Project Finance (Empty)

Question 1

What is an ‘order of cost estimate’?

Answer 1

An estimate based on benchmark data for a similar type of project based on the client’s strategic definition or initial brief. Its purpose is to establish the affordibility of a proposed development for a client. It takes place during the RIBA Stage 1 - Preparation and Briefing

Question 2

What is the difference between an order of cost estimate and a cost plan?

Answer 2

An estimate provides a possible cost based on the employer’s requirements and is in the inital phase of the cost planning process.
A cost plan is a more detailed elemental breakdown that shows how the costs are distributed across the project, it is an estimate based on a specific design.

Question 3

What is a cost plan?

Answer 3

It is an estimate based on a specific design. It is a statement showing an approtionment of an estimate of or an agreed budget between cost headings.
It is a method of cost prediction.

Question 4

What benefits does a cost plan provide to a project?

Answer 4

Predicting the final project cost.
Designers are aware of the cost implications of their proposal.
Provides information upon which the employer can make informed commerical decisions.

Question 5

What information is typically involved in a cost plan?

Question 6

What is a cost plan risk allowance?

Answer 6

A qualitative allowance set aside as a precaution against risks and future requirements to allow for uncertainty of outcome.

Question 7

What benefit does a client get out of accurate cost planning?

Answer 7

It confirms to a client if a scheme is affordable.
It puts the client in an informed position to make commerical decisions.
It can act as a value management tool to ensure the client gets a building that not only meets their needs, but also represents best value.

Question 8

What are some of the key reasons for cost overrun on a project?

Answer 8

• Ambiguous client briefs or changes in the later stages of thw project
• Unrealistic cost estimates
• Risk is not realised or managed well
• Uncoordinated design
• Unknown external factors
• Unsuitable tendering and/ or procurement strategy selection
• Statutory authority influences, such as oneruous planning permission conditions

Question 9

Why is VAT excluded from a cost plan?

Answer 9

Employers may incur different levels of VAT (some might be exempt). Therefore VAT is usually excluded to ensure the incorrect tax rate is not applied.

Question 10

What is a provisional sum?

Answer 10

They are an allowance or estimate included within the contract price that are:
Not sufficiently defined, designed or detailed to allow an accurate determination of its cost at the time the contract is entered into; and/or
Work that the employer may or may not wish to be carried out.

Question 11

How does the NEC contract incorporate provisional sums?

Answer 11

Unamended NEC contracts do not provide for the use of provisional sums.
If the scope of works is so unclear that a price cannot be provided with a level of certainty, the item should be excluded until it can be properly defined.

Question 12

Would the contractor be entitled to claim additional preliminaries and/or an extension of time when expending provisional sums?

Answer 12

No, since the provisional sum is defined, the contractor should have allowed for programme prelims within their price.

Question 13

Can you name some of the pricing documents we might use at tender stage?

Answer 13

Bill of Quantities
Activity Schedule
Schedule of rates
Contract sum analysis
Schedule of work

Question 14

Can you name some of the pricing options for construction contracts?

Answer 14

• Lump sum
• Cost-plus (cost reimbursable)
• Remeasurement
• Target cost
• Guaranteed maximum price (GMP)

Question 15

What is a lump sum contract?

Question 16

What is a target price contract?

Question 17

What is a Bill of quantities?

Question 18

cashflow

Question 19

cost reporting

Question 20

life cycle costing