost of preparing the quote, as long as the quote itself was fair

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26
Q

What are the valuation rules?

A

• There are three rules for measurable work:
• a) If it is of a similar character, quantity and in the same conditions as existing work, then
the bill rates should be used
• b) If it is of a similar character, but different quantity or conditions, the bill rates
should be used as a basis but a fair allowance should be made to take account of the difference
• c) If it is not of a similar character, fair rates and prices should be used

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27
Q

What about non-measurable work?

A

• Should be valued by dayworks

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28
Q

What is dayworks?

A

• The prime (actual) cost of all the materials, labour and plant used in carrying out the work,
along with the % additions to each category as set out in the contract

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29
Q

What document should the prime cost be calculated in accordance with?

A

• Should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out under Building Contracts’ published by the RICS

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30
Q

What is quantum meruit?

A

Translates as ‘what he deserves’ i.e. fair and reasonable

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31
Q

What is loss and/or expense?

A

• Reimburses the contractor for direct loss and/or expense incurred in carrying out additional work or from an employer’s breach of contract

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32
Q

What are the procedures for claiming loss and expense?

A
  • As soon as a the regular progress of the work is affected, or is likely to be affected, or the contractor becomes aware of any other matter that would cause them to incur loss and expense, they should notify the architect in writing
  • He should submit any further information as requested by the architect
  • He should submit any further information as requested by the architect/QS to enable the amount of loss and expense to be ascertained
33
Q

What are Relevant Matters?

A

• The events that entitle the contractor to loss and/or expense, along with deferment of possession of the site

34
Q

What are the relevant matters?

A

• There are 5 relevant matters - They are set out in Clause 4.24

a) Variations
b) Instructions
c) Execution of an approximate quantity that was not a reasonably accurate forecast of quantity
d) Suspension by the contractor for non-payment
e) Any impediment, prevention or default by the employer

35
Q

What is the key thing to remember when assessing loss and expense claims?

A

• It should be the ACTUAL loss incurred by the contractor

36
Q

What are the common heads of claim in loss and expense

applications?

A

• a) Prolongation (extra site overheads i.e. preliminaries)
• b) Thickening of preliminaries (e.g. extra supervision required due to variations)
• c) Disruption (causing plant / labour to be underemployed – hard to prove)
• d) Increases in labour / material costs during the period of delay
• e) Head office overheads
• f) Loss of profit (commonly combined with head office overheads)
g) Finance charges (i.e. interest)
• h) Acceleration costs
• i) Claim preparation costs

37
Q

Once loss and expense is ascertained how is it added to the contract sum?

A
  • Should be added to the contract sum immediately and paid in the next interim certificate
  • It is NOT subject to retention
38
Q

What is the difference between an order of cost estimate and a cost plan?

A

Cost plan is a plan of costs for the works in preparation for turning into a cost report to check against.

Estimate is a forecast of construction cost

39
Q

What is the difference between cost and price?

A

Cost is the total of labour, plant, materials and management deployed for a specific activity

Price is the amount a purchaser / client will pay for an item or product – it is cost plus profit

40
Q

How do you proceed if the cost plan exceed the budget?

A

Analyse the costs to assess the source of the increase and whether any element of work is abnormally high against the order of cost estimate.
Propose value engineering to my client and the design team.

41
Q

What types of estimate are there?

A

Order of Cost estimate (OCE) (

elemental) Cost plan

42
Q

What is buildability?

A

Harnessing the contractor’s expertise and knowledge during the design stage

43
Q

What are the advantages of buildability?

A

Better programming, sequencing and construction methods – a quicker construction time

Lower capital and life cycle costs

Improved quality in the finished building’s performance and maintenance characteristics

44
Q

What is a wall to floor ratio?

A

This shows the relationship between wall area and floor area It is used to show the cost efficiency of the building
The lower the ratio the cheaper the building as there is less external wall area per m2 of floor area

45
Q

What is a Section 106 agreement?

A

They are also referred to as planning obligations

They are typically agreements between local authorities and developers negotiated in the context of
granting planning consent

46
Q

What is construction to ‘shell and core’?

A

The basic structure, services and envelope of the building AND the fit out of landlord / common
areas
E.g. reception, toilets, lifts, cores, base services are terminated at breakout points to floors,
life safety services infrastructure

47
Q

What is a CAT A fit out?

A

Also known as a ‘developer’s fit out’

Provides the generic requirements to suit most developers

E.g. life safety elements and basic fittings - suspended ceiling tiles, raised floors, carpet,
lighting, power distributed to floor plates

48
Q

What is a CAT B fit out?

A

Overlays the CAT A provision with bespoke elements particular to the needs of the building user to
enable the tenant to occupy and use the space

E.g. partitions, power distributed to floor boxes, data cabling, artwork and branding, upgrading
CAT A finishes and toilet finishes etc

49
Q

Where could you find the definitions for these?

CAT A and CAT B

A

British Council of Offices (BCO) fit out guide

50
Q

What is BWIC?

A

BWIC stands for Builders Work In Connection and is usually set as a percentage of the services
cost.

51
Q

What is an order of cost estimate?

A

The determination of possible cost of a building early in the design stage in relation with the
Employer’s fundamental requirements.
It forms the basis of the cost planning process.

52
Q

What is the purpose of an order of cost estimate?

A

To establish if the proposed building project is affordable and, if affordable, to establish a
realistic cost limit.

53
Q

What is the format of a feasibility estimate / order of cost estimate?

A

Rate per m2 or per functional unit (unit and square meter methods)
This may consist of :
- element rates for the main elements of the building (e.g. Substructure, Frame, External Walls, Upper Floors, Roof etc),

  • any abnormal site costs or enabling works (e.g. Decontamination allowance),
  • Preliminaries
  • Contingency,

-Inflation allowance (if providing forecast
out-turn based on an induction of programme) location factor adjustment if element rates used
are based on similar projects elsewhere.

