Project Finance Flashcards
You prepared cost reports for the new building on project X. Could you please explain how you treated the provisional sums in those reports?
Where you have initiated a change yourself, can you tell me the information that you included on the Change Proposal Form (CPF) prior to presenting to the client?
- Full description of the proposed change and the reason for the proposal
- Cost implications, including breakdown and basis of cost
- Any risks attached to the proposal
- Implications of functionality and quality, in conjunction with design team
- Programme implications, outlining how these were derived
- Buildability or CDM issues
- Description of the documentation, drawings, etc used and attached to the CPF
- Implication to project team fees and resource levels
- Confirmation of design co-ordination by design team
- Confirmation of funding of change control (e.g. whether funded from contingency, provisional sums, additional funding, etc) and through the change control report, it’s effect on the forecast out-turn cost
- Date required for approval
- Implications of late approval and/ or rejection of the proposed change
- Approvals box.
How would you create a cashflow forecast?
Need to know the construction programme and contract value, if we do not have this then I would use a s curve from a similar project or use a cashflow forecasting software although this may not be as accurate. With the programme and contract sum I would split the packages as shown on the programme and include individual s curves for each package.
What is the benefit of a cashflow forecast?
- Allows the employer an understanding the financial requirements over the duration of a project and help the employer manage the outturn costs.
- It can act as a check against valuations and provide an indicative understanding of any financial difficulties or whether the project is ahead or behind (however reviewing the programme and visiting site is the best measurement for this.)
What would you include within a financial report?
- I would typically include:
- Contract sum total
- Instruction variations
- Anticipated variations
- Ongoing claims
- Provisional sum adjustments
- Anticipated final account total
- Total of certified payments (Gross sum)
What is the purpose of a financial report?
- Inform the client in a construction project of the likely outturn cost of the construction project and will allow the client to control outturn costs.
- Report contract progress compared against pre-contract predictions.
What are the two main types of cashflow forecast?
- Organisational cashflow – cashflow forecast for a company
- Project Cashflow – the CFF of a particular construction contract or project?
What is Cost Control?
What are Variations and why might these arise?
These are modifications to the scope of work laid out on the construction contact. NEC do not use the term variations but compensation events. These might arise due to
1. A change in scope
2. Discrepancies between contract documents or statutory requirements.
3. Errors and omissions
4. Deficiencies in ERs.
What form must architect’s instructions take?
Best practice under majority of contracts for instructions to be made in writing. Qs is not usually authorised to make additions to the contract sum for instructions that are not in written form. If an instruction is made verbally then this must be confirmed in a an written instruction, a confirmation of verbal instruction is called a CVI.
How is a verbal instruction instructed?
- For JCT Standard Building contract – an verbal instruction will not have immediate effect, the contractor shall inform in writing receipt of the verbal instruction within 7 days, if the CA does not dissent by notice to the Contractor within 7 days from receiving the contractors confirmation it shall take effect as from the expiry of the 7 day period.
- NEC – Clause 13.1 of the contract requires each instruction to be issued in writing for any verbal instruction is issued by either the Supervisor or the PM, the contractor should request a written instruction before complying and will become a compensation event.
How would a different procurement route affect the Cash Flow Forecast?
Traditional Construction Contract – Separate Construction Cost from Design Fees + Risk Allowance
Design & Build – will include an element of design fees (novated by the design team or in hours designers) + element of risk allowances
Cost Reimbursable + Target Cost Contracts – CFF will initially be based on the estimate or target cost. Employer would have to pay actions cost + any agreed fees and any pain/gain share. As a result CFF must be updated regularly.
Construction Management (and other packages-based procurement routes) -Generally no different to traditional.
CFF will have to be amended to take account of the intricacies of this type of procurement route.
Contractual relationship are between employer and S/C therefore cashflow will become accumulation of lots of mini cashflows. -Considerations to Cashflow include >Payment dates will fall throughout the month >Construction management fee will need to be taken into account >VAT applications may be different for each contract.
Can a contractor object to a variation?
In the JCT standard building contract the requirement to comply with a valid instruction is subject to certain exceptions: where the instruction might affect the efficiency of the design of the contractors design portion, might affect the contractors compliance with CDM regulations, instruction may infringe patent rights, instruction relates to a named specialist and the contractor is unable to enter a contract with that firm.
What happens in the NEC if the contractor objects to a CE?
The contractor under NEC4 obeys an instruction which is in accordance with the contract and is given by the PM – such as a PM instruction to provide a quotation for additional work under an NEC4 contract. Otherwise you will have to go through adjudication.
What can the architect do if the contractor does not comply with an instruction?
- In JCT is the contractor does not follow an instruction, the architect will be required to issue a ‘notice to comply’ to the contractor. If they still fail to comply the architect can instruct another party to carry out the work and the contractor is liable for any additional costs incurred.
- In NEC under clause 27.3 states that the contractor is required to obey an instruction which is in accordance with the contract and is given by the project manager or the supervisor. Therefore the contractor will be at risk if they disobey and will have to go through the project dispute resolution procedure.
