Project Financial Control and Reporting Flashcards
What is receivership in administration?
Receivership is a process in which a creditor assumes ownership of a debtor’s business operations
What is the position on insolvency in a JCT contract?
Section 8
8.5 - insolvency of contractor
Employer may at any time terminate the Contractor’s employment by notice
What’s CVA?
Company Voluntary Arrangement
Why would a contractor opt for CVA?
- Directors remain in control
- Costs involved are cheaper than going into administration/receivership
- No requirement to tell customers/to go public
- Creditors are prevented from threatening or taking legal action against the company as long as the agreed terms are adhered to
- A CVA avoids company liquidation and, therefore, requires no investigation of directors’ conduct leading up to insolvency.
- 75% of creditors have to agree to it
What would you do after a contractor goes into liquidation?
- Secure site
- Value works on site
- terminate contract
- invoke performance bond (if applicable) to cover losses
- KEEP SITE INSURED
- Use retention to cover losses
What EXTRA costs would the client have to cover if the contractor goes insolvent?
- Prelims for setting up site again
- site security
- costs associated with delays (loss of income)
- insuring vacant site
- professional fees
- make good any damages
What’s the difference between liquidation and administration?
Liquidation is the process of bringing a business to an end and distributing its assets to claimants
Administration is a very powerful process for gaining control, when a company is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions
How can you avoid a contractor going into liquidation?
Do financial due diligence before appointment to ensure they have the financial capacity/cashflow to run the project
Pay contractor on time
Keep on top of variations
Have a retention bond instead of holding retention
Is retention good?
- It does a job of protecting the client
- However it is bad for cash flow for the contractor and ultimately if they fall into liquidation that is an issue for the client
- Retention bond can replace retention however will come at a premium for the client
How did you negotiate your final account?
- Ran rolling FA anyway
- Late/outstanding variations negotiated as FA
- Prepared evidence/position on all outstanding variations, agreed them with contractor
- Statement of Final Account approved by client and signed by contractor
What is retention?
It’s a contractual mechanism that holds back a %age of interim payments to the contractor
This is used to protect the client in the case the contractor fails to fulfill his obligations
How do you decide on retention amount?
Project specific
Generally smaller/riskier project will have higher retention amount
What is the default retention &age in JCT DB 16?
3%
Same for DB 2011
What is a retention bond?
A performance bond that protects the client in the case the contractor fails to fulfill his obligations
How are retention bonds utilised in the case of non performance?
- On demand (not often used)
- Conditional
What was a change on the Dulwich project that the client was responsible for?
Extra scope, e.g. new rooms to be decorated, access control on doors where it was not specified within ERs
What was a change on the Dulwich project that the contractor was responsible for?
Design development e.g. anything that was in the ERs that they have just developed
Where in the JCT DB 2011 does it state who is responsible for what changes?
Section 5 Change
States changes are change to ERs or PSUMs
What is change control?
The administrative process that implements the contract mechanism for instructing change.
MUST adhere to contract requirements for notification & approval of change
What does effective cost control require?
Agree variations as they come out, rolling final accounts
Cost Reports to monitor progress
How do you control project costs pre contract?
- Between cost plans we run change trackers
- As design develops we review drawings/releases or pick up on things in meetings
- Prepare cost uplift/reduction estimate and add it to the tracker
- Present to the client every 2 weeks advising new likely outcome of costs or just flag the item and state info we require before cost can be allocated
- For new basement, I prepared an alternative basement estimate to the one being designed to advise alternate options
How would you structure a cost report?
- Introduction/exec summary
- Project Financial Summary showing Budget vs current position vs previous position
- EAIs
- AEAIs
- Early Warnings
- PSUM adjustments
- VE items
- Cashflow
What RICS guidance is there on cost reporting?
RICS Cost Reporting 1st Edition 2015 (guidance note)
RICS Valuing change 2010 (practice Standards)
Can you have JCT IC without quantities?
