Project Finance

Question 1

1. You mention an ROC, what would you expect to see in developing the ROC further?

Answer 1

At Feasibility you would have a cost per sqm, This develops to an elemental cost plan, to a PTE and sometimes post tender cost plan.

Question 2

2. Source of cost data?

Answer 2

Benchmarking from previous similar projects, BCIS, spons, manufacturing

Question 3

3. What is a provisional sum?

Answer 3

A provisional sum is an allowance included in a fixed price construction contract for an item of work that cannot be priced by the contractor at the time of entering the contract. You can have both defined and undefined provisional sums.

Question 4

4. What are defined provisional sums

Answer 4

Defined provisional sums are those which have been described in sufficient detail that the contractor is expected to have made allowance for them in their programming, planning and pricing preliminaries.
The work may not have been completely designed but the following information may be known:
* The nature and construction of the work.
* How the works may impact on the existing building or surroundings.
* The quantities that indicate the scope and extent of the work.
* Any specific limitations.
An example might be where a defined amount of brickwork is required, but the exact design has not be finalised and so the price cannot be accurately determined.

Question 5

5. Undefined provisional sums?

Answer 5

Undefined provisional sums are less well described and so the contractor cannot be expected to make allowance for them in their programming, planning and pricing preliminaries.
An example of an undefined provisional sum might be work required below an existing structure, where the ground conditions, and so the extent of work required, cannot be determined until the structure is demolished and the ground opened up.
With undefined provisional sums, the client typically bears the price and scheduling risks.

Question 6

6. NRM – What does it stand for and what is it?

Answer 6

New rules of measurement (NRM) is a suite of documents written to provide a standard set of measurement rules that can be understood by anyone involved in a construction project. They comprise rules for the measurement of the construction, repair, renewal, maintenance and demolition of built assets. The suite provides essential guidance to all those involved in the cost management of construction projects. The NRM suite comprises three volumes:
* NRM 1: Order of cost estimating and cost planning for capital building works
* NRM 2: Detailed measurement for building works
* NRM 3: Order of cost estimating and cost planning for building maintenance works

Question 7

7. How many NRM editions are there and what are they?

Answer 7

Three
* NRM 1: Order of cost estimating and cost planning for capital building works
* NRM 2: Detailed measurement for building works
* NRM 3: Order of cost estimating and cost planning for building maintenance works

Question 8

8. Tell me about the cost plan and how it develops with the project?

Answer 8

Becomes more detailed as the project develops
RIBA 1 – Order of cost estimate
RIBA 2 – Cost per sq M
RIBA 3 – Deviated price per m sq
RIBA ¾ - Pre and post tender estimates

Question 9

9. Give me an example of how you have used cash flow on one of your projects?

Answer 9

On the CAMUS project we used cash flow to assist with managing resource requirements for different stages of the methodology, we used it to manage risk, and manage milestone payments and invoicing to ensure we met the clients’ requirements to achieve a certain mount within each financial year.

Question 10

10. NEC 4 payment process and timescales?

Answer 10

• The Project Manager assesses the amount due at each assessment date
• The Contractor submits an application for payment to the Project Manager before each assessment date setting out the amount the Contractor considers is due at the assessment date. The Contractor’s application for payment includes details of how the amount has been assessed and is in the form stated in the Scope
• The Project Manager certifies a payment within one week of each assessment date
• Each certified payment is made within three weeks of the assessment date or, if a different period is stated in the Contract Data,

Question 11

11. What information would you find in a project cost report?

Answer 11

A project cost report captures historic and forecast costs across a construction project. Typical cost report headings are given below:
* construction costs
* professional fees
* statutory fees and charges
* third-party costs
* direct works costs
* land costs
* agency costs
* finance cost; and
* legal fees.

Question 12

12. What are the risk categories?

Answer 12

Employer change risk
Construction risk
Design development
Construction risk
Design development
Contract
H&S
Design
Financial
Procurement
Programme
Operational
Policy

Question 13

13. Give me some examples of some preliminaries

Answer 13

Site establishment
Temporary services
Security
Safety environmental protection
Cleaning
Maintaining site records
Insurance
Bonds

Question 14

How were you involved in the project cost reporting?

