Project Finance Flashcards
(47 cards)
What pricing methods are available for Quantity Surveyors?
- Building Cost Information Service
- Pricing books
- In house benchmarking
- Unit rates from suppliers /contractors
What is BCIS?
There are a number of published cost indices that can be used to benchmark construction projects.
The most well-known is probably the RICS Building Cost Information Service, which is a large-scale cost database based on a number of construction costs in the UK.
Example: BCIS Tender Price Index (TPI)
Tracks changes in the prices that contractors charge for construction work in the UK.
Based on the analysis of tender prices for construction projects, considering factors such as labour, materials, and overhead costs.
It helps surveyors, contractors, clients understand how construction costs are evolving and can be used for various purposes, such as project cost forecasting, budgeting, and benchmarking.
Advantages and disadvantages of BCIS?
Advantages:
* Widely used and respected
* Provides good coverage of construction costs
Disadvantages:
* Can be out of date
* May not be relevant to your specific project
* Limited control over data
What are pricing books?
Pricing books provide a range of price data for different types of construction projects. The most well-known is probably the Spon’s Price Books (edited by AECOM), which is used by many quantity surveyors, however alternatives are available
Advantages and disadvantages of pricing books?
Advantages:
Can be very specific to your project e.g. M&E services, external works and landscaping
Contains full cost breakdowns usually including materials & labour
Disadvantages:
Very quickly out of date after publishing due to it being a book
Compiled by one company so may not be representative of the wider market.
What is in-house benchmarking?
Construction project benchmarking is a process of comparing the cost of a construction project to similar projects in order to determine the projects estimated cost. This process can be used to compare the cost of a construction project to other projects in the same region or to projects of a similar size and scope.
Advantages and disadvantages of in-house benchmarking?
Advantages:
* Benchmarking can help improve the accuracy of your estimates. By understanding how your project compares to similar projects, you can make more informed decisions about your own project.
* Benchmarking can also help you gain a better understanding of the construction market. By understanding what similar projects cost, you can get a better sense of the meta conditions of the market
* Benchmarking can also help you make better decisions about your project. Popular cost sources prevalent in the industry and the moment rely on averages of large datasets that aren’t necessarily in touch with real-world rates, benchmarking allows your to control and own your own data meaning it is making it more reliable and definitive
Disadvantages:
* Benchmarking may not be available for all construction projects. For example large, complex or one-off buildings may not have comparable projects to benchmark against.
* Benchmarking may not be accurate for all construction projects.
* Benchmarking requires constant updating to keep in line with the latest rates.
What are Unit rates from suppliers/contractors?
Quantity surveyors have the option of contacting suppliers and contractors before going out to tender to estimate the cost. This is one of the most accurate methods of estimation as costs are ultimately decided by the successful contractor. However, at an early stage this is both in-practical and time consuming.
Advantages and disadvantages of Unit rates from suppliers/contractors?
Advantages:
* Can be very specific to your project
* Very accurate and temporal data
Disadvantages:
* Scope and specification is not defined early in the project so data will be unavailable.
* Access to cost data lies with the contractor/supplier so may not always be available
* To contact different contractors/suppliers for each building element would be extremely time consuming.
When estimating costs what should you do as a QS?
- Use a mixture of benchmarking and cost indices to get the most accurate cost information
- It is not a fixed science know there will be variability in the results
- Know the limitations of each assessment method
What is a cashflow?
General terms, ‘cash flow’ movement of income into and expenditure out of a business (or other entity) over time.
More money into the business than going out of it, ‘positive’. More money going out, negative.
In construction, typically refers to an ANALYSIS of:
- WHEN costs will be incurred
- and HOW MUCH they will amount to
- during the LIFE of a project.
Why is it important to predict cashflows?
ensure that an appropriate level of funding is in place and that suitable draw-down facilities are available.
How are cashflows predicted?
Until the main contractor has been appointed, client cash flow projections are likely to be based only on:
- an agreed fee payment schedules for consultants AND
- division of the construction cost over the likely construction period (or s-curve distribution).
It is only when the MAIN CONTRACTOR is appointed, a MASTER PROGRAMME prepared and some form of payment schedule agreed that cash flow projections become RELIABLE.
Can you give some examples of possible cash flow problems?
- Fee agreements tied to work stages rather than monthly invoicing- not a regular income attached to the project
- Firm may not be charging for variations to the brief or scope of works
- Firm holding too much ‘work in progress’ stock that has yet to be invoiced for
- Clients might be slow-paying or disputing invoices to delay payment
- Firm may have expanded too quickly, hiring more staff and renting larger offices, without the means to support them
How can cash flow problems be minimised?
- Long term financial plan (3-5 years) - direction / targets for business including a budget of income and expenditure
- Monthly FORECASTING & MONITORING - allow for preparation for shortfalls / increases in cash
- Monthly MANAGEMENT ACCOUNT - actual performance of previous month against forecast for income, cost and profit.
- CASH COLLECTION REPORT - invoices, due date and agreed levels of debt before action is taken
- Weekly monitoring or time sheets against projects - monitor costs / time
- Daily monitoring and records for invoices raised and paid
- Other reports - annual audited accounts, VAT returns and bank reports
What is a contingency?
downside risk estimates that make allowance for the unknown risks associated with a project
Typically, contingencies refer to costs, and are amounts that are held in reserve to deal with unforeseen circumstances.
What is a contingency plan?
a plan that can be enacted to mitigate project risks, such as adverse weather, an industrial dispute, supplier failure, and so on.
What are typical contingencies?
Often expressed as percentage terms.
Greatest percentage applied in the early stages of project wen the greatest number of possible risks are present. Can reduced as better understanding of project.
Latimer benchmark:
5% contractor contingency;
3% client contingency.
What is retention?
Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client.
Purpose: ensure that the contractor properly completes the activities required of them under the contract.
Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors
Can you give some design risk contingencies for developers?
- Scope changes – from unforeseen design challenges or evolving client requirements
- Design complexity – increased design complexity from technical challenges or complications
- Regulator changes – E.g., changes in Building Regulations such as requirements for second stair cores for buildings over 18m
- Unknown site conditions – may not have been apparent during the initial site investigations e.g., soil issues
- Technological or material changes – availability of materials
- Market conditions - fluctuations in market conditions that could affect the costs of materials, labour, or other design-related expenses.
- Environmental considerations – changes in environmental regs or considerations that require alterations to the design for compliance
- Community issues
- Vendor or supplier issues – delays in key design components or unexpected increases in costs
- Design errors and omissions – require revisions or corrections in the design phase
How does the planning portal fee calculator work?
Takes you through a series of questions to ask question about the application
Application type (full, outline, outline with all matters reserved etc.)
Type of development
Depending on application type (unit numbers, site area)
If any reductions apply e.g., if the application is being made on behalf of a parish or community council
If any exemptions apply
If the site is over two LPA boundaries
What measures can be taken to effectively control costs during the construction phase of a project?
- Proactive risk and contingency management
- Management of provisional sums in budgets
- Regular cost reporting which is also forward looking
- Monthly forecasting and monitoring
- Monthly management account - Rolling final account with closure process for financial impact of change
What is a provisional sum?
An allowance (or best guess), usually estimated by a cost consultant, that is inserted into tender documents for a specific element of the works that is not yet defined in enough detail for tenderers to accurately price.
What is the purpose of a financial report?
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 on contract progress against pre-contract predictions.
To avoid surprises for the client!
