Project Finance [Control and Reporting] Flashcards
Related guidance to cost reporting?
RICS Black book:
- Cash flow forecasting 1st edition.
- Cost Reporting 1st Edition
- Interim Valuations and Payment
- Valuing Change
- Final account procedures
What is the purpose of post-contract cost / financial reporting?
- Provide overview of client’s current financial commitment
- Inform client of the likely outturn costs of the project
- Forecast outturn costs compared to budget and/or tender sum
- Give client understanding of potential savings / VE / additional monies required
- Report contract progress against pre-contract predictions
What information would you include in a post-contract cost report?
- Summary
- Contract sum
- Instructed variations
- Anticipated variations
- Provisional sum adjustments
- VE options
- Anticipated final account (forecast)
- Risk allowances / contingencies
- Cashflow forecast and certified payments
- Commentary on project status
Difference between cost and price?
- Cost is the expense incurred in the production of a product / service
- Price refers to payment required for supply of a product / service
How would you deal with a large and (in your opinion) unrealistic claim for loss and expense in your cost report?
- Report claim and highlight concern with figure submitted
- Assuming CA deems the principal of the claim is valid, I would assess the claim
- Update client on a regular basis until conclusion reached
What is a cash flow projection (/ forecast)?
Financial planning tool showing predicted flow of cash in and out of project, typically shown month-by-month
- Typically form an ‘S curve’
What formula can be used to predict anticipated payments?
S curve algorithm
Difference between employer cash flow and contractor (/ construction) cash flow projections?
- Employer -> usually considers project in broader context, may include costs such as fees (statutory, consultant, legal), charges (land acquisition, marketing and sales)
- Contractor -> construction costs
How does [the employer] benefit from accurate cash flow projections?
- Assist with planning expenditure- ensures apt funding in place
- Gain understanding of potential financial commitment at specific point in the future
- Sense check monthly contractor valuations
If payments to the contractor are behind the projection, what might this indicate?
Construction works may be behind programme
If payments to the contractor are ahead of the projection, what might this indicate?
Construction works may be ahead of programme or the contractor is over-claiming
How would you create a cashflow forecast?
- Require construction programme and CSA
- Values associated with element could be forecasted to reflect their installation within the programme
- Split works into different packages as shown on programme, include individual s-curves for each package
- (Can request cashflow from subcontractors to assist)
- Alternatively - use previous cashflow from similar scheme / cashflow forecasting software, though may not be as accurate
Different ways to produce a cash flow?
- S curve calculator to calculate expenditure over course of construction
- Use programme and pricing schedule to plot expenditure
- Request contractor to submit cashflow
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?
In reality - not very realistic, much more likely to have s-curve profile (initial spend is low as site set up and enabling works undertaken, then higher value M&E, frame during works, then minor finishing items as scheme comes to end
Components of a cash flow?
Prelim costs, work packages, OH&P, retention, expenditure of loss and expense, provisional sums, instructions, variations
Contributors to increased costs on a construction project?
- Client driven changes
- Design development
- Site specific risks (contamination, ground obstructions, logistical issues, incoming services)
- External influences (market fluctuations, tax and insurances, Brexit, COVID - depends on contract)
Methods to bring the project back in budget?
Main options are to reduce scope or assess value engineering possibilities
Would there be a potential conflict on the scheme if the EA undertook commercial aspects of the contract?
- Post contract - not really as the EA and QS scope of services are to act impartially and in accordance with administering contract conditions, so technically there shouldn’t be too much variance between their assessment of say valuations etc.
- Pre-contract (EA not appointed yet) but could be PM - if they had a favourable contractor in mind this could skew their quality assessment if they knew the status of the cost rankings
Have you produced a change control tracker? If so, how?
- Description of changes, who this was raised by and when, categorise change according to status
- Any additional comments in other column as a running commentary
What are the typical responsibilities of the cost manager on a construction project?
Depends on scope of service, may include:
- managing risk allowance expenditure
- prepare pricing documents
- tender evaluation / analysis
- prepare interim valuatoins
- value variations
- assess contractor’s financial claims
- negotiate and agree final accounts
- produce cost estimates and cost plans
- advice on whole life costs
- cost reports, forecasts
- prepare and maintain cash flow forecast
Advantages of buildability?
- Better programming, sequencing, construction methods
- Potential for reduced capital and life cycle costs and improve building performance and maintenance characteristics
What are variations?
Alterations / modifications to design, quality or quantity of the contract works / site access / working conditions
Why might they arise?
- Change to spec
- Discrepancies between contract docs / statutory requirements
- Errors and omissions
- Deficiencies in employer requirements
What form must architect’s instructions take?
- Best practice to be made in writing
- QS not usually authorised to make additions to contract sum for instructions not in written form
What would you say about oral instructions post-contract?
- Validity depends on whether form of contract has valid mechanisms
- i.e. JCT SBC- Instructions other than writing of no immediate effect- contractor shall confirm in writing receipt within 7 days, if CA doesn’t dissent within 7 days, takes effect from expiry of 7 day period
- In my opinion, best practice to follow up verbal instructions with written ones ASAP
Can the contractor object to a variation?
- Depends on the contract, i.e. JCT SBC - contractor must comply with valid instruction subject to certain exceptions
Exceptions
- Instruction might affect efficacy of CDP / compliance with CDM regulations
- Instruction might infringe patent rights
- Contractor unable to enter into contract with named specialist in instruction
What can the architect do if the Contractor doesn’t comply with an instruction?
- Depends on the contract, though in JCT, the architect is required to issue ‘notice to comply’ to the Contractor
- If contractor still fails to comply, architect can instruct another party to carry out work, with contractor liable for additional costs incurred - must obtain range of quotations and have record
