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APC > Project finance > Flashcards

Project finance Flashcards

1
Q

What is the purpose of post-contract cost reporting during the construction phase?

A

To enable the client to make informed decisions based on potential changes and understand the impact on the project.

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2
Q

What is the importance of allowing sufficient time pre-contract?

A

Allowing sufficient time pre-contract helps reduce variations post-contract.

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3
Q

What role does an efficient change control process play?

A

An efficient change control process aligns seamlessly with contract terms and helps manage variations effectively.

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4
Q

How did you maintain oversight of the contractor’s financial position at Citi Bank?

A

By comparing monthly cash flows against the original forecasts and highlighting significant variances in the Cost Report.

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5
Q

Why is risk allowance important in post-contract cost reporting?

A

Risk allowance allows for informed decision-making by considering potential changes and their impact on the project

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6
Q

What were your responsibilities in overseeing post-contract cost management for the Canary Wharf project?

A

Conducting monthly interim valuations, preparing cost reports, evaluating post-contract variations, and managing provisional sums.

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7
Q

What were your responsibilities in overseeing post-contract cost management for the Canary Wharf project?

A

Conducting monthly interim valuations, preparing cost reports, and evaluating post-contract variations.

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7
Q

What is typically included in a post-contract cost report?

A

A post-contract cost report typically includes updates on project financial progress, evaluations of variations, and summaries of cost changes.

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8
Q

Why was managing provisional sums vital in the Canary Wharf project?

A

Managing provisional sums was vital for addressing cost variances and mitigating financial risks effectively.

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9
Q

What was the purpose of the monthly cost report in the Canary Wharf project?

A

The monthly cost report served as a crucial update for the client on financial progress, emphasizing the significant number and value of provisional sums.

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10
Q

How did you handle the considerable number of variations recorded in the Canary Wharf project?

A

Efficient summarization in a comprehensive change log database was necessary to manage the considerable number of variations.

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11
Q

How did you maintain oversight of the contractor’s financial position at Citi Bank?

A

By comparing monthly cash flows against the original forecasts and highlighting significant variances in the Cost Report.

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12
Q

What was your role in financial change control at Citi Bank?

A

Offering the client budgets, subcontractor quotes, and agreed costs to facilitate informed decisions on potential changes.

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13
Q

What visual representations were included in the Cost Report at Citi Bank?

A

Visual representations were included to highlight significant variances, ensuring transparency and addressing any cash flow issues promptly.

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14
Q

What is your role regarding cost reports in projects?

A

Regularly presenting comprehensive cost reports to clients to ensure they possess a thorough understanding of the project’s status.

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15
Q

How did you maintain the cost report as a dynamic document?

A

By enabling more frequent updates beyond the typical monthly reporting cycle and generating ‘flash reports’ as needed.

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16
Q

hat change did you implement at the initiation of the Citi Bank Project?

A

Implemented a tailored change control process aligning with the client’s cost reporting preferences in collaboration with the project management team.

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17
Q

How did you design the cost report to integrate with the client’s internal finance reporting requirements?

A

By incorporating different budgets into child tasks defined by their financial team.

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18
Q

Why did you advise the client to retain a 3% contingency allowance for material price uplifts?

A

To address foreseeing material price increases, such as steel, and mitigate potential financial risks.

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19
Q

What happened during the Sky Ripple project regarding costs?

A

Costs exceeded the initial Stage 2 budget significantly.

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20
Q

How did you empower the client to make informed decisions during the Sky Ripple project?

A

By providing an in-depth analysis of the reasons behind the cost increase, advising on contributing factors, and offering recommendations for cost reduction.

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21
Q

What initial information is needed to create a cashflow forecast?

A

Access to the construction programme and contract sum analysis.

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22
Q

How should values associated with each construction element be forecasted?

A

They should be forecasted at times to reflect their installation within the programme.

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23
Q

How should the works be divided in a cashflow forecast?

A

The works should be split into different packages as shown on the contract programme, and individual s-curves should be included for each package.

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24
Q

What additional resources can assist in populating the cashflow?

A

Obtaining drawdown schedules from specialist subcontractors and professional consultants.

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25
Q

What is an alternative approach to creating a cashflow forecast, and what is its potential drawback?

A

Using a previous cashflow from a similar scheme or using cashflow forecasting software, which may not be as accurate.

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26
Q

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?

A

A: No, it would not be realistic.