No - only SBC
What are valuation rules?
Rules in a contract for valuing change
The Valuation Rules are set out in the Contract
Conditions and reflect a sliding scale of options,
based on how closely the varied work resembles
work that is part of the Contract Documents
What are valuation rules?
Rules in a contract for valuing change
What are the valuation rules in JCT DB?
- Allowance must be made for addition/omission of relevant design work (professional fees)
- If varied work is similar of character/conditions/quantity to work in CSA, CSA values must be used
- If work is similar in character but not conditions/quantity, reasonable allowance made based on CSA
- If not similar in character, fair rates & prices will be agreed
- Any change will incl allowance for prelims
- Daywork shall be used to value work that cannot be measured
- Check Contract Particulars - if Contractor’s Quotation provision applies, Contractor must provide this (schedule 2)
What are the valuation rules in JCT SBC/IC?
- Work should be measured and quantified using same rules of measurement as BoQ
- Allowance shall be made for lump sum/percentage adjustments applicable e.g. directors discount
- Adjustment to prelims
- If an approx. quantity is a reasonable forecast of the quantity of works then the BoQ rate will be used
- If an approx. quantity is not a reasonable forecast then the rate in the BoQ is used as the basis for
When using variation rules, what are the issues to consider?
- Character of change
- Conditions of change
- Quantity
- Prelims
- What are “Fair rates and Price”
- Daywork
- CDP
- Change of conditions for other work
- Contractor’s Quotations
- PSUMS
What are “Fair rates and Price”?
Case law does not provide a definitive position.
Fair rates and price = fair valuation.
What is daywork?
Method of valuing additional/substituted work which cannot properly be valued by measurement.
Records need to be prepared to document labour, plant and materials used in operation to verify work conducted.
Records of labour/plant etc are multiplied by rates from the “definition of Prime Cost of Daywork carried out under a Building Contract” at Base Date.
How do you present your monthly cost updates?
Submit cost report, follow it up with a phone call or face to face meeting to run through key headline points and any detail client wishes to delve into
What is an S curve?
Standard Curve
A generic cash flow forecast in the shape of an “S” typical of most projects
Why would you ask for the contractor to produce their own cash flow based on the programme?
It will be more accurate than an S curve as it will account for anomilies relevant to the project, whereas the S curve is generic.
It is important to watch out for front-loading
What is front loading?
This is where the contractor forecasts costs at the start of the project to be greater than they actually will be, in order to coerce the PQS into thinking higher payments are due early.
What are the risks of over-payment?
This improves the contractor’s cash flow but leaves the client at risk, as they may be paying more than has actually been carried out.
If the Contractor stops working/goes into liquidation, the Employer may lose out as they have paid for more than they have received.
What is the most accurate form of measurement of works completed on site to date?
Not judging by the cash flow forecast, but by visiting the site and conducting an assessment
Who is responsible for extreme weather?
In some contracts, force majuere is considered a ‘relevant event’, though if they continue to perform their duties they may not be able to claim
What are relevant events and what clause in DB are they?
- 2.26
- Changes
- Employer’s instruction (bar instructions relating to discrepancy/divergence in CPs)
- Deferment of possession of site
- Suspension by contractor of performance
- Adverse weather
- Loss/damage to any specified peril
- strike
- delay in receipt of permission by statutory body in which contractor has taken all steps to avoid
- force majeure
What are relevant matters in DB?
- Changes
- EMployer instructions
- delay in receipt of permission by statutory body in which contractor has taken all steps to avoid
- any impediment by the Employer
What did you say in the DTMs for Dulwich project?
- Listened to progress update
- Discussed alternatives to variations/early warnings
- Discussed any outstanding variation info I was waiting for
- Updated client on where the costs sat, when next cost report is due, when the next valuation will be
How did the contractor request change?
- Issued description of change
- Where it came from (client/contractor)
- cost implications
- programme implications
- HS implications
- risks
- time that response is required by
What did you do if you didnt agree with the contractors change request?