54
Q

What is a functional unit?

A

Means a unit of measurement used to represent the prime use of a building or part of a building

55
Q

What is the % error on a feasibility estimate?

A

10%

56
Q

What is a cost plan?

A

Previously known as elemental cost estimate.
A forecast of the possible cost of a building based on historical data
Presents the estimated cost into a structural elemental or functional format
It shows how the design team proposes to distribute the funds available on the elements of the
proposed building.

57
Q

What are the principal components of a cost plan / how is it built up?

A 
Construction cost 
Preliminaries
Contractor’s OH&P 
Contingency 
Inflation
Assumptions - programme 
Exclusions
Area Schedule
Basis of Estimate – drawings / specifications list
58
Q

Name the main elements of an elemental estimate

A

Substructure – excavation and substructure
Superstructure – frame, upper floors, external walls, roof, internal finishes
Services
External works

59
Q

What is usually excluded from a cost estimate?

A 
Professional fees 
VAT
Client decant costs 
Loose fixtures and fittings 
Inflation
Site acquisition costs
Section 106s 
Removal of asbestos
60
Q

What is contingency?

A

A sum included in the estimate to cover unknown expenses or unmitigated risks during the project.

61
Q

How is contingency assessed?

A

The amount included should reflect the risks and unknowns specific to the project

During early estimates when little information is available it is common to include a %

62
Q

What are preliminaries?

A

Often contain items for pricing which are general items needed by the contractor to carry out the
work that cannot be attributed to specific items of work

63
Q

How do you take account of inflation when benchmarking / cost estimating?

A

Through the use of TPIs

Tender Price Index

64
Q

How does inflation affect projects?

A

Inflation plays a vital role in the price increase of materials, labours, and machinery, which results in deviating the initial and the final cost of the project. Construction costs are volatile, and the prices of materials and other costs are continuously fluctuating, creating volatility in economic growth.

65
Q

Where do you find the inflation information?

A

BCIS

TPI forecasts published in building In house forecasts

66
Q

What does BCIS stand for?

A

Building Cost Information Service
Provides construction cost and price information through publications, online services and price
books

67
Q

Did you take part in a formal value engineering workshop? What was your role?
Bingham

A

I reviewed the cost plan jointly with the Qs identifying the areas of improvement. I.e changes de proposed solution or omitting
Secondly a joint meeting with the design team to discuss the items identified and include other ptential areas
Last I discuss them with the client and assess how they align with their desired outputs

68
Q

What are soft landings?

A

They assist the client in monitoring and fine tuning the system and ensure that the occupiers
understand how to control and best use their building.
The aim is to ensure that sustainability targets are achieved and to provide reliable data on
systems performance in practice.

Stages:

  • Pre-handover
  • Professional after care
  • Feddback
69
Q

What do you understand by the term VE?

A

Value Engineering

An organised approach aimed at providing the necessary functions at the lowest cost, without
detrimental affect to Quality, reliability, performance or delivery

70
Q

What do you understand by the term VM?

A

Value Management: Concerned with making explicit what value means to a client.
Concerned with early stages of design e.g. to ensure the need to build is verified.
VM aims to ensure that the right decisions are made the first time.
VE used to correct decisions when things go wrong

71
Q

What are the phases of the VE process?

A

1- Information phase: Functional analysis of component: FAST diagram
2- Speculation phase: creative
thinking techniques: BRAIN STORMING
3- Evaluation Phase: Evaluate solutions (Cost and Feasibility)
List of Options
4- Development Phase: Detailed development of surviving ideas and interfaces: LCC
techniques
5- Presentation Phase: Best solution identified and recommendation made: Written/ oral report.

72
Q

What is life cycle costing?

A

Techniques to evaluate life cycle costs

73
Q

What are life cycle costs?

A

The costs that will be incurred over a defined period of operating and maintaining
a building or an asset e.g. repair, maintenance, replacement, cleaning, decorating, services
provision, disposal.

74
Q

What are the advantages of life cycle costing?

A

Allows consideration of the long term implications of a decision
Enables informed decisions to be
made on material selection
This can result in lower operational, maintenance and replacement costs
Can be used to plan future maintenance requirements – flexible spaces, easier access
Can be used to judge sustainability in money terms

75
Q

What sort of information does BMCIS provide?

A

Building Maintenance Cost Information Service (BMCIS) – part of BCIS

76
Q

Tell me about Cost Planning

A
  • Cost Plan - Design is driven by cost
  • Estimate - Cost is driven by design
  • Cost Control - Starts when Cost Planning starts and continues through to completion.
  • Cost Planning - Ceases around contract award.
  • Gateway Reviews - Stages when costs are reviewed against the budget.
  • Value Engineering - Refines
  • Cost Plan without detracting from quality/function. - - - Cost Data - BCIS, Spons (Price Books),
    Historical Works, Quotations
77
Q

What is GIFA?

A

GIFA = Gross Internal Floor Area (m2)
GIFA is the total area of all enclosed spaces fulfilling the functional requirements of the
building measured to the internal structural face (RICS 1969 – Standard Form of Cost Analysis).

78
Q

What types of estimate are there?

A

1) Feasibility estimate
2) Budget estimate
3) Pre Tender”

79
Q

VE How is this process different to generating cost savings?

A

Value engineering is a process of identifying and eliminating unnecessary costs that do not contribute to the overall function of the component. The focus is on reducing cost, whilst maintaining the same function & quality in order to achieve VFM.
Cost savings on the other hand seek to reduce the scope of works & omit any architectural features that are nice to have.

APC - PM - 2022 (13 decks)

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