Reason 1: Cashflow expenditure is unlikely to have a flat or regular profile.
Reason 2: Expenditure typically follows an S-curve profile:
Start of Scheme: Low expenditure due to site setup and enabling works.
Middle of Scheme: High expenditure due to high-value items like steel frame and M&E installations.
End of Scheme: Low expenditure again for minor finishing items like decoration and cleaning.

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27
Q

What is one primary benefit of a cashflow forecast for the employer?

A

It allows the employer to understand the financial requirements over the project’s duration and set up any funding requirements in advance.

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28
Q

How can a cashflow forecast help with financial management during a project?

A

It acts as a check against valuations and provides an early indication of financial difficulties if actual expenditure is lagging behind the forecast.

29
Q

What would you include within a financial report?

A
  • I would typically look to include reference to:
    o a) Contract sum total.
    o b) The value of Instructed variations.
    o c) The value of potential future variations.
    o d) Ongoing claims.
    o e) Provisional Sum Adjustments.
    o e) The anticipated final account total.
    o f) The total of certified payments.
30
Q

What is the purpose of a financial report?

A
  • To report against budgeted values and act as a working cost check on the project budget.
  • To give the Client an understanding of any savings or additional monies required.
  • To report contract progress compared against pre-contract predictions.
31
Q

What are variations?

A
  • Alterations or modifications to the design, quality or quantity of the contract works or to the site access
    or working conditions.
32
Q

Why might variations arise ?

A
  • a) change to specification.
  • b) discrepancies between contract documents.
  • c) discrepancies with statutory requirements.
  • d) errors and omissions.
  • e) deficiencies in employer’s requirements.
33
Q

What form must architect’s instructions take in terms to variations?

A
  • It is best practice under the majority of contracts for instructions to be made in writing.
34
Q

Why is it best for QS that instructions are to be made in writing ?

A
  • The QS is not usually authorised to make additions to the contract sum for instructions that are not in
    written form.
35
Q

What determines the validity of oral instructions in a construction contract?

A

The form of contract being used and whether it contains mechanisms for oral instructions to be valid.

36
Q

How are oral instructions handled in the JCT Standard Building Contract (SBC)?

A
  • If the Contract Administrator issues an oral instruction, it is of no immediate effect.
  • The Contractor must confirm receipt of the verbal instruction in writing within 7 days.
  • If the Contract Administrator does not dissent within 7 days of receiving the Contractor’s confirmation, the instruction takes effect after the 7-day period.
37
Q

What is considered best practice regarding verbal instructions?

A

It is always best practice to follow up verbal instructions with written instructions as soon as possible.

38
Q

Can the contractor object to a variation?

A

Some contracts allow the contractor to object to an instruction in special circumstances.

39
Q

Under what conditions can the contractor object to an instruction in the JCT Standard Building Contract?

A
  • If the instruction might affect the efficacy of the design of the Contractor’s Designed Portion.
  • If the instruction might affect the contractor’s compliance with the CDM Regulations.
  • If the instruction may infringe patent rights.
  • If the instruction relates to a named specialist, and the contractor is unable to enter into a contract with that firm.
40
Q

What is the first step an architect can take if the contractor does not comply with an instruction under JCT Suites?

A

The architect is required to issue a ‘notice to comply’ to the contractor.

41
Q

What can the architect do if the contractor still fails to comply after receiving a ‘notice to comply’?

A

The architect can instruct another party to carry out the work, and the contractor will be liable for any additional costs incurred.

42
Q

What is important to do if another party is instructed to carry out the work due to the contractor’s non-compliance?

A

It is important to record the costs and obtain a range of quotations.

43
Q

What 3 methods are there of obtaining a cost for variations under JCT forms of Contract?

A
  • This depends on the form of contract being used, under JCT SBC, quotations can be made by:-

o Agreement between the employer and contractor.
o A schedule 2 quotation.
o Valuation by the QS under the valuation rules.

44
Q

What initiates the request for Schedule 2 quotations under JCT SBC?

A

The architect should request via the issue of an Architect’s Instruction (AI).

45
Q

If the contractor agrees to provide a Schedule 2 quotation, how long do they have to submit it?

A

The contractor has 21 days to provide the quotation.

46
Q

How long does the contractor have to notify if they will not provide a Schedule 2 quotation?

A

The contractor has 7 days to notify that they will not provide one.

