Project Finance (Control and Reporting) SAVE

Question 1

What does Post Contract Cost Control cover ?

Answer 1

Post contract cost control covers all financial matters post award of a construction contract in administering a construction budget.

Question 2

What does it include for QS ?

Answer 2

For a QS this typically includes preparing interim valuations, change management, preparing cost reports and cash flow forecasts, final accounts etc.

Question 3

What measure QS can take during the post contract cost to effectively control cost during construction ?

Answer 3

Implement a robust change change control process
Proactive risk and contingency management
Management of provisional sums within budget
Regular cost reporting, including cost to complete forecast
Rolling final account & closure process for impact of change

Question 4

How would you report forecasted cost throughout the life of a project ?

Answer 4

By producing monthly cost reports

Question 5

Why is change control required and what it means ?

Answer 5

To provide a method of assessing and managing change by estimating consequent cost, programme and scope effect
To advise the client of the consequences of a potential change and the effect this will have on the project so the client can make an informed decision

Question 6

What legal and contractual constraints may influence project cost ?

Answer 6

Legislation e.g. planning and building regulations
Design risk allocation e.g. design change required
Cost risk allocation e.g. incorrect cost plan
Delays
Faulty materials

Question 7

When the contract sum can be amended ?

Answer 7

through:
1) Instructed variations to cover scope changes, non-scope change variations, expenditure of provisional sums
2) Extension of time -
3) Claims
4) Penalties
5) Liquidated Damages

Question 8

What issues would you consider in advising the client on change control strategies/procedures ?

Answer 8

Client’s objectives: is it cost or quality or perhaps time ?
Who will be authorizing the change on behalf of the client ?
Who will raise initial change request ? Would it always be through contract administrator ?
Confirmation from client/project manager of what costs need to be included within the change, e.g. just the construction costs or also the professional fees if applicable ?
How will the change control procedure link with contract instructions and contract procedures (e.g. RFIs) during the construction process ?

Question 9

How would you implement the change control procedure ?

Answer 9

Communicate the procedure with the rest of the project team
Report
flow chart
project execution plan
Issue proformas of Change Proposal / Change Request Form
Arrange regular Change Control meetings
Maintain Change Control Log
Ensure that a proper and timely change control procedure is followed

Question 10

What information will you include in a Change Control form ?

Answer 10

Description of a proposed change
Cost implication
Any risks attached to the change
Programme implications
supporting documents e.g. drawings

Question 11

What is the aim of cost reporting ?

Answer 11

The aim of the cost reporting is to provide the client with with a prediction of the anticipated final account.

Question 12

Why financial reporting and control procedures are important ?

Answer 12

To monitor actual cost against and budget to assist in commercial administration and have formal records.

Question 13

What is the purpose of cashflow in financial management ?

Answer 13

It projects forecast for client’s budget
It is programme management tool

Question 14

What a valuation / Final Account is likely to consist of ?

Answer 14

Preliminaries
Properly executed measured works
Contractor Design Portion
Materials on / off site
Prime cost sum and provisional sums
Variations / Claims
Advanced payment & recovery
Retention
Other deductions / credits
fluctuations
Milestone / Stage payments

Question 15

What are preliminaries ?

Answer 15

Items which are not directed related to any component, element or work section. These can include management and staff, site establishment, temporary services, security, site services, insurance, bonds, guarantees.

Question 16

How would you claim preliminaries in an interim valuations ?

Answer 16

It depends on the contract conditions. It can be based on the percentage of measured works completed
Could be cost related, time-related, fixed price single payment or combination of two or more.

Question 17

Would you pay for materials of site ?

Answer 17

Depending if the contract allows for it, if it doesn’t then no.
If contract allows for it then I would check if all the contract requirements are met for such a payment to be issued. For example is the materials’ ownership vested in the Employer.
Also I would check if materials are properly:
stored
protected
insured
clearly labelled
I would follow the valuation rules, which may allow for payment of only 70% of the invoice for the materials off site.

Question 18

What is retention ?

