Project financial control and reporting Flashcards
What is a cost report?
It is a document that captures the financial information of a project during the construction stage on a monthly basis. It reports on the project’s predicted and actual costs at a given point in time.
What is the format of a cost report?
Alban cost reports:
- Executive summary:
- Authorised expenditure:
- Forecast cost:
- Contract sum.
- Less risk allowances.
- Adjustment of provisional sums/prime costs/provisional quantities/contract instruction/anticipated instructions/fluctuations/loss and/or expense
- Contractual summary:
- Contract period.
- Estimated completion date.
- Performance to date.
- Exclusions.
- Cashflow Forecast:
- Forecast costs.
- Reconciliation with previous report.
- Changes since previous report.
- Adjustment of variable costs.
- Contract instructions.
- Anticipated instructions.
- Risk allowances.
How often are cost reports prepared?
Monthly.
Can cost reports be prepared more frequently than once a month?
They can be prepared more frequently at the client’s request and in some instances if there are significant changes.
What is a cashflow?
A cashflow is a graphical or tabular prediction of the costs anticipated during the life of a project.
Why is a cashflow important?
To ensure appropriate level of funding is in place to cover works executed and there is a suitable draw-down.
How is a cashflow prepared?
- A construction programme and contract sum would be needed to populate a cashflow.
- Values associated with elements can be forecasted at times to reflect critical dates within programme.
- Split the works into different packages and include individual S-curves for each package.
- If there are any specialist sub-contractors or consultants, the obtaining their drawdowns can also assist in populating the cashflow.
- Sometimes using a cashflow from a previous project can assist or using an cashflow software however that should be taken with a pinch of salt as it may not always be accurate.
What are the advantages and disadvantages of a cashflow?
Advantages:
- Financial planning - helps anticipate cash needs and prevent shortages.
- Budget management - aids in monitoring actual expenses against budgets.
- Risk management - identify cash surplus or shortfalls in advance.
- Decision making.
- Contract management.
Disadvantages:
- Accuracy challenges - market conditions and regulatory changes can be just some of the causes of a cashflow deviating from it’s projection.
- Complexity.
- Dependency on assumptions.
- Cashflow variability - changes in scope of works, variations, delays and etc. can cause cashflows to deviate and require much planning to anticipate such changes.
- Limited scope.
Why do cashflows have an s-curve?
- Construction projects follow distinct phases and as the project progresses the level of funds will change dependent on the nature of works being undertaken during that period.
- At the start there is minimal expenditure as construction activities are winding up in preparation which will include for site setup, mobilization and enabling works.
- As the works progress, the packages of higher value are undertaken such as frame, M&E installations which will cause a peak in the curve.
- As the works come to a close, construction activities begin winding down as there are minor works such as decorations, testing, commissioning and etc. As a result, there will be minimal expenditure here and the curve will taper off.
Where actual payments fall below the forecast, what could that indicate?
- Programme delay.
- Financial difficulties of the contractor.
- Poor contractor cashflow.
- Performance of contractor.
- Re-sequencing of works.
- Materials stored off-site and not yet ready to incorporate into main works.
- Delay in delivery of materials.
What needs to be done to the cashflow in future reports if actuals are falling below the forecast?
It needs to be re-baselined moving forward.
Where actual payments fall above the forecast, what could that indicate?
- Front-end loading.
- Acceleration of work.
- Re-sequencing of works.
- Materials stored on site well in advance of installation.
- Materials off site not accounted for within cashflow.
- Inclusion of variations.
- Accuracy of cashflow prior to commencing construction.
- Market fluctuations.
What is a variation?
Changes to the design, quality or quantity of the contract works, site access or working conditions.
Why might variations arise?
- Change in specification.
- Discrepancies in contract documentation.
- Discrepancies in statutory requirements.
- Errors and omissions.
- Deficiencies in ER’s.
What about oral instructions?
Depends on the contract and if there is a mechanism that allows for oral instructions, e.g. the JCT SBC states:
- If the CA issues an oral instruction it will have no immediate effect.
- The Contractor shall confirm in writing receipt of the oral instruction within 7 days.
- If the CA does not dissent by notice to the Contractor within 7 days of receiving confirmation, then it will take effect from the expiry of the latter 7 days.
Ultimately, all oral instructions should be followed up with a formal/written response ASAP to avoid disputes and ensure clarity and certainty.
When can the contractor object to a variation?
The Contractor can object to instructions if:
- The instruction might affect the efficacy of the design of the CDP.
- The instruction affects the Contractor’s compliance with CDM regulations and H&S laws.
- The instruction infringes on patent rights.
- The instruction relates to named specialists which the contractor is unable to enter into contract with.
- The instruction affects access into the site.
- The instruction limits the working space.
- The instruction limits the working hours.
- The instruction affects the execution or completion of the works.
What are the valuation rules under a JCT contract?
- Allowance for design works.
- Use of Contract Sum Analysis (CSA) rates.
- Use of Star Rates (adjusted CSA rates).
- Allowance for dayworks (ensuring sign-off).
- Fair and reasonable assessment.
How does one adjust for star rates?
- Identify item of work affected by change and find corresponding star rates.
- Assess scope of change by measuring and calculating the additional or modified works.
- Apply the star rate.
- Allow for adjustment to rate such as market conditions, site conditions that would impact the cost of the work beyond what is covered in the standard rate.
- Document the valuation and how the assessment was reached for future purposes and to avoid disputes.
How are non-measurable works valued?
Through daywork sheets based on the cost of labour, plant and materials that are incurred.
What is loss and expense?
Is when the contractor is reimbursed for direct loss/expense incurred in carrying out additional works beyond the contract or from a Client’s breach of the contract.
How is loss and expense claimed?
- As soon as the contractor becomes aware of any matter that would cause them to incur loss and expense, they should notify the CA in writing.
- The contractor should submit any information as requested by the CA.
- The contractor should submit further information to the CA and QS to determine the amount of loss and expense to be claimed.
What are the common heads of cost in a loss and expense claim?
- Prolongation - costs associated with keeping the site operational beyond its’ stated contract period.
- Additional preliminaries such as extra supervision and etc.
- Disruption causing plant or labour to be underemployed i.e. out of sequence working.
- Increases in labour or material costs during the period of delay.
- Head office overheads.
- Loss of profit.
- Finance charges.
- Acceleration costs.
- Claim preparation costs.
What is the benefit of having robust change control?
- Cost control - it can help with managing the finances on a project during construction and where the anticipated final account is heading.
- Project management - it can help identify the nature and impact changes have on a project.
- Risk mitigation - through identifying the impact, suitable risk mitigation strategies can be implemented to minimize the effects of them.
- Contractual compliance - manage changes in accordance with contractual requirements such as requesting, reviewing, approving and documenting.
On Ashman Bank, what were the time periods stated within the contract to agree costs for variations?
The contract for Ashman Bank did not stipulate specific time periods for agreeing costs for variations as they can continue to be agreed up until the final account is agreed.
However, in the spirit of best practice, I would endeavour to review any variations within one week of receipt from the contractor and issue my assessment.