Answer 14

• Forecasting
• Reporting into PMR
• Tracking cashflow against progress

Question 15

Benefits of using cashflow forecasts

Answer 15

• Identify cashflow problems
• Helps ensure that the timing of the inflow and outflow is sufficient
• Potentially identify where customers are not paying on time
• Enables the business the check they are meeting a financial objective
• Allows a business to track reported revenue with cash receipts

Question 16

How does a well managed change control process feed into good financial management?

Answer 16

A well controlled process will mean programme and cost are dealt with as stated within the contract at the time of the event, costs will then be agreed, incorporated, and recorded meaning by the time you get to the final account all costs are clear and accounted for.

Question 17

How can cash flow be utilised as a PM tool?

Answer 17

Cash flow can be tracked and monitored, if overspending it could signal being ahead of programme, and if underspending it could be an indication of delay within the programme. Cashflow can therefore be assessed against programme to inform any resequencing or phasing of works.

Question 18

21. Are there allowances for provisional sums under NEC?

Answer 18

No

Question 19

What is the impact of the PM not issuing the payment certificate?

Answer 19

Each certified payment is made within three weeks of the assessment date or, if a different period is stated in the Contract Data, within the period stated. If a certified payment is late, or if a payment is late because the Project Manager has not issued a certificate which should be issued, interest is paid on the late payment. Interest is assessed from the date by which the late payment should have been made until the date when the late payment is made, and is included in the first assessment after the late payment is made.
Additionally the contractor’s original application for payment will stand as a “default payment notice

Question 20

How you effectively control cost during construction?

Answer 20

• Implementation of a rigorous change management process ensuring cost is signed of by the relevant parties at the time
• Suitably managing risk
• Comparison of cash flow forecast against actual spend
• Valuation process and certifying payment amount each month

Question 21

16. What is cashflow?

Answer 21

The net amount of cash and cash equivalents being transferred in and out of a company.

Question 22

17. The purpose of cost reporting

Answer 22

The purpose of cost reporting is to inform the client in a construction project of the likely outturn cost of the
construction project. When costs are incurred, accurately valuing costs, estimating costs in line with contract conditions, ability to forecast, foresee risk allowances.

Question 23

27. How were you involved in the project cost reporting?

Answer 23

• Forecasting
• Reporting into PMR
• Tracking cashflow against progress

Question 24

18. Benefits of using cashflow forecasts

Answer 24

• Identify cashflow problems
• Helps ensure that the timing of the inflow and outflow is sufficient
• Potentially identify where customers are not paying on time
• Enables the business the check they are meeting a financial objective
• Allows a business to track reported revenue with cash receipts

Question 25

19. How does a well managed change control process feed into good financial management?

Answer 25

A well controlled process will mean programme and cost are dealt with as stated within the contract at the time of the event, costs will then be agreed, incorporated, and recorded meaning by the time you get to the final account all costs are clear and accounted for.

Question 26

20. How can cash flow be utilised as a PM tool?

Answer 26

Cash flow can be tracked and monitored, if overspending it could signal being ahead of programme, and if underspending it could be an indication of delay within the programme. Cashflow can therefore be assessed against programme to inform any resequencing or phasing of works.

Question 27

21. Are there allowances for provisional sums under NEC?

Answer 27

No

Question 28

22. What is the impact of the PM not issuing the payment certificate?

Answer 28

Each certified payment is made within three weeks of the assessment date or, if a different period is stated in the Contract Data, within the period stated. If a certified payment is late, or if a payment is late because the Project Manager has not issued a certificate which should be issued, interest is paid on the late payment. Interest is assessed from the date by which the late payment should have been made until the date when the late payment is made, and is included in the first assessment after the late payment is made.
Additionally the contractor’s original application for payment will stand as a “default payment notice

Question 29

23. How do you expend a provisional sum?

Answer 29

I am aware under NEC provisional sums are not allowed for, however under JCT for example in this instance I would issue an instruction to expend the provisional sum seeking the required approvals.

Question 30

How you effectively control cost during construction?

