Project Finance (Level 3)

Question 1

What are the contents of a cost report?

Answer 1

Current costs; CSA
Variations both instructed and anticipated
Loss & Expense
Prov sums both expended and unexpended
Cashflow section
Risk items section
Contingency drawdown
Current valuation snapshot
Final outurn cost

Question 2

What is a cashflow?

Answer 2

A cashflow shows the predicted expenditure of the project over the duration of the works. This can be done pre and post contract. It typically takes the shape of an S curve.

Question 3

How would you produce a cashflow?

Answer 3

I would typically produce a cashflow in pre contract stages. I would take my latest cost plan and benchmark against the project managers programme when key packages are likely to occur.

I would then account for items such as retention and any advance payments.

Question 4

What could it indicate if a contractor is ahead on cashflow?

Answer 4

Possible ahead of programme and making positive progress, possible to have advance payments that weren’t previously captured, possible front loading from the contractor, original cashflow have been inaccurate.

Question 5

What could it indicate if a contractor is behind on cashflow?

Answer 5

Possible delays on project. Possible resequencing of works. Advance payments previously accounted for not required.

Question 6

What is the difference between a defined and undefined provisional sum?

Answer 6

Defined provisional sums are included into the contractors works programme whereas undefined there isn’t enough information.

Question 7

Why is it important to manage cost both pre and post contract?

Answer 7

Pre contract cost management is essential to make sure that the tender returns are close to the budget allowance.

Post Contract is important as any unexpected changes can be identified early, and changes can be made to keep everything running smoothly and to budget.

Question 8

What can the architect do if the contractor does not comply with an instruction?

Answer 8

• 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 costs incurred.
• In this circumstance it is important to record the costs and obtain a range of quotations.

Question 9

What 3 methods are there of obtaining a cost for variations under JCT forms of Contract?

Answer 9

• 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.

Question 10

What are the time periods for Schedule 2 quotations under JCT SBC?

Answer 10

o The architect should request via issue of an AI.
o The contractor has 7 days to notify that they will not provide one.
o If not, they have 21 days to provide the quotation.
o The architect then has 7 days to confirm in writing the acceptance or rejection.
o The acceptance is called the ‘confirmed acceptance’.

Question 11

What costs does the schedule 2 quotation contain?

Answer 11

• Value of the work.
• Any adjustment of time.
• Money in lieu of direct loss and expense.
• The fair and reasonable cost of preparing the quotation.

Question 12

What costs is the contractor entitled to if the schedule 2 quotation is rejected?

Answer 12

The fair and reasonable cost of preparing the quote, as long as the quote itself was fair and reasonable.

Question 13

What is a star rate?

Answer 13

• A rate that is based on the bill rates but includes a fair allowance.
• To deviate away from the bill rates there must be a reason as to why the star rate is being adopted.
• This may be because the conditions on site for installation are more complicated that first envisaged.

Question 14

What are dayworks?

Answer 14

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.

Question 15

What document should the prime cost be calculated in accordance with?

Answer 15

This should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out under Building Contracts’ published by the RICS.

Question 16

What information is necessary to be able to assess dayworks?

Answer 16

• Vouchers showing the amount of time spent on each activity (dayworks sheets).
• Names of the workmen.
• Plant and materials used.
• This information should be given to the architect or authorised person at the end of the week for verification.

Question 17

If you and the contractor’s QS could not agree on something how would you resolve it?

Answer 17

• I would discuss with the partner and client to try and seek a resolution with the contractor.
• The contractor could take the dispute to adjudication if necessary but all parties should try and resolve the matter by negotiation in the first instance.

Question 18

What is quantum meruit?

Answer 18

This translates to ‘what he deserves’ for example fair and reasonable costs that have been incurred.

Question 19

What is loss and or expense under JCT Forms of Contract?

Answer 19

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.

Question 20

What are the procedures for claiming loss and expense under JCT Forms of Contract?

Answer 20

• 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.

Question 21

What are the relevant matters?

Answer 21

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.

Question 22

What is the key thing to remember when assessing loss and expense claims?

Answer 22

It should be the actual loss incurred by the contractor.

Question 23

What are the common heads of claim in loss and expense applications?

Answer 23

• 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.

Question 24

What are the final account proceedures under JCT?

Answer 24

Once PC is reached the Contractor has 3 months to submit the FA

If this is missed, Employer writes to them and they have 2 months extra

If this is missed, the QS has 28 days to value the works and that is binding.