If I didn’t believe it was a client cost I would write an email as to why, referring to contract if necessary, then follow up with a phone call
What’s the difference between JCT DB and IC in terms of post contract change?
- design development was responsibility of the client in IC, unless it was developing the design for those handful of CDP items
At final account, why were some of the variations not agreed?
Contractor was late to issue the change request
What happens to leftover PSUM?
- transferred into contingency once item was closed
What happened to variations neither party agreed on?
- Fortunately in this contract that didn’t happen, we agreed all variations
- Next step would have been mediation or adjudication
Give an example of a change on the project in central London?
- 30 yard trucks could no longer go into loading bay because it caused vibrations as they drove over light well
- It was agreed that that was their strategy during tender
- Cost for omission of large trucks and addition of smaller trucks
What is a final account?
What is a final account?
The conclusion of the contract sum including all adjustments.
Signifies the agreed value the Employer will pay the Contractor.
Will a final account typically include VAT, interest on overdue payments, LADs, or loss and expense?
Loss and expense YES
LADs, VAT and interest NO
When does preparation of a final account occur?
Throughout the contract period
How would you structure a final account?
No firm defined format, but an example would be:
- Contract Sum (CSA of BoQ)
- Variable costs (PSUMS, PC Sums, Daywork allowances)
- Variations/Contract Instructions
- Loss and expense
- Fluctuations
- Risk allowance
At final account, must all variations be instructed?
All changes should have a contract instruction, but it is not uncommon at final account stage for some variations to not have received a formal instruction still.
It is good practice to ensure the architect/CA are aware of all variations.
What is the final certificate?
After the defects liability period is over, the final certificate is issued by the CA allowing the release of the remaining retention monies.
Final Account must be agreed before final certificate.
What happens to the retention release if the final account has not been agreed at PC?
The employer is entitled to release half retention only up to the amount agreed thus far.
Another payment certificate may be issued once FA is agreed.
What happens if the FA is not agreed after the DLP is over with regards to retention?
The employer is entitled to release full retention up to the amount that has been agreed thus far
What happens if the contractor does not fix the defects during the DLP?
Most standard forms of contract allow the Employer to use retention money to employ a different Contractor to fix the defect.
The Contractor is allowed to rectify the issue themselves first, and usually this is defined by a timescale after notification by the CA.
What are patent defects?
Can be discovered by reasonable inspection
What are latent defects?
Cannot be discovered by reasonable inspection
What are contra charges?
Where the Employer recovers costs from the Contractor that the Contractor has caused the Employer to incur.
In JCT contract suite, how long does the Contractor have to provide information for the final account?
6 months
What is the purpose of a cost report?
To inform the client of the likely out turn of cost for a construction project.
This can empower the client to make changes/secure funding/mitigate forecasted costs.
Cost certainty
What’s a CIL?
Community Infrastructure Levy
A levy applied by Local Authorities on new developments to cover costs for infrastructure to the area. Areas under 100m2 exempt.
Full details on govt. website for inclusions/exclusions
What is handed over at PC?
- H&S file
- O&M manual
- Building log book
- As built drawings
- User guide
How did you negotiate your final account?
- Went in prepared with justification for all items
- Had discussed with client previously to get his buy in
- Stood firm on those I felt client was entitled to
- Job is not to “make money” for the client, but to be a fair mediator
What are the benefits of a rolling F.A?
- Client always knows the likely outturn of costs for the project should nothing else change
When should you agree FA?
Should agree FA as soon as possible after PC
When does the contractor receive his final and penultimate payment?
Final payment will be at the end of the DLP subject to FA being agreed, to release retention monies
Penultimate payment will usually be then FA is agreed
What are the different types of risk?
Project risks
- Business risks
- Environmental risks
- External environment risks (force majeure, government shifts)
What legislation tries to improve construction cash flow?