Answer 30

• Implementation of a rigorous change management process ensuring cost is signed of by the relevant parties at the time
• Suitably managing risk
• Comparison of cash flow forecast against actual spend
• Valuation process and certifying payment amount each month

Question 31

24. What information would you expect to find in a construction cost report?

Answer 31

• Project name, location & description
• Cost breakdown such as material costs, labor costs, equipment costs, and subcontractor costs.
• Cost estimates: Estimated costs for each component of the project, including site preparation, foundation work, structural work, electrical work, plumbing work, finishing work, etc.
• Contingency costs
• Cost comparison: A comparison of the estimated costs with the actual costs incurred during the construction process.
• Schedule of values: A breakdown of the project into separate tasks or work items, along with their respective costs and payment schedule.
• Change orders: Details of any changes to scope or design and the associated cost.
• Value engineering opportunities
• Summary of the overall construction costs, any cost overruns or savings.

Question 32

25. What factors affect the outturn of construction cost?

Answer 32

Design & scope changes

Question 33

26. What is a preliminary?

Answer 33

Prelims encompass the activities, costs, and administrative elements necessary for the successful execution of the project. They typically include site set up and management H&S i.e. PPE, temporary works, costs associated with connecting utilities and services, permits and approvals, project / contract administration, insurances & bonds.

Question 34

How you can go about Managing project costs during the construction phase

Answer 34

• Having a clear scope, budget and PTE when entering into contract
• Rigorous change management process
• Risk management process & risk pot
• Cost tracking and monitoring
• Regular cost reporting
• Full interrogation of monthly application for payment
• Communication & collaboration - Maintain good relationships with the contractor to negotiate the best prices
• Implement VE practices to identify cost saving opportunities
  PMI issued by DIO PM for additional fire strategy works, I then discussed with internal teams the time and cost to collate a quotation. The quotation was provided back to DIO within 3 weeks, DIO then have 2 weeks to assess and in this instance it was accepted and a CE issued.

Question 35

Next step after receipt of a quotation and available responses to a quotation as part of the CE process?

Answer 35

The Contractor submits quotations within three weeks of being instructed to do so by the Project Manager. The Project Manager replies within two weeks of the submission. His reply is . an instruction to submit a revised quotation,
* an acceptance of a quotation,
* a notification that a proposed instruction will not be given or
* a proposed changed decision will not be made or
* a notification that he will be making his own assessment

Question 36

28. Managing provisional sums and risk allowances.

Answer 36

• Identify risks with the provisional sums
• Identify possible areas of unclear scope where variations may occur
• Agree risk allocations with stakeholders
• Document provisional sums & risks
• Regularly review and update
• Impose rigorous change protocol and report on it regularly
• Actively mitigate risks
• Undertake a post project analysis to inform future projects

Question 37

29. Forced majeur

Answer 37

unforeseeable and uncontrollable events or circumstances that prevent a party from fulfilling its contractual obligations. These events are typically considered to be beyond the control of the affected party and are often referred to as “acts of God” or “acts of nature.” Force majeure events may include natural disasters (such as earthquakes, hurricanes, floods), war, terrorism, strikes, government actions, or epidemics/pandemics.

Relevant contract clauses typically outline the specific events that qualify as force majeure and define the rights and obligations of the parties in the event of a force majeure occurrence. They may provide provisions for the suspension, delay, or termination of contractual obligations, as well as the allocation of risks and liabilities.

Question 38

30. Housing Grants, Construction and Regeneration Act 1996 (Construction Act)

Answer 38

• Legislation that governs payment processes and dispute resolution including:
• The right to interim payments at regular intervals
• Introduction of statutory adjudication
• Suspending works for non payment
• Requirement to issue a withholding notice if they intend to pay less than the amount claimed including timeframe and reasons for
• requirement for payment notices and pay less notices
• Promotes prompt payment

Question 39

31. Subsequent changes and legislation updates following the HGCR Act 1996

Answer 39

• Local Democracy, Economic Development and Construction Act 2009
• Construction Contracts (England and Wales) Regulations 1998
• Construction Industry Scheme (CIS) Regulations
• Local Democracy, Economic Development and Construction Act 2009 (Amendment) (England) Regulations 2011

