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Project Costing Assignment #5 – Contractor’s Cashflow

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Added on  2019-09-22

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This assignment deals with the cash flow expected for a construction project, including the maximum amount of bridging finance required, total expected cost of finance, and the week in which the project is expected to attain a positive cash flow. The project involves the construction of a precast concrete warehouse and office, and the demolition of an existing house and removal of a large steel-framed shed. The contract price is $1,316,858, and the time to complete is 26 weeks. The project budget is $835,950, and the prime cost subcontractor payments due are $167,110. The defects liability period is 26 weeks, and the contract form is AS4000. The assignment requires a brief report in memorandum format and a professional excel model as supporting documentation.
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Project Costing Assignment #5 – Contractor’s CashflowA 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 $1,316,858Time to complete: 26 weeksYou 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 DescriptionAmountWeek5620214.1 Excavate & install 300 RCP, 200PVC and 100 PVC stormwater drains and PC conc pit, includingtrenching, bedding and backfilling to specification (EtonDrainage). $ 35,460 $ 17,730 $ 17,7304.3 Supply and install including excavation and backfilling 100 dia fire service & water supply (Pronto Plumbing). $ 18,750 $ 9,375 $ 9,375 8.1Supply and install roof sheeting flashing and downpipes to Warehouse and Office (Rufus the Roofer). $ 78,650 $ 39,325$ 39,325 9.2Electrical 415V supply to distribution box in warehouse. (Towner Electrics). $ 25,750 $ 25,7509.5Telecom and data cabling from street to distribution board (DataStream). $ 8,500 $ 8,500tmp65ankhr1Assignment-5-Contractors-Cashflow2016docx-4475.docxPage 1 of 2
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Project Costing Assignment #5 – Contractor’s CashflowDescriptionAmountWeek26Attendance & incidentals on PC items (8.5%)$14,204$14,204Prime 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 (Sigmoidfunction) 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 ofwork 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 forthis analysis and you expect to use this analysis for future projects as well as supply the excel model to colleagues.tmp65ankhr1Assignment-5-Contractors-Cashflow2016docx-4475.docxPage 2 of 2
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