- The Housing Grants, Regeneration and Construction Act 1996
- The Local Democracy, Economic Development and Construction Act 2009
What are some liabilities that a consultancy may have?
- Staff wages
- Premises
- Training
- Equipment
What stakeholders may be interested in a companies cash flow?
- Funders e.g. banks, local authorities, guarantors
- Shareholders
- Employers
What should you look for in a company cash flow of a tendering contractor?
- Overdraft size
- How often they use their overdraft
- If their overdraft was removed, what effect would that have
- Is it bringing in as much money as it is spending?
What is the purpose of a construction project cash flow?
- To project when payments are due to ensure finances are in place (alert bank/funder of drawdowns)
- Construction cash flow will inform company’s cash flow
What may be included in a Contractor’s cash flow?
- Cash in from Employer
- Cash out to sub-contractors
- Cash out to suppliers
- Retention monies in
- Monies to their consultants
- Tax payment
Who do you issue a cost report to?
- QS must take instruction from the client. It is confidential information.
- If Contractor had a copy, it could jeopardise the client’s bargaining position.
What is loss and expense?
Where the contractor is entitled to be reimbursed by the client for loss and expense.
In JCT DB 2011 contract, which clause refers to the final account process?
Clause 4.12
What is value management?
Gives a project a clear path to create value through the understanding of client objectives as well as the needs and wants of the stakeholders.
Value engineering used to reach these objectives.
What is value for money?
Achieving value for money requires value management to understand objectives and client values, then using VE to decrease cost while maintaining functionality, or increase functionality greater than cost.
More value for less money.
Where can a QS learn more about cash flow?
RICS Practice Standards UK - Cash Flow Forecasting 2011 Guidance Note
What must the contractor do if they forsee a relevant event?
- Notify the CA immediately
- Attempt to mitigate the issue
What is a relevant event?
Where a delay which impacts the completion date is not caused by the contractor, it may be a ‘relevant event’, for which the contractor may be entitled to an extension of time and to claim loss and expense incurred as a direct result of the delay.
- A delay that was not the contractors fault
- The fault may be from the client or neither party (e.g. extreme weather)
- Definitions of relevent events will be found in the contract e.g. delay in site possession, variations, weather, terrorism, civil unrest, changes to statutory requirements
What situation would result in LADs
Liquidated and ascertained damages would be due if there was a delay to the completion date caused by the contractor
What are Alternative A and Alternative B in JCT 2016?
Different methods of calculating sums due
Alternative A - staged payments: Stages + Changes - Listed Items * any fluctuations
Alternative B - periodic payments: work executed to date + site materials (if they are protected) - Listed Items
What clauses relate to Defects in JCT DB 2016?
Clause 2.35 Schedules of defects and instructions
Clause 2.36 Notice of Completion of Making Good
Who’s responsibility is it to identify and rectify defects?
Contractor
Who manages the DLP?
The CA acts as the bridge between the Client and Contractor.
Client reports to the CA who decides whether the issue is a defect or maintenance issue.
If it is seen to be a defect, the CA will instruct the Contractor
What are unliquidated damages?
Unliquidated damages are damages, the exact amount of which has not been pre-agreed, and are typically determined by the courts.
A client can claim for unliquidated damages even if LADs are specified in the Contract, if the actual loss incurred is much more than originally expected.
What are LADs?
Liquidated and Ascertained Damages are pre-determined damages set at the time that a contract is entered into, based on a calculation of the actual loss the client is likely to incur if the contractor fails to meet the completion date.
They are generally calculated weekly or daily, and are NOT A PENALTY. They must be based on actual loss from things such as rent, income
In the JCT 2016 D&B Contract, what are the provisions set for interim payments?
