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CONSTRUCTION MANAGEMENT FOR ENTREPRENEURS , OWNERS AND BUILDERS AND PROFESSIONALS BHADANIS (PART 7)


It is important to double-check expenditure claims to ensure that the costs of the items are accurate, that the receipts are included, and that the charges have been appropriately cost-coded.

Vehicle claims must be examined to confirm that the car has only been put to authorised private and corporate usage.

Deposits are recovered

Deposits are frequently paid by contractors for lodging, services, licences, and perhaps even equipment rental. To allow their recovery after the project's conclusion, these deposits should be scheduled. It's necessary for workers closing the project to be aware of whose deposits need to be recovered and who they should contact to make arrangements for their payment because it's common for the persons who authorised the payment of the deposits to depart the project before it's finished.

Prepare the resource release.

Resources including staff, employees, and equipment must be relocated off site when projects draw to a close. This needs to be done in a planned, regulated manner to avoid having underused or unused resources in the project, which would increase expenses. But it must also be carried out in a way that allows the project to be finished as fast and effectively as feasible.


Although it is not very difficult to remove equipment that was rented from outside sources, the following steps should be taken to prevent further costs:

1. Make that the item has finished all the tasks it was intended to perform.

2. Date of the item's off-hire must be communicated to the provider in writing (giving them sufficient notice in accordance with the hire agreement - some items may require a week or more notice)

3. Plan a vehicle to remove the object

4. Make sure the item is clean and ready for pickup with all of its components and attachments.

5. Make sure that staff is informed of the collection date for the item 6. promptly inform the supplier if your intentions alter


Because it serves the company's interests to make sure that the equipment is used effectively, whether on the project or elsewhere, internal equipment is a little more complicated. The project must promptly inform the internal hire department and other projects that the item will be made accessible. Unfortunately, the majority of project managers only consider their project and not the firm as a whole, therefore they frequently put internal pieces of equipment out of service without warning.

Companies should keep track of the projects that their key plant and equipment are now working on, the anticipated release date, and the location to which it will be moved next. This makes it possible for other project managers to view what is available and determine whether they need the item. The tender department may also see what equipment is accessible through this timetable, which could influence the projects they tender for as well as their methods and costs. In order for this plan to be effective, it must be updated often, and project managers must give precise details about their requirements and the dates on which their equipment will be released.

When feasible, the project manager should make sure that similar pieces of externally rented equipment are released from their project before an internal piece of equipment if it does not have another project to go to.

The business should also keep a schedule of all of its employees, including their names, jobs, present projects, expected release dates, and projects to which they are expected to transfer. The tender department benefits from this timetable since they can know who is available for new projects.

Before releasing employees, project managers must let the human resources department and other project managers know what their qualifications are so they may be transferred to other projects.

The project will have to fire the employee if the firm doesn't have a role for them. It is crucial that this procedure is initiated as soon as possible to prevent individuals from taking a break from the project because it might take several weeks, depending on notice periods and union involvement.

When to end a relationship:

1. make sure the procedure is communicated to upper management and the human resources division.

2. Instruct the customer or the unions as necessary.

3. Make sure contract workers are let go before permanent ones 4. Make sure the procedure:

1. as permitted by law, the person's employment contract, and any labor-management agreements

2. a final resort if no other options exist on the project or within the organisation, including the possibility of reassigning the individual to another function.

3. fair

5. providing the required notification to the parties involved 6. be certain that the appropriate termination paperwork is created.

7. ensure sure the whole salary is computed, taking into account any and all bonuses, leave pay, and notice pay.


Wrongful termination has the ability to disrupt the project's labour relations and result in additional expenses like overtime compensation and legal fees.

limit weather-related losses

Storms, wind, and rain can damage the project, which slows construction and increases the cost of repairs.

By adopting the necessary safety procedures, such as:

1. Securing the workplace at the conclusion of the workday or in cases of impending bad weather

2. shielding machinery and commodities against wind and rain damage 3. To stop storm water flow, berms should be used to shield open excavations.

getting in there

4. planning and maintaining drainage to direct storm water away from the work location

5. relocating equipment from potentially flooded regions


It's vital to remember that storms may strike without notice and rivers can rise without warning. In one case, the water had risen substantially by the time we arrived back from the weekend, flooding our work areas and burying some of our equipment.

control how firm resources are used

Use of firm resources carelessly might incur significant expenditures. These expenses include the cost of employees utilising corporate vehicles for private trips, company internet access, or company phones for personal calls. Theft or accident-related damage to corporate cars, laptops, phones, and other assets might result in replacement or repair expenditures for projects. It's crucial that these assets aren't kept in circumstances where they might be stolen or damaged.

Individual expenses are frequently low, but cumulative costs in businesses with a big worker complement can be considerable.

Some businesses have restrictions on how far employees may go in corporate cars or how much time they can spend on their mobile phones in a given month. However, use might fluctuate between projects, therefore these limitations might need to be updated often.

One business I worked for gave project managers and directors a list of the company's expenses for cars, cell phones, and internet service that was organised from most to lowest and included the person's name, the asset number, and the name of the project. The excessive asset users could then be quickly identified, and the serial offenders could be identified by looking at the prior month's listings.

Employee buy-in through communication

Cost management and monitoring cannot be placed only in the hands of project managers or contract administrators. Instead, it is something that all project personnel should be aware of so that cost-cutting measures may be taken. It's crucial that Supervisors are informed when their division is losing money and what has to be done to make things right.

Summary

It is simple to boost the company's profitability by cutting costs. Costs can be decreased in the following ways:

1. smarter work

2. cautious project planning

3. putting in place the most appropriate and effective timetable to satisfy the client's needs

4. ensuring that the workspace is accessible 5. doing the task safely

6. getting many estimates in a procedure where the provider is completely aware of the work requirements

7. reviewing these estimates to make sure they have all the expenses and goods permitted for

8. issuing precise, unambiguous directives and contracts to suppliers and subcontractors 9. overseeing subcontractors to make sure they complete their tasks in

as stipulated in their contract

10. making sure the proper supplies are ordered in the right amount, that the project is prepared to accept them, and that the materials are delivered on schedule.

11. looking at alternate materials that could be less expensive, simpler to install, or more easily transported

12. examining potential other designs to increase the project's constructability

13. scheduling deliveries, finding acceptable transportation for supplies and equipment, and

14. taking into account other transportation methods

15. frequently comparing the provided materials to the billed customer goods and examining any inconsistencies

16. maximising the productivity of both labour and equipment

17. ensuring that discipline and labour laws are applied consistently, fairly, and within the bounds of the law throughout the whole organisation

18. paying employees honestly

19. regulating and restricting the quantity of overtime put in 20. preventing damage to equipment and property 21. removing equipment from the rental pool when it is no longer needed 22. paying for rented equipment at the appropriate prices and hours

23. Negotiating reduced costs, improved terms, and payment schedules for supplies and equipment



24. Making sure that projects adhere to laws and traffic regulations to avoid paying penalties

25. avoiding theft

26. recognising and avoiding potential issues

27. organising service installation and making sure it is done properly, both during installation and testing

28. preventing harm to new or existing services 29. safeguarding both new and current work

30. ensuring that buildings are planned and built in the appropriate locations 31. following the most recent sketches

32. ensuring that all output and input meet the necessary quality standards and specifications and that the appropriate quality systems are in place

33. Organizing the project close-out to make sure all structures are finished and all documentation is presented as per the client's specifications

34. recovering deposits at the project's 35 conclusion. preparing to demobilise resources

36. controlling the utilisation of corporate resources to increase their efficient usage 37. ensuring that all employees understand how crucial it is to prevent wasteful

costs




Module 7: Increasing Sales



Making sure that the customer pays for all work done and that they do so as soon as possible after it is finished is the greatest method to guarantee that projects are profitable. Although it might seem simple, I've discovered that many project managers, project directors, and company owners struggle to provide interim values on time, reach an agreement on the final accounting with the client, or submit modifications that are accurate and compliant with the contract.

Periodic valuations

Valuations must be delivered on time or before the deadline, addressed to the proper party, adhere to the terms of the contract, and contain all necessary calculations and supporting paperwork. The contractor's cash flow may be impacted if the wrong submission causes them to be paid late, perhaps even the following month.

