Commercial Management

Question 1

Can you please tell me what a prime cost is?

Answer 1

The total direct costs of production including labour materials and plant. Any other costs outside of this would be considered indirect.

Question 2

Can you give examples of indirect costs?

Answer 2

Preliminaries, utilities, delivery charges, overheads, insurances.

Question 3

What are preliminaries?

Answer 3

Costed items which cannot be allocated to a specific cost component but are necessary for the contractor to carry out the works. Prelims will not form part of the final works.

Question 4

What would be included within preliminaries?

Answer 4

1) Management & staff
2) Site establishment
3) Temporary services
4) Site security
5) Insurances

Question 5

What is a fee?

Answer 5

A fee is a percentage of the overall costs charged in return for additional services.

Question 6

Can you please give me examples of fees that might be charged?

Answer 6

1) Overhead and profit fee
2) Subcontractors fee
3) Design fee
4) Direct fee

Question 7

What is an overhead?

Answer 7

Expenses which are paid by a business on an ongoing based which can be fixed or unfixed.

Question 8

Give three examples of a fixed overhead?

Answer 8

1) Rent
2) Salaries
3) Depreciation of assets

Question 9

Give three examples of an unfixed overhead?

Answer 9

1) Delivery costs
2) Staff commission/bonuses
3) Cost of materials

Question 10

Please explain in your own words what a robust change control procedure is?

Answer 10

1) Unnecessary change should be mitigated where possible (early warnings/raising issues)
2) All change recorded on a change register
3) Regular internal meetings with operations team to identify change
4) Compliance with timescales to agree swiftly
5) Regular external meetings to understand and agree change
6) Adherence to the valuation rules set out in the contract
7) Agreements made formally through emails or implemenation of compensation events
8) Accurate reporting of the change at regular intervals

Question 11

How would you encourage collaboration and risk mitigation with your counterparts?

Answer 11

1) Conduct risk assessments instigating change
2) Hold internal risk and opportunity meetings
3) Holding regular commercial meetings to manage expectations
4) Adhere to the early warning procedure
5) Adhering to obligations within the contract
6) Maintain transparency
7) Build a good relationship with my counterpart

Question 12

In your own words, what is value engineering and some of its benefits?

Answer 12

A method used to eliminate unnecessary costs whilst maintaining or sometimes increasing the value of the item or product in question.

1) Improved performance of product
2) Improved building lifespan
3) Cost savings

Question 13

What is the difference between cutting costs and value engineering?

Answer 13

Value engineering is a more holistic method of reducing costs in the long run, where as cost reductions are more concerned with the short term.

Question 14

At what stage would you carry out value engineering?

Answer 14

At inception stage and reviewed regularly throughout the project lifecycle.

Question 15

How did operating on lump sum contract impact you as the contractor commercially?

Answer 15

The construction and design costs were fixed based on the employers requirements, meaning we were limited on what we could recover from the client. This left us at risk of:

1) Design cost increases
2) Inflation cost increases
3) Buildability cost increases

Question 16

What is inflation in construction?

Answer 16

A sustained upwards increase in the the general price of goods and services, specifically to the costs of materials.

Question 17

How would you consider reducing the risk of inflation for your company?

Answer 17

1) Negotiate shared inflation risk
2) Provisional sum for activities subject to inflation (e.g steel)
3) Negotiate fluctuation provisions
4) Allow inflation allowances at the point of work commencing not at the point of bid

Question 18

What is design development?

Answer 18

The process of translating the specification into detailed design documents.

Question 19

Why was the change from polished plaster to acoustic plaster considered design development?

Answer 19

The ER’s stated a requirement to provide plaster, we had a requirement to meet acoustic conditions. The install of polished plaster would not meet those requirements, meaning the design was developed.

Question 20

You mention a saving of £15k for formwork, how did you arrive at this figure?

Answer 20

The weekly equipment costs were captured from the live hire report, when broken down it was acknowledged that we had £45k worth of formwork on hire. On a weekly basis I walked the site and began to notice unused formwork stored around site. This prompted me to challenge the site team who advised that the concrete works were coming to a close. In the next meeting, i asked the engineers to offhire the unused formwork and created a Programme for the remaining formwork. The initial weekly reduction was £15k but over the following month we reduced the weekly formwork costs to zero.

Question 21

As a result of your intervention, how much earlier did you offhire the formwork?

Answer 21

It was likely that the formwork would be be offhired as one at the end had i not of intervened, This would have been a weekly payment of £45k per week as opposed to £30k per week, saving a minimum sum of £60k.

Question 22

How did your intervention of the formwork costs impact the EFC?

Answer 22

The offhire of formwork reduced the overall monthly plant costs, which kept us within budget for that month. The contract was an option C (target costs), thus contributing to our target cost gain.

Question 23

In relation to the residential project you worked on, what were the potential options you discussed with the subcontractor to overcome this issue?

Answer 23

1) Scissor lift and telescopic MEWP - urgent works and maximum height was too low
2) Scaffolding - posed h&s risks
3) Mobile crane / man rider - Far to costly and no other use for the mobile crane, minimum hires etc.

Question 24

What is a fall restraint system?

Answer 24

A body holding device which connects to a reliable anchor preventing the installer from reaching a zone where the risk of fall exists.

Question 25

What is the role of a commercial manager?

Answer 25

1) Maximise profitability of a business
2) Manages internal processes such as production
3) Monitors financial performance
4) Manages external relationships

Question 26

Outside of your write ups, please can you provide another example of when you have demonstrated good commercial management skills?

Answer 26

1) NTT subcontract review with project leader
2) Advise on each of the packages at high level
3) Advise on any risk packages
4) Add any additional forecast variations
5) Review any potentially recoverable costs