Project Finance Flashcards
What is the purpose of a cost report?
‘To inform the client in a construction project of the likely outturn cost of the construction project and enable them to make informed decisions
What would you include in a cost report?
- Contract Sum
- Value of Instructions
- Anticipated Employer’s Instructions
- Ongoing Claims
- Provisional Sum Adjustments
- Anticipated Final Account
- Cash Flow
- Risks
What could affect a contractor’s cash flow post-contract?
- Contract Instructions
- Provisional quantities or sums
What is a cash flow forecast?
A graph or table that shows the projected costs needed to fund the project throughout its programme. It allows the employer to track their actual expenditure against the forecast.
How would you put together a cash flow? What is it used for?
By valuing the work against the programme. You map out how much work should have been completed month by month and usually present this data in a table and a graph format.
Talk me through how you would complete an interim valuation from receiving the contractor’s application to issuing the documents, including timescales.
JCT Design & Build
- Schedule a site walk to agree the valuation within 7 day of reciept.
- Review and agree the preliminaries, works completed on site, materials on site, any variations or adjustments, materials off site (if applicable / via vesting). Then agree the amount payable which is the total amount executed to date less the amount previously paid.
- The due date is 7 days after the date of issue and the tender recommendation needs to be issued to the employer on this date.
What would you advise a Client if a Contractor’s Application for Payment was grossly different to your cash flow forecast?
The advice I give would depend on whether the application was higher or lower than anticipated.
Higher - front end loading, possible stokpiling of materials on site, or contractor might be having cashflow issues.
Lower - contractor may be behind programme.
If the contractor has submitted a valuation which is much greater than the forecast final account and the EA/CA doesn’t issue a payment notice, what happens?
If the QS doesn’t issue a payment notice by the due date then the contractors valuation becomes the payment notice and the employer has to pay the contractor the sum they have applied for. In this instance, the employer would need to issue a pay less notice.
What are the benefits of plotting actual expenditure against predicted?
It gives the client opportunity to get additional funding if required.
Why do we have a change control procedure on a project? How does the QS contribute to this?
The change control procedure is used to monitor additional expenditure. The QS Will be able to advise the client of predicted costs prior to them being formally agreed with the contractor, and value them to ensure the contractor is getting best value for money.
In cash flow forecasting how is retention dealt with?
You would reflect the retention in the cash flow.
What should you do if a Contractor fails to submit a valuation?
JCT Intermediate
You should contact them and advise them of their contractual obligations to submit a valuation 7 calendar days before the due date. If the contractor still doesn’t submit a valuation the QS will then undertake their own valuation of the works.
JCT Design & Build
In D&B you wait for the contractor to issue a valuation. The due date and payment certificate date remains the same and if missed under D&B then the dates slide back.
When carrying out a valuation, the previous months Payment Recommendation and Payment Notice are different, which one takes precedence?
The payment notice as this includes any pay less notices
What are day works? What are the risks associated with using them?
Day works are used when a variation or change is instructed on the basis of the cost of labour, materials and plant plus a mark up.
Difficult to monitor and record whether or not the contractor has spent the whole day doing the works or not.
What is the purpose of a cost report?
To inform the client in a construction project of the likely outturn cost of the construction project, enabling them to make informed decisions
Talk me through how you would complete an interim valuation from receiving the contractor’s application to issuing the documents, including timescales.
On the office fit-out at Devonshire Square;
- Receive the application from the contractor. I then review and agree the valuation with them by the due date, which is 7 days after receipt.
- On the due date I issue the recommendation to the Employers Agent.
- The Employer’s Agent then has 5 days to issue the payment notice
- The final date for payment is 28 days from the due date
- If necessary, the employer has to issue the pay less notice no later than 5 days before the final date for payment.
Why do we have a change control procedure on a project?
The change control procedure is used to monitor additional expenditure.
In cash flow forecasting how is retention dealt with?
You would reflect this in the cash flow and should know the different standard retention %’s.
What does the term front loading mean?
When costs are applied disproportionately to the beginning of the project with the aim of offsetting any negative impacts of the cash flow.
What could it suggest if the Contractor is applying for interim valuations for far greater value than the cash flow forecast?
- Ahead of programme
- Provisional sum was firmed or instruction issued with a greater value
- Front loading
- Materials being stockpiled on site
- Errors
What are two ways to secure off-site materials?
- off site materials and goods bond
- vesting certificate
What is an off-site materials and good bond?
A guarantee ensuring that the employer is reimbursed if materials or goods stored off-site, intended for the project, are not delivered or become damaged before reaching the construction site.
Typically, on-demand bond.
What is a vesting certificate?
A method of securing off-site materials.
When might a vesting certificate be appropriate?
When materials need to be paid for before they’re delivered to site.
