Project financial control and reporting

Question 1

Can you tell me what sections you would commonly find within a Cost Report?

Answer 1

Main summary, movement from the last report, prov sums, contingency/ risk, contract instructions, anticipated variations, cashflow

Question 2

Cashflows - Why do we prepare cashflows and how do we use them to advise the client? Can you give an example of when you have completed one.

Answer 2

A cashflow is a projects expenditure over the construction programme. If these are accurate they can be used to track progress - by the initial cashflow vs the actual expenditure.

Question 3

On your barony campus project you mentioned change proposals were unaffordable. What was your advice to the Client?

Answer 3

Where a change proposal was unaffordable, I advised the client that if the change was required the additional cost would need to be offset by value engineering or omission of scope

Question 4

A client asks you about the purpose of defined provisional sums. Can you please advise us, and compare to undefined Provisional Sums?

Answer 4

Defined provisional sums are those which have been described in sufficient detail that the contractor is expected to have made allowance for them in their
programming, planning and pricing preliminaries.
Defined provisional sum – means a sum provided for work which is not completely designed but for which the following information shall be provided:
– the nature and construction of the work;
– a statement of how and where the work is fixed to the building and what other work is to be fixed thereto;
– a quantity or quantities that indicate the scope and extent of the work; and
– any specific limitations and the like identified.

Question 5

On your project the Inverclyde multi site project you mention stage 2 adaptions. What was your advice to the Client?

Answer 5

Medical Aids and Adaptations
AIDS AND ADAPTATIONS
The Scottish Government classifies Adaptations in three groups:
Stage 1 - design features which are not specific to a condition or an individual and which are incorporated into the initial
specification prior to construction or improvement.

Stage 2 – adaptations to a house to meet the particular needs of a tenant to whom the property has been allocated before,
or close to, practical completion. These adaptations may be completed by the original contractor.

Stage 3 – works to adapt a property to suit the changing needs of the existing tenant, or of a new tenant,
where these could not reasonably have been identified when the house was originally provided.

Question 6

On the kitchen and welfare refurb job – why did you need to establish the payment provisions with the client? Is this not dictated by the contract form?

Answer 6

Alternative A - Staged payments as there was a 4 week programme per floor

Question 7

How are liquidated damages quantified and qualified?

Answer 7

Liquidated Damages are quantified by making a genuine estimate of the loss a client will incur if the building is delayed. This is usually through rent, any statutory fees etc. They are qualified so long as they are genuine and not viewed as a penalty.

Question 8

How are liquidated damages applied?

Answer 8

Deducted by the client via a pay less notice.

Question 9

What do you do if a contractor does not apply for payment? Would you pay them?

Answer 9

Depends on the form of contract. For example:
Standard building contract - QS has a duty to value the works on the due date
Design and Build - contractor must submit an application for payment

Question 10

How does change control work under SBCC?

Answer 10

There is no contractual process for change control under SBCC. However on my projects I have implemented strict change control procedures. Also the schedule 2 quotation could be viewed as change control to an extent.

Question 11

You note that you have acted as QS and EA on D&B projects - what is the QS’s role on a D&B project?

Answer 11

Quantity Surveyors are not named parties within the SBCC Design and build contract - the employer’s agent is responsible for cost management

Question 12

What are the main contributors to increased costs on a construction contract?

Answer 12

• Incomplete Design Information
• Work missed in BoQ
• Client Changes
• Delays

Question 13

How are costs forecasted?

Answer 13

Until the main contractor has been appointed, cash flow forecasts are likely to be simply based on a simple division of the estimated construction cost over the likely construction period.
Another method is the traditional ‘S’ curve formula to generate monthly anticipated payments.
The information required for this is:
- contract sum
- contract period
- amount of retention
- Estimated percentage completion at practical completion (say 97%)
- length of defects period

Question 14

What is contingency?

Answer 14

A contingency is an allowance to cover work that was not foreseen during the design stage.

Question 15

How is contingency calculated?

