Project finance and Cost reporting

Question 1

How is the RICS cost reporting guidance note structured?

Answer 1

• Best practice on cost reporting
• Purpose of cost reporting
• Reporting models – Construction, project, programme
• Reporting frequency – how often to report
• Establishing a budget
• Advising the client on the above

Question 2

What is cost control?

Answer 2

The process of valuing and managing changes. To ensure the project is delivered at the right price

Question 3

How have you provided advice to the client on cost control?

Answer 3

• Beckton depot contractor submitted
compensation event for additional ecology mitigation.

• Agreed at tender that survey would be complete but if uncovered then it was an employer’s risk.
• I assessed value of CE
• Filled out change form for approval to spend money
• Accepted CE
• Received quotation

Question 4

How will you advise on the sufficiency of the remaining budget?

Answer 4

• Review forecast costs for all anticipated changes.
• Ascertain an anticipated final cost,
• Monitor against our remaining risk allowances to ensure I keep within budget.
• If this exercise shows a risk of budget overspend, I will advise when I become aware and we can look at potential mitigation measures.

Question 5

On Beckton depot how did you advise and implement a change control procedure?

Answer 5

• Being aware of potential changes to price/completion/risks
• Assessing and managing early warnings
• If change is needed on a project getting internal authority for change
• Complete change request form detailing change and cost
• Present to change board
• Once approved accept change on project

Question 6

What is included on a change control form?

Answer 6

• Name and addresses of the client, EA and contractor
• Description of change
• Dates of when CRF was raised
• Reason for change
• Cost of change
• Source of funding
• Package

Question 7

On Beckton depot how did you draw down risk?

Answer 7

Once change control form is completed and approved funds from the risk allowance are allocated within the cost plan to the agreed changes.

Question 8

How do you ensure effective control of costs in a project?

Answer 8

• Reporting on value of work done in cost report
• Reporting on cash flow forecast
• Proactive risk and contingency management
• Implement change control process

Question 9

On Colindale Project why did you advice the client that an S curve should be used for the construction costs?

Answer 9

• Takes the shape of the letter ‘S’ when shown on a graph .
• This represents the lower level of periodic expenditure at the beginning of a contact (due to site set up and relatively inexpensive enabling works)
• Then an increase in costs due to the main construction work being delivered and most likely costing the highest proportion of the project. More staff, more plant, welfare.
• Costs level off as work decreases and resources decrease to close project out.

Question 10

You mentioned you are responsible for cost reporting to the client. Please talk me through how you would produce a cost report and how this would be presented to the client?

Answer 10

On Beckton depot I advised the client on construction costs under a lump sum contract:

I advised the cost report should include

• Contract sum
• Agreed changes
• Unagreed changes
• Lease agreement
• Internal staff cost
• Adjustment of risk allowances.

This would reported in an in house templated excel format so it could feed into the project cost report which feeds into programme cost report.

I advised reporting on costs each period – 1-13 – 4 weekly.

Question 11

How can a cost report help to monitor & control the project budget?

Answer 11

• It tracks all the issues relating to cost on a project
• Budget, forecast, expenditure to date
• Shows remaining expenditure
• Helps final account

Question 12

What are the contents of a monthly project cost report?

Answer 12

• construction costs
• professional fees
• statutory fees and charges
• third-party costs
• direct works costs
• land costs
• agency costs
• finance cost; and
• legal fees

Question 13

Are there any costs you would exclude from a cost report?

Answer 13

If it is a construction cost report i would exclude professional fees, 3rd party costs, land costs, agency costs, finance cost and legal fees

Question 14

What is the purpose of cost reporting?

Answer 14

To inform the client of the likely outturn costs.

• 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.

Question 15

What are benefits of cost reporting?

Answer 15

Cost reporting regularly and frequently will afford the client and project team the ability to control the outturn construction cost.

Question 16

How is outturn cost controlled by cost reporting?

Answer 16

Outturn cost is controlled by the recognition of cost changes incurred and planned implementation of future cost changes.

Question 17

What is good cost reporting?

Answer 17

• Always accurately track cost and changes
• Communicate changes effectively as and when required
• Keep a rolling final account
• Good cost report document to keep client informed
• Good relationship with contractor

Question 18

How often are costs reported?

Answer 18

On TfL projects (rail) the periods are split over 13 periods a year and each period a report is produced.

Question 19

What is a final account?

