Project Finance Flashcards
1
Q
What is cashflow?
A
Forecasted position of external valuation for each month for the duration of the job
2
Q
What is a CVR?
A
Cost Value reconcillation
Allows overview of projects finances to be reviewed cost over value
3
Q
What is a risk allowance?
A
.the amount added to the base cost estimate for items that cannot be precisely predicted to arrive at the cost limit.
4
Q
Why is a contribution action plan used?
A
as a risk management tool to assess likely occurences of likely losses or gains
5
Q
What is a liability?
A
Liability is a term in accounting that is used to describe any kind of financial obligation that a business has to pay at the end of an accounting period to a person or a business. Liabilities are settled by transferring economic benefits such as money, goods or services.
6
Q
What is an accrual?
A
a charge for work that has been done but not yet invoiced, for which provision is made at the end of a financial period
7
Q
What is an example of value engineering referenced?
A
Building partitions to underside of ceiling
8
Q
What is change control procedures?
A
the process through which all requests to change the approved baseline of a project, programme or portfolio are captured, evaluated and then approved, rejected or deferred
9
Q
How was the project CVR queried in the monthly performance review?
A
Subcontract variations were queried
Cost to complete of prelims was questioned
10
Q
How was the risk management plan queried?
A
11
Q
How did you formulate the cashflow?
A
Review programme with project manager and complete an external valuation for each month to the end of project
12
Q
Related guidance to cost reporting?
A
RICS Black book:
- Cash flow forecasting 1st edition.
- Cost Reporting 1st Edition
- Interim Valuations and Payment
- Valuing Change
- Final account procedures
13
Q
What is the purpose of post-contract cost / financial reporting?
A
- Provide overview of client’s current financial commitment
- Inform client of the likely outturn costs of the project
- Forecast outturn costs compared to budget and/or tender sum
- Give client understanding of potential savings / VE / additional monies required
- Report contract progress against pre-contract predictions
14
Q
What information would you include in a post-contract cost report?
A
- Summary
- Contract sum
- Instructed variations
- Anticipated variations
- Provisional sum adjustments
- VE options
- Anticipated final account (forecast)
- Risk allowances / contingencies
- Cashflow forecast and certified payments
- Commentary on project status
15
Q
Difference between cost and price?
A
- Cost is the expense incurred in the production of a product / service
- Price refers to payment required for supply of a product / service
16
Q
How would you deal with a large and (in your opinion) unrealistic claim for loss and expense in your cost report?
A
- Report claim and highlight concern with figure submitted
- Assuming CA deems the principal of the claim is valid, I would assess the claim
- Update client on a regular basis until conclusion reached
17
Q
What is a cash flow projection (/ forecast)?
A
- Financial planning tool showing predicted flow of cash in and out of project, typically shown month-by-month
- Typically form an ‘S curve’
18
Q
What formula can be used to predict anticipated payments?
A
- S curve algorithm
19
Q
Difference between employer cash flow and contractor (/ construction) cash flow projections?
A
- Employer -> usually considers project in broader context, may include costs such as fees (statutory, consultant, legal), charges (land acquisition, marketing and sales)
- Contractor -> construction costs
20
Q
How does [the employer] benefit from accurate cash flow projections?
A
- Assist with planning expenditure- ensures apt funding in place
- Gain understanding of potential financial commitment at specific point in the future
- Sense check monthly contractor valuations
21
Q
If payments to the contractor are behind the projection, what might this indicate?
A
- Construction works may be behind programme
22
Q
If payments to the contractor are ahead of the projection, what might this indicate?
A
- Construction works may be ahead of programme or the contractor is over-claiming
23
Q
How would you create a cashflow forecast?
A
- Require construction programme and CSA
- Values associated with element could be forecasted to reflect their installation within the programme
- Split works into different packages as shown on programme, include individual s-curves for each package
- (Can request cashflow from subcontractors to assist)
- Alternatively - use previous cashflow from similar scheme / cashflow forecasting software, though may not be as accurate
24
Q
Different ways to produce a cash flow?
