Project Finance Flashcards
What are the contents of a Cost Report?
Executive Summary - level of cost certainty / headlines / changes in period /contingency update Cost Summary Cash-flow Variations to Date Pending Variations Risk Analysis / claims / VE / EOT? Forecast Final Account Report Basis
What is the purpose of producing a cost report?
To monitor and manage cost throughout the project.
To inform the client on actual project cost against the budget.
Why is it important for the client to know the anticipated out-turn cost?
It gives them the best possible basis on which to base future project decisions.
Funding purposes
Your cost report compares actual cost against the budget. What is the budget?
The budget is usually ;
Cost of work under construction contract
Cost of work not under construction contract (to be advised by client)
NRM defines this as the post tender estimate
if the anticipated final account is over-budget, what could you consider doing?
Omitting elements of remaining work which are not immediately critical for the function of the project
Reduce the scale of elements of remaining work without affecting functionality
Reduce spec of elements of remaining work
The above should all be considered within the constraints of the planning consent!
How do you agree a Variation?
Variation is a modification to the design, quantity or quality of the work.
1) Use a contract rate - if there is a bill item of a similar nature
2) Use a star rate - this is based on experience of what is fair and reasonable
3) Use dayworks - Prime cost + labour + materials + plant + % additions (% addition for contractor profit is NOT included)
4) Or pro-rata
Effects on prelims, risk, fees and OH&P should also be considered
When valuing variations, what else should you advise the client on the consequential cost impact of?
Programme impacts Other cost element impacts Statutory compliance Asset value impact Funding impact
Should cost reports include VAT?
No.
Would you include LADs in a cost report?
Yes, but I would seek the client’s instruction on this.
What do you do after issuing a cost report?
Meet the client in person to review it.
What types of cashflow are there?
Turnover
Cost
What is the purpose of producing a cashflow for a client?
It informs them what and when their monetary commitments are
This is important for them in order to secure the correct funding
Obtaining loans
Checking progress
What is the PQS expected to do in terms of cashflow forecasting?
Take a brief from the client to understand their requirements for a cashflow forecast
Produce initial cashflow at feasibility stage (based on formula)
Update the forecast throughout design, tendering and construction period
Monitor actual payments made against the forecast and explain the discrepancies
What information should you seek from the brief before producing a cashflow forecast?
Who will use the cashflow forecast, contractor or client?
Is the forecast for the whole development or just for the construction contract?
Should the valuation date, certificate date, invoice date or payment date be used?
Should net or gross values be included?
Should it display cumulative payments, monthly payments or both?
Is a cashflow only important to a client if they are funding the project from borrowing?
No. It is also important to clients who are financing it themselves as their equity could be tied up in other assets or be dependant on in-coming revenue.
Are project cashflows only used between clients and contractors?
No. They’re also used between contractors and sub-contractors.
What can an organisational cashflow be used for?
It can be used to assess whether a company will be able to adequately cope with the works being considered.
What are important points when reviewing an organisational cashflow?
Overdraft level
Frequency of overdraft use
Potential effect of bank removing overdraft
Potential effect of company losing 1 or more key clients
What different payment mechanisms are there?
Stage payments - milestone
Interim valuation
How do the different payment mechanisms effect cashflow forecasting?
The level of predictability varies according to payment mechanism
Stage payments - high predictability of cashflow, low accuracy of value of work done
Milestone payments - high predictability of cashflow, low accuracy of value of works done
Payment against activity schedule - reasonable predictability of cashflow, reasonable accuracy of value of works done
Valuation of works done on site to date - Lowest predictability of cashflow, high accuracy of value of works done
Why is it important to consider the form of contract when producing a cashflow forecast?
Because different forms of contract have different payment timescales between application and payment.
What are the different ways of producing a cashflow forecast?
Pre-contract I would use an s-curve formula
Once a contractor is appointed, I would use the contractor’s programme and pricing document. I would also seek input from the contractor.
What other considerations should be made when producing a cashflow forecast?
Statutory holidays
Time of year
Weekend working requirements
December valuation date is often pushed forwards due to Christmas, therefore January payment date will be earlier!
When inputting actual expenditure to a cashflow, should you use valuation totals or payment notice totals?
Payment notice totals, as the CA may have made deductions for works carried out not in accordance with the contract.
Should risk be included in the cashflow forecast?
Yes, risk should be included to make allowance for likely variations.
Should you include the rectification period in a cashflow forecast?
Yes.
Most cashflow forecasts are produced for the construction contract only. If your client asks you to create a cashflow forecast for the development, what else should you include?
Consultant’s fees
Direct contracts cost
VAT
Internal costs
What do you include when you regularly update your project cashflow?
Actual progress on site Actual variations Changes in sequencing Formally awarded extensions of time Acceleration Partial possession
The contractor’s payment application is lower than the forecast cashflow, why could this be? (list some)
Poor site conditions Adverse weather Re-sequencing of works Materials being stored off site and not claimed for Slower progress than anticipated Late deliveries to site Inaccurate forecast