Clause 4.7
1 - Interim Payments made by Employer to Contractor as per section 4 and [payment method]
2 - Due date will be 7 days after relevant Interim Valuation Date
3 - If the Interim Payment Application is received after the Interim Valuation date, the Due Date shall we 7 days from whenever the Application is received
4 - Interim Payment Application shall be accompanied by further info as may be specified in ERs
5 - No later than 5 Days after the Due Date the Employer shall give Payment Notice to Contractor
Clause 4.9
1 - Final Date for Payment 14 days from due date
2 - Employer must pay sum on Payment Notice on or before Final Date for Payment
3 - If Payment Notice is not given, Employer must pay what Contractor has stated in interim application
4 - In case of final payment, the Employer shall pay the sum stated as due in Final Payment Notice. If FPN not given, balance stated in relevant statement on of before final date of payment is paid.
5 - No later than 5 days before Final Date for Payment shall Pay Less Notice be given to Contracto
What are different methods of calculating sums due at payment?
- Staged payments
- Milestone payments
- Payments following an activity schedule
- Periodic payments (Work done to date)
What is price based on in JCT DB 2016?
- Lump Sum with stage payments or periodic payments as stated
What is an advance payment?
When a Contract Sum is paid in advance of the exchange (prior to work being done/goods supplied)
Why may a contractor request advance payment?
If there are significant start up/procurement costs, e.g. expensive items with long lead times
How might the client protect themselves when paying a Contractor in advance?
Secure a payment bond from the Contractor
Materials for the project have been sourced and delivered to site. Does the client pay for those materials?
Yes unless stated otherwise in the Contract. Payment is made regardless of whether Contractor has paid supplier.
What is “retention of ownership” in regards to materials?
- This is a clause that allows the supplier to hold ownership of materials until payment.
- Good for supplier as it encourages payment, improves cashflow
- Bad for the client as if items are not affixed, as client may pay Main Contractor but Main Contractor may not pay supplier. Supplier could reclaim those items.
How are fluctuations calculated?
- Using nationally published price indices
- Payment is based on cashflow projections of material, then quarterly percentage assessments of inflation are added to projection
When tendering, what document provides guidance?
Tendering Practice Note 2017
RCIS Tendering Strategies 2015
What risk items would be included in final account?
In a DB there would be costs for contractors design valued at 100%
What’s the difference between a snag and defect?
Snag = before PC
Defect = after PC
Why are changes more expensive on DB contracts?
- Contractor design/on-costs
- No BoQ so less transparency in cost of change, QS important
- In traditional, you will be paying design to architects instead. However, DB the design will have been designed a certain way for the contractors benefits, changes will include abortive work the degree of which can’t be certain to clients
Is insurance required for sections after they’ve been granted PC?
No, client is responsible once they take over section
What’s the difference between change and variation?
Change = DB
Variation = IC
What was the Client’s change control procedure?
- Contractor submitted variation req
- I would review following Valuation Rules
- Send recomentation to EA
- EA gets sign off from client then instructs
How would you establish the validity of a loss and expense claim?
Check contract and amendments for relevant matters, ascertain whether it’s a valid claim
What are the differences in terms of risk & responsibilities for post-contract changes between JCT DB 2011 & JCT ICD 2016?
Design development in DB = Contractor risk
Design development in ICD (not incl CDP) = Client risk
What would you do if there wasn’t enough time to go through change control procedure?
You could assess the cost yourself based on contract rates and issue an instruction with a ‘Not to Exceed’ cost; ask the Contractor for a view on programme, cost, etc.
Why are ADR different to other forms of dispute resolution?
ADR vs resolving a legal dispute through the courts:
- They are all private
- Faster
- Cheaper
How would you prepare a cash flow forecast?
- Most basic method, apply project value over S Curve
- Apply value of project over the programme, taking into account the costs of packages and when they are active. Long lead items.
- Ask Contractor to prepare cash flow forecast, but watch for front loading
RICS Cash Flow Forecasting 2011 GUIDANCE NOTE
How do you monitor cash flow through project?
Plot interim payments against cash flow forecast to determine whether project is behind/ahead of schedule
What would you do if cash flow is behind forecast?