47
Q

How long does the architect have to confirm the acceptance or rejection of the Schedule 2 quotation?

A

The architect has 7 days to confirm in writing the acceptance or rejection.

48
Q

What is the term for the architect’s written acceptance of a Schedule 2 quotation?

A

The acceptance is called the ‘confirmed acceptance’.

49
Q

What costs does the schedule 2 quotation contain?

A
  • Value of the work.
  • Any adjustment of time.
  • Money in lieu of direct loss and expense.
  • The fair and reasonable cost of preparing the quotation.
50
Q

What costs is the contractor entitled to if the schedule 2 quotation is
rejected?

A
  • The fair and reasonable cost of preparing the quote, as long as the quote itself was fair and reasonable.
51
Q

What are the three valuation rules under JCT Forms of Contract for measurable work?

A
  1. Similar Character, Quantity, and Conditions: Use bill rates.
  2. Similar Character, Different Quantity or Conditions: Use bill rates as a basis with a fair allowance for differences.
  3. Not of Similar Character: Use fair rates and prices.
52
Q

What are the three valuation rules under JCT Forms of Contract for NON measurable work?

A
  • This would typically be valued by the dayworks procedure based on the cost of labour, plant and
    materials that have been incurred.
53
Q

What is a star rate?

A
  • A rate that is based on the bill rates but includes a fair allowance.
54
Q

What are ‘fair rates and prices’?

A
  • A market rate.
  • A rate based on actual costs.
  • A rate in line with current cost data.
55
Q

What document should the prime cost be calculated in accordance
with?

A
  • This should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out under Building Contracts’ published by the RICS.
56
Q

What are dayworks?

A
  • The prime (actual) cost of all the materials, labour and plant used in carrying out the work, along with a
    percentage additions to each category as set out in the contract.
57
Q

What information is necessary to be able to assess dayworks?

A
  • Vouchers showing the amount of time spent on each activity (dayworks sheets).
  • Names of the workmen.
  • Plant and materials used.
58
Q

Can the QS alter hours which he considers to be excessive on a
dayworks sheet that is authorised by the architect?

A
  • No the hours recorded and signed off should be maintained within the variation.
59
Q

What is the first step when a contractor submits 10 daywork sheets for payment?

A

Verify with the architect that a relevant variation has occurred and is recorded on an Architect’s Instruction.

60
Q

What should be done if an Architect’s Instruction is in place and no other valuation mechanism is available?

A

Seek verification of the hours and materials.

60
Q

What should you check after verifying the variation with the architect?

A

Ensure there is no other contractual method of valuing the variation.

61
Q

What is quantum meruit?

A

This translates to ‘what he deserves’ for example fair and reasonable costs that have been incurred.

62
Q

Give an example of where quantum meruit might be used

A

If the employer and contractor reach a separate agreement on acceleration, the costs of this may be based on a ‘fair and reasonable’ basis.

63
Q

What is loss and or expense under JCT Forms of Contract?

A

L&E reimburses the contractor for direct loss and/or expense incurred in carrying out additional work
or from an employer’s breach of contract.

64
Q

What is the first step for claiming loss and expense under JCT Forms of Contract?

A

Notify the architect in writing as soon as the regular progress of the work is affected, or is likely to be affected, or when the contractor becomes aware of any other matter that would cause them to incur loss and expense.

65
Q

What should the contractor do after notifying the architect?

A

Submit any further information as requested by the architect.

66
Q

What additional information may be required for claiming loss and expense?

A

The contractor should also submit any further information as requested by the Architect or QS to enable the amount of loss and expense to be ascertained.

67
Q

What are Relevant Matters under JCT Forms of Contract?

A

Events listed in the Contract that entitle the contractor to loss and/or expense.

68
Q

What are the 5 relevant matters?

A

o Variations.
o Instructions.
o Execution of an approximate quantity that was not a reasonably accurate forecast of quantity.
o Suspension by the contractor for non-payment.
o Any impediment, prevention or default by the employer.

69
Q

What is the key thing to remember when assessing loss and expense
claims?

A
  • It should be the actual loss incurred by the contractor.
70
Q

What are the common heads of claim in loss and expense
applications?

A
  • Prolongation.
  • Disruption causing plant or labour to be underemployed.
  • Increases in labour or material costs during the period of delay.
  • Acceleration costs.
  • Claim preparation costs.

APC (20 decks)

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