Project Finance Flashcards
What is the purpose of cost reporting?
To inform the client in a construction project of the likely outturn cost of the construction project. The forecast of outturn costs may be expressed as a variance against a budget amount, or expressed in absolute terms
What are the 3 cost reporting methods?
- Construction cost report
- Project cost report
- Detailed cost reports
What factors can affect the outturn in construction costs?
- Provisional Sums (defined/undefined)
- Provisional quantities
- Prime cost sums
- Daywork allowances
- Variations
- Anticipated variations
- Loss and expense
- Fluctuations
- Risk allowances
How frequent would you issue a cost report?
Cost reports must be regularly updated to inform the client of likely outturn costs. UK construction industry practice is to value work on a monthly basis. It is therefore recommended that cost reports are also updated and published on a monthly basis. There may be specific project or client requirements to report costs on a different frequency, e.g. quarterly, but this should be at the specific request of the client
Who should the cost report be distributed to?
QS must take instruction from the client as to who the report should be issued to. This is due to the report containing confidential information
What is Loss & Expense?
Term often used to describe the additional costs incurred by a contractor as a result of disturbance to the regular progress of the works caused by matters either within the employer’s control or by breaches of contract by the employer.
What is an example of an event which would lead to loss and expense?
Delay to the works caused by the employer
How would you assess a claim for loss and expense?
- Prolongation costs (overheads & loss of profit)
- Finance charges
- Disruption
What are the two types of Cashflow Forecasting?
- The cash flow forecast of a company (i.e., a contractor or consultant) – otherwise known as organisational cash flow.
- The cash flow forecast of a particular construction contract or project – otherwise known as project cash flow
What is the purpose of cashflow forecasting?
- Organisational cashflow - The cash flow forecast of a company will review and analyse the predicted incoming and outgoing cash for a set period of time (usually a year) and is often used for business and resource planning and for analysing the financial health of companies.
- Project cashflow - deals specifically with the payments due under a particular construction contract. The construction contract cash flow will often inform a company’s overall cash flow as they are intrinsically linked.
- In simple terms the purpose of a cash flow forecast is to ensure that the employer has an accurate assessment of what needs to be paid to the contractor and at what periods, therefore the employer’s bank or funder needs to be aware of drawdowns to manage the movement of funds to meet the contractual timescales of payment.
- Monitor contractors progress on site
What methods are used to forecast cashflow?
- Dictated by the type of payment. I.e., Stage Payments, Milestone Payments, Payment against an activity schedule & valuation of works done to date on site
- S Curve is typically used early in the design process to give employers a guide to the predicted cashflow.
- Advanced cashflow forecasting - Once the project has been tendered or a contract has been entered into with the contractor then the cash flow forecasting can become more accurate. If the contract is for stage payments of milestone payments then it becomes relatively simple to plot this information and create an accurate cash flow forecast. For third party certification contracts the contractors programme and pricing document (Whether builders’ quantities or a bill of quantities) can be used to provide a more accurate cash flow forecast
How do you present your cashflow?
Typically, via excel, which is also presented in the form of a graph
The Construction Act 1996 and 2009
- Providing the right to interim, periodic or stage payments.
- Requiring that contracts should provide a
mechanism to determine what payments
become due and when, and a final date for
payment.
*Requiring that the payer gives the payee early
communication of the amount he has paid or
proposes to pay.
*Providing that the payer may not withhold
money from the sum due unless he has given
an effective withholding notice to the payee. - Providing that the payee may suspend
performance where a sum due is not paid in full
by the final date for payment.
*Prohibiting pay when paid clauses that link
payment to payments received by the payer
under a separate contract.
*Providing a statutory right to refer disputes
to adjudication. The adjudicator’s decision
is binding until finally determined by legal
proceedings or arbitration at the end of the
contract.”
Claims for loss and expense from
contractor
As soon as it becomes apparent that a claim may be made by the contractor, the employer should be made aware that the accuracy of the cash flow forecast may be compromised
Why did you include artwork within your cost report on KN?
My client requested I include artwork within the report to be tracked as a cost as the scope of artwork was being developed
