Project Finance Flashcards
What would be included in a cost report/financial statement
Exec Summary
Contract sum
Variations
Valuations
Cashflow and s curve
Risk allowances/Contingency
Proposed final account
You have mentioned interim payments, can you please explain the timescales for payments with regard JCT.
(-)7 days - MC issue valuation
0 days - Due date
+5 days - CA Issue payment cert
+ 9 days - Client issue a pay less notice
+14 days - final date for payment
Can you briefly explain how contingency is calculated and develops through the RIBA stages
This typically refers to costs, and is an amount that is held in reserve to deal with unforeseen circumstances.
Often expressed in terms of percentages usually reducing as the project progresses up to contract.
For example:
- 15% at feasibility stage
- 10% in elemental cost plan
- 5% on the contract value
Covers 4 main areas of risk;
1. Design Development Risk
2. Construction Risk
3. Employer Instruction Risk
4. Employer Other Risk
What is a provisional sum
If employer is unsure if works are to be completed so can be taken out.
Where works are programmed and will be performed but there is a lack of design or information to price accurately.
What is the importance of a cash flow forecast?
Checks budget
Forecast final account
Track progress against cashflow
How would you manage the costs on a risk register as a project progresses?
Release contingency according to cashflow as risks are realised / not realised
What is the difference between a defined provisional sum and undefined provisional sum
Defined must be allowed for in the programme
What is the purpose of providing clients with financial statements?
Advise on project expenditure to enable them to make financial decisions and stay informed with project changes, documents our advice
What are the JCT Standard Form ‘Valuation Rules’?
Contract Rates: where work is of similar ‘character’ to work in the original Contract Documents then the valuation of the variation shall be consistent with rates, prices or amounts of work in the proceed document.
Fair Rates and Prices: Where work is not of a similar ‘character’ then it should be valued at ‘fair rates and prices’.
Dayworks: Method of valuing work which cannot properly be valued by measurement.
Contractor’s quotations
How are prelims dealt with in valuations
Broken down into fixed costs and time related costs and assessed as such rather than a %.
How is retention dealt with in valuations
Retention is deducted as per the retention bond value in the contract docs. Retention is halved once PC is reached.
How are prov sums dealt with in valuations
If the works have been completed that are associated with the prov sum and the works formally instructed they can be included.
Considerations when advising client on Cashflow
’- Holidays and cyclic events such as winter weather
- Retention (including static end for defect rectification period)
- Certification Period (Due Date to CA issuing payment cert)
- Payment Period (Payment Cert to Payment) - usually 14 days
- Sectional completion/partial possession (individual s curves and retention releases)
- Risk (either spread over S curve or using dates on risk register)
- Prov sums (these are a risk as could be over or under the value and make the cashflow in-accurate)
- Fees and development costs (Consultants fees, direct costs, VAT, materials on site)
Reasons for variance in Cashflow
Lower
- Site conditions
- Adverse weather
- Programme issues
- Various delays
Higher
- Front end loading
- Variations
- Ahead of programme
- Distressed contractor
- Cashflow not accurate
What would you include in a cashflow in addition to the direct cost of the works?
Retention
Variations
Prov Sums
VAT (maybe but complicated)
Materials on site
What would you omit in a cashflow in
Anything as long as noted to the client
VAT
Materials off site
Effect of Loss and Expense Claims on Cashflow
Update cashflow for best case and worse case loss and expense additions.
Also include for any likely programme extensions if EOT as well.
Update cashflow regularly as to when the claim will likely be paid.
Could be after PC
Cashflow can be used to assist in Loss and Expense claim. I.e. if actual expenditure does not differ greatly from the contractors cashflow. A contractor could also use a cashflow to point out that
Effect of Liquidated Damages on Cashflow
Do not include in Cashflow until extent has been formally agreed with the contractor.
Could artificially reduce liability to contractor in terms of construction costs
Note that because this is a genuine pre estimated calculation of loss overall the project should not see a saving as the LAD’s cover costs seen elsewhere because of the delay.
Effect of VAT on Cashflow
Usually not included at this is subject to the clients circumstances and requires outside advise.
Effect of procurement route on cashflow
Traditional
- Separate construction costs from design fees and risk allowances
Design and Build
- Include element of design fees and risk allowance into construction costs
Cost Reimbursable/Target Costs
- Not lump sum so cashflow forecast would initially be based on target cost
- Cashflow must be updated regularly when actual costs are known from pain/gain.
Construction Management (Packaged works)
- Follows similar to traditional but with multiple cashflows for each package
- Payment terms may be different for each package
- Payment dates will differ
- Construction manager fee to be considered
Can you explain the importance of a contractor noting they are behind cashflow?
Notes that they are behind schedule or the cashflow requires review
“Contractor gives you a cash flow forecast and you notice they are behind, what do you advise your client?”
That they might be behind programme or back loading.
If you had a contract sum and a programme from a contractor, how would you produce a cash flow forecast?
Assign contract sum against the programme tasks, produce cost incurred per month.
Why do you think a cash flow forms an S’Curve?
Enabling works cost little then bigger packages such as steel and superstructure, costs then reduce towards end for finishes and fit out.
Difference between Cost and price
Cost - cost of labour works and plant
Price - What the client will pay
Loss and Expense - Is OH+P included
Only entitled to claim for loss of profit. Cant be seen to loss.
What is purpose of financial report
Advise on project expenditure to enable them to make financial decisions and stay informed with project changes, documents our advice
What effects outturn of construction costs
Fixed cost - No impact
Provisional Sums - Costs updated (+/-) when defined and undefined prov sums are firmed up
Provisional Quantities - Where quantities are firmed up
Prime cost sums - Where specification is firmed up
Daywork allowances - When allowances for labour, plant and materials are firmed up
Variations - Instructions, anticipated instructions, loss and expense, risk allowances (contingency) and fluctuations.
How is VAT dealt with in cost reporting
Always excluded
What is change control procedure JCT
CA notifies MC of change.
Issue variation quotation (amount adjustable to contract sum and any loss or expense)
A fair and reasonable amount to produce the quotation
Client has 7 days to notify if not agreeable, if agreeable CA instructs.
What is a prime cost sum
NRM1 - Where the specification i.e. the tile brick has not been defined. But what has been firmed up is the associated BWIC and labour associated.
What is a provisional quantity
The provisional quantities of work whose specification is known, but the exact amount has yet to be determined.
What are the JCT timescales for submitting a Final Account
Contractor should submit by maximum 6 months
Final account should be agreed in 3 months following issue
What should be issued with final accounts
Substantiation to variation figures
Sub contractor quotes
Daywork sheets
Loss and expense claims with build up
Build up of fluctuations
What would be included in a fee proposal
Fee
Description works
Company profile
Scope of services
Experience/CV’s
Anticipated programme
When its valid from and to
PI insurance
