PROJECT FINANCIAL CONTROL

Question 1

What is the purpose of cost reporting

Answer 1

Provides the client of the likely out-turn cost of the project & allows them to make informed decisions
The client can understand where additions/omissions have occured
It provides an estimate of the final account
It keeps the client informed and avoids surprises for the client

Question 2

What does a cost report contain

Answer 2

• Predicted cashflow against actual expenditure
• Instructed variations
• Anticipated variations
• Prov sums and prime costs
• Claims

Question 3

What are the best practices when cost reporting

Answer 3

Each cost report should state the approved budget against which the variance is being stated.

All financial allowances in the budget should be exclusive of VAT

The quantity surveyor affords the client the earliest opportunity to take action to mitigate cost increases against a provisional sum, or make use of any cost saving achieved

The quantity surveyor should include a note in the cost report to draw attention to the costs provided by others and exclude liability for the accuracy of these costs.

Question 4

What are the recommended course of actions if the likely outturn cost exceeds the budget

Answer 4

Omit elements of the construction works that are not critically required

Reduce the scale of elements e,g, size, height, spaces etc.

Reduce the specifcation of elements of works

Question 5

What are the best practices when advising a client on loss and expense on reports

Answer 5

The basis of assessment should be explained to the clients

It is difficult to ascertain the full extent of loss and expense until the contractor makes his application as there could be also prolongation and disruptions costs from its sub contractors.

Question 6

What are the best practices when reporting on LD’s

Answer 6

The amount of liquidated and ascertained damages which the client is entitled to recover from the building contractor should be reported in the cost report unless instructed otherwise by the client.

Question 7

What is a provisional sum and what types are there?

Answer 7

A provisional sum is an allowance of money for works with limited design information

Defined provisional sums are when there is limited information available however sufficient amount for the contractor to allow time and resource within his programme .
Undefined provisional sums are when there is no or very little information available where by the contractor doesn’t allow for time and resource, and entitled to extension of time and loss & expense

Question 8

What is cashflow

Answer 8

An analysis of when costs will be incurred and how much they will amount to during the life of a project.

Question 9

How would you create a cashflow forecast

Answer 9

I would need to have access to the construction programme and contract sum analysis in order to populate the cashflow.

I would split the works into the different packages as shown on the contract programme and include individual s-curves for each package.
Obtaining drawdown schedules from specialist subcontractors and professional consultants can also assist when populating the cashflow.

Question 10

What is the benefit of a cashflow forecast

Answer 10

a. Client can understand financial requirements over project duration and arrange funding
b. Used to check against valuations and indicate finanacial difficulties

Question 11

What are variations

Answer 11

Changes to the design, quality or quantity of the contract works

Question 12

Why might variations arise?

Answer 12

a. change to specification.
B. discrepancies between contract documents.
C. discrepancies with statutory requirements.
D. errors and omissions.
E. deficiencies in employer’s requirements.

Question 13

What form must architect’s instructions take

Answer 13

Written is best practice
QS should not make changes to the contract for variations which aren’t written

Question 14

Are oral instructions valid?

Answer 14

• It depends on the form of contract being used and whether they contain mechanisms for them to be valid.
• For example within the JCT DB:-
  o Where the Contract Administrator issues an instruction not in writing, it shall have no immediate effect
  o But the Contractor shall confirm in writing receipt of a verbal instruction within 7 days.
  o If the CA does not dissent by notice to the Contractor within 7 days from receiving the contractors confirmation, it shall take effect as from the expiry of the latter 7 day period.
• In my opinion it is always best practice to follow up verbal instructions with written instructions as soon as possible.

Question 15

Can the contractor object to a variation

Answer 15

Some contracts allow the contractor to object to an instruction in special circumstances for example:-

• In the JCT SBC the requirement to comply with a valid instruction is subject to certain exceptions, where:-

o the instruction might affect the efficacy of the design of the Contractors Designed Portion.
o the instruction might affect the contractor’s compliance with the CDM Regulations.
o Where the instruction relates to a named specialist, and the contractor is unable to enter into a contract with that firm.

Question 16

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

Answer 16

• 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 within 7 days, the architect can instruct another party to carry out the work and the contractor will be liable for any additional costs incurred.

Question 17

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

Answer 17

This depends on the form of contract being used, under JCT SBC, quotations can be made by:-
o Agreement between the employer and contractor.
o A schedule 2 quotation.
o Valuation by the QS under the valuation rules.

Question 18

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

Answer 18

o The architect should request via issue of an AI (EAI)
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 19

What costs does the schedule 2 quotation contain

Answer 19

• 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 20

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

Answer 20

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

Question 21

What are the valuation rules for variations under JCT Forms of Contract for measureable work

Answer 21

o If it is of a similar character, quantity and in the same conditions as existing work, then the bill rates should be used.

o If it is of a similar character, but different quantity or conditions, the bill rates should be used as a basis but a fair allowance should be made to take account of the difference.

o If it is not of a similar character, fair rates and prices should be used.

