Project Finance Flashcards
How would you create a cashflow forecast?
- I would need to have access to the construction programme and contract sum analysis in order to populate the cashflow
- I would split the works into the different packages as shown on the contract programme and include individual s-curves for each package
If your construction budget was £2.5m and proposed construction period was 25 weeks, would a forecast cashflow expenditure of £100,000 per week be realistic?
- In reality this would not be very realistic as the cashflow expenditure is unlikely to have a flat or regular profile.
- In reality the expenditure is much more likely to have an S-curve profile
- At the beginning expenditure per week would be fairly low with site setup and enabling works undertaken
- As the scheme progresses, items of higher value such as the M&E works are undertaken leading to higher expenditure per week.
- as the scheme closes, minor finishes such as decoration and cleaning packages are undertaken resulting in a much lower expenditure per week.
What is the benefit of a cashflow forecast?
- A cashflow forecast allows the employer to gain an understanding of the financial requirements over the duration of the project.
- It can also act as a check against valuations
What is a financial report and what is it’s purpose?
- A financial report is a document that is produced periodically that sets out the financial position of a project.
- It’s purpose is to report against budgeted values and act as a working cost check on the project budget.
What would you include within a financial report?
I would typically look to include reference to:
- Contract sum total.
- The value of Instructed variations.
- The value of potential future variations.
- Provisional Sum Adjustments.
- The anticipated final account total.
- A cashflow forecast
What are variations?
- Alterations or modifications to the design, quality or quantity of the contract works
Why might variations arise?
- change to specification.
- discrepancies between contract documents.
- errors and omissions.
- deficiencies in employer’s requirements
What form must instructions take?
- It is best practice under the majority of contracts for instructions to be made in writing.
- The QS is not usually authorised to make additions to the contract sum for instructions that are not in written form.
Are oral instructions considered valid?
- The validity of oral instructions depends on whether the form of contract being used contains mechanisms for them to be valid.
- In my opinion it is always best practice to follow up verbal instructions with written instructions as soon as possible.
Can the contractor object to a variation?
Some contracts allow the contractor to object to an instruction in special circumstances for example, In the JCT Standard Building Contract certain exceptions are:
- Where the instruction might affect the contractor’s compliance with the CDM Regulations.
- Where the instruction may infringe patent rights.
What can the CA/EA do if the contractor does not comply with an instruction?
- This depends on the form of contract being used however under JCT Suites if the contractor does not follow an instruction, the CA/EA will be required to issue a ‘notice to comply’ to the contractor.
- If the Contractor still fails to comply after 7 days, another party can be instructed to carry out the work and the contractor will be liable for any additional costs incurred.
What 3 methods are there of obtaining a cost for
variations under JCT forms of Contract?
This depends on the form of contract being used, under JCT SBC, quotations can be made by:
- Agreement between the employer and contractor.
- A schedule 2 quotation.
- Valuation by the QS under the valuation rules.
What are the valuation rules under JCT Forms of Contract?
There are three rules for measurable work:-
- If it is of a similar character, quantity and in the same conditions as existing work, then the bill rates should be used.
- 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.
- If it is not of a similar character, fair rates and prices should be used.
What are ‘fair rates and prices’?
- A rate based on actual costs.
- A rate in line with current cost data.
- A market rate.
What are dayworks?
- The prime cost of all the materials, labour and plant used in carrying out the work