A
- S curve calculator to calculate expenditure over course of construction
- Use programme and pricing schedule to plot expenditure
- Request contractor to submit cashflow
25
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?
- In reality - not very realistic, much more likely to have s-curve profile (initial spend is low as site set up and enabling works undertaken, then higher value M&E, frame during works, then minor finishing items as scheme comes to end
26
Components of a cash flow?
- Prelim costs, work packages, OH&P, retention, expenditure of loss and expense, provisional sums, instructions, variations
27
Contributors to increased costs on a construction project?
* Client driven changes
* Design development
* Site specific risks (contamination, ground obstructions, logistical issues, incoming services)
* External influences (market fluctuations, tax and insurances, Brexit, COVID - depends on contract)
28
Methods to bring the project back in budget?
- Main options are to reduce scope or assess value engineering possibilities
29
Would there be a potential conflict on the scheme if the EA undertook commercial aspects of the contract?
* Post contract - not really as the EA and QS scope of services are to act impartially and in accordance with administering contract conditions, so technically there shouldn’t be too much variance between their assessment of say valuations etc.
* Pre-contract (EA not appointed yet) but could be PM - if they had a favourable contractor in mind this could skew their quality assessment if they knew the status of the cost rankings
30
Have you produced a change control tracker? If so, how?
* Description of changes, who this was raised by and when, categorise change according to status
* Any additional comments in other column as a running commentary
31
What are the typical responsibilities of the cost manager on a construction project?
- Depends on scope of service, may include:
- managing risk allowance expenditure
- prepare pricing documents
- tender evaluation / analysis
- prepare interim valuations
- value variations
- assess contractor’s financial claims
- negotiate and agree final accounts
- produce cost estimates and cost plans
- advice on whole life costs
- cost reports, forecasts
- prepare and maintain cash flow forecast
32
Advantages of buildability?
* Better programming, sequencing, construction methods
* Potential for reduced capital and life cycle costs and improve building performance and maintenance characteristics
33
What are variations?
- Alterations / modifications to design, quality or quantity of the contract works / site access / working conditions
34
Why might variations arise?
* Change to spec
* Discrepancies between contract docs / statutory requirements
* Errors and omissions
* Deficiencies in employer requirements
35
What form must architect’s instructions take?
* Best practice to be made in writing
* QS not usually authorised to make additions to contract sum for instructions not in written form
36
What would you say about oral instructions post-contract?
* Validity depends on whether form of contract has valid mechanisms
* i.e. JCT SBC- Instructions other than writing of no immediate effect- contractor shall confirm in writing receipt within 7 days, if CA doesn’t dissent within 7 days, takes effect from expiry of 7 day period
* In my opinion, best practice to follow up verbal instructions with written ones ASAP
37
Can the contractor object to a variation?
* Depends on the contract, i.e. JCT SBC - contractor must comply with valid instruction subject to certain exceptions
Exceptions
- Instruction might affect efficacy of CDP / compliance with CDM regulations
- Instruction might infringe patent rights
- Contractor unable to enter into contract with named specialist in instruction
38
What can the architect do if the Contractor doesn’t comply with an instruction?
* Depends on the contract, though in JCT, the architect is required to issue ‘notice to comply’ to the Contractor
* If contractor still fails to comply, architect can instruct another party to carry out work, with contractor liable for additional costs incurred - must obtain range of quotations and have record
39
3 methods of obtaining a cost for variations under JCT forms of contract?
Depends on contract, JCT SBC:
- Agreement between employer and contractor
- Schedule 2 quotation
- Valuation by QS under valuation rules
40
What are time periods for Schedule 2 quotations under JCT SBC?
* CA requests via issue of AI
* Contractor has 7 days to notify they won’t provide one, otherwise 21 days to quote
* CA has 7 days to confirm acceptance “Confirmed acceptance” / rejection of quotation
41
What does the Schedule 2 quotation contain?