- Advise client the contractor may be behind work/not meet PC
You mention that you have advised on numerous variations on Dulwich, can you give me a specific example of a variation you’ve advised on and the process you went through?
- Variation Request for decoration of new room
- I assessed costs to ensure they mirrored contract rates
- It was additional scope so client responsibility to pay for
- Passed recommendation on to EA
- EA wrote instruction, signed off by client, issued to contractor
Would you put anything outside construction costs into cost report?
No unless the client requests so, for example within the cost reports I produced there was a line item for client furniture and professional fees
How often would you issue a cost report?
Agreed with client, project i worked on every month
Short project may be more frequent, or if high volume of variations I may advise client it would be beneficial to have an interim update
How is the contractor involved in the cost report?
Don’t share with them as it will contain contingencies and budgets for changes not yet agreed.
Items negotiated with contractor will feature in AEAIs etc
What is Cost Report 1 comparing costs to?
Budget for the project. May be PTE, may be PTE + uplifts
What relevant event is in DB but not ICD?
Delay of receipt of permission or approval of statutory body which contractor has taken all practical steps to avoid/reduce
What relevant matters is in DB but not ICD?
Delay of receipt of permission or approval of statutory body which contractor has taken all practical steps to avoid/reduce
Is force majeure a relevant matter or event in JCT DB/IC?
In both it is a relevant event but NOT a matter. CHECK AMENDMENTS OF CONTRACT
What’s the difference between valuation rules in DB vs SBC?
DB includes addition//omission of the relevant design work
Would check contracts for any other differences
Define relevant matters
A relevant matter is a matter for which the client is responsible that materially affects the progress of the works. This may enable the contractor to claim direct loss and / or expense that has been incurred.
What’s the difference between JCT SBC and DB in the case of the contractor failing to submit their payment application?
SBC = QS must value works and issue recommendation to CA, who must issue his interim certificate
DB 11 = EA must still issue his interim certificate
DB 16 = Delay to IVD (Interim Valuation Date) pushes back payment cycle
What would you do if the contractor was submitting Interim Payment Applications much higher than the cashflow forecast?
Perhaps they are front loading or they are struggling with cashflow so are looking to bring in more money from the Client
OR
They are ahead of schedule
What are the subsections of your monthly valuation?
- Prelims
- Design Fee
- Works
- Materials on site
- PSUMs
What’s the difference between a performance bond and a retention bond?
Performance Bond - assurance of quality completion of obligations
Retention Bond - A type of performance bond. Ensure faithful completion and defect correction instead of using cash retention.
How would you report an EoT to the client?
In Cost Report I would include a note in the exec summary.
I would have costs that have come from the EoT reported in the detail
Where would you report Loss and Expense?
In the detail of the Cost Report
Does a company have to cease trading if they go into liquidation?
No - they can liquidate some assets then continue business.
E.g. a retailed liquidating a number of stores then continuing to operate online/in flagship stores
What is the difference between a payment notice and interim certificate?
Interim Certificate = IC 2011
Payment Notice - DB 2016
What is the name of the date 7 days prior to the Due Date, and what does the Contractor submit?
Interim Valuation Date (IVD)
Interim Payment Application!!
What materials would you value on site?
Materials that you can clearly see and quantify on site.
E.g. FCUs, doors. I would not value cement, sand.
What is a vesting certificate?
A certificate verifying that the material has passed to the Contractor and that the materials will be identified, stored and insured
What should you be cognisant of when valuing materials off-site?
- Is it a listed item?
- Assess likelihood of contractor insolvency
- Proof of safe storage, clearly marked and set aside
- Off-site materials bond
- Check vesting certificate to ensure Contractor has items and they’re insured
- Check suppliers Ts & Cs do not include retention of title clause
In the JCT 2016 contracts, which date in the Payment Cycle is named in the Contract Particulars?
Interim Valuation Date
How are works involving PSUMs dealt with on a construction project?
