Project Financial Control and Reporting Flashcards
What have you included in your projects cost reports?
NEC4 Option A Cost Report:
- Executive Summary
- Contract Sum
- Implemented Compensation Events
- Forecast Compensation Events
- Quantified Risk Register
- Forecast Final Account
What is the compensation event procedure under NEC4 contracts?
PM Instructs or Contractor notifies. Contractor has 3 weeks to provide quotation. PM has 2 weeks to assess and instruct revision, implement or notify intention to PMA.
Contractor must notify within 8 weeks of becoming aware of the event. Ideally an EWN will have been given in relation to the event to allow mitigation of the risk.
How is defined cost calculated?
Defined cost is the sum of the components of the schedule of cost components plus the fee.
Cost Components:
- People
- Equipment
- Plant and Materials
- Subcontractors
- Charges
- Manufacture and Fabrication
- Design
- Insurance
What is value engineering?
Value engineering is the process of improving function whilst maintaining cost, or maintaining function whilst reducing cost.
What is the difference between value engineering and value management?
Value management focuses on achieving value for the client in line with their requirements and brief. It primarily takes place in the initial stages of a project where a design has not been developed. Value engineering takes place from Stage 2 design onwards where tangible changes can be made to the developed design to give financial/functional benefits.
How does a pain gain contract work?
The contract was an NEC4 option C contract with a target cost (initial contract sum (target) plus implemented compensation events). The contract data part 1 set out the pain/gain share thresholds and any difference in the defined cost above or below the target would have the share percentages applied.
Final account would be determined by the target plus/minus pain/gain share.
What was the formal sign off process you implemented with your client?
The sign off process was to ensure that there was a formal procedure when compensation events exceeded the project managers delegated authority (set in the contract data). These reports were stored securely in the access protected project folder in order to demonstrate compliance with the contract and thorough financial control.
How did you change the cost reporting structure for your client?
Added a quantified risk register and also included forecast (unagreed) compensation event values into the calculation for the forecast final account, giving a more accurate prediction of likely outturn. I also advised the client of where the contractor perceived the compensation events to be valued so that the client was aware of any negotiations ongoing.
What would you include in a cost report for the NEC4 Option C contract?
NEC4 Option C is a target cost contract with pain/gain mechanism. I would include:
- Executive Summary
- Contract Sum
- Implemented Compensation Events
- Forecast Compensation Events
- Quantified Risk Register
- Forecast Defined Cost
- Forecast Pain/Gain share based on contract data
- Forecast Final Account
How did you approach the value engineering exercise you undertook?
The scope was appraised through a VE workshop, different solutions were evaluated (build as is change material, move crossing further up, break out and construct) - I carried out an assessment of each option and made a recommendation of the most favourable solution.
What are fluctuations and how would you report on these?
Fluctuations are variances in the price of works from the point of tender (pricing) to the current day. An example of this would be for inflation and construction price inflation may be allowed for in longer contracts. These are calculated against a base date using an agreed set of indices outlined in the contract data.
In reporting fluctuations I would include for a separate item in the cost report to show the impact that fluctuations have had on the contract sum and forecast final account.
