PROFESSIONAL
PRACTICE
Assignment 7
Important Areas of Understanding
Additional Understanding
Critical Review of the Assignment
The Contract Stage
The Contract Stage
Guest Lecturer (Geoff Brooker)
The aim of this assignment was to gain an understanding of the financial management process of the Contract Stage by preparing a financial report and cash flow projection.
This was an individual assignment that once again saw our MDA 3 Major Assignment as the project in question. By using of Bills of Quantities as a base, we were able to prepare a draft of a financial report (or cost report), as well as a cash flow projection. This assignment focused on the complete MDA 3 Major Project and the ‘report’ and ‘projection’ where for the entire project for the ‘first financial meeting with the client’.
The assignment called for a prediction of the financial implications related to the conversion of the second floor of the building to ‘luxury penthouse apartments’.
The financial report and cash flow projections had to be presented in a professional document and required a covering letter to the client which explained the ‘key issues in the cost report’.
The cash flow projection formula that I used was part of a template that used the California Envelope to predict the cash flow for the construction period. There were inputs that needed to be inserted (such as the start year, start month, contract period, contract sum, etc) and then the pre-calculated formula generated the predicted cash flow for the period in question. This made the assignment effortless and was easily completed.
With respect to the cost report, this was where we had to illustrate to the client the cost implications of converting the second floor to ‘luxury penthouse apartments’.
The contract stage is where the commencement of construction gets underway – after the tender has been awarded and accepted. The contractor then takes charge of the site and will begin to execute the work.
The contract stage includes seven activities, namely:
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Handing over the site
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Directives to the principal contractor
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Financial statements
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Site meetings
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Contract instructions
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Certificates and payments
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Completion
I will briefly explain what takes place in some of the more ‘unusual’ activities on site.
Directives – this indicates to the contractor exactly hats/he is require to do. It will include tasks varying from signing contract documents to nominating or selecting subcontractors. The running of the contract must be in accordance with the JBCC Principal Building Agreement (most commonly used in South Africa), provided that is the contract that is being used for the specific project.
Site meetings – it is vitally important, as previously mentioned under the PROCAP module, that the QS gets involved at an early stage of the construction process and is able to give cost advice before drawings have been finalised. It is essential that the QS is always monitoring the financial situation of the client with respect to the stages of completion of the project. No one in a project will want to get to a stage where there development is incomplete and the client has run out of money!
Contract instructions – need to be in line with the JBCC PBA and must be given in writing to ensure validity.
Certificates of payments – these would include Interim Payment Certificates which will be given by the Principal Agent. However, it is the responsibility of the QS to keep up to date with the work done to date and must be able to give valuations, throughout the construction period, when necessary. A Recovery Statement is used for claims of loss and expense.
Completion – there four different levels of completion and these have been outlined in the JBCC PBA. They include the following:
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Certificate of Interim Completion
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Certificate of Practical Completion
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Certificate of Works Completion
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Certificate of Final Completion
It is important to keep track of all payments and certificates issued throughout the entire construction procedure. This will ensure that no money goes ‘missing’ and if there is ever a dispute which should arise; the necessary documentation will be available for recall.
Extra Information