Project Finance (control and reporting) Flashcards
What is post contract cost control?
It is the process of implementing change to the contract and communicating this to the client.
What is Financial Control?
- Current financial position
- Future position (forecast final account)
How have you demonstrated financial control on a project?
- Clear cost control process
2. Cost reporting - clear communication to client
What is a construction cash flow forecast?
Identifies the likely monthly figure the client is likely to be liable to pay the contractor over the course of the contract
Contract Sum - S Curve split over the construction programme
How would you create a cashflow?
Identify the construction cost,
length of programme
input into excel to create an s graph to show actual vs forecast expenditure
What is an S-curve?
An s curve illustrates that:
- Expenditure is slow initially while the site is made ready,
- Increases for most of the programme with trade crossover
- Tapers off to the end of the project.
How might you use a cashflow forecast on a project?
Benchmark forecast progress actual against actual progress.
E.g. progress may be in line with the forecast or it may be falling behind and the current rate of progress might indicate that the contractor is unlikely to complete the works until 3 months after the completion date.
L2 Wrexham - Project fallen behind- used rate of progress to asess likelihood of contractor achieving the revised programme. Identified that the programme was overly stacked and progress had not improved = unlikely to achieve PC date
What might you look out for at the start of a project on a contractors cash flow forecast?
Check to see if the programme had been front loaded i.e. they were not claiming a disproportionate amount at the start of the project.
What is the purpose of financial reporting?
Forecast the final account based on variations:
Prov sums
Under negotiation and
likely to arise/ at risk
What would you include in a Cost Report?
- Contract Sum
- Agreed/instructed variations
- Under negotiation
- Risk item
- Claims
- Contract Completion
Why / how could you include a risk item?
L2 - Demolition Project - £50k Provisional Sum for underground petrol tanks
Would you prefer to agree costs quickly or slowly with a contractor?
Assuming there was enough time (i.e. no impact on programme)
I would take my time to agree costs rather than agree costs ASAP.
Demonstrate fair price has been agreed rather than agree contractor price
Why would you avoid agreeing costs quickly?
Once a variation has been instructed the contract is formally varied.
By taking time you can fully understand what changes are required and interrogate the costs to ensure they in line with the market.
L2 - UPS - Level Change - Inital rates were inflated - I aligned with CSA
Why is it good practice to include a cost for a potential variation even with limited information?
If a variation is likely to occur then it is better to attribute a cost as soon as possible making sure the assumption is based on limited information.
Further information should be sought to increase the accuracy of the cost working towards formal instruction
Inform the client ASAP rather than spring costs at the last minute - better to start high and work down
What should a financial report consist of?
Contract sum Variations - outlining changes within the period anticipated change prov sum expenditure claims cash flow (anticipated vs actual) contingency risks and opportunities
Why is it important to establish an accurate valuation of the works on an ongoing basis?
If the contractor became insolvent then fund over above the value of the measured works would be at risk
What is cost control?
How might this help the client
- Having clear processes for proposing and agreeing changes.
- Clearly communicating changes in a cost report to present to the client
- Help with instructed change i.e. does it fall within the budget
Provide an example of a provisional sum that was included on UPS?
Tea Points/kitchens as location/layouts were not complete at time of contract but were agreed post contract.
Once fully detailed the MC provided SC costs plus their OHP
Prov Sum figure £35k was ommitted and replaced with new figure
How did you advise the client when the contractor approached the client to agree the final account early?
I advised that agreeing a final account figure early would likely be in the contractors favour as costs hadn’t been agreed as information from the contractor was still outstanding.
By spending more time scrutinizing costs submitted by the contractor, the cost were likely to decrease over time.
Could there be any issues (other than commercial) with agreeing the final account early?
There would likely be issues in clarifying what would be included which again would only prove to complicate the process.
How did you prepare the final account?
Agreement all of the outstanding financial matters of the projects including:
variations
loss and expense claims
provisional sums
- Reviewed the outstanding variations
- Split into our cost vs contractor cost
e. g. £100k vs £150k - Discussed with client that worse case figure compared to where I believed the figure should be
- Agreed a figure acceptable to client (Happy to split at £125k
What made agreeing the final account easier?
Financial reports as they identified all the changes that had arisen on the project.
Whilst negotiation continued on the final account, the process was made easier by knowing what had been agreed as well as what hadn’t.
How did you manage the final account process with the client? Were they involved?
The client had to be involved as they needed to indicate what figure would be acceptable for agreeing the works.
I identified the estimated final account and identified the amount which was yet to be agreed and what AECOM’s assessments outlined.
The client identified a figure in the middle of the contractor’s final account and the AECOM final account that would be acceptable to them.
This provided a clear aim to achieve on behalf of the client.
How were the M&E works managed on UPS?
M&E was reviewed by a specialist QS who commented on the report submitted by the contractor. Following on from this negotiation took place over a period of time with reviews of drawings and quotations to agree costs.
L2 - What M&E was used. Why were there variations?
Why is project financial reporting important?
Illustrate what the current financial liability of the project is.
By informing the client of the cost implications of changes to the contract aids them in being able to manage these within the project budget.
How can you control costs on a project?
- Change control Process
- Management of prov sums (dates for instruction, design lead in time)
- Monthly cost reporting / rolling final account
How can financial control help project performance / understanding?
Identifies who is responsible for risk / change
Client understands making changes can increase project costs
Clarifies which party is responsible for rather than argue at the end when it is difficult to remember details
How can financial reporting help project performance / understanding?
Communicates to client how risk has been apportioned
Used as basis for ongoing negotiation with contractor
- What are contract mechanisms for change?
Formal change request managed by CA
e.g. Level issue on UPS – build up of ramp to door
or level issue on Wrexham
1. Description of change
2. Responsible – design issue, changed by client, contractor
3. Cost and time implications
4.
How would you implement contract change for D&B?
Wrexham – Mezzanine floor – Client wished to add floor over GF
Change from ER’s; Design, Quality or Quantity or Imposition (site access, working hours, reduced working area)
Employer makes EA aware – Instruction/EAI (if immediate) or Estimate – Employer Proceed? – Change Proposal to Contractor – Contractor Price – Accepted or Negotiated
Instruction by EA – Contractor confirms within 7 days – takes effect from 7 days of confirmation
If Contractor does not comply Employer/EA can give notice – 7 days post notice 3rd party can be appointed
What is risk allocation?
D&B Contractor hold risk for design
Traditional Client holds risk for design
Who holds the risk for a traditional contract?
e.g. UPS Level had been incorrectly designed meaning a ramp had to be built up to an entrance