* Work value
* Time adjustment
* Money in lieu of direct loss and expense
* Fair and reasonable cost of preparing quotation
42
Is the contractor entitled to any costs if the quotation is rejected?
- Fair and reasonable cost of preparing quote, as long as quote itself was fair and reasonable
43
Valuation Rules under JCT forms of contract?
3 rules for measurable work:
- If of similar character, qty and condition as existing work, bill rates should be used
- If of similar character, but different qty / conditions, bill rates used as basis, with fair allowance to account for difference
- If not of similar character, fair rates and prices should be used
44
What about non-measurable work?
- Typically valued by dayworks procedure based on labour, plant, materials costs incurred
45
What is a star rate?
* Rate based on bill rates, but including fair allowance
* Deviation must have reason (i.e. conditions on site more complicated than first envisaged
46
What are ‘fair rates and prices’?
* Market rate
* Rate based on actual costs
* Rate in line with current cost data
47
What are dayworks?
- Actual cost of materials, labour, plant used in carrying out work, along with % addition as set out in the contract
48
What document should the prime cost be calculated in accordance with?
- Definition of the Prime Cost of daywork carried out under Building Contracts (by RICS)
49
What information is necessary to be able to assess dayworks?
* Dayworks / time sheets
* Names of workmen
* Plant and materials used
This info should be given to CA / authorised person for verification
50
Can the QS alter hours they consider excessive on a dayworks sheet that’s authorised by CA?
- No, if signed off should be maintained
51
What would you do if the contractor submitted 10 dayworks sheets to you for payment?
* Verify with CA that relevant variation has occurred and it’s recorded on an instruction
* Ensure no other contractual method of valuing variation
* Providing CA in place and no other mechanisms, I’d seek verification of hours and materials
52
How would you resolve if you didn’t not agree on something with the contractor’s QS?
* Discuss with client / senior colleague, try to seek resolution with contractor
* Could take to adjudication if necessary, all parties should try and resolve matter by negotiation in first instance
53
What is quantum meruit?
“what he deserves’ - fair and reasonable costs incurred
54
Give an example of where this might be used?
- If employer and contractor reach separate agreement on acceleration, costs may be based on ‘fair and reasonable basis’
55
What is loss and/or expense under JCT Forms of Contract?
- Reimbursing contractor for any direct loss and/or expense incurred in carrying out additional work / from employer’s breach of contract
56
What are the procedures for claiming loss and expense under JCT forms of contract?
* Once regular work progress is affected / likely to be affected / contractor aware of matter incurring loss and expense, they should notify CA in writing
* Contractor should submit further information as requested by architect
* Contractor should submit further info as requested by CA/QS to enable L&E amount to be ascertained
57
What are Relevant Matters under JCT forms of contract?
- Events listed in Contract entitling contractor to loss and/or expense
58
What are the Relevant Matters?
5:
- Variations
- Instructions
- Execution of approximate qty not reasonably accurate to actual qty
- Suspension by contractor for non-payment
- Any impediment/prevention/default by employer
59
What is key to remember when assessing loss and expense?
- Actual loss incurred by the Contractor
60
What are common heads of claim in loss and expense applications?
* Prolongation
* Thickening of prelims (i.e. extra supervision required)
* Disruption causing plant/labour to be underemployed
* Increase in labour / material costs during delay period
* Head office overheads
* Loss of profit
* Finance changes
* Acceleration costs
* Claim preparation costs
61
Can you explain how you valued loss and expense claim on one of your projects?
* Liaised with EA/CA to confirm validity, if it was a relevant matter following EoT
* Reviewed contract prelims / extent on site to build up costs
* Communicate with contractor, ascertain their costs and sense check if matched with my assessment
* Client informed, agreed, monies paid against
62
What is a provisional sum?
* Allowance / estimate included within the contract price
* Not sufficiently defined/designed/detailed to allow accurate cost determination at time of carrying out and/or
* Work the employer may (not) wish to be carried out
63
How are provisional sums expended?
