C - Project finance (Control and Reporting) Flashcards
What is the purpose of a Cost Report?
To report against budgeted values, acts as a working cost check on the project budget.
To inform the Client of the likely out turn cost for a construction project.
This can empower the Client to make changes / secure funding / mitigate forecasted costs.
What will you include in a cost report?
- Budget
- Orders placed to date
- Orders yet to be placed
- Variations - Anticipated / Pending / Agreed
- Provisional Sums
- Risk allowances
- Contingency position
- Anticipated Final Cost
- Cash Flow Forecast
All broken down in a work breakdown structure agreed with the Client
What subsections would you expect to see in a CONSTRUCTION cost report for a lump sum contract?
- Contract Sum
- Adjustments to Provisional Sums
- Adjustments for variations
- Adjustments for fluctuations
- Claims for loss and expense
- Adjustment for risk allowance
What subsections would you expect to see in a PROJECT cost report for a lump sum contract?
- Construction Costs
- Professional Fees
- Statutory fees and charges
- Third party costs
- Direct works costs
- Land costs
- Agency fees
- Finance costs
- Legal fees
Where can a QS find information of Cost Reporting?
RICS Guidance Note - Cost Reporting, 1st edition
What are the two types of cash flow forecast relevant in construction?
1) Cash Flow for a Company
2) Cash Flow for a construction project
How long will company cash flow be forecast?
A year
What is the value of cash flow forecast for a company?`
- Resource and business planning
- Analysing the companies health
What is the purpose of a construction project cash flow?
- To project when payments are due to ensure finances are in place
- Construction cash flow will inform companies 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
- Cash OUT to Employees
- Retention monies IN
- Monies OUT to their Consultants
- Tax payment
Why is Construction cash flow useful for a PQS?
To monitor progress on site
How would you forecast cash flow?
1) Need to know construction value and programme
2) Use a cash flow computer programme
If a cash flow computer programme was not available, how would you create a cash flow?
Split the works into packages as shown on the contract programme
Apply individual s-curves to each package
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?
More accurate than an S-Curve, as it will account for anomalies relevant to the project, where as an S-Curve is generic.
It is important to watch out for front-loading
What is front-loading?
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 earlier.
What are the risks of over-payment?
- Improves the contractor’s cash flow, but leaves the Client at risks as they may be paying more than has actually been carried out.
- If the Contractor stops work / goes into liquidation, the Employer may lose out as they have paid for more than they received.
What is the most accurate form of measurement of works completed on site to date
By attending site and carrying out an assessment.
NOT JUDGING BY CASH FLOW FORECAST
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 it have?
- Is it bringing in as much money as it is spending?
What stakeholders may be interested in a companies cash flow?
- Funders e.g. banks, local authorities, guarantors
- Shareholders
- Employers
What are some of the liabilities that a consultancy may have?
- Staff wages
- Premises
- Training
- Equipment
What are the four types of payment mechanism in construction contracts and which are the most / least accurate?
- Stage payments (Highest accuracy of cash flow forecast, but lowest accuracy of value of work done to date)
- Milestone payments
- Payment against an activity schedule
- Valuation of work done to date on site (lowest accuracy of cash flow forecast, but highest accuracy of value of work done to date)
What is a variation?
Alterations or modifications to the design, quality or quantity of the contract works, to site access or working conditions
Why might a variation arise?
1) Change to specification etc
2) Addition / Omission / Substitution of any work
3) Discrepancy between contract documents
4) Discrepancy with statutory requirements
5) Errors or omissions
6) Deficiency in Employer’s Requirements
7) Limitations to site access / working hours
8) The execution or completion of the work in any specific order
9) Opening up work for inspection
