Project financial control Flashcards
If asked by the client to produce a Cashflow analysis how would you do this
“Plotting S-Curve
Review of programme/ works to forecast the spend across the months”
What can cashflows be used for
To forecast the monthly spend
What are the different components of a cost report
"Cover QA/QC Contract details Executive summary (current condition, cashflow, programme etc) Provisional Sums EAI's Potential EAI's Contentious issues Cashflow section Warranty tracker Last payment cert"
What are the different types of contingency and how would you calculate an allowance
“Construction Risk - Ground risk, existing buildings
Design Development Contingency - Planning changes, procurement delays, statutory requirements
Employer Change Risk - Changes in scope, quality, time
Employer other risk - Early handover, acceleration, LAD’s
Properly considered assessment not percentage based on design completion , uncertainty and investigation done
What is a provisional sum and how is it expended
“Provisional sum is a an allowance for an as yet undefined scope of works
Defined - Nature of the works, how to be fixed, programme included
Undefined - Cannot be defined or allowed is an allowance without detail”
What is a Final account
“Financial conclusion of works
It includes all adjustments made within the contract sum”
Are LAD’s included within a final account
No
How do you agree a variation with a contractor
“Following the valuation rules within the JCT
Contract rate
Similar contract rate
Fair rate for works
Labour and materials”
Are verbal instructions legally binding under the JCT
Yes
Under JCT D&B who is responsible for issuing a Final Account statement
Contractor
What is VE
Value Engineering - Re active approach to reduction of cost but maintain functionality
Can you pay for materials off site
“Yes
Listed items in the JCT
Through a Vesting cert”
What is a Vesting Cert
“Vests the ownership to the client
Ensure they are insured and stamped and separate”
Why is financial control so important
“Pre Contract
Allows the client to understand the cost of the current design and if this is inline with their budget
Allows the client to allocate their budget/VE if required
Post Contract
Allows the client to understand the predicted outturn cost (Final account)
Cashflow to ensure that finances are available through the scheme
Allows client to understand exposure to risk, anticipated variations & costs, Contentious items, EOT’s L&E “
How do you agree a final account
“It can be a protected process. We review EAI’s agreed ensure included.
Provisional sums included adjusting for the actual cost
Resolution of contentious items
May require negotiation to resolve the final items of costs”
Who submits a final account and when
“Contractor submits final account
I. Following PC contractor must submit FA
ii. If not submitted within 3 months employer may give notice. If not submitted within a further 2 months employer can issue final account statement.”
What is anticipated change
“A change that we expect to come through the works but have not yet been submitted or agreed between the parties
We would include a reasonable assessment of the cost”
Why is cashflow important
“Provides client understanding of monthly spend to align internal finances
Can understand progress on site
If ahead why?
Ordered materials on site to mitigate potential delays
Making better progress of works on site
Instruction of variations
If behind why?
Slower progress being made - Delay
VE/Reduced scope
“
What is a provisional sum
It is an allowance or estimate included within the contractors contract sum for works that cannot be clearly defined/ identified yet. These can be defined or undefined
What is a defined provisional sum
Defined - has details of what is required and how these works will be fixed. For a defined provisional sum programme, planning & prelims pricing implications are included
what is an undefined provisional sum
Undefined - Is an allowance programme is not included. Contractor entitled to EOT/ indirect costs as a result of specifying these works
What is contained within your monthly cost report
"Cover QA Content Contract details Exec summary Cashflow Provisional sums EAI's Anticipated variations Contentious issues Collateral warranty tracker Latest payment cert"
How do you include contingency
“Under NRM this is divided into:
Construction Risks – Ground conditions, existing buildings, access restrictions
Design Development Risks – Changes in estimating data, 3rd party risks (planning,
legal agreements, environmental issues), statutory requirements, procurement
methodology, delays in tendering
Employer Change Risks – For use during design and construction for employer driven
changes (scope, quality and time)
Employer Other Risks – Early handover, postponement, acceleration, availability of
funds, LADs, special contractual arrangements
· As risks occur, they are funded from this contingency pot. Once the risks are no longer an
issue, funds can either be returned to employer or transferred to another risk if required
(this is to be decided by the employer)”
How do you forecast costs for unpriced variations
JCT pricing way
- contract rate
- similar rate
- fair assessment
- labour plant materials
How do you ensure effective control of costs on a project
“Proactive risk and contingency management
Implementing a robust change control process
Management of provisional sums within budget
Regular cost reporting which is also forward looking
Rolling final account with closure process for financial impact of change”
What are the risks to construction projects
“External risks: economic, legal, political
Procurement Risks
Choice of Contract
Financial risks: exchange rate, funding
Site risks: Restricted, occupied site, planning difficulties, access, environmental
Client risks: lack of experience, multi-headed client, likelihood of post contract changes.
Design risks: inappropriate consultant team, poor brief, incomplete design, co-ordination.
Selection of appropriate contractor: inadequate selection process
Construction and delivery risks: weather, constructability, H&S, availability of resources”
How do you value day works
“Either with a rate that excludes OH&P
‘All inclusive rate’ - includes OHP”
What is the purpose of change control
“Effective cost control
Auditable instructions
Method of assessing and managing change
Ensure fully justifiable instructions and implications understood”
Why is the cashflow shaped like an S curve
“Costs are cumulative so it ascends
Resources at start are minimal
As construction kicks in more resources are required making it steeper
Towards the end less resource needed to it flattens”
What considerations are needed when creating a cost report protocol
“Content & format
Timing & frequency
Interaction with other parties
Distribution
Method of presentation”
What are the JCT fluctuations provision
“3 Options
Option A - Adjustment for legislation change
Option B - Labour material & tax changes
Option C - Formula adjustment subject to limitations in the contract”
What is included within a valuation
"Prelims Fees Works complete on site Materials on site Materials off site Prov sums Instructions deduction of retention"
What is a performance bond
Performance bond is an insurance back guarantee should the contractor default against their obligations
when would you need a performance bond
“New contractor
No financial accounts”
Would you pay for insurance upfront
“No. I would draw it down monthly against the progress of works
As the employer would not get the benefit if the contract was terminated”
What is included within a Final account
“Prov sums - Instructed expended or omitted
Loss and expense
Adjustments for approximate quantities
Any other items affecting total cost”
What is the valuation process
“Planning - Agree with contractor the format
Pre-evaluation - Review what the contractor has submitted
Valuation - Attend site an check the works claimed have been completed
Agreement - Discuss and agree with the contractor the value that will be paid
Valuation documentation - Produce documentation get these QA’d
Issue valuation - Issue to contractor and client
Post valuation - maintain records of payments”
What are listed items
Items within the contract that can be paid when off site
It is insured through the contract
Contractor must evidence it is vested to them
May be required to provide a bond for them
Must be rigorously checked as you would with vested materials
3 questions to ask about a cashflow
“Is it based on valuation date or payment date
Should it be gross or net
Should it include retention and rectification periods”
Can you give me an example of when you have utilised GRAPHICAL communication skills in providing information to a client?
yes I have used the S curve graph to display the data of my cash flow for the project to the client
what would you do if a client asked you to remove the contingency from a cost report
advise against unless the risk had been resolved
if still wants it done summarise in writing and do
can you advise on a change control procedure you have implemented on your schemes
Client change request/ contractor identification of change requirement
Contractor Price
CPC Review and negotiate or confirm with client intent to proceed
CPC issues EAI to advise all parties of instructed change
CPC record in Cost report issued to client to include within final account