* Under JCT, CA should issue instruction for expenditure
* Final amount payable = omission of prov sum allowance and addition of actual cost
64
How are provisional sums dealt with in the Final Account?
* CA should have issued instructions for expenditure of all provisional sums with the add/omit
* Instructions then accounted for in usual way under Final Account (FA)
65
How does the NEC contract incorporate provisional sums?
* Unamended NEC contracts don’t provide for use of prov sums
* NEC approach - if scope of works unclear, item is excluded until it can be properly defined
66
What types of provisional sum are there?
- Defined and undefined
67
Difference between defined and undefined sums?
- Defined (as stated in NRM1)
Contractor has allowed adequate time for programme and prelims included in contract - nature of construction work, qty and time required is known but design not yet complete
- Undefined
Extent unknown so contractor has not allowed for planning/programming/preliminaries implications- entitled to EoT and/or additional prelims when actual works undertaken
68
Would the contractor be entitled to claim additional preliminaries and/or EoT when expending a defined provisional sum?
- No- they should have allowed for programme and prelims in price
69
What are prime cost sums (PC sums)?
* Supplier only rate for materials / goods where precise spec unknown
* Excludes costs associated with installation, fixing, fees, OH&P
70
Prime cost vs provisional sums?
* Prime cost affects material cost only, work elements firm but only material elements subject to change
* Provisional sums allow for supply and related costs
71
On one of your projects, how did you make sure the contractor made sufficient allocation in their programming, planning and prelims?
- Ensuring provisional sums classed as defined, so contractor accounted for programming, prelims - less cost and time risk
72
When would you use a prime cost sum over a provisional sum?
- When works element can be firmed up but specification isn’t confirmed
73
What are some of the risks associated with a provisional sum?
* Cost not certain - if full extent of works not realised / appreciated, costs can increase significantly
* Undefined provisional sums have time-related costs and programme implications
74
Under what situation would you advise a provisional sum to be included?
- When design can’t be complete and inadequate information to attribute a firm cost
75
Does JCT D&B mention provisional sums in the contract?
- Mentioned and to be expended by contract instructions (not mentioned if defined / undefined)
76
What is a final account?
* Conclusion of the Contract Sum (including necessary adjustments)
* Signifies agreed amount employer will pay contractor
77
What are the usual components of a final account?
* Summary
* Measured work
* Variations
* Adjusted prov sums / prime cost sums
* Claims
* Fluctuations
* Previous payments made
* Delay damages
* Retention
* Fees
* OH&P
* Original contract sum
* Final account sum
78
Can you detail the process for agreeing a final account?
* Contractor has 3 months from PC date to send all relevant information
* Review and agree within 2 months of contractor submitting necessary information
* Draft final account statement, send to contractor to confirm agreement
* Issue statement to employer’s agent, allows final completion certificate to be issued (after rectification period elapsed)
79
Subcontractor final account
- 4 weeks following completion of works
- 2 weeks to review
- Issue final account analysis with FA agreement
80
What needs to be in place to allow the final completion certificate to be issued?
* End of defects rectifications period
* Final statement in place (FA agreed)
* Notice of Completion of Making Good (any defects rectified)
81
What are the different uses for a cashflow forecast?
RICS Cash Flow Forecasting
- obtain loans and bank monitoring (for employers/developers) - banks may require drawdown schedule
- monitor progress of works on site vs agreed programme - when done between main contractor and subcontractors it’s more accurate than s-curve - based on agreed sequence. Extra significance in NEC where programme and activity schedule specifically referenced
- manage cash within business - understand liabilities, overdrafts, potential consequences on business
- forecast business performance (assess contractor stability before appointing, though this isn’t 100% foolproof)
- stakeholder management (i.e. funders, shareholders, banks)
- manage consultants’ resources (ensure employees are working proportionate to value)
82
Different ways to calculate cashflow?