The project manager must be aware of the valuation's underlying assumptions, which might include:

1. calculating the actual work that was done in the month

2. comparing the progress to the contract's timeline and then claiming the completion rate

3. declaring the worth of a milestone once it has been reached




The projects should, wherever feasible, maximise the income stated in the monthly appraisals by:

1. confirming that all work has been claimed 2. wherever feasible, exaggerate

3. making sure milestones are reached so they may be included to the payout 4. extending the valuation date to the end of the month

5. ensuring that claims and variations are filed, reviewed, and claimed as soon as possible

6. Where appropriate, claiming for unfixed materials

7. Claim as much of the preliminary or indirect expenditures as you can


Keep in mind that it's preferable for the contractor to have the funds in their own bank account rather than the client's. Make sure, nevertheless, that the over-claims in the value are not included in the income utilised to compile the cost reports.

Variations

Most contracts will differ from the works that were originally proposed and evolve over time. Contractors are responsible for making sure they get compensated for all extra labour. Variations may occur for the following reasons:

1. expanded range

2. The document contains mistakes and omissions 3. alterations to drawings

4. delays because: 1. late entry

2. incomplete data or drawings

3. the customer altering the finished product 4. unexpected weather events

5. unexpected project circumstances

6. contractors or employees of the client obstructing or restricting access

7. the client's services not being available, not being enough, not being delivered by the deadline, or not being delivered on time

8. the equipment or supplies given by the client being late, arriving in inadequate amounts, or being of poor quality

5. modifications to standards

6. modifications to the workplace, such as:

1. unanticipated ground conditions, such rock 2. encountering dangerous substances

3. uncovering of artefacts

4. unexpected subterranean water presence 7. modifications to the terms of contracts or business

8. the client asking for the timeline to be hastened, postponing, or modifying milestone dates

9. Drawing mistakes and issues with drawing coordination 10. alterations to the legislation in the state or nation

11. the damage to finished work by the client or their contractors




The contract and tender documents, as well as any connected communication, must be read carefully and understood. The contractor must frequently check construction drawings and specifications against those released during the tendering process to make sure they haven't altered.

Continue to enquire about:

1. "Are we building what we requested in our bid? ’



2. Are the site conditions what were anticipated at the tendering stage? ’

3. Has the client complied with all of the terms of the agreement? ’




Sometimes the variation is as straightforward as submitting a revised rate for a good or service because the item's description that was used to determine the tender price has changed, for instance because:

1. Dimensions or height have changed 2. The amount has altered

3. The requirements are vary.




Any modifications must be communicated to the customer as soon as the contractor learns of them, but most definitely within the timeframe stipulated in the contract. Contractors that don't comply risk losing their claim rights.

The contractor must make sure the individual producing the variation has the skills and training necessary to prepare the claim. Consult with industry experts inside the firm or from outside suppliers if there is any uncertainty regarding the claim's veracity or what information should be provided. The money that may be made from a skillfully designed and executed claim is sometimes significantly greater than the expense of receiving professional guidance.

putting together and sending variants and claims

Variations and claims must include at the very least: 1. a synopsis of the incident

2. the reason

3. the occasion's date 4. impact of the incident

5. measures done to lessen the effects

6. the effects of the event on time and money

7. the supplemental materials that are attached, or consult supplemental materials referencing:

1. contract provision number two appropriate drawing numbers

3. The relevant schedule items are listed as 4. correspondence about the occasion 5. the necessary requirements


This supporting documents must be pertinent, substantiate the claim, and not be in conflict (any contradictions need to be explained).


The requisite claim is:

1. filed within the window of time allowed by the contract 2. targeted to the right individual

3. mailed to the appropriate address




All calculations and timetables should be taken into account when calculating the event's impact. The claim schedule should reference the authorised contract timetable. Calculations should reference where the data and numbers originated from and how they were put together, and they should be reviewed for arithmetic mistakes.

It should be highlighted that claims must be carefully considered to guarantee that all potential expenses have been taken into account. It's extremely challenging, if not impossible, to file a new claim later on asking for extra money. If at all feasible, review the claim with the appropriate employees to get their thoughts and see if they can identify any additional expenses or business prospects that may have gone unnoticed.

Cost differences

Variations must to consist of: 1. labour expenses, such as:

1. basic salaries 2. overtime

3. unproductive time spent on things like paid breaks, travel, preparing for danger assessments and inductions, and so forth

4. allowances

5. Legislative fees, such as those for training

6. compensation for time off, bonuses, sick days, pensions, and so forth 7. individual protective gear

8. little personal tools

9. accommodate (if necessary) 10. travel (when required) (where necessary)

2. material expenses, such as:

1. the cost of the raw materials

2. the material is transported to location 3. handling and unloading

4. packaging and defence

5. quality controls and evaluations

6. waste brought on by breaks and cutting

7. cutting (unless the labour cost already includes this) 8. fixings

9. 10 royalties insurances

11. taxes and duties 3. equipment such as:

1. hiring fees

2. Ineffective time

3. cost of mobilisation and demobilisation 4. insurances

5. lubricants and fuels

6. Wearing components include drill and moil points, as well as cutting edges. maintenance

8. fuel and service vehicles that provide support 9. auxiliary materials and accessories

4. destroying existing buildings, including:

1. transportation and loading of garbage



2. temporary bracing and supports 3. dump charges

5. expenses related to management and supervision, such as: 1. the minimum wage

2. allowances

3. bonus money for time off

4. Transportation and lodging 5. mobile phones and computers

6. Planners and contract administrators who work remotely 7. insurances and sureties for projects

8. fees for permits

9. earnings and expenses 10. access devices

11. offices and infrastructure 12. extra protection

13. safeguarding finished and existing constructions 14. extra expenditures for sketching and design

15. Costs incurred by subcontractors, including the contractor's markup




It's also critical to evaluate how the change will affect the timetable because it could:

1. the lengthening of the project's total timeline

2. the alteration preventing or holding up other works

3. the variance affecting the completion dates of other projects by requesting resources from them




assistance with claims for subcontractors

When it comes to filing and putting together variants, some subcontractors lack sophistication. In most cases, it is in the contractor's best interests to support subcontractors with these claims when these variances are caused by changes or additional work required by the customer because:

1. The likelihood that the subcontractor will be successful rises with increased income, which also makes them happier, more equipped to deliver excellent service, and less inclined to make claims against the contractor.

2. The contractor often receives additional profit from the subcontractor's claim.




Site guidelines

Clients sometimes ask contractors to conduct extra work or make changes to recently finished work. Many of these demands are spoken verbally. Contractors are required to make sure that instructions:

1. are written down

2. are signed by the client's authorised representative 3. are distinct and unmistakable

4. are only accepted by the authorised representative of the contractor.

5. Permit the contractor to make a claim for additional expenses or time incurred as a result of the direction

6. have language that the contractor will accept


Sometimes instructions' language is unclear, giving the impression that a part of work is being redone due to the contractor's negligence or bad job. The client's Contract Administrator may be reluctant to pay the contractor for the extra work when the contractor files a modification because it seems from the instruction that the work is the result of a failure on the contractor's part.

Clients frequently utilise their usual site instruction form, which states that there won't be any additional fees or delays for the lesson. Since the contractor is typically not yet in a position to fully comprehend the ramifications of the order, these provisions should be removed.

Normally, the contractor should estimate a site instruction before beginning the work.

Delays

Rarely are all of the delays' costs taken into account. Following the delay, there could be: the extension of the contract's timeframe, which implies that the contractor will

on the premises longer than permitted and pays extra fees for: 1. onsite amenities

2. salaries and related expenses for the staff

3. bonds, sureties, and insurances being extended 4. equipment

2. the ineffective and fruitless use of staff and resources, which: 1. not at all usable

2. merely partially utilised

3. the project entering a season with unfavourable weather conditions that was not anticipated in the schedule or the tender, leading to additional delays and inefficiencies.

4. the interim rise in material prices

5. the activity taking place while other contractors are working nearby, which then has a negative effect on productivity

6. an action being carried out out of order, which could lead to: 1. when it's finished, access will be restricted

2. the work area becoming crowded as a result of other simultaneous activities

3. The lack of continuity of work for specialised equipment, subcontractors, or personnel forces them to return to the job site later, incurring additional mobilisation costs. In some cases, the equipment or subcontractors may also not be available when they are needed again, which could cause further delays.

4. damage to previously completed works

7. Because the site isn't ready to use the materials, the materials that have been ordered must be stored, resulting in storage costs, double handling, and the risk of damage and theft that goes along with it.

