How would you create a cashflow forecast?
- 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
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 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.
What is the benefit of a cashflow forecast?
- 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
What would you include within a financial report?
- 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
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 contract progress compared against pre-contract predictions.
What are variations?
Alterations or modifications to the design, quality or quantity of the contract works or to the site access
or working conditions
Why might they arise?
a) change to specification.
* b) discrepancies between contract documents.
* c) discrepancies with statutory requirements.
* d) errors and omissions.
* e) deficiencies in employer’s requirements
What form must architect’s instructions take?
- It is best practice under the majority of contracts for instructions to be made in writing.
- The QS is not usually authorised to make additions to the contract sum for instructions that are not in
written form
What about oral instructions?
- The validity of oral instructions depends on whether the form of contract being used contains
mechanisms for them to be valid. - For example within the JCT Standard Building Contract (SBC):-
o Where the Contract Administrator issues an instruction otherwise than in writing, it shall be of
no immediate effect
o But the Contractor shall confirm in writing receipt of the verbal instruction within 7 days.
o If the Contract Administrator does not dissent by notice to the Contractor within 7 days from
receiving the contractors confirmation, it shall take effect as from the expiry of the latter 7 day
period. - In my opinion it is always best practice to follow up verbal instructions with written instructions as
soon as possible.
Can the contractor object to a variation?
- Some contracts allow the contractor to object to an instruction in special circumstances for example:-
- In the JCT Standard Building Contract the requirement to comply with a valid instruction is subject to
certain exceptions, where:-
o Where the instruction might affect the efficacy of the design of the Contractors Designed
Portion.
o Where the instruction might affect the contractor’s compliance with the CDM Regulations.
o Where the instruction may infringe patent rights.
o Where the instruction relates to a named specialist, and the contractor is unable to enter into a
contract with that firm
What can the architect do if the contractor does not comply with an
instruction?
- This depends on the form of contract being used however under JCT Suites if the contractor does not
follow an instruction, the architect will be required to issue a ‘notice to comply’ to the contractor. - If the Contractorstill fails to comply, the architect can instruct another party to carry out the work and
the contractor will be liable for any additional costs incurred. - In this circumstance it is important to record the costs and obtain a range of quotations.
What 3 methods are there of obtaining a cost for variations under JCT
forms of Contract?
- This depends on the form of contract being used, under JCT SBC, quotations can be made by:-
o Agreement between the employer and contractor.
o A schedule 2 quotation.
o Valuation by the QS under the valuation rules.
What are the time periods for Schedule 2 quotations under JCT SBC?
o The architect should request via issue of an AI.
o The contractor has 7 days to notify that they will not provide one.
o If not, they have 21 days to provide the quotation.
o The architect then has 7 days to confirm in writing the acceptance or rejection.
o The acceptance is called the ‘confirmed acceptance’
What costs does the schedule 2 quotation contain?
- Value of the work.
- Any adjustment of time.
- Money in lieu of direct loss and expense.
- The fair and reasonable cost of preparing the quotation.
What costs is the contractor entitled to if the schedule 2 quotation is
rejected?
- The fair and reasonable cost of preparing the quote, as long as the quote itself was fair and reasonable.
What are the valuation rules under JCT Forms of Contract?
There are three rules for measurable work:-
o If it is of a similar character, quantity and in the same conditions as existing work, then the bill
rates should be used.
o If it is of a similar character, but different quantity or conditions, the bill rates should be used as
a basis but a fair allowance should be made to take account of the difference.
o If it is not of a similar character, fair rates and prices should be used
What about non-measurable work?
This would typically be valued by the dayworks procedure based on the cost of labour, plant and
materials that have been incurred.
What is a star rate?
A rate that is based on the bill rates but includes a fair allowance.
* To deviate away from the bill rates there must be a reason as to why the star rate is being adopted.
* This may be because the conditions on site for installation are more complicated that first envisaged.
What are ‘fair rates and prices’?
A market rate.
* A rate based on actual costs.
* A rate in line with current cost data
What are dayworks?
- 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
What document should the prime cost be calculated in accordance
with?
This should be calculated in accordance with the ‘Definition of the Prime Cost of daywork carried out
under Building Contracts’ published by the RICS
What information is necessary to be able to assess dayworks?
- Vouchers showing the amount of time spent on each activity (dayworks sheets).
- Names of the workmen.
- Plant and materials used.
- This information should be given to the architect or authorised person at the end of the week for
verification
Can the QS alter hours which he considers to be excessive on a
dayworks sheet that is authorised by the architect?
- No the hours recorded and signed off should be maintained within the variation.
What would you do if the contractor submitted 10 dayworks sheets to
you for payment?
- I would verify with the architect that a relevant variation has occurred and is recorded on an Architects
Instruction. - I would check to ensure there is no other contractual method of valuing the variation.
- Providing the Architects Instruction is in place and no other mechanism for valuation is available I
would seek verification of the hours and materials
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