- RICS Cash Flow Forecasting
- S-curve (standard) ascertained by formula - less expenditure at beginning due to site set up and inexpensive enabling works and end due to reduced trades and staff, materials already delivered >DHSS Expenditure forecasting originally used for expenditure on capital projects - consider reliability when producing cashflows
- More advanced computer modelling - still tends to be based on same principles as S-curves
- During course of project, calculations can become more accurate. Can use related pricing document to programme but time consuming and often not much better than using industry s-curve formula
83
Ongoing project considerations for cashflow forecasting? / Reasons for variance in cashflow?
- RICS Cash Flow Forecasting
> Cashflows should be regularly reviewed and adjusted to reflect progress and events
- Consider payment period in certificate (i.e. employer payment after 14 days might fall in next month)
- Sectional completion and partial possession impact retention
- Variations impact cashflow and programme
- Employers may have fees and other development costs required, including consultant fees, direct contracts
- If materials brought onto site way in advance, QS shouldn’t allow payment. Materials on site shouldn’t affect cashflow, but if they are needed early (to offset rises), then this impacts cashflow
- Materials offsite can result in more frontloaded cashflow
- Changes in sequencing
- EoT
- Acceleration
- Annual events (Christmas, Easter)
- Assumptions / exclusions
84
Risk factors in construction cashflow forecasting?
* changes in design/spec
* inflation
* effects of interest and exchange rate
* building complexities
* estimating errors
* re-sequencing to mitigate delays
* L&E
* damages
* VAT
85
Reasons you might re-sequence?
- Recover time
- Late procurement resulting in programme updates
- Accommodate employer variations
Also:
- Change / insolvency of subcontractor / supplier
- Encounter site conditions
- Adverse weather
86
Effect of alternative procurement routes on cashflow?
* Change in procurement route could require amendment to account design and risk differently
* Trad - separates construction cost from design fees and risk allowance
* D&B - Contract Sum may include element of design fees and risk already
* Cost reimbursable / target cost based on actual costs+% - cashflow needs to be regularly updated
* Micro level effects on cashflow with Construction Management - cashflow is effectively lots of mini-cashflows for each contract - each subcontract could have different payment terms, dates, need to account for construction manager fee and VAT applications varying
87
What is the purpose of post-contract cost / financial reporting?
* Provide overview of client’s current financial commitment
* Inform client of the likely outturn costs of the project
* Forecast outturn costs compared to budget and/or tender sum
* Give client understanding of potential savings / VE / additional monies required
* Report contract progress against pre-contract predictions
88
What information would you include in a post-contract cost report?
- Summary
- Contract sum
- Instructed variations
- Anticipated variations
- Provisional sum adjustments
- Anticipated final account (forecast)
- Risk and opportunities
- Cashflow forecast and certified payments
- Commentary on project status
89
Factors affecting outturn costs of a construction project?
* Variable costs - prov sums, provisional quantities, prime cost sums, daywork allowances (plant, material, labour)
* Variations (instructions, anticipated instructions, professional fees)
* L&E, fluctuations, risk allowances
* Client driven changes
* Design development
* Site specific risks (contamination, ground obstructions, logistical issues, incoming services)
* External influences (market fluctuations, tax and insurances, Brexit, COVID - depends on contract)
90
Costs not typically included in construction contracts / cost reports?
RICS Cost Reporting
- VAT
- Capital allowances
- Direct cost
- Statutory undertaker work
- Planning costs
91
Would there be a potential conflict on the scheme if the EA undertook commercial aspects of the contract?
* Post contract - not really as the EA and QS scope of services are to act impartially and in accordance with administering contract conditions, so technically there shouldn’t be too much variance between their assessment of say valuations etc.
* Pre-contract (EA not appointed yet) but could be PM - if they had a favourable contractor in mind this could skew their quality assessment if they knew the status of the cost rankings
92
Have you produced a change control tracker? If so, how?
- Description of changes, who this was raised by and when, categorise change according to status
- Any additional comments in other column as a running commentary
93
What are the typical responsibilities of the cost manager on a construction project?
