Project Finance

Question 1

How would you create a cashflow forecast?

Answer 1

• I would need to have access to the construction programme and contract sum analysis in order to populate the cashflow.
• 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.
• Obtaining drawdown schedules from specialist subcontractors and professional consultants can also assist when populating the cashflow.
• An alternative approach would be to utilise a previous cashflow from a similar scheme or to use cashflow forecasting software although this may not be as accurate.

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

• In reality this would not be very realistic as the cashflow expenditure per week is unlikely to have a flat or regular profile.
• In reality the expenditure is much more likely to have an S-curve profile where at the start of the scheme, the expenditure per week will be fairly low as the site setup and enabling works are undertaken.
• As the scheme progresses, items that are of higher value such as the steel frame and M&E installations will be undertaken. The cost expenditure per week at this stage will be much higher than at the start of the scheme.
• As the scheme draws to a close, minor finishing items such as decoration and cleaning packages will be undertaken again resulting in a lower expenditure cost per week.

Question 3

What is the benefit of a cashflow forecast?

Answer 3

• A cashflow forecast allows the employer to gain an understanding of the financial requirements over
  the duration of the project duration and setup any funding requirements for the scheme in advance.
• It can also act as a check against valuations and provide an early indication of financial difficulties if the
  actual expenditure is lagging behind the forecast.

Question 4

What would you include within a financial report?

Answer 4

• I would typically look to include reference to:
  o a) Contract sum total.
  o b) The value of Instructed variations.
  o c) The value of potential future variations.
  o d) Ongoing claims.
  o e) Provisional Sum Adjustments.
  o e) The anticipated final account total.
  o f) The total of certified payments.

Question 5

What is the purpose of a financial report?

Answer 5

• 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 6

What are variations?

Answer 6

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

Question 7

Why might a variation arise?

Answer 7

• 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 8

What are dayworks?

Answer 8

• 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 9

What are the relevant matters?

Answer 9

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

Question 10

What are risk allowances?

Question 11

On Mercury House you’ve mentioned effectively managing costs for enabling works. Can you talk me through how you did that.

Question 12

How did you manage the overhead costs for project management on the Mercury House project

Question 13

On Cricklewood you mentioned about preparing a cost estimate for budgets for enabling works. Tell me how you went about doing that?

Question 14

On Cricklewood you mentioned forecasting contingency? What level of contingency did you choose and why?

Question 15

On Cricklewood you mentioned monitoring actual costs against budgets. How did you go about doing this

Question 16

On Cricklewood why was there an insufficient allowance made for asbestos at tender stage?

Question 17

How did you ensure you didn’t go over budget with instructing variations?

Question 18

How did you use the contingency pot to advise your client?

Question 19

P Programme reporting of variations