8. cash flow disruption brought on by the project's extended end date, which delays the release of retentions and securities

9. When subcontractors are late, they claim delay costs.


Many of these expenses are challenging to illustrate and support for the client. Clients frequently lack understanding of the effects of their actions. The contractor should take all reasonable measures to ensure that the client provides access and information in accordance with the project's schedule requirements.



is not postponed.

Acceleration

Unfortunately, contractors frequently end up spending more money and time on a project than was authorised during the tendering process. This is frequently because

1. the expansion of the work's scope

2. the client's late provision of information, drawings, or access 3. a customer who needs earlier access or completion

4. the client's contractors or employees causing the contractor to be late


By refusing to accept the contractor's revised schedule that takes these factors into account, the client frequently forces the contractor to expedite the work. This is obviously unacceptable, and while the contractor has a duty to make an effort to accommodate the client, the client also has a duty to accept responsibility for any changes or delays brought on by their actions, as well as to pay the contractor for the expenses incurred in reducing delays and achieving earlier completion dates.

Before the contractor incurs the additional costs of acceleration, it is preferable to reach an agreement on any acceleration claim with the client.

The contractor must document their right to an extension of time by adding the delays to the approved contract schedule. Once the entitlement has been determined, the contractor can look into reducing the timeline to accommodate the client's updated details and due dates. The contractor is then required to determine the effects of the new accelerated schedule on the work and what additional resources are needed to meet the new schedule.

Along with the claim for acceleration, this new acceleration schedule must be formally submitted to the client.

The contractor must inform the client that they are proceeding with constructive acceleration and that they anticipate being compensated for this in terms of their claim if the client refuses to acknowledge the claim and continues to demand that the contractor adhere to the original contract schedule.

logging changes

Changes need to be recorded in a register so that:

1. The contractor monitors them and makes sure they are priced.

2. The contractor follows up to make sure the client has given their approval.

3. The contractor completes the work (variations are occasionally forgotten or overlooked, forcing the contractor to complete them after they have finished the contract, or in the worst case, even to redo completed work in order to comply with the variation request)

4. Reminding the contractor to submit a claim for the work




Receiving compensation for the change

To submit a variation is one thing, but it also needs to be accepted and paid for. Clients frequently take their time approving claims, and the payment process may be protracted further if the project budget has been exceeded.

Contractors are typically not paid for a variation until a contract amendment or change order has been issued by the client after the variation has been accepted.

Many contractors comply with site instructions and complete additional work in good faith, but the client disputes the costs that the contractor has claimed, so the work is either not paid or is not paid in full.

Project managers must monitor changes and make sure change orders are issued. For these to be processed, I frequently had to wait several months.

Change orders must be submitted in writing and ought to: 1. possess the appropriate variation value

2. have requirements that the contractor will accept 3. include reasonable deadlines for completion

4. be endorsed by each party

5. a scope that is clearly defined

6. cite the provisions of the initial contract


If these details are not verified, the contractor may unintentionally accept terms or deadlines that are unacceptable or receive a change order that is invalid.

Don't go over the order or variation value.

Although it seems fairly straightforward, this error is frequent. To ensure that it is not exceeded, project managers must be aware of the value of an order or variation and continuously track and update the value of work completed. The client has the right to refuse to pay for work that exceeds the scope of the order. Sometimes the client may not have the money on hand to cover work beyond what was ordered. Even if they agree to pay the additional value, they will be miffed that they received no prior notice that the value had been exceeded. Additionally, payment might be postponed while the customer changes the order.

If the value will be exceeded, the project manager must promptly notify the client so that the order can be modified. Clients frequently delay issuing a revised order for several weeks. In any case, it would be wise for the contractor to stop and wait for the amendment as there is always a chance that the client won't agree to pay for additional work. This would leave the contractor's resources idle while they wait for the revised order.

repeatable agreements

Make sure the following when finalising re-measurable contracts based on the client's bill of quantities:

1. The actual amounts are precisely measured.

2. the task or item's description hasn't changed 3. The requirements are the same.


Verify the overheads to make sure: 1. that they are fully claimed

2. If the final quantities, value, or time period are altered, they are adjusted in accordance with the contract's terms.




Contracts for day labour, cost recovery, and cost reimbursement

The client has agreed to pay the contractor for their actual costs plus a markup that accounts for the contractor's profit and overheads in these contracts or variations. In some cases, the client consents to pay the contractor a predetermined sum for each hour that the contractor's staff or tools are used to complete the task.

Prior to beginning work on this basis, it's crucial to accept:

1. what will be paid by the client, what is covered by the rates, and the basis for the charges

2. How unproductive time will be repaid to the contractor (for example moving personnel and equipment between tasks)

3. How the Contractor will be Paid for Site Overhead, Facilities, Management, and Supervision

4. who among the client's representatives has the power to approve and sign for the hours rendered 5. what the customer will supply

6. what the markup is for the contractor

7. the kinds of documents and evidence that the client needs to support the costs 8. If there is a maximum value that should not be surpassed overall,




It is crucial that complete records of all expenses and labour hours are kept. Among these costs are those listed below:

1. transportation of people, goods, and equipment 2. material handling and offloading

3. taxes

4. losses and breaks 5. insurances

6. royalties

7. Inductions and mobilizations 8. equipment and attire for safety


Daily signatures from the client's representative should appear on the hourly records of work completed.

Employees working on the project must be aware of how the client will pay for it and what details they need to record.

To avoid confusion and the possibility that the contractor will only be paid for a smaller number of people, records should match the figures noted in the daily diaries and weekly reports.

If the contract or variation order has a maximum value, it should not exceed that amount.



be exceeded, and the client ought to be informed well in advance of that point.

a punch list

Clients frequently include the following items on their punch lists: 1. not covered by the scope or specifications originally provided

2. Employees of the client or their subcontractors' damages to the facility

3. Items necessary for routine maintenance that should be on the client's account


The contractor needs to let the client know that these things are variations and shouldn't be handled until a variation has been granted.

Calculations involving escalation and rise-and-fall

Some contracts permit the contractor to charge for escalation, also known as rise and fall, on the cost of completed work. I've seen a lot of projects either forget to account for rise-and-fall or they calculate the amount incorrectly (this topic is covered in Module 3).

Make sure to apply escalation formulae correctly because some of them can be tricky. Additionally, confirm that the figures used in the calculations are accurate, relevant to the area, and those specified in the contract.

Managing price increases

Costs will inevitably rise with lengthy projects. In a perfect world, the tender calculations would have taken these increases into account. However, it is important to take cost increases into account when creating variations, especially those with high value. If at all possible, add these costs into the variation.

adding to the work

It is frequently possible to get additional work while working on a project, either from the same client or another one who is working on the site. It would be possible to share resources between projects and increase utilisation if this work could be done concurrently with the original project.

I frequently build projects and then stay on site to build additional phases, which is profitable for the business.

On occasion, we've assisted other contractors with a project by selling concrete from our concrete mixing plant or renting out tools like cranes. Naturally, it must be ensured that this does not impede the development of the primary project. Additionally, confirm that a purchase order is in place, with acceptable payment terms that account for things like liability and insurance. There have been times when we've had trouble getting paid for work we've done for smaller contractors, and in a few cases, we've even had trouble paying the debt off.

additional means of income

On a project, there may be additional revenue streams. Advertising on hoardings, scaffolds, and even tower cranes is one of these. Normally, consent from clients and local authorities is required. While some advertising can be profitable, caution should be taken to ensure that the advertisements don't come off as cheap and detract from the contractor's professionalism.

Again, the primary objective, which is to successfully complete the project, must not be compromised by these alternative sources of income.

investment earnings

Cash should be in the bank if the business is making a profit and has a positive cash flow. It's crucial that this money is put to the best possible use while still being accessible in case the business needs it to pay for operating costs. Some contractors generate a significant portion of their profit by carefully controlling their cash flow and generating additional income from the money they have invested.

The company must have accurate budgets and cash flow projections in order to invest surplus funds to get the best return.

contract incentives

Customers will occasionally pay bonuses for finishing projects earlier. If it is known that the client is eager to move into the facility sooner rather than later, even if these are not offered in the tender, they may be negotiated with the client.

Payment to suppliers and subcontractors

Payments to suppliers and subcontractors should be made in accordance with the terms and conditions set forth in the contract. Payments ought to:

1. be made promptly in order to qualify for discounts. retain the pertinent retentions from them 3. be held back until the completion and receipt of:

1. guarantees and warranties a completed, signed account

3. finalised punch lists

4. the necessary manuals and spare parts 5. data on all commissions

4. be examined to confirm:

1. The subcontractor has finished the work they stated they would.

2. the work complies with the requirements for quality and specification 3. The materials have all arrived safely.