Depends on scope of service, may include:
- managing risk allowance expenditure
- prepare pricing documents
- tender evaluation / analysis
- prepare interim valuations
- value variations
- assess contractor’s financial claims
- negotiate and agree final accounts
- produce cost estimates and cost plans
- advice on whole life costs
- cost reports, forecasts
- prepare and maintain cash flow forecast
94
What are variations?
Alterations / modifications to design, quality or quantity of the contract works / site access / working conditions
95
What form must architect’s instructions take?
* Best practice to be made in writing
* QS not usually authorised to make additions to contract sum for instructions not in written form
96
What would you say about oral instructions post-contract?
* Validity depends on whether form of contract has valid mechanisms
* i.e. JCT SBC- Instructions other than writing of no immediate effect- contractor shall confirm in writing receipt within 7 days, if CA doesn’t dissent within 7 days, takes effect from expiry of 7 day period
* In my opinion, best practice to follow up verbal instructions with written ones ASAP
97
Can the contractor object to a variation?
* Depends on the contract, i.e. JCT SBC - contractor must comply with valid instruction subject to certain exceptions
Exceptions
* Instruction might affect efficacy of CDP / compliance with CDM regulations
* Instruction might infringe patent rights
* Contractor unable to enter into contract with named specialist in instruction
98
What can the architect do if the Contractor doesn’t comply with an instruction?
* Depends on the contract, though in JCT, the architect is required to issue ‘notice to comply’ to the Contractor
* If contractor still fails to comply, architect can instruct another party to carry out work, with contractor liable for additional costs incurred - must obtain range of quotations and have record
99
3 methods of obtaining a cost for variations under JCT forms of contract?
Depends on contract, JCT SBC:
- Agreement between employer and contractor
- Schedule 2 quotation
- Valuation by QS under valuation rules
100
What are time periods for Schedule 2 quotations under JCT SBC?
* CA requests via issue of AI
* Contractor has 7 days to notify they won’t provide one, otherwise 21 days to quote
* CA has 7 days to confirm acceptance “Confirmed acceptance” / rejection of quotation
101
What does the Schedule 2 quotation contain?
* Work value
* Time adjustment
* Money in lieu of direct loss and expense
* Fair and reasonable cost of preparing quotation
102
Is the contractor entitled to any costs if the quotation is rejected?
- Fair and reasonable cost of preparing quote, as long as quote itself was fair and reasonable
103
What document should the prime cost be calculated in accordance with?
- Definition of the Prime Cost of daywork carried out under Building Contracts (by RICS)
104
What information is necessary to be able to assess dayworks?
* Dayworks / time sheets
* Names of workmen
* Plant and materials used
This info should be given to CA / authorised person for verification
105
What would you do if the contractor submitted 10 dayworks sheets to you for payment?
* Verify with CA that relevant variation has occurred and it’s recorded on an instruction
* Ensure no other contractual method of valuing variation
* Providing CAI in place and no other mechanisms, I’d seek verification of hours and materials
106
How would you resolve if you didn’t not agree on something with the contractor’s QS?
* Discuss with client / senior colleague, try to seek resolution with contractor
* Could take to adjudication if necessary, all parties should try and resolve matter by negotiation in first instance
107
What are the procedures for claiming loss and expense under JCT forms of contract?
* Once regular work progress is affected / likely to be affected / contractor aware of matter incurring loss and expense, they should notify CA in writing
* Contractor should submit further information as requested by architect
* Contractor should submit further info as requested by CA/QS to enable L&E amount to be ascertained
108
What are Relevant Matters under JCT forms of contract?
* Variations
* Instructions
* Execution of approximate qty not reasonably accurate to actual qty
* Suspension by contractor for non-payment
* Any impediment/prevention/default by employer
109
What are common heads of claim in loss and expense applications?
* Prolongation
* Thickening of prelims (i.e. extra supervision required)
* Disruption causing plant/labour to be underemployed
* Increase in labour / material costs during delay period
* Head office overheads
* Loss of profit
* Finance changes
* Acceleration costs
* Claim preparation costs
110
Can you explain how you valued loss and expense claim on one of your projects?
