Project Costing Cash Flow Analysis

The project is a construction job to build a precast concrete warehouse and office, with a contract price of $1,316,858 and a time frame of 26 weeks. The company needs to manage the cash flow for the project, including controlling expenditure for works excluding prime cost items and invoicing prime cost subcontractors. The assignment requires preparing a report in memorandum format to explain the expected cash flow for the project, including notification of maximum bridging finance required, total expected cost of finance through to completion, week at which project will attain positive cash flow, and contractors' expenses and income as 'S' curves on a single graph.

Project Costing Assignment #5 – Contractor’s Cashflow
A developer has accepted the quotation from your company to carry out the works to lock
up stage for construction of a precast concrete Warehouse and Office illustrated on the
attached drawing Nos. S15001, A15001-c and C15001-4. The works include demolition of an
existing house and removal of a large steel framed shed.
The contract has been signed and has the following requirements:
Contract Price:
One Million Three Hundred and Sixteen Thousand, Eight hundred and Fifty Eight Dollars
$1,316,858
Time to complete: 26 weeks
You have immediate and unrestricted access to site.
You are the project engineer for this job and report to the company General Manager
Construction, who has control of the allowances, contingency and profit margin (i.e. 26%
mark-up included in the Contract Price).
The Chief Financial Officer of the company has issued you with the following budget for
which you are to control expenditure for the project:
Project Budget: $835,950 (for works excluding Prime Cost Items)
You are also to control expenditure and invoicing of the Prime Cost subcontracts listed in
Table 1.
Table 1: Total Subcontractor Prime Cost payments due: $ 167,110
Description Amount Week
5 6 20 21
4.1 Excavate & install 300 RCP, 200
PVC and 100 PVC stormwater
drains and PC conc pit, including
trenching, bedding and
backfilling to specification (Eton
Drainage).
$ 35,460 $ 17,730 $ 17,730
4.3 Supply and install including
excavation and backfilling 100
dia fire service & water supply
(Pronto Plumbing).
$ 18,750 $ 9,375 $ 9,375
8.1 Supply and install roof sheeting
flashing and downpipes to
Warehouse and Office (Rufus
the Roofer).
$ 78,650 $ 39,325 $ 39,325
9.2 Electrical 415V supply to
distribution box in warehouse.
(Towner Electrics).
$ 25,750 $ 25,750
9.5 Telecom and data cabling from
street to distribution board
(DataStream).
$ 8,500 $ 8,500
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Project Costing Assignment #5 – Contractor’s Cashflow
Description Amount Week
26
Attendance & incidentals on PC
items (8.5%)
$14,204 $14,204
Prime Cost (PC) expenditures are nominated by the owner and are for the values and at the
intervals indicated in Table 1 above. PC sums are paid by your company to the relevant
subcontractor in the week shown in Table 1. Those amounts are then claimed from the
Owner in the month paid (Table 1) and your company receives payment one month later.
The Principal has agreed that it will pay monthly claims, within 30 days of receiving an
approved certified payment certificate and invoice. It takes an average of 2 weeks from the
end of a month for the company’s supervisor to measure the work and submit a progress
claim to the client and it will take the client’s manager a further 2 weeks to certify the
payment.
The defects liability period on this contract is 26 weeks from contract practical completion.
The contract form is AS4000, cash retention is 10% (the company is not able to obtain bank
guarantees to allow payment in full) and will be retained to the end of the defects liability
period of 26 weeks. See the attached extract from AS4000.
Your company prides itself on paying trade subcontractors and material suppliers within 14
days of an invoice and invoices are generally received within 7 days of material supply or
work done. As a result the company has loyal, well established and reliable suppliers and
subcontractors.
The accounting department advises that employees are paid fortnightly and the average
accrual period for expenses is 3 weeks.
Most subcontractors are small businesses and they submit weekly claims for payment.
The bank charges your company an interest rate on the outstanding cash flow of 10.4% (on
overdrafts) and zero % on positive balances.
The forecast expenditure for the project (without the PC items) follows an ‘S’ Curve (Sigmoid
function) with the characteristics listed in Table 2.
The table of weekly Paid and Earned cost was supplied by the project scheduler and is in
terms of the value of work done (Paid cost to suppliers and subcontractors) and the value of
work earned priced at the contract payment rate, as set out in Table 2.
You have been asked by the Chief Financial Officer to produce a professional excel model for
this analysis and you expect to use this analysis for future projects as well as supply the
excel model to colleagues.
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Project Costing Assignment #5 – Contractor’s Cashflow
Table 2: Contractor's Monthly Expenditure & Claims
Week
No
Paid Cost
(ex PC sums)
Earned cost
(ex PC sums)
0 0 0
1 37,
700
5
1,110
2 16,
500
2
2,370
3 16,
306
2
1,919
4 16,
306
2
1,919
5 3
,250 4,405
6 21,
075
3
4,670
7 27,
234
3
6,312
8
138 187
9
138 187
10
750 1,020
11 8
,320
1
1,285
12 8
,320
1
1,285
13 16,
380
2
2,218
14 8
,060
1
0,933
15 8
,060
1
0,933
16 167,
600
22
7,098
17 177,
590
24
0,794
18 67,
476
9
1,523
19 57,
150
7
7,557
20 10,
608
1
4,399
21 49, 6
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Project Costing Assignment #5 – Contractor’s Cashflow
608 7,337
22 49,
608
6
7,337
23 10,
432
1
4,161
24 1
,690 2,292
25 52,
075
6
4,515
26 5
,740 7,780
Total 838,
113
1,13
5,544
Assignment Requirements – What You Need to Do:
Prepare a brief (2 pages) report in Memorandum format to the Construction Manger
explaining the Cash flow expected for this project including the following information:
1. Notification of the maximum amount of bridging finance required to cover negative
expenditure and the week at which that will occur.
2. Total expected cost of finance through to completion.
3. The week in which you expect the project to attain a positive cash flow.
4. Contractors expenses and income as ‘S’ curves on a single graph.
5. Contractor's Cumulative Cash flow as a graph and in an attached table.
You are to prepare a professional excel model as supporting documentation for this analysis and
submit this on Blackboard with your Memorandum.
You will be assessed on both the excel model and the memorandum.
Assignment Marking will be:
Memorandum 50%
Workbook 50%
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