5. only mention adjustments and claims that have been approved by the contractor and, if necessary, the client

6. only be made for unfixed materials in accordance with the terms of the subcontract agreement and after receiving the necessary guarantees or sessions.


The contractor should not pay the subcontractor more than what the contractor has requested from the client.

Payment terms for suppliers

The contractor may be able to pay suppliers later by negotiating better supplier payment terms, which improves the contractor's cash flow and increases business profitability.

Alternately, if the payment is made sooner, it might be possible to negotiate a discount.

fees charged in the back and services rendered to subcontractors

Although it shouldn't be the contractor's goal to profit from subcontractor payments, it's frequently necessary to back-charge a subcontractor for expenses the contractor incurred on the subcontractor's behalf. These expenses comprise:

1. Services provided to the subcontractor that they should have authorised and made available include:

1. 2. accommodation transport

3. removing their trash 4. access to the scaffold

5. providing facilities for offloading and lifting 6. power or water provision

7. offices and additional site amenities

8. plant and equipment for their work 9. personnel

2. repairing work damaged by the subcontractor

3. repairing the subcontractor’s defective or poor workmanship


Sometimes these costs can be significant. Subcontractors should be timeously warned that they will be charged for services and what the costs are. When necessary, they should be given sufficient written notice to rectify problems. Where possible, time sheets for equipment supplied should be signed daily, and the back-charges should be agreed and invoiced monthly so that the subcontractor is fully aware of their liability.

Failure to notify the subcontractor, or get them to sign for the services received, often results in disputes, even ending with the contractor having to withdraw their invoices.

Insurance claims

Certain events and damages are covered by the contractor’s or the client’s insurance policy. The Project Manager must be aware of what these events are, what the excesses or deductibles are, and the process to follow to claim against the policy. Failure to notify the insurer timeously, or to record and report the event, could render the claim invalid.

Furthermore the contractor must ensure that they have taken all mitigating steps to prepare for and prevent an event from occurring, otherwise they may find that their claim is repudiated by the insurer. For instance, if a vehicle is in an accident and it was found the driver didn’t have a valid licence, the vehicle wasn’t properly maintained or was un-roadworthy, the insurer probably won’t pay for damages. The same applies to items damaged in a flood where the contractor didn’t take proper precautions to prevent the works from being flooded.


Equally important is to ensure that the insurer is given accurate information when the insurance policy is purchased and that they are advised of any changes in the project. Failure to do this could render the policy null and void.


Insurance claims should include all the costs associated with carrying out the repairs and making good damage including:

1. the material costs including transport, insurance and handling 2. all labour costs

3. costs of cleaning, removing and disposing of debris

4. protection of the undamaged work which is affected by the repair work 5. demolition of damaged structures

6. supervision and overhead costs 7. damage to plant and equipment

8. temporary support or access structures

9. subcontractors’ costs associated with the damage


Unfortunately most insurance policies don’t cover for consequential damages. Any delays caused by the event, including their resultant costs, won’t be covered.

Negotiate better payment terms with the client

By negotiating better payment terms with the client the contractor can improve their cash flow which saves on interest charges.

Refer to Cash flow in Module 8.

These terms should be included as part of the tender submission, although some may be negotiated after the awarding of the contract.

Recovery of GST, VAT, duties and other taxes

The contractor should obtain specific advice regarding the recovery of GST and other taxes and duties paid because legislation varies between countries and states and can change over time.

It’s important that all receipts, invoices, and other paperwork are kept so that company administrators are able to submit them in order to recover monies owed. These documents usually have to be tax receipts and in some cases may require specific information to be included on them.

The flip side to duties and taxes is to ensure that the client is charged for all duties and taxes that are for their account. For example, when items are imported there may be import duties and clearing charges which the contractor often neglects to add to their price.

Ensure that the client pays

As discussed previously one of the biggest risks to most contractors is not getting paid for their work. The contractor may have done everything in their power to ensure that they are paid, such as submitting invoices on time and having all day-works, site instructions and variations signed by the client. Unfortunately after all of this, and even despite the good intentions of the client, problems occur and clients experience financial difficulties. It’s therefore important to pay close attention to any rumours or news reports regarding the client’s financial wellbeing, and to investigate these as soon as possible. If necessary, call a meeting with the client to discuss the reports that you’ve heard and to understand whether they have sufficient money to pay for the project.

Since the value of work carried out increases every day, the longer the contractor works, the bigger the risk becomes, and the greater the amount of money that’s owed. Unfortunately, the contractor cannot just stop work, because this may put them in breach of contract, which would give the client cause to terminate the contract and not pay them at all.


When there’s a risk the client will be unable to pay, the contractor should: 1. when the valuation payment is late immediately formally notify the client

they are in breach of contract

2. follow the requirements in the contract for termination, ensuring all notifications are addressed correctly

3. delay major material deliveries and purchases where possible

4. delay work where possible, providing this won’t jeopardise the contractor’s rights under the contract

5. delay mobilising further equipment or people to site where possible 6. remove equipment which isn’t essential to the works

7. check the validity of payment guarantees

8. take precautions to limit the effects of the non-payment on their cash flow 9. if possible negotiate that the client pays at least a portion of the outstanding

money

10. if the client is unable to pay the outstanding money, and the contractor has clearly followed all due process, then the contract should be terminated




Summary

The contractor should maximise their revenue by:

1. ensuring that monthly valuation claims are submitted timeously and in the correct format

2. maximising the amount claimed in each valuation 3. claiming all the variations that they are entitled to

4. ensuring that variations are submitted in accordance with the contract and include all additional costs incurred by the contractor

5. recording, reporting and claiming for all delays caused by the client or their contractors

6. claiming for the costs incurred to accelerate the works 7. finding additional work on the project

8. ensuring that damages caused by an insurable event are correctly processed and claimed

9. investing surplus cash to maximise income, while retaining sufficient funds to cover the company’s operating requirements

10. paying subcontractors and suppliers on time, in accordance with the conditions in the order, and ensuring that they have completed all the work claimed

11. ensuring that subcontractors are correctly charged for services supplied to them

12. recovering taxes and duties

13. negotiating better payment conditions with the client 14. ensuring that the client pays all claims due, on time




Module 8 – Financial Management



Many small companies literally live from hand-to-mouth, receiving money from one project and spending it on another, with no idea how profitable they are, or whether they have made money on a project or not. Their only clue to their overall profitability is their bank account, but unfortunately, some owners mix their personal and business accounts, so even this is a poor barometer. The poor control of finances sometimes means that contractors continue to undertake projects which aren’t profitable. In addition, they’re often unable to claim back monies they’re entitled to from the tax authorities.

Larger companies generally have sound financial systems in place which are easy to operate and can give cost updates in real time for every project. Unfortunately, every system is only as good as the operators and the quality of the information that goes into the system. There are some systems that are complex and provide lots of detailed information that’s not used by most contractors.

Some construction companies use systems that are more appropriate for other industries, while others use systems which were more appropriate to a time when they were smaller, and they’ve outgrown them now.

Even when there are adequate financial systems in place many business owners and managers don’t understand some of the basic accounting principles which cause them to make inappropriate choices or expensive mistakes. It’s therefore important that business owners and managers understand the systems the company is using and that they also have a basic understanding of accounting principles.

Just as important is to ensure that the system is operated correctly across all divisions and facets of the company.

Contractors need to be disciplined in their approach to project and company finances. Deviations from set procedures can quickly result in uncertainty amongst staff, financial mismanagement, loss of financial control and even bankruptcy.

I would also always urge contractors to be financially conservative since the contracting environment is continually changing with unexpected events happening when least expected, such as clients being unable to pay, contracts being cancelled, accidents, disruptive weather events or a shortage of work. Contractors who have stretched their financial resources might be unable to cope



with these challenges.

Cost controls and reporting

Cost reporting and cost controls for individual projects are important since: 1. they provide an indication as to what types of project are profitable and

should be targeted by the company

2. the information can be used to improve the accuracy of tenders

3. they assist the company with their financial forecasts and budgets

4. when a loss is detected it may be possible to prevent further losses and even to recover some of the money

5. it makes project staff accountable




The reporting systems must: 1. be simple to operate

2. provide information that can easily be analysed

3. be compatible with other financial and operating systems the company uses 4. be adaptable to use on small and large projects, as well as different types of

projects, so that one common system can be used throughout the company 5. if possible tie-in with the information provided from the tender process

6. provide reliable information

7. provide information that is current


Not only should companies have a good cost system, but equally importantly, they must ensure that the information produced is analysed and used to improve the company and project performance and operations.