- Liaised with EA/CA to confirm validity, if it was a relevant matter following EoT
- Reviewed contract prelims / extent on site to build up costs
- Communicate with contractor, ascertain their costs and sense check if matched with my assessment
- Client informed, agreed, monies paid against
111
What is a provisional sum?
* Allowance / estimate included within the contract price
* Not sufficiently defined/designed/detailed to allow accurate cost determination at time of carrying out and/or
* Work the employer may (not) wish to be carried out
112
How are provisional sums dealt with in the Final Account?
* CA should have issued instructions for expenditure of all provisional sums with the add/omit
* Instructions then accounted for in usual way under Final Account (FA)
113
How does the NEC contract incorporate provisional sums?
* Unamended NEC contracts don’t provide for use of prov sums
* NEC approach - if scope of works unclear, item is excluded until it can be properly defined
114
Difference between defined and undefined sums?
- Defined (as stated in NRM1)
Contractor has allowed adequate time for programme and prelims included in contract - nature of construction work, qty and time required is known but design not yet complete
- Undefined
Extent unknown so contractor has not allowed for planning/programming/preliminaries implications- entitled to EoT and/or additional prelims when actual works undertaken
115
Prime cost vs provisional sums?
* Prime cost affects material cost only, work elements firm but only material elements subject to change
* Provisional sums allow for supply and related costs
116
On one of your projects, how did you make sure the contractor made sufficient allocation in their programming, planning and prelims?
- Ensuring provisional sums classed as defined, so contractor accounted for programming, prelims - less cost and time risk
117
When would you use a prime cost sum over a provisional sum?
- When works element can be firmed up but specification isn’t confirmed
118
Whats an example of where prime costs have been used
Ceramic tiling
£25/m allowance made
119
What are some of the risks associated with a provisional sum?
* Cost not certain - if full extent of works not realised / appreciated, costs can increase significantly
* Undefined provisional sums have time-related costs and programme implications
120
Under what situation would you advise a provisional sum to be included?
- When design can’t be complete and inadequate information to attribute a firm cost
121
Does JCT D&B mention provisional sums in the contract?
- Mentioned and to be expended by contract instructions
122
Can you issue an instruction for expenditure of a provisional sum without costs agreed?
- Yes - can instruct against design and the costs be agreed with QS later
123
In the event that a provisional sum is instructed without costs agreed, what advice would you give?
* Assuming the provisional sum is defined and instruction has been made with adequate timing in programme, programme should not change
* Costs will represent actual costs however prov sum gave accurate reflection of budget at the time
* If costs beyond budget, can explore VE and alternative options (i.e. London Road)
124
What mechanisms are there in D&B for change control?
* Supplemental Provision 2 - valuation of changes
* EA instructions
* Acceleration / L&E
[London Road - mechanisms inc change order to request quotation from contractor and change proposals for contractor to request a quotation]
125
What mechanisms are there in ICD for change control?
* Supplemental Provision 3 - cost savings and value improvements
126
What is supplemental provision 2 (in D&B)?
Valuation of changes (D&B) - contractor’s estimates
- If compliance with instruction requires further consideration, contractor provides estimate
- Estimate comprises value of adjustment to contract sum, additional resources required for compliance, method statement for compliance, length of EoT required and L&E
- If within 10 days of receipt of contractor’s estimate the EA and contractor can’t agree, EA may instruct compliance with instruction / withdraw instruction
- Withdraw = no cost to employer unless preparation of estimate involved additional design work
127
What is supplemental provision 3 (in ICD)?
Cost savings and value improvements
- Contractor proposes changes to design and spec for works and/or programme
- Details provided, identify supplemental provision, benefit and cost (saving)
- If employer wishes to implement, confirm in instruction (Contractor gets share of financial benefit)
- Only instructed if nothing prevents employer using other contractors to implement changes after PC