Answer 15

As a percentage in orders of cost estimate.
Risk to be assessed as per group 14 in NRM in cost plans.
Four categories:
- Design Development
- Construction risk
- Employer change risk
- Employer other risk
Cost reports should avoid the use of a general contingency allowance and should adopt the use of risk allowances for anticipated cost occurrences.
Quantity surveyors should measure and value the costs being incurred and reduce the risk allowance as the actual cost emerges.
If a general contingency is required to be included in the budget by the client, then its reporting treatment should be agreed with the client at the outset of the project.
There are two accepted methods of reporting general contingency:
1 General risk allowance maintenance method
Costs incurred and forecast for which no other provision was made in the budget, should be set against the general risk allowance. The balance of remaining risk allowance should be maintained throughout the remainder of the project.
2 General risk allowance progressive release method
Costs incurred and forecast for which no other provision was made in the budget should be set against the general risk allowance. The balance of remaining allowance should be progressively reduced on an agreed basis – The release of remaining general risk allowance may be made pro-rata to:
- percentage completion of programme
- percentage completion of cost
The advantage of the progressive release method is that it affords the client greater efficiency in the use of available capital. The released risk allowance may be used for capital expenditure outside of the construction project or reapplied to enhance the project.

Question 16

What happens to the level of contingency throughout a contract?

Answer 16

As the project proceeds, it might be assumed that there will be less chance of unforeseen work arising, and that this should be reflected in the financial statement.
The statements near the beginning of the contract might include almost the full contingency figure, whereas those near the end might only include a small percentage.
There are two main bases on which this reduction may be made:
1. The period of contract unexpired
2. The percentage of the contract value uncompleted

Question 17

What is a risk register?

Answer 17

A risk is an uncertain event, that if occurs, has a positive or negative effect on a projects objectives or outcome.
A risk register is a risk management tool, it should contain the following information:
- Risk Identification – the first step is to identify all possible project risks
- Risk Analysis –probability and impact should a risk occur (such as cost, time and resource impacts)
- Risk mitigation strategy
- Allocating responsibility – The last step is the allocation of an owner for each risk

Question 18

What NRM is applicable?

Answer 18

NRM1 is applicable to risk management.

Question 19

What importance does the contract programme have on reports?

Answer 19

• Extension of times should be included within the cost report, outlining any adjustment to the completion date and planned programme.
  As the project proceeds, it might be assumed that there will be less chance of unforeseen work arising, and that this should be reflected in the financial statement.
  The statements near the beginning of the contract might include almost the full contingency figure, whereas those near the end might only include a small percentage.
  There are two main bases on which this reduction may be made:
  1. The period of contract unexpired
  2. The percentage of the contract value uncompleted

Question 20

What did the Construction Act 2009 do to change payment procedures?

Answer 20

The Acts require every construction contract to contain certain provisions with regard to payment and, if the contract fails to provide such provisions or provides contrary provisions, then the Act prescribes that the relevant provisions of the Scheme fills in the gap.

Question 21

What is a provisional sum?

Answer 21

These sums are included for work which cannot be entirely foreseen at the time of tendering.
This, together with a brief description, allows tenderers to apply mark up and attendance costs within their overall tender price and make allowance for the work in the contract programme.
An example of a situation where a provisional sum might be appropriate is when work is required below an existing structure, where the ground conditions cannot be determined until the existing structure is demolished and the ground opened up.
Undefined provisional sums
Undefined provisional sums are not accounted for in the contractor’s price and programme. This means that the client is taking the risk for the works and the contractor may be entitled to an extension of time and additional payments.
Defined provisional sums
Defined provisional sums are considered to have been accounted for within the contractor’s price and programme. In effect the contractor is taking the risk that their estimate will be sufficient.
The CA/ EA is required to issue instructions regarding the expenditure of provisional sums.

Question 22

What is the hierarchy for valuing a variation?

Answer 22

Bill rates, fair and reasonable rates, dayworks

Question 23

Why did you use a quantitative risk register post contract? Did you not have provisional sums for risks or transfer / mitigate risks?

Answer 23

I produced the quantitative risk register pre-contract, transferred some design and construction risk to contractor, produced provisional sums for client retained design risks. Kept that quantitative risk register as a control document post contract to monitor contractor and client risks and report to the client.