Project Finance

Question 1

What is a provisional sum

Answer 1

An allowance for an element of the works that is not defined in enough detail for tenderers to accurately price

Question 2

What’s the difference between defined and undefined prov sums

Answer 2

The contractor is expected to incorporate defined prov sums into their:

Programme
Prelims
OH&P
Design risk

Question 3

What’s the disadvantage to the client of undefined prov sums

Answer 3

The contractor may be entitled to an EoT and/ or additional payments when the works are undertaken

Question 4

What’s a prime cost sum as per NRM1

Answer 4

A supply only rate for materials or goods

Question 5

What costs does a prime cost sum exclude

Answer 5

Labour

Materials required for installation

Design fees

Prelims

OH&P

Question 6

What are fluctuations

Answer 6

Financial adjustments made to the original contract to compensate the contractor for inflation

Question 7

What’s the final account

Answer 7

The conclusion of the contract sum and signifies that agreed amount that the employer will pay the contractor

Question 8

What’s the purpose of a final account meeting

Answer 8

To focus on agreeing the outstanding items.

Question 9

What are the main headings in a final account statement

Answer 9

Contract Sum

Contract instructions

Provisional sum adjustments

Loss and expense

Liquidated damages

Fluctuations

Question 10

What are Daywork allowances

Answer 10

Monetary allowances made for the costs of labour, plant and materials for ad-hoc work required throughout the contract where valuing by reference to contract rates isn’t appropriate.

Question 11

Define change control

Answer 11

The administrative process that implements the contract mechanisms for instructing change

Question 12

How are daywork allowances tracked

Answer 12

Daywork sheets submitted by the contractor and signed off by the CA and reported on a monthly basis

Question 13

What’s the definition of a variation

Answer 13

Any change to the contract specs or drawings

Question 14

Define contract instruction

Answer 14

The financial adjustment arising from instructions for variations to the contract works

Question 15

Define loss and expense

Answer 15

Additional costs incurred by the contractor arising from delays or the disruption to the performance of the contract caused by the employer

Question 16

What date in the contract are fluctuations calculated against

Answer 16

Base date

Question 17

When is the 2nd retention release due

Answer 17

After the defects liability period

Question 18

How is the 1st retention release dealt with if the final account Isn’t agreed but PC has been issued

Answer 18

The Employer is entitled to release only up to the amount they believe is payable under the contract until the final account is agreed

Question 19

Whats the difference between patent and latent defects

Answer 19

Patent defects can be discovered via reasonable inspection

Question 20

What would the preferred scenario be for dealing with a defect prior to issuing a final account

Answer 20

Alert the contractor of the defect and give them the opportunity to make good. The final account can then be agreed as if the defect didnt happen

Question 21

What happens if the contractor doesnt make good a defect prior to issuing the final account

Answer 21

The Employer can employ a different sub-contractor and then deduct the cost from the final account

Question 22

How is a defect dealt with during the defects liability period

Answer 22

The contractor has the chance to make good at their own cost. If the defect isn’t dealt with then a separate contractor can be appointed and the cost deducted from retention

Question 23

How are liquidated damages deducted from the final account

Answer 23

Pay less notice

Question 24

Whats set off/ contra charging

Answer 24

Where the employer recovers costs from the contractor that he contractor has caused the employer to incur

Question 25

What is the standard amount of time under a JCT that the final account should be issued

Answer 25

No later than 3 months after receipt of information supplied by the Contractor (can be amended)

Question 26

What info should the contractor provide to ascertain the final account

Answer 26

Substantiation of variation figures Subcontractor quotes (if applicable) Daywork sheets Loss and expense claims Build up of fluctuations

Question 27

How long does the contractor have to issue their information from PC in preparation of the final account under a JCT

Answer 27

3 months

Question 28

If a final account cannot be agreed (in dispute) what are the next steps

Answer 28

Ideally mediation if not adjudication then arbitration/ litigation

Question 29

What are the 4 most common reasons for not agreeing a final account

Answer 29

Validity of claimed variations Value of variations Liquidated damages Loss and Expense Claims

Question 30

What should be carried out in order to ensure the final account is fair

Answer 30

An audit of final accounts

Question 31

Why would final accounts need settling in the middle of a project

Answer 31

If the contractor or employer is going into liquidation or administration Contract is being terminated

Question 32

Whats the purpose of a cost report

Answer 32

To inform the client of the forecast cost at a given time

Question 33

What are the typical financial cost report headings on your Leeds D&B scheme

Answer 33

Contract sum Variations (instructed and anticipated) Loss and Expense/ Liquidated Damages Provisional Sums Risk allowance

Question 34

What should the QS review to identify anticipated variations

Answer 34

Instruction requests issued by the contractor Drawing revisions Spec revisions

Question 35

Up to which point should the cost report apply fluctuation amounts

Answer 35

Up to the value of work carried out to date

Question 36

Which 3 courses of action can be taken in the case of cost increases above the brief or approved budget

Answer 36

Omit elements of remaining work that aren't critical for the buildings function Reduce the scale of remaining elements Reduce the spec of the remaining work

Question 37

What should be considered when advising the client of the whole life impact of potential cost savings

Answer 37

Capital costs saving Renewal cost and frequency impact Operating costs Maintenance costs End of life cost

Question 38

What should be considered when advising on the impacts of potential cost saving methods

Answer 38

Programme impact Other cost element impacts Statutory compliance Asset value impact Funding conditions

Question 39

What’s the formula for calculating a prime cost sum

Answer 39

Prime cost = Raw materials + Direct labour

Question 40

Do prime costs include labour for workers who directly contribute to the formation of the product

Answer 40

Yes

Question 41

What are the high level cost report headings on your Leeds project

Answer 41

Title Contents Exec Summary Finance overview Detailed finance review Cashflow Project Risks

Question 42

Name some finance costs (monitoring)

Answer 42

Interest Valuation costs Arrangement fee Exit fee Monitor fees

Question 43

Are liquidated damages a penalty

Answer 43

No

Question 44

When can liquidated damages be levied

Answer 44

Upon issue of a cert of non completion

Question 45

What’s it’s called when the contract completion date has passed without an extension of time

Answer 45

The contract is at large

Question 46

If a contractor says they’re in delay what can you suggest they do to get the programme back on track

Answer 46

Accelerate Re sequence Use float

Question 47

How can you check that the contractor is in delay against their programme when they request an EoT

Answer 47

Review progress against the critical path