Cost to completion

Cost to completion is a form of project cost reporting. In this method an estimate is made of all the costs that are expected to be incurred for the remainder of the project and these are added to the costs already expended. The total costs are then compared with the expected final revenue.

To make the results more accurate it’s possible to split the costs into different sections like labour, materials and equipment, or even more detailed into subsections of different materials.

The reliability of this method of cost reporting depends on the accuracy of the data for the costs incurred to date and also requires that accurate forecasts are made for the future costs. It goes without saying that the expected final revenue should also be accurate and take into account any deductions or reductions in revenue.

Cost versus allowable

Another method of cost reporting is to compare the actual costs incurred to date on the project with the revenue earned so far. This can be done for the project as a whole, for individual tasks or for different cost codes such as labour, plant and material.

The accuracy of this method depends on the correctness of the calculations of the costs as well as the accuracy of the revenue against which the costs are compared.

Cost reporting using the schedule

If the schedule has been correctly resourced it’s possible to calculate the resources that should have been expended according to the schedule and compare these with the actual resources expended. This can usually be done for manpower and equipment.

Cost codes

To enable accurate cost reports to be prepared codes should be allocated to the different tasks or trades. These cost codes should:

1. be simple and easy to use

2. be uniform across all projects

3. have a prefix unique to each project

4. allow for expansion for future new items, materials and activities 5. be allocated from the start of all projects

6. be used by everyone associated with the project

7. be understood by all personnel using and allocating them 8. tie-in with the codes used in the tenders




If the costs and the revenue of the different tasks and items can be correctly allocated to a cost code, it’s possible to get an accurate portrait of whether that task, or item, is making or losing money, and appropriate steps can then be taken to rectify losses.

Investigate losses – don’t cover them up

When a project loses money it’s important to establish the reasons for the loss so that further losses can be prevented, and if possible, so the losses can be recovered. There are many reasons for a loss including:

1. wastage

2. poor productivity (Refer to Module 6) 3. poorly planned and organised projects 4. defective materials

5. theft

6. poor quality work resulting in rework 7. poor performance of subcontractors 8. failing to claim for work done

9. changes to the working conditions caused by the client such as: 1. delayed access

2. increased scope

3. variations and changes

4. the late issuing of drawings and information 5. changes to the schedule

6. restrictions on work hours

7. changes in specifications or tests required

8. client-supplied services not being available or not in the required quantities

10. site conditions different to those tendered for such as: 1. the presence of rock

2. other contractors impacting on the work 3. the client’s activities impacting the works 4. the presence of hazardous materials

5. available borrow pits being further from the work site or more difficult to access

6. the material having different properties than specified, making it more difficult to work with

11. unusual adverse weather conditions

12. incorrect tender assumptions or calculations


It should be feasible to propose modifications for the extra expenses if the losses are attributable to the client or to altered conditions. If the contractor is to blame for the loss, management must determine how to reduce and recover the



losses. Sometimes the loss was caused by errors in the tender, and the project team had limited recourse. To ensure that they don't happen again, it's crucial that the estimating team be made aware of the mistakes.




Budget for the Project Every project need to have a precise budget. A budget serves the function of estimating the projected profit or loss for a project. The budget should be as precise as feasible and should be adjusted during the duration of the contract to account for any alterations in the situation or mistakes in the initial assumptions.

Instance study

I began working for a new firm and was assigned responsibility for a project that had been ongoing for two months. The project's budget was divided into expenditures for materials, labour, equipment, and subcontractors. I looked back at the tender, but I couldn't identify where the numbers came from. I eventually learned, after speaking with multiple persons, that the manager had merely proportioned the various cost components according to his judgement based on his review of the contract total. The work he had done was not scientific, but for the duration of the project, he would compare the cost report to the budget each month and inform me that we were earning money on supplies but losing money on labour. A utterly worthless and absurd activity!

Typically, the estimate for the tender is used to determine the budget. The Estimator should have precisely determined the costs and amounts of the supplies, labour, tools, and subcontractors needed for each task. Additionally, they had to have contributed the cost of project management, monitoring, and overheads, as well as any additional profit and expenses. The Project Manager should use this as a foundation and verify the accuracy of these expenses and assumptions, as well as update them to reflect any modifications to the situation.


The Project Manager may discover one of the following when planning and executing the Project: 1. That the Estimator made mistakes, either overestimating or underestimating the expenses 2. They can buy materials more affordably.

3. They can choose a different approach that, for example, lowers labour expenses but raises material prices.

4. In comparison to the project that was bid, the customer can have increased or decreased the project's size.

5. By altering the approach, the project's overall length might change, which could have an impact on management, supervision, and overhead expenditures.

6. The Estimator's equipment is no longer available, necessitating the employment of more expensive techniques and equipment


The project can achieve an accurate cost estimate by using a correct and precise budget.



determines if the project is profitable or not.

Naturally, creating a budget shouldn't just be a process to identify mistakes and reduce the predicted profit; it should also include prospective advantages to ensure that the estimate is correct. In several of the budgets I created for my projects, it was clear that we would make more money than was anticipated by the tender, and in many cases, we even made more money than was anticipated.




Budget for the Firm Based on the numerous project budgets, the company should create a comprehensive budget that includes an estimate of all operating expenses and overheads that are not covered by the separate projects. A precise budget is required:

1. to outline expected earnings or losses for owners or shareholders 2. if the business needs lenders to provide extra funding

3. to prevent paying out money that could be needed later to support the business to owners and shareholders

4. to organise equipment purchases

5. to make sure there are enough finances to satisfy debts and obligations 6. to guarantee that the business has a healthy cash flow

7. The business must succeed in order to establish a target for more work. 8. to evaluate the business' performance




Authority levels and financial controls

It's critical that businesses have adequate financial controls in place and the right amount of purchasing and payment power. Without them, people have complete financial freedom and run the danger of:

1. Items that are not necessary are bought 2. Theft of money

3. The business doesn't have enough cash on hand to meet operational costs. Payments are repeated, the firm makes unaffordable purchases, and mistakes happen when persons without the necessary expertise or understanding are permitted to initiate or authorise payments.




Most businesses ought to have a clear policy stating what employees are permitted to sign or agree to. A few of these would be:

1. paying suppliers and subcontractors 2. the payment of salary and wages

3. making orders with suppliers and subcontractors 4. distributing bids

5. supplying changes 6. signing agreements

7. Signing off on timesheets 8. executing purchases of capital


Depending on: Different degrees of authorization are often implemented. 1. the size of the expense

2. the nature of the item; 3. the timing of the authorization

4. The degree of trust with people 5. The company's size

6. The individual's position inside the business


There may occasionally be a lengthy authorization procedure that must take place in order for things of high value. For instance, a subcontractor payment may need to be assembled by a Contract Administrator, checked and approved by a senior Contract Administrator, then passed to the Project Manager for review and signature before being given to the Contract Director for approval. Occasionally, with particularly large payments, the Divisional Manager may need to finally approve the payment. These several



Authorizations can be laborious and time-consuming, but they are especially crucial when making significant payments to prevent errors from being made. They are obviously only useful if each person really double-checks the payment, and I've seen instances when wrong computations were performed but went unnoticed even if the payments were authorised by three or four distinct people.

Operating a business can occasionally be challenging due to the authorization procedure. This is especially true for small businesses, where the owner must approve all payments. The proprietor is frequently out from the office looking for new clients, fixing issues with a current project, or taking time off. When they cannot be located to approve a payment, it might result in late payments to suppliers or subcontractors or even unpaid wages and salaries. It's crucial in these situations to assign the duty to other people who are more easily available.

Naturally, it doesn't assist the procedure if projects turn in their documentation late and their money late. Since I wasn't constantly in the office as a Project Director, I found it aggravating when payments were emailed to me for approval the afternoon before they were scheduled to be paid (or perhaps even on the day payment was due).

It's crucial to designate other qualified individuals to authorise on behalf of the person who must authorise payments when that person will be unavailable for a long length of time or during the time when payments must typically be processed.




controls and checks

The operating systems must have enough checks and controls to detect and, more significantly, discourage fraud in this day and age of theft and fraud.

