Project Finance Flashcards
(43 cards)
What headings / sections would you expect to see in a typical cost report?
fixed costs (contract sum)
variable costs (prov sums/quants)
variations (instructions, anticipated instructions, Loss and Expense, risk/contingency)
professional fees
client direct costs
What is a Cashflow?
A detailed outline that captures the inflow and outflow of cash associated with a specific project over its life cycle
What is a Cost Report?
A detailed report highlighting the various finances of a project to track overall expenditure against the budget
Why is it important to report and forecast costs?
To keep the client informed of the current financial status of the project and what the potential final account could be.
This may inform decisions later in the project.
How would you produce a cost assessment for a financial risk?
Identify the risk
Evaluate the likelihood of it occurring
Evaluate the potential cost through a combination of research, expert opinion, historical data
What type of risks would you report in a cost report?
- Financial risks - Cost increases
- Construction risks - unknown ground conditions
- Regulatory risks - changes to regulations or policies
- Market risks - Changes in market conditions
- Design risks - Changes to the design that are not the contractor’s responsibility.
How do you tell if the financial progression of a project is on track?
By review the forecasted project cash flow.
Against the S Curve
If the contractor was behind the cash flow, what would that be an indication of?
It would indicate that the works may be behind programme,
or maybe even that the cash flow was unrealistic if works are not behind programme
If the contractor was ahead of the cash flow, what would that be an indication of?
It would indicate that the works may be ahead of programme,
or maybe even that the cash flow was unrealistic if works are not ahead of programme
What is a S curve?
he cumulative costs of a project are plotted against time which, when presented graphically, typically form an ‘S’ shape.
The lower part of the ‘S’ curve indicates the initial phase of the project, where spending is relatively slow because only planning and design are taking place.
The steep middle section of the curve represents the main construction phase where the spending is accelerated.
Finally, the tapering off at the top of the ‘S’ denotes the completion phase, where fine-tuning and finishing touches are being done.
Leopold Buildings - How did you produce the cashflows? What information did you need to produce these?
I required the following information:
- contractor programme
- contractors costs (s-curve)
- client direct costs
- professional fees
- retention information.
Highgate West - You refer to provisional sums, explain the difference between defined and undefined provisional sums.
The key difference lies in the level of definition and the allocation of risk.
Defined provisional sums are used for works that are suitably defined (scope, quantity, location) that the contractor can make allowances for programming, planning and pricing prelims.
Undefined provisional sums are used then works are not suitably defined so contractor cannot be expected to make allowance for them in their programming, planning and pricing preliminaries. Contractor may be entitled to an extension of time and/or additional payments.
NRM2 Definition of Defined Prov Sum
A sum provided for work that is not completely designed but for which the following information is provided:
• the nature and construction of the work
• a statement of how and where the work is fixed to the building, and what other work should be fixed
• a quantity or quantities that indicate the scope and extent of the work, and
• any specific limitations, etc. identified.
NRM2 Definition of Undefined Prov Sum
A sum provided for work that is not completely designed, but for which the information required for a defined provisional sum cannot be provided.
How did your cashflow allow for prompt payment by the client?
It allowed the client to have the required amounts in place ready to be paid to the contractor and consultants each month.
What is the timeline for payment in the contract?
The final date for payment is 14 days after valuation due date. (both IC 24 and D&B 24)
What happens if the client does not pay the contractor on time?
What is the effect if payment is made late?
The contractor may give a 7 day suspension notice as well as an employer default notice.
If the reason for default continues for 14 days then the contractor can terminate the contract.
Simple interest can be charged from final date for payment to actual payment.
(Same for both D&B24 and IC24)
Highgate West - Why was the contractor not able to provide a completely fixed contract sum due to the live wards?
The contractor was not able to access all areas of the wards prior to carrying out the works and even where they could, it was not always possible to open up areas to view unknown aspects of the works, M&E for example.
Highgate West - What provisional sums were included by the contractor because of the wards being live?
There was an issue with gaining access to the mechanical and electrical systems so there were some provisional sums in place for M&E works.
Highgate West - What was your advice to the client regarding the liquidated damages rate to be included in the contract?
- I informed the client that the level of liquidated damages must be a genuine pre-estimate of loss to the client in the event of a delay.
- LD’s are intended to put the client back in the position they would have been had the delay not occurred.
- It must not be treated as a penalty.
Highgate West - What was your advice to the client regarding the total liquidated damages that the client could claim?
I reviewed the period between the extended completion date and the expected completion date (or PC if achieved) and multiplied this period by the liquidated damages rate in the contract particulars.
Highgate West - What reason did you report to the client for why the contractor was behind the forecasted expenditure?
Some of the wards had not been handed over in time, delaying the contractor from starting works on some contract sections.
Highgate West - How was the contractor planning to rectify the delay?
The employer was not interested in acceleration as there was no guarantee of it working.
Discussions revolved around the contractor’s management and sequencing of the works.
Highgate West - What were the timelines for issuing the final account?
After PC, contractor has 3 months to provide their Final Statement.
If not provided in 3 months, Employer can give a 2 month notice of requiring contractor Final Statement.
If not provided after that 2 month period, the Employer can issue their own final statement to the contractor.
Employer has till the final due date to dispute anything in the contractor’s final statement, or vice versa if the employer issues the final statement.