Answer 18

It’s a sum generally deducted at each valuation to provide client with some security that the contractor will return to correct any defects during defects liability period.
If the contractor doesn’t come back to rectify any defects the retention money can be used to fund the rectification carried out by a different contractor.

Question 19

When is the retention released ?

Answer 19

Depends on the contract conditions, usually 50% is released upon completion of the works. The remaining 50% is released when the defects liability period has expired.
The release of retention is different if there is sectional completion, partial possession or the like under the contract.

Question 20

Are there alternatives to retention ?

Answer 20

Yes, there is retention bond, retention guaranties to

Question 21

What is Prime Cost sum ?

Answer 21

There are normally linked to the nominated in the contract subcontractor or supplier and any sums paid by the contractor to the nominated subcontractors/suppliers are called prime costs. It requires authorized instructions to expend the PC sums.

Question 22

What are provisional Sums ?

Answer 22

Sums included in the tender/contract for work, which cannot be entirely foreseen at the time of tendering. It requires authorized instructions to expend the provisional sums.

Question 23

How would you check daywork ?

Answer 23

Daywork is the work in question which cannot be properly measured. So first ensure it cannot be measured and it doesn’t overlap with measured work.
Method of valuation will be based on the prime cost if labour , materials and plant + O/P
Ensure the time claimed tallies with the timesheets signed by the authorized signatories as per the contract e.g. site supervisor
Check the plant was used solely for the daywork as claimed.

Question 24

How can fluctuation be implemented ?

Answer 24

Based on the formula mentioned in the contract to adjust for inflation
Based on basic list of materials / labour costs or published indices.

Question 25

What is loss and expense claim ?

Answer 25

It deals with the reimbursement of Contractor’s direct loss and / or expenses typically due to delays or disruption resulting from design changes, late instructions etc.

Question 26

What is delay ?

Answer 26

It’s lateness. It’s happens when the critical path of the project has been impacted and therefore is delayed. Sometimes delay may happen to activities on non-critical path, in this case the contractor is not entitled to claim for time only.

Question 26

What is disruption ?

Answer 26

It’s loss of productivity

Question 27

Will the delay to a project caused by the employer always result in loss to the contractor ?

Answer 27

No, simply because the contractor has been given extension of time does not always mean that the contractor is entitled to additional payment as well.

Question 28

Is it claim for delay if the contractor incurs losses due to the progress of their work being made less efficient as a result of employers actions ?

Answer 28

No, the contractor will have a claim for disruption in this case.

Question 29

Can the profit be included in the L&E claim.

Answer 29

No, the L&E claim is for direct loss and expenses.
The profit may be recoverable under loss of profit claim however the contractor must proof that if there was no delay they could have commenced another project on their list to which they would have allocated all resources and would have earned the profit which is now lost.

Question 30

What are the four categories of risk mentioned in NRM for Estimating and Cost Planning ?

Answer 30

Design development risks
Construction risks
Employer change risks
Employer other risks

Question 31

How risk can be expressed at the early stages ?

Answer 31

It can be expressed as a percentage of the construction total.

Question 32

How risk can be identified ?

Answer 32

It can be identified by running risk register.

Question 33

How risk can be evaluated ?

Answer 33

It can be evaluated by:

Qualitative evaluation - probability and impact - High, Medium, Low
Risk Ranking - which is evaluated by multiplying probability and impact

Question 34

What is contingency ?

Answer 34

It’s a sum of money kept in case the risk materialized.

Question 35

What is value management ?

Answer 35

Value management is a team-based approach used to define the client’s objectives and ensure best value, whole-life solutions are selected to satisfy those objectives. It is not necessarily about cost cutting. The process of value management includes value engineering.

Question 36

What is value engineering ?

Answer 36

Value engineering is used to solve problems and identify and eliminate unwanted costs, while improving function and quality.

Question 37

What headings would cost report include ?

Answer 37

The cost report heading’s will include variations and potential future variations, claims (L&E) the adjustment of provisional or PC sums and any other costs which may impact the final account.