These checks should involve making sure that: 1. The item has been received and meets the specifications and quality standards

2. The job was completed in line with the order, which included providing all quality paperwork, replacement parts, and warranties, as well as completing all commissioning.

3. The billed value does not exceed the order's worth; 4. Deductions have been taken into consideration; 5. The agreed-upon discounts have been applied; and 6. Retention has been retained, where necessary. 7. the right tax amount has been included; 8. the invoice has not yet been paid; and 9. there are no mathematical mistakes.


It could be essential for the relevant individuals, who possess the requisite information, to verify that the item has been received and meets with the order's specifications in order to facilitate some of the aforementioned.

Furthermore, the payment process must be transparent so that it is feasible to understand what is being paid for, what deductions have been made, and why they were made. If anything is unclear, it's conceivable that the supplier may get more money than is necessary in future payments or that deductions will accidentally be reversed.

It's crucial to connect the order, invoice, delivery, batch, and payment numbers in order to enable this verification procedure. Making ensuring records are filed, kept, and accessible for several years in the event that later conflicts with suppliers develop is equally crucial.




Documentation

For the accountants to be able to precisely determine all costs related to running the business, it is crucial that all paperwork and invoices be retained and filed. Some small business owners combine their personal and business costs, which either results in their reporting less spending than they really incurred or leads them to report erroneous charges, which might result in penalties if tax authorities carry out an audit.

A minimum of five years should be allowed for the storage of all records. I would definitely suggest keeping the documents as long as possible, even if some nations have laws mandating it to be preserved for longer periods of time (in Australia, it's seven years). The documentation should be organised such that it may be quickly retrieved when needed. Rodents and insects must be inspected for presence in the storage spaces, which also need to be weather-tight.

Case study: There have been times when I've needed to search through paperwork that was kept in an oppressively warm shipping container. It was nearly hard to find the necessary information since the material was so disorganised. Every time someone searched for a different paper, the pile of documents got more disorganised. Furthermore, the container wasn't watertight and flooded when it rained, rendering a lot of the paperwork unusable and unreadable.

Computer records need to be securely kept in a place where heat or fire can't harm them.

There are specialised businesses that offer safe document storage, but it is essential to investigate these locations to be sure they are what they claim to be.




Fraud

Most businesses struggle with a lot of fraud, much of it is committed by staff members. Unfortunately, the majority of fraud goes unnoticed, or if it is, it's typically too late and only a small portion of the stolen funds are recovered. Employing trustworthy people is the greatest method to prevent fraud, but even the finest reference checks and hiring practises cannot ensure this. Even the most dependable workers may be enticed to commit fraud if an easy way to generate money is offered, if they develop a gambling or drug addiction, or if changes in their personal or financial situation force them to turn to stealing.

Fraudulent activities include:

1. Using corporate vehicles and phones inappropriately

2. Billing the firm for gasoline or other expenditures that were ostensibly made for corporate use but weren't, or for travel expenses that weren't linked to the company

3. Using business resources and equipment for personal projects (like building or renovating their home)

4. Misuse of an organisation credit card

5. Adding excess hours for employees or adding fictitious persons to time sheets to make them look more accurate

6. requesting that subcontractors or suppliers exaggerate their bills so that a percentage of the money goes to the employee

7. Renting out corporate property to a third party and keeping the money received for it


Case Study 1: A director I formerly worked with used resources from their projects to construct homes, and the firm paid for everything. The rest of us found it challenging to prevent other employees in the organisation from engaging in the same behaviour when it seemed the practise was tolerated.

Case Study 2: Our company's name was made up of four initials. The individual in charge of accepting and handling payments made to the business established a bank account for a new company they had founded with a name that had four words that shared the same letters as our business name. When a check was received in our company's name, she deposited it in the account she opened under a similar name rather than in our account. Occasionally, when a client called to request our company's bank information so they



She provided them the information for the account she had made so they could deposit a payment right into our account.

We had mechanisms in place that picked up the mismatch between the money that was placed into our account and the receipts that were provided, which is how the issue was only discovered. Though she was sentenced to prison, not all of the stolen funds were recovered.

Third case study

For our staff to stay in while they were based on a project, we used to rent out residences. We hired a home for our project manager's family for one specific assignment. Unbeknownst to us, he relocated into one of the homes used for single occupancy after sending his family back to their family dwelling. He ended the lease on the home he and his family were renting. He didn't advise our head office that the lease had expired; instead, he sent our accounts department information on a new account to which the monthly rent should be transferred by pretending that the individual renting the property had changed their bank account. Fortunately, our accountant realised that the new account was really the one that was used to deposit his salary. The plan failed before it even got started. We will never be aware of his other schemes to swindle the business, though.

Making ensuring there are processes in place that eliminate the incentive to steal and that stop theft from happening is the greatest strategy to avoid fraud. Additionally, there should be enough safeguards and controls in place to identify fraud when it arises so that it can be halted.


There are situations when fraud is committed by outsiders. The following are some of the most typical scam schemes:

1. accessing the business's online bank account 2. Making unauthorised check payments

3. providing guarantees that, should the business need to make a claim against them, are useless since they don't include the right firm name, contract sum, or date.

4. forging checks made out to the business. 5. billing for services not rendered or supplies not supplied. 6. delivering inferior materials.

7. submitting two invoices for the same item

8. failing to provide the whole quantity indicated on the delivery note 10. charging extravagant prices for simple services 9. charging for repairs and spare components that weren't necessary



In addition to fraud, Module 11 discusses the risk of ordinary theft.




Money flow

More construction companies than any other industry experience financial difficulties, which ultimately result in their collapse, due to negative cash flow. If the cash flow is negative, even a lucrative project might put a firm in financial trouble.

Negative cash flow occurs when a contractor pays wages and salaries to employees, suppliers, equipment rental providers, and subcontractors before the customer pays for the finished job.

Unfortunately, most building projects tend to be somewhat financially negative. Many customers hang onto their 10% cash retention until the project's conclusion, when it is lowered to 5%. This indicates that the project will typically be cash negative until at least the conclusion of the project if the project is bid at anything less than a 10% profit.

Most clients also only pay the contractor after thirty days have passed since the contractor submitted an invoice. The end of each month is often when these bills are sent in. Many contractors provide their employees biweekly or, in certain situations, weekly payments. This implies that the contractor has at least paid these workers up to seven weeks' worth of salaries before the customer pays for the work that they have done. Suppliers may require payment from smaller contractors before releasing materials.

The cash flow scenario is, however, made worse by a number of other problems. Payment periods for many projects go beyond thirty days. Additionally, some customers routinely pay progress claims partially or late. Of course, when clients don't pay at all, that's the last death blow for a lot of contractors. This could be the consequence of the client contesting the cost of the job, breaching the contract, or declaring bankruptcy.

Even yet, contractors frequently worsen their cash flow issues by reporting their progress appraisals late, taking payments later than expected, or not claiming all fees associated with finished work.

I use the example of a corporation that performed over ten million dollars of work on a cost recovery basis but didn't have any of it signed off and authorised in my book on project management. They had only submitted invoices for the first $500,000 of the job. Their financial flow was being ruined by this, which was plainly very dumb. The majority of businesses couldn't handle this negative cash flow. However, a lot of businesses fail to include all the work they completed throughout the month.


Contractors must turn in their monthly progress valuations by the deadline or earlier in order to enhance the cash flow condition. Some applications execute progress exclusively.



Missing a submission deadline might result in the customer delaying payment by up to a month. Payments are sent on a specific day of the week or month. Since many clients would find any justification to postpone or deny a monthly claim, the valuations must be delivered in the right format and with the relevant supporting paperwork. It's crucial to monitor the payment's advancement using the client's payment system. With important clients, the appraisal and payment may be reviewed and approved by a number of individuals. When someone isn't there, the process might get derailed, or the claim can just get "lost." I've had clients who routinely paid progress claims late, always with some justification about our valuation being late, the claim being wrong (either due to arithmetic errors, a lack of supporting evidence, or a disagreement with our progress), and people involved in the approval process being absent. Of course, a lot of these issues weren't brought to our attention until the payment was due, even though the customer possessed the claim for thirty days.

It's also crucial to make sure that the valuation accurately accounts for all labour performed.

