Project Finance Flashcards
What is funding?
Funding source provides capital for project without any repayment required.
What is financing?
Financers make capital available in return for future repayments. Usually over a defined period with interest.
What is an SPV?
Stands for Special Purpose Vehicle.
Creates a separate company with its own balance sheet.
Separate to Parent Company.
When are SPVs used?
Used to undertake higher risk projects.
If they become loss making it minimizes the impact to Parent Company.
I have typically seen them used for commercial developers where an SPV is formed for each development.
In your experience where can SPVs cause issues?
Where information is required back to the parent company for financial or legal reasons.
Where contracts are being taken out - a contractor may wish to have better recourse back to a parent company.
How are cashflow forecasts created?
Establish construction programme and contract value.
Cost from contract sum allocated to each activity shown on programme.
Include professional consultant fees, other costs, contingency allocation.
This will provide a monthly estimated cashflow forecast.
What are benefits of cashflow forecasts?
Gives Employer understanding of financial needs over project.
Benchmark to check valuations - is programme showing behind?
What are included in cost reports?
Contract sum
Instructed variations
Potential future variations as EWNs
Claims
Anticipated final account
Contingency (if declared)
Certified payments total
What is a cost report?
A report produced by the QS to record the financial status of the project. Typically released monthly.
What is an EWN?
Early Warning Notice
It is a early warning to the client there may be additional cost required for an element of works.
What is a contingency?
A financial allowance made for unknown risks associated with a project.
A QS may build in a contingency to the cost plan on agreement with the client.
A client may also have a separate contingency pot they do not declare to the team.
What are the downsides of contingency?
If the wider team are aware they may see it as a license to exceed the budget in the knowledge that the client has a reserve that can be spent
What is a variation?
An alteration to the scope of works In the form of:
An ADDITION
An OMISSION
or A SUBSTITUION
Most recent year of JCT contracts?
2016