Question 22

What are the valuation rules for variations under JCT Forms of Contract for non-measurable work

Answer 22

This would typically be valued by the dayworks procedure based on the cost of labour, plant and materials that have been incurred.

Question 23

What is a star rate?

Answer 23

• 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 24

What are ‘fair rates and prices’?

Answer 24

• A market rate.
• A rate based on actual costs.
• A rate in line with current cost data.

Question 25

What are dayworks?

Answer 25

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 26

How do you treat daywork allowances

Answer 26

A separate log of all day works should be recorded
The basic rates for plant, labour, materials have been correctly recorded
The contract rates for overheads and profit have been applied correctly
That dayworks apply to the works carried out

Question 27

What information is necessary to be able to assess dayworks?

Answer 27

• Dayworks sheets/Timesheets
• 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 28

What is Prime Cost Sum and how do you assess them

Answer 28

A prime cost sum (PC sum) is an allowance, usually calculated by the cost consultant, for the supply of work or materials by a nominated contractor

Question 29

What document should the prime cost be calculated in accordance with

Answer 29

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 30

What is quantum meruit

Answer 30

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

Question 31

What is loss and or expense under JCT Forms of Contract

Answer 31

Entitles the contractor to claim for losses and expensed incurred as a result of additional work or a breach of contract

Question 32

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

Answer 32

As soon as the 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 33

What are Relevant Matters under JCT Forms of Contract

Answer 33

There are 5 relevant matters:-
1. Variations.
2. Instructions.
3. Execution of an approximate quantity that was not a reasonably accurate forecast of quantity (prov sum)
4. Suspension by the contractor for non-payment.
5. Any impediment, prevention or default by the employer.

Question 34

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

Answer 34

It should be the actual loss incurred by the contractor

Question 35

What are the common heads of claim in loss and expense
applications (what can they claim for)

Answer 35

• 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 36

What is an EA Dashboard report

Answer 36

A report produced by the EA, produced monthly, which will summarise reports and discussions at the progress meeting. This will be issued to the client.

Question 37

What does an EA Dashboard report contain

Answer 37

• Programme
• Works undertaken in the period
• Works to be undertaken in the next period
• Financial summary from the cost report
• Key risks
• Instructions Issued
• Outstanding actions
• Planning condition updates
• Building control updates
• Procurement update
• Health & Safety summary

Question 38

What is a final account

Answer 38

The final account is the conclusion of the contract sum (including all necessary adjustments) and signifies the agreed amount that the employer will pay the contractor

Question 39

What is the procedure for getting the final account agreed?

Answer 39

The Contractor needs to submit a final statement and supporting information

The client’s QS will prepare the final account

Once prepared, the QS should send all of the detail and supporting evidence to the contractor

Any points of disagreement should be discussed and negotiated

Both parties should sign the summary to show their agreement

Question 40

How is the final account shown?

Answer 40

Adjustment of provisional sums/ quants

Adjustment of prime cost sums

Contract Instructions

Anticipated instructions (which must be formalised before agreeing the final account)

Loss and/or expense.

Question 41

What are the timescales relating to the final account (under the JCT D&B 2016)

Answer 41

The Contractor needs to submit a final statement and supporting information within 3 months after PC

If the Contractor does not, the client can then submit a notice to provide the Contractor with 2 more months, in which after the client will submit their own final statement to the contractor

Question 42

When is the due date for the final payment

Answer 42

One month after which of the following occurs (unless there is a dispute that needs to be settled):

• The end of the recitification period
• The date stated in the notice of making goods

Question 43

What must the final certificate state?

Answer 43

Total adjusted contract sum

Total of all additions/deductions

Total of all previous payments made to the contractor in interim certificates

The difference – expressed as a debt due from one party to the other

Question 44

What is excLuded within the final account

Answer 44

The final account will not typically include items such as liquidated damages, VAT or interest

Question 45

What is the QS’s role regarding the final account

Answer 45

It is not the role of the QS to agree variations or final accounts. The QS’s role is to value variations in accordance with the contract and adjust the final account as necessary.

Question 46

What is the change control process on CIW

Answer 46

1. The client issues a CO form to the EA/QS (under the DFA)
2. The CO is logged and issued to the contractor (All under JCT)
3. The contractor provides cost & programme implications of the change
4. This is then reviewed by RLB QS and the tracker is updated
5. If more information in required, RLB will request this from contractor
6. Once the CO price has been agreed the Client will accept or reject the cost
7. If accepted, the EA will issue an EAI and the tracker is updated