The contractor often prepares the monthly valuation on or around the third of the month, even though it is typically due, for example, on the twenty-fifth of the month, even though the value is really for the entire month. This indicates that following the preparation of the claim, labour continues for around a week. Clients frequently agree that the valuation should contain a prediction of the projected work for the upcoming week. The contractor must, of course, have some assurance that the work will be finished since, if it isn't, and the claim exceeds the actual work performed, there is a chance that the customer would reject the value in its entirety, delaying payment.

Some clients allow for the addition of a few more days of progress because by the time they assess the claim (which might be several days after the appraisal was filed), the additional work has been finished.

Some contracts are designed such that the contractor only receives compensation after reaching specific milestones. Project managers must guarantee that these milestones are reached by understanding what they require. 99% completion is plainly useless if payment is only provided for 100%. Payment to contractors is frequently delayed since they frequently take several weeks to do the last few tasks (which may only be filling out papers).


As previously indicated, retention funds kept by the client have a significant influence on a contractor's cash flow, however many contractors fail to reclaim them as quickly as possible. Contractors must adhere to specific requirements in order to be released from retention.



ln accordance with the contract, which calls for delivering the completed job as well as providing different documentation (including quality documents, as-built drawings, and guarantees) and finishing all punch list items. In order to start the warranty term, which will ultimately result in the release of the final retention, as well as to permit the release of the retention, it is imperative that these duties be fulfilled as soon as possible. The last retention can then be released by keeping track of the warranty duration and politely requesting that the customer do the final inspection at its conclusion.

Many customers refuse to pay for supplies that aren't anchored to the project. It goes without saying that these materials (especially those with a high value) should be kept to a minimum and only brought to the project when they are needed for inclusion. This can be challenging to manage at times, and supply delays might cause the project to be delayed at a cost that is significantly more than the advantage to the cash flow of obtaining the goods "just-in-time." Contractors should include pricey, big goods wherever feasible before submitting a monthly claim. It is also possible to schedule deliveries so that they come early in the month rather than towards the end of the previous one.


Contractors can take a variety of actions throughout the tender preparation process to increase their cash flow, including:

1. determining if the customer can afford the project's financial commitments; 2. determining whether the client is reputed to pay the entire amount of the monthly valuations on time;

3. negotiating more benevolent payment conditions, such as:

1. being able to pay the value within the tender's allotted time frame; 2. being permitted to submit invoices sooner or more often. 3. The consumer is retaining less money

4. On-site payment for unfixed materials

5. decreasing the retention withheld

6. substituting a surety bond for the retention cash

7. Requesting a payment guarantee from the customer so that the contractor may make a claim against it in the event of financial difficulty

8. demanding an early payment from the customer (particularly to cover the purchase of major items of equipment or material)

9. arranging the tender such that more of the project overheads are paid up front or that work completed earlier in the project is worth more than work completed later (I've managed several projects like this).



Simply by appropriately arranging the bidding and ensuring that our monthly progress values were maximised, we were able to enter into contracts with over-claims totaling more than $1 million.)

4. Requesting an early release of retention funds from the customer by: 1. reducing the time it is held

2. Making it available in stages when milestones are reached 5. lowering the assurances' worth

6. enabling the delivery of the assurances early or after the achievement of crucial milestones




Variation work frequently has a negative impact on cash flow.

Instance study

One of my contracts had an eight hundred dollar tender value. But as the project progressed, the scope grew, and we provided a lot more modifications. In addition, we ran across rock that wasn't supposed to be there, and the customer kept pushing back the project due to late access and information. Throughout the project, we promptly submitted each modification, and finally the contract's worth reached about two million dollars. However, our customer repeatedly failed to address these allegations, which prevented them from issuing the necessary variation orders and, as a result, prevented them from paying us for the variants. Our client ultimately agreed to take our concerns into consideration only after we filed a lawsuit. Our ultimate deal value, which was double the first contract value and was one million six hundred thousand dollars, was agreed upon. We were paid nearly six months after the majority of the work was finished due to the client's delay in deciding on the value of the changes, which had a debilitating impact on our cash flow.

Even with a more accommodating customer, the contractor may have to wait many months before receiving payment for a change since many clients want approval before issuing an altered order. In some circumstances, the variation can cause the client's authorised contract amount to be surpassed, necessitating them to request for more project financing, which would add to the delays. Therefore, it is better for contractors to wait until a variation order is in place before starting any variation work. The contractor must inform the customer right away if a variance is discovered in order to prevent issues. These changes should be quickly priced, and the customer should be encouraged to accept a pricing and send the necessary variation order as soon as feasible.

When performing re-measurable work, if the contractor isn't



Be cautious; they can believe the contract is finished only to discover after the measures and final accounting that the quantities exceeded the tender amounts and the contract value had increased. Since there is a potential the contract amount may be exceeded, contractors should make sure designs are measured as soon as they are received.


Cash flow is also impacted by the payment periods of suppliers and subcontractors. Contractors should try to negotiate terms of at least thirty days. Whatever occurs, the contractor must make sure that payments are made to suppliers and subcontractors in line with the terms of their individual orders and contracts. In addition to the contractor losing payment savings, a breach of contract may ensue from late payments. Additionally, it becomes challenging to bargain with suppliers for future payments and financial terms after a contractor has a reputation for paying late. Building a reputation for paying fairly and on time with their suppliers and subcontractors is crucial for contractors.




Don't trade on exaggerated statements, but do so anyhow

Since it is always preferable to have money in your bank account than in the client's, the contractor should whenever possible claim for as much work as possible in the interim valuations. This will also help the project's cash flow. However, with any over-claim, it's crucial that the income in the report be changed when the cost report is put up to take the consequences of the over-claim out, in order to prevent the cost report from producing an inaccurate result.



Case study 1: One of the businesses I worked for had a lot of profitable projects. However, when the projects moved forward, these gains vanished, and many of them became losses. What then was the issue? The cost reports had only made a comparison between the expenditures and the monthly values. These appraisals were wildly exaggerated, yet no corrections for these excessive assertions were made in the reports. Because the Project Manager had already claimed income for work that hadn't yet been completed, the client values at the conclusion of the project were less than the expenditures expended. This caused a dramatic turn of events.

Case Study 2: The Managing Director of another project I worked on asked that we take into account additional money from claims we would make against the customer and the subcontractors because the project was not making the planned profit. When some of these statements didn't come true, this obviously created issues.

Assuming the customer would pay for a change or claim is risky for the following reasons: 1. The client may not approve the variation

2. The customer could discover mistakes in the variation and settle the claim in part only.




Tax

Unfortunately, if a business is profitable, it must pay tax (unless based in a tax free haven). There are many taxes that must be paid at various intervals that range across areas and nations. These taxes include, among others:

1. tax on business earnings Payroll tax 2.

GST or VAT 3.

4. Tax withholdings from employee pay 5. Local property taxes or rates

6. unique taxes


Penalties may apply if these taxes are not paid on time.

It is advisable to get professional assistance so that the business is set up to minimise taxes, maximise deductions (such those for depreciation), and make claims for payments or subsidies (such as for training and employing apprentices).

In order to guarantee that the right tax is paid on time and that tax isn't paid twice, the firm has to have a solid grasp of how the tax regimes differ between the nations. Tax may get confusing when functioning in several states and countries. Even the tax year finishes may vary between some of these nations.

Sometimes tax-evasion schemes that are complex and convoluted are created by accountants and financial advisors. These strategies need to be used with caution because many of them are illegal and others just postpone the tax due to a later year. These schemes frequently cost more than they are worth, and many of them are hazardous and serve just as a means of cheating the corporation out of money.




joint endeavours

There are occasions when two or more contractors join forces to build a project by pooling their resources. The joint venture functions as a distinct business that each of the contractors owns shares of for all intents and purposes (which is in accordance with their percentage participation in the joint venture). For tax purposes, a new corporation with its own bank account is typically created under the name of the joint venture. An executive committee made up of representatives from the various parties typically oversees the joint venture in line with the terms of the joint venture agreement.

The committee meets every month to assess the project's status, cost reports, and bank statements, and to make decisions on capital spending, investing extra cash, paying out profits, and allocating assets after the project's conclusion.

Each firm sends an invoice to the joint venture for the equipment it has hired for the joint venture as well as the employees and workers it has seconded to the project. Either at established and agreed-upon rates or at their actual expenses should be included in these invoiced amounts.

The joint venture often sets orders with suppliers and subcontractors under its name, and then pays for the work that is completed.

The joint venture will undergo an audit and be compelled to pay taxes in the same manner as any other business.