Answer 19

• Financial statement of all the adjustments to the contract sum and therefore the total amount the employer is liable to pay.
• End financial position

Question 20

How did you prepare the final account on Silvertown Tunnel project?

Answer 20

Check the contract procedures for final account including the timescales.

• Produced final account statement with components detailed
• Summary
• Periodic payments
• Variations
• Claims
• Adjustments
• End figure
• Provide evidence to other party
• Presented to designer
• Discussed any discrepancies
• Once in agreement both parties sign and keep a record

Send all documentation to other party for agreement

Any issues not agreeing on arrange a meeting to discuss and try to find resolution

Question 21

What is a purchase order?

Answer 21

A purchase order is a legally binding document between a supplier and a buyer. It details the items the buyer agrees to purchase at a certain price point. It also outlines the delivery date and terms of payment for the buyer.

Question 22

What are variable costs?

Answer 22

• Provisional sums
• Risk
• Loss and expense
• Liquidated damages
• Variations
• Prime cost sums
• Re-measurable contracts
• Anticipated instructions
• Fluctuations

Question 23

What are the processes for evaluating change?

Answer 23

• Schedule of rates
• Contractors quotes
• Dayworks
• First principles

Question 24

What is Daywork?

Answer 24

The monetary allowances made for the costs of labour, plant and materials, against which percentage uplifts are priced against the base rates of labour and prime cost of materials and plant.

I. E adhoc work that maybe not be covered in the contract.

Question 25

How did you reconcile invoices on the Surface transport project?

Answer 25

Forecast costs on predicted processions.

After possessions I would receive invoices from network rail and adjust the actual cost accordingly.

Question 26

Why is it important that the contingency pot is only used for risks which there was no provision for?

Answer 26

This is because these risks already have a provision in the contract and using the contingency would not be necessary. All costs which can be foreseen should have a provision within the contract.

Question 27

What factors affect the outturn construction costs?

Answer 27

• Fixed costs
• Variable costs
• Daywork allowances
• Provisional Costs
• Planned and unplanned variations
• Compensation events
• Risk Allowances

Question 28

If a client suggests there is an error in the Cost Report – how would you go about resolving the problem?

Answer 28

I would clarify what the error is with the client and then do an inspection of the error. If i find that the client is correct, I will apologize and rectify the error. I will also let the client know of my complaints handling procedure.

Question 29

How did you deal with contractor’s claims in the cost report?

Answer 29

These should be treated as unapproved changes until they have been assessed for scope and cost.

Question 30

From your own experience what costs often escalate on a project? What did you do to mitigate this? Why did you do this?

Answer 30

Changes by the client, try to ensure the scope and design is as detailed as possible before tender.

Question 31

How do you produce the cashflows on your project and why is this helpful to the client?

Answer 31

Once the project has been tendered or a contract has been entered into with the contractor then the cash flow forecasting can become more accurate. If the contract is for stage payments of milestone payments then it becomes relatively simple to plot this information and create an accurate cash flow forecast.

I planned the cash flow of the project based on the forecast completion of the activities in line with the programme for the works. Then I could plot out how much money would be required each period.

Question 32

What are defined v undefined provisional sums? How do you report on these?

Answer 32

• Defined provisional sums are those which have been described in sufficient detail

• Undefined provisional sums are less well
described and so the contractor cannot be expected to make allowance for them

• Put in a figure and adjust as costs become apparent

Question 33

What is the purpose of a cashflow for the client?

Answer 33

• To monitor progress against agreed programme

* To manage resources

Question 34

What is the purpose of a cashflow for the contractor?

Answer 34

• To monitor subcontractor’s progress against subcontractors

* To manage resources

Question 35

What is cost value reconciliation?

Answer 35

It gives you an ongoing account of a contract’s profitability by measuring cost against value at different points in a contract’s lifecycle, right through to completion

Question 36

If monthly valuations are not in line with the projected cashflow what could this imply.

Answer 36

This could mean the project is not in line with the programme

Question 37

What are the causes of valuations not in line with cash flow?

Answer 37

The contract is behind schedule or the works were front loaded by the contractor

Question 38

How do you deal with provisional sums in a cost report?

Answer 38

NEC3 does not use provisional sums, display the figure as accurate as possible given the information available. If it cannot be described then don’t include and be valued as a compensation event.

Question 39

What quality assurance can be used for cost reports?

Answer 39

ISO 9001 standards

Question 40

Why is important for the contractor to be paid on time?

Answer 40

To ensure they can pay their debts and keep a positive cash flow to avoid borrowing money.