Agree Cost -> Instruct Works -> Omit PSUM -> Add actual Cost
PSUM works should not be carried out until they are instructed
Would you value work if it had a known defect?
No
Would you value variations not instructed?
It is best practice to ensure they are instructed first, however it often
What’s the FA procedure in DB 16?
Following PC, Contractor submits Final Statement to Emloyer with supporting documents (3 month period)
If Contractor does not submit the above, Employer can give notice that 2 months Employer will issue their own Financial Statement
Due Date for final payment shall be 1 month after whichever occurs last:
- End of rectification Period
- date Stated in Notice of Completion of Making Good
- date submission of Final Statement (or Employer FInal Statement)
Subject to either party disputing anything in the Final Statement, the Final Date for Payment shall be 14 days from Due Date
What’s the FA procedure in IC 16?
PC Issued
+6 MONTHS - Contractor submits all documents relating to adjustments to Contract Sum
If above does not happen, CA can give 1 month notice period. If failure to produce info, QS can make statement on basis of existing info.
+3 MONTHS - CA/QS will ascertain total loss and expense and Contract Sum w/ adjustments
+28 days CA will issue Final Certificate following whichever happens last:
- End of rectification period
- date of issue of certificate of making good or last such certificate to be issued
- date which CA sends Contractor copies of statement they have created (third point, above)
What’s the FA procedure in DB 11?
Following PC, Contractor submits Final Statement to Emloyer with supporting documents (3 month period)
If Contractor does not submit the above, Employer can give notice that 2 months Employer will issue their own Financial Statement
Due Date for final payment shall be 1 month after whichever occurs last:
- End of rectification Period
- date Stated in Notice of Completion of Making Good
- date submission of Final Statement (or Employer FInal Statement)
Subject to either party disputing anything in the Final Statement, the Final Date for Payment shall be 28 days from Due Date
What is prolongation?
Additional costs that a contractor has incurred as a result of the completion of the works being delayed by an event that is the responsibility of the Employer
E.g. late possession of site, delays in instructions
What’s the difference between loss and expense and prolongation?
Prolongation relates only to the completion date being delayed
Loss and expense is the wider term relating to material losses as a result of the Employer’s action
What are fluctuation provisions in a contract?
a mechanism for dealing with the effects of inflation
What fluctuation provision is provided in JCT DB?
Option A. B and C are available separately.
What is fluctuation option A?
Option A – Items affected by government – contribution, levy & tax
Option B – Including changes in inflation to labour, plant and materials
Option C – Formula adjustment
How do you calculate fluctuations on an Interim Payment?
Depends on the type of contract.
Lump Sum contracts may be fixed or fluctuation.
I have not worked in a contract with fluctuations, would review the option in JCT contract.
What does “heads of claim” mean?
The categories/headings of Loss and Expense claims in a Construction Contract
What are the heads of claim for loss and expense?
- insufficient use of labour and / or plant – idle plant / men or unproductive time
- increases in cost of labour, materials etc. During the period of disruption – firm price tenders with fluctuations option A – government tax / levies
- Site running costs – prolongation, refers to prelims e.g. staff, site welfare
- Head-office overheads – result of disruption may lead to inadequate return on OH because:
1. Delay / disruption prevent contractor taking on new projects
2. Delay / disruption may require additional management resource beyond that which was originally foreseen - Finance charges and interest – Contractor has had to borrow money to fund direct loss and expense. Rates must reflect actual costs
- Loss of profit – Profit that contractor could’ve made if it hadn’t experience this loss and expense
You’re doing your first valuation. Which insurances to you pay for upfront?
Some bonds
Things like PL/EL insurance will be added to their companies insurance policy and so not part of valuation
If you were doing a valuation, how would you do this?
- Go to site with their submission
- Inspect work that’s actually done to date, take photos etc
- Measure work and compare to their submission
- Agree valuation with contractor and issue my recommendation
How are LDs actually paid?
EA will give notice as to how the LDs are to actually be paid
Could be separate or added to FA.
