Project Finance and Cost Control Flashcards
What do you prepare a cashflow?
Follows the principles of an S curve
Pre
Programme vs Anticipated Cost
Post
Programme vs Contract value
Contractors cashflow
What is the purpose of a cashflow? Who produces one and how?
For client:
- To monitor progress against agreed programme
- To be able to monitor loan payments and withdrawing money from funder
- To manage resources
For contractor:
- To monitor subcontractor’s progress against subcontractors
- To manage resources
What are the factors contributing to cost control?
- Changes to original scope to a project
- Fluctuations on a project
- Loss and Expense claims
- Management of provisional sums
What is a prime cost sum?
Budget which should be expended on the supply only costs for materials or goods.
Can you tell me what the some of the risks on a project are?
- Ground conditions
Asbestos Containing material (for refurb project) - Site access
- Existing underground services
- Existing M&E services (for refurb projects)
What is risk allowance?
Contigency added to the base cost estimate for items that cannot be precisely predicted to arrive at the cost limit
What are provisional sums?
A provisional allowance made for an item of work that could not be determined at tender stage.
What is the different between a defined and undefined provisional sum?
- Defined provisional sum – works included in programme.
Undefined provisional sum – works not included in programme.
On your HRA Phase 4 Project – How about managing the provisional sum for the project?
I Record all PS in the cost report. Once a firm cost has been provided for the project. I assessed the cost and omitted the provisional sum and replace this with the firm cost.
How do would you asses a variation on a project?
I will look at the scope of works, and check that the quantities provide by the contractor are accurate. I will then check if there are any agreed rate that the contractor should be using. I will also check if there are any recent quotation obtain where I can benchmark the cost against. I will also review the breakdown to assess whether the contractor has allowed for elements with are above to what is required.
What is the purpose of cost reporting?
To record all known costs which can be accurately valued
To report all costs which are known and can be estimated at the date of the report
To forecast costs as can reasonably be foreseen at the date of the report
risk allowances necessary as can be reasonably foreseen at the date of the report.
What is cost control?
The process of valuing and managing changes. To ensure the project is delivered at the right price and to manage the final account
How would you prepare a final account?
- Check the contract procedures for final account including the timescales.
- Ensure to resolve all the variable costs (changes, loss and expense, liquidated damages, prime costs, dayworks, provisional sums).
- If there are any disputes which cant be resolved in any other way, the statutory obligation is to go to adjudication.
How to control costs pre and post contract?
PRE
- Cost Plans
- Value Management
- Cost Tracking
POST
- Cost Reports
- Valuations
- Variation
What would you advise your client if your behind on a cashflow?
- Behind on programme
- Resequencing of work
- Weather
- Sourcing of subbies
What if your contractor are overclaiming on their valuations and against their cashflow?
It could show:
Poor cashflow of contractor
Financial concerns to recoup cash
What is a cashflow?
Show the predicted flow of cash going in and out of a project
What is the difference between a employer cash flow and a contractor cash flow?
Contractor cash flow will typically show construction cost
Emplyoer cash flow usually consider the the orject in a broad context, might include cost such as?
- Consultant and legal fees
- Financing
- Marketing a sales charges
- Statutory authority charges
How will the employer benefit from accurate cash flow?
- Assist with planning expenditure, ensuring appropriate funding is in place
- Sense check for monthly contractor valuations
- Allows the employer to gain an understanding of the potential financial commitments at a specific point in the future
- Enable the employer to plan and anticipate for periods of cash shortage and take corrective action where necessary.
If a contractor is behind on cashflow, what might this indicate?
This could mean they are behind on programme
If a contractor is ahead on cashflow, what might this indicate?
The contractor is over claiming
What is the purpose of of post contract cost report?
- To provide an overview of the client’s financial commitment
- To inform the client of the likely out turn cost of the project account for variations, anticipated instructions
- To give the client an understanding of the potential savings or additional money required
What information would you include in a post contract cost report?
- Executive Summary
- Contract Sum
- Instructed Variations
- Anticipated variations
- Claims
- VE options
- Cashflow forecast
- Total certified payments
What is the difference between cost and price?
-Total price for labour, plant and equipment
- Include OH&P and is the amount the employer will ultimately pay for the work.
What are variations?
Alterations or modifications to the agreed scope of works
Can the contractor object to a variation?
Some contracts allow the contractor to object to an instruction in special circumstances for example:-
- In the JCT Standard Building Contract the requirement to comply with a valid instruction is subject to
certain exceptions, where:-
Where the instruction might affect the efficacy of the design of the Contractors Designed Portion.
Where the instruction might affect the contractor’s compliance with the CDM Regulations.
Where the instruction may infringe patent rights.
Where the instruction relates to a named specialist, and the contractor is unable to enter into a contract with that firm.
What can the architect do if the contractor does not comply with an
instruction?
- This depends on the form of contract being used however under JCT Suites if the contractor does not
follow an instruction, the architect will be required to issue a ‘notice to comply’ to the contractor. - If the Contractor still fails to comply, the architect can instruct another party to carry out the work and
the contractor will be liable for any additional costsincurred. - In this circumstance it is important to record the costs and obtain a range of quotations.
What 3 methods are there of obtaining a cost for variations under JCT
forms of Contract?
This depends on the form of contract being used, under JCT SBC, quotations can be made by:-
- Agreement between the employer and contractor.
- A schedule 2 quotation.
- Valuation by the QS under the valuation rules.
What are the valuation rules under JCT Forms of Contract?
There are three rules for measurable work:-
- If it is of a similar character, quantity and in the same conditions as existing work, then the bill rates should be used.
- If it is of a similar character, but different quantity or conditions, the bill rates should be used as a basis but a fair allowance should be made to take account of the difference.
- If it is not of a similar character, fair rates and prices should be used.
What are dayworks?
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.
What is loss and or expense under JCT Forms of Contract?
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.
What are the procedures for claiming loss and expense under JCT
Forms of Contract?
- As soon as the regular progress of the work is affected, or is likely to be affected, or the contractor becomes aware of any other matter that would cause them to incur loss and expense, they should notify the architect in writing.
- The contractor should submit any further information as requested by the architect.
- 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.
What are Relevant Matters under JCT Forms of Contract?
- Events listed in the Contract that entitle the contractor to loss and/or expense.
What are the relevant matters?
- There are 5 relevant matters:-
- Variations.
- Instructions.
- Execution of an approximate quantity that was not a reasonably accurate forecast of quantity.
- Suspension by the contractor for non-payment.
- Any impediment, prevention or default by the employer.
What is the key thing to remember when assessing loss and expense
claims?
It should be the actual loss incurred by the contractor
What are the common heads of claim in loss and expense applications?
Prolongation.
- Thickening of preliminaries for example extra supervision required due to variations.
- Disruption causing plant or labour to be underemployed.
- Increases in labour or material costs during the period of delay.
- Head office overheads.
- Loss of profit.
- Finance charges.
- Acceleration costs.
- Claim preparation costs