Question 40

32. Local Democracy, Economic Development and Construction Act 2009

Answer 40

Aimed to improve payment practices, enhance cash flow, and provide greater protection for contractors and subcontractors in construction contracts. 2009 legislation implemented:
* Strengthening payment procedure, requirement for payment notices, pay less notices, and consequences for failure to adhere
* Improve cashflow through timely payment
* Pay when paid certified clauses – made clauses ineffective unless certain conditions were met
* Right to suspend work for non payment
* Clarified rights and obligations and timelines of parties through the adjudication process

Question 41

33. S-curve – how this can be used as a PM

Answer 41

• Performance tracking – Review planned vs actual progress
• Forecasting – forecast the future of the project by analysing the trends
• Resource allocation – Provides insight to required distribution of resources over time
• Performance analysis – Compare actual vs planned to report and make adjustments or corrections where needed

Question 42

34. What is an S-curve

Answer 42

An S-curve is a graphical representation showing the cumulative progress or costs of a project over time, typically taking the shape of the letter “S” on a graph.

Question 43

35. S-curve in cost management

Answer 43

• Can be used to track and analyse the planned and actual cost of a project over time.
• Cost planning- estimate allocation of costs over the project
• Cost tracking – Plot the actual vs planned to compare any deviations or overruns
• Forecast and analysis – Analyse trends to forecast future spends and estimate if the project will be in budget or if actions need to be taken
• Performance measurement
• Resourcing
• Decision making – Monitoring and analysis can inform the actions taken forward by the project ie seeking additional funds, adjusting resourcing
• Reporting

Question 44

36. Conditions that must be met by the contractor in order to suspend performance due to non-payment

Answer 44

36. Conditions that must be met by the contractor in order to suspend performance due to non-payment
    For Trenchard Conditions are outlined in Clause 91.3 of the NEC3 ECC Option A contract, these include:
    * Issuing a warning notice: The contractor must issue a warning notice to the project manager, stating their intention to suspend performance due to non-payment. The notice must specify the amount that is outstanding and the date by which payment should have been made.
    * Allowing a reasonable period: The contractor must allow a reasonable period of time after issuing the warning notice for the project manager to make the payment. The specific length of this period may depend on the circumstances and the terms of the contract.
    * Compliance with the dispute resolution procedure: The contractor must comply with the dispute resolution procedure outlined in the contract. This may involve attempting to resolve the payment dispute through negotiation or other prescribed methods before resorting to suspension of performance.
    * Giving notice of suspension: If the payment is not made within the specified period after issuing the warning notice, the contractor must give a further notice to the project manager stating their intention to suspend performance. This notice should specify the date from which performance will be suspended.
    * Immediate termination restriction: The contractor is restricted from immediately terminating the contract due to non-payment. Suspension of performance is the prescribed remedy in this situation.

Question 45

37. Cost plan vs cost report

Answer 45

A cost plan is an initial estimation of project costs prepared during the planning phase, while a cost report is a document providing an analysis of actual costs incurred during the construction phase to track and report the project’s financial performance.

Question 46

38. Information contained on a payment certificate

Answer 46

• Name and address of the client and contact details
• Name of the person addressed to and their address
• Date
• Name of the project
• Number of the payment certificate
• Date the payment application was received
• Amount certified
• Next steps for the contractor for invoicing and POC
• Summary of assessment including: Contract value, CE’s implemented, gross valuation, retention, total

Question 47

39. Tools for managing and controlling cost

Answer 47

• Cost estimating, budgeting, tracking and reporting
• Robust change procedure
• Rigorous risk management
• Regular cost reporting
• S-curve analysis
• Variance analysis of planned vs actual
• Earned value management
• Identification of possible VE opportunities within cost reporting

Question 48

40. Importance of cash flow

Answer 48

• Crucial for the financial health and sustainability of any business
• Enables a business to meet their financial obligations
• Allows effective cost management
• Enables planning and budgeting
• Enhances ability to secure financing and investment
• Provides financial resources needed for growth and opportunity
• Helps a business to withstand unexpected events or economic downturns