PROJECT FINANCIAL CONTROL & COST REPORTING

Question 1

How would you create a cashflow forecast?

Answer 1

• I would require the construction programme and contract sum analysis.
• The values associated with each element of construction could be forecasted at times to reflect their installation within the programme.
• I would split the works into the different packages as shown on the contract programme and include individual s-curves for each package.

Question 2

If your construction budget was £2.5m and proposed construction period was 25 weeks, would a forecast cashflow expenditure of £100,000 per week be realistic?

Answer 2

• This would not be very realistic as the cashflow expenditure per week is unlikely to have a flat or regular profile.
• A standard S-Curve would be more realistic.

Question 3

What is the benefit of a cashflow forecast?

Answer 3

• Allows the employer to gain an understanding of the financial requirements over
  the duration of the project duration and setup any funding requirements.
• Can also be used to check against valuations and provide an early indication of project delays or financial difficulties if the actual expenditure is lagging behind the forecast.

Question 4

What would you include within a construction cost report?

Answer 4

I would typically include:
* contract sum
* adjustment of variable costs
* adjustment of variations
* adjustment of fluctuations
* claims for loss and/or expense; and
* adjustment of risk allowances.

Question 5

What would you include within a project cost report?

Answer 5

I would typically include:
construction costs
* professional fees
* statutory fees and charges
* third-party costs
* direct works costs
* land costs
* agency costs
* finance cost; and
* legal fees.

Question 6

What is the purpose of a cost report?

Answer 6

• To report against budgeted values and act as a working cost check on the project budget.
• To give the Client an understanding of any savings or additional monies required.
• To report contract progress compared against pre-contract predictions.

Question 7

What are variations?

Answer 7

• Alterations or modifications to the design, quality or quantity of the contract works or to the site access or working conditions.

Question 8

Why might variations arise?

Answer 8

• 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 9

What form must architect’s instructions take?

Answer 9

• Should be in writing from the CA or an authorised person
• Must be clear and unambiguous

Question 9

Can the contractor object to a variation?

Answer 9

Some contracts allow the contractor to object to an instruction
JCT SBC -
* Where the instruction affect the efficacy of the CDP
* Where the instruction affects compliance with CDM Regs.
* Where the instruction may infringe patent rights.
* Where the instruction relates to a named specialist, and the contractor is unable to enter into a contract with that firm.

Question 10

What about oral instructions?

Answer 10

• Oral instructions are not usually valid for construction work unless the contract allows for them.
• JCT SBC - Contractor must issue CVI within 7 days.
• If CA does not dissent, it takes effect from expiry of 7 day period.

Question 11

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

Answer 11

• Depends on the form of contract however under JCT Suites if the contractor does not follow an instruction, the CA will be required to issue a ‘notice to comply’ to the contractor.
• If failure persists, the CA can instruct another party to carry out the work and the contractor will be liable for any additional costs incurred.

Question 12

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

Answer 12

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

Question 13

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

Answer 13

o The CA should request via issue of an CAI.
o The contractor has 21 days to provide the quotation (or 7 to decline).
o The CA then has 7 days to confirm in writing the acceptance or rejection.
o The acceptance is called the ‘confirmed acceptance’.

Question 14

What costs does the schedule 2 quotation contain?

Answer 14

• 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 15

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

Answer 15

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

Question 16

What are the valuation rules under JCT Forms of Contract?

Answer 16

There are three rules for measurable work:-
* If it is of a similar character, quantity and in the same conditions as existing work, then the bill rates should be used.
* 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.
* If it is not of a similar character, fair rates and prices should be used.

Question 17

What about non-measurable work?

Answer 17

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

Question 18

What is a star rate?

Answer 18

• A rate that is based on the bill rates but includes a fair allowance.

Question 19

What are ‘fair rates and prices’?

Answer 19

• A market rate.
• A rate based on actual costs.

Question 20

What are dayworks?

Answer 20

• 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 21

What document should the prime cost be calculated in accordance with?

Answer 21

• 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 22

What information is necessary to be able to assess dayworks?

Answer 22

• Daywork sheets
• Plant and materials used

Question 23

Can the QS alter hours which he considers to be excessive on a dayworks sheet that is authorised by the architect?

Answer 23

• No the hours recorded and signed off should be maintained within the variation.

Question 24

What would you do if the contractor submitted 10 dayworks sheets to you for payment?

Answer 24

• I would verify with the CA that a relevant variation has occurred and is recorded on an CAI.
• I would check to ensure there is no other contractual method of valuing the variation.
• Providing the CAI is in place and no other mechanism for valuation is available I would seek verification of the hours and materials.

Question 25

If you and the contractor’s QS could not agree on something how would you resolve it?

Answer 25

• I would discuss with the contractor and client to try and seek a resolution with the contractor.
• The contractor could take the dispute to adjudication if necessary but all parties should try and resolve the matter by negotiation in the first instance.

Question 26

What is quantum meruit?

Answer 26

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

Question 27

Give an example of where quantum meruit might be used?

Answer 27

• If the employer and contractor reach a separate agreement on acceleration, the costs of this may be based on a ‘fair and reasonable’ basis.

Question 28

What is loss and or expense under JCT Forms of Contract?

Answer 28

• L&E reimburses the contractor for costs incurred in carrying out additional work or from an employer’s breach of contract.

Question 29

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

Answer 29

• Contractor must notify in writing as soon as the regular progress of the work is affected, or is likely to be affected, or the contractor becomes aware of any other matter that would cause them to incur loss and expense.
• The contractor should submit any further information as requested by the CA.
• The contractor should also submit any further information as requested by the CA or QS to enable the amount of loss and expense to be ascertained.

Question 30

What are Relevant Matters under JCT Forms of Contract?

Answer 30

• Events listed in the Contract that entitle the contractor to loss and/or expense.

Question 31

What are the relevant matters?

Answer 31

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

Question 32

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

Answer 32

• It should be the actual loss incurred by the contractor.

Question 33

What are the common heads of claim in loss and expense applications?

Answer 33

• 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 34

What is a Provisional Sum?

Answer 34

• An allowance within a contract for works that are not defined in enough detail for tenderers to accurately price.

Question 35

What is a Prime Cost Sum?

Answer 35

A sum of money included in a unit rate to be expended on materials or goods from suppliers, where precise quality is unknown.

Question 36

What is the difference between Defined and Undefined Provisional Sums?

Answer 36

• Defined 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.
• Undefined provisional sums are less well described and so the contractor cannot be expected to make allowance for them in their programming, planning and pricing preliminaries.