The joint venture firm cannot be wound up and shut down until all liabilities have been satisfied and the project has passed the end of the defects warranty term.




Save money for the tough times.

Construction is a fairly cyclical industry, with periods of ample (and occasionally even excessive) activity followed by periods of insufficient work and reduced profit margins. Contractors need to have enough money to fulfil both their operating cash flow needs and their regular obligations in addition to being able to react during these difficult times.

In prosperous times, I've seen contractors buy new machinery, buildings, and cars while also lavishly rewarding their directors and owners with bonuses and dividends. Unfortunately, these same businesses frequently encountered financial problems when the construction market deteriorated and they were unable to cover the extravagant purchases they had made, they lacked the demand for the new equipment, or they were forced to reduce their workforce, rendering the additional space in their new office unnecessary.




Summary

Construction businesses need to be financially stable to run efficiently. This implies that companies must manage their cash flow to ensure that they have enough money to cover their ongoing expenditures in addition to earning a profit on all of their initiatives.

Contractors must take the following steps to effectively manage their financial position: 1. create regular cost reports for each project; 2. implement adequate financial controls and levels of authorization. 3. put fraud prevention and detection mechanisms into place; 4. create cash flow projections for both the organisation as a whole and particular projects.

5. look for methods to increase their cash flow

6. identify the root causes of losses and take steps to stop them from happening again and to recover any lost funds.

Prepare project budgets in 7.

8. establish a budget for the business.

9. seek professional guidance to minimise taxes while constantly making sure that their tax affairs are current and within the bounds of the law

10. File documentation properly and keep it in a secure location where it may be quickly retrieved.

11. Be cautious when establishing joint ventures to make sure that adequate agreements are in place between the participants and that the joint venture's finances are maintained current and meet legal standards.

12. Make sure the business has enough money to get through the tough times.




Contracts Module 9



Larger clients provide the contractor a contract that serves as the project's governing document. Sadly, some contractors fail to read these contracts, which may lead to:

1. The contract is highly skewed in the client's favour

2. The job isn't being done by the contractor in line with the contract

3. the contractor committing to contractual terms that they are unable to meet

4. The contractor failing to make sure the client complies with their contractual responsibilities


Failure to read, comprehend, and abide by the contract's provisions frequently has the following consequences: 1. The contractor fails to collect their entitlements under the contract 2. Loss of claim rights by the contractor

3. exorbitant and protracted legal battles




Contractors typically offer their own kind of contract to customers when working with smaller clientele, such as homeowners. There are common contract types that may be utilised for this in many nations. When giving a client a contract, it's crucial to make sure it's: 1. appropriate for the type of work (for instance, it's typically unnecessary and inappropriate for a contractor building garden paving to give the homeowner a twenty-page legal contract); 2. clear and unambiguous without contradictory clauses; and 3. concise. 3. is reasonable and fair

4. Having legal effect


There is always a temptation when creating contracts to make it too complicated or to remove clauses and replace them with new ones that may be more burdensome to one of the parties. When this occurs, terms may become incompatible, even rendering the contract void.

Getting adequate legal counsel before creating or signing a contract is always a smart idea.





What is an agreement?

An agreement is made in the contract between the customer, who promises to pay for certain task, and the contractor, who accepts to do the job. It outlines the rights of each party and serves to protect them both.

The following should be in the contract:

1. the acknowledgement of all parties' duly authorised representatives 2. the parties to the contract's names and addresses

3. reference any drawings or a scope of work 4. The project's location 5. The day the contract becomes effective 6. the amount or value offered

7. a schedule or milestone dates (or reference to a schedule) 8. the conditions of payment

9. a mention of the bid paperwork (if these form the basis of the contract) 10. List any exclusions the contractor indicated in their bid proposal (if these were agreed to by the client in the tender negotiation process)

11. the duties of the different parties 12. Requirements (or refer to specifications) 13. the warranty and fault periods

14. guidelines for submitting changes

15. fines or compensated damages (their quantum, when they will be applied and, if applicable, a maximum value)

16. a severability provision

17. methods for resolving disputes

Definitions of the terms used, page 18

19. Specific circumstances that apply to the project site (such as wage agreements, working hours, restrictions on access to site, security, safety, environmental concerns and the use or protection of existing or neighbouring property)




When does a contract become binding?

A formal offer must be made and unequivocally accepted for there to be a contract. (In other words, just because the homeowner tells the painter he loves the price on an estimate for painting a house doesn't mean the homeowner has agreed to pay it and hired the painter to complete the task. The homeowner must express their acceptance of the quotation and their desire for the painter to carry out the job in order for there to be a contract.

Although a verbal agreement might be just as legally enforceable as one that is in writing, it is frequently problematic since it can be challenging to establish what was stated and what was agreed upon.

Before an offer is accepted, it may be retracted as long as the withdrawal is clear and, ideally, in writing. (To continue with the above example, it won't be sufficient if the painter submits the quotation and then in a subsequent conversation with the homeowner says he's not sure if his price is correct; instead, the painter needs to formally state they've submitted the wrong price and are withdrawing their quotation.) Clients occasionally insert language in their bidding forms preventing contractors from changing their prices after they have legally submitted them.


A contract might not exist under certain circumstances, for instance:

1. One of the parties is a minor, mentally ill, insolvent, imprisoned, or subject to undue influence or compulsion.

2. The agreement contains untrue claims. 3. The contract has serious flaws.

4. One of the parties intentionally encourages the other to engage in unlawful behaviour. 5. There is a prerequisite (for instance, the customer claims they must get funding for the task but are unable to do so).

6. An act of God prevents the performance of the contract's obligations (for example a builder is contracted to renovate a house but before they start the house burns down)


However, it is crucial to understand the rules that apply to the contract because they vary between nations and have an influence on whether the agreement is enforceable.




The agreement's foundation in law

The contract is governed by laws that may or may not be those of the nation where the project is located, depending on the country. Clients or managing contractors are frequently headquartered in another nation and choose to use that nation's laws. The laws and legal processes of that nation may not be familiar to the contractor, and any conflicts may need to be brought before the local courts there, necessitating travel by the contractor to present their case.

As was said in Module 3, it is best to convince the customer to modify the legal basis of the contract to one the contractor is comfortable with at the tender stage. If this doesn't work, it could be wise to seek legal counsel from someone who is knowledgeable with the jurisdiction described in the contract.



But is it the same contract?

Contractors sometimes acquire accustomed to certain contract clauses or use the same contract clauses while working for the same customer repeatedly. However, it's crucial to carefully study each contract since, although the terms may seem the same, there may be a subtly changed phrasing that affects how the contract is interpreted and used.




Memorandum of Agreement

A Memorandum of Understanding (MOU), which identifies a shared course of action, may be used as the initial step in creating a contractual relationship between two or more parties. A MOU may be enforceable if it: 1. Is signed by the parties;

2. Makes the topic matter absolutely apparent 3. reveals the purpose

4. An offer and an acceptance both occur.


The MOU should also specify how to proceed with creating a legal contract.

A MOU is a crucial tool for summarising the progress achieved at a meeting and can be helpful to clients and contractors when discussing projects or seeking to settle disagreements.




intent letters

Sometimes the customer is eager to get the contractor to start working even if the contract paperwork haven't been completely prepared. They could publish a letter of intent or another comparable document in this situation. These contracts, which are sometimes only a few lines long, provide little protection for the contractor in the event of a problem.

Generally speaking, I would rather not begin work without a contract since it may be challenging to negotiate contract revisions once the contractor is already on the job site and spending money.

When using a letter of intent, a contractor should ensure that it is: 1. Signed by an authorised representative of the client; and 2. Signed and acknowledged by the contractor. 3. be dated; 4. contain the true names of the parties to the agreement 5. mention the terms of the tender

6. make reference to the contractor's offer 7. mention a job scope; 8. contain the terms and conditions for payment 9. a provision outlining termination

10. make reference to a contract timeline or achievement dates

11. Specify a deadline by which the contractor will receive the contract paper.




It's crucial to make sure that Letters of Intent don't go beyond their expiration dates or set limits since doing so might result in the contractor not getting compensated for work done beyond what was authorised.




Payment assurance

The contractor may occasionally request a payment guarantee from the customer. Before beginning work, the contractor should confirm that: 1. the guarantee has been obtained.

2. The parties' legal names are printed on it correctly.

3. The guarantee can be invoked by the contractor if necessary thanks to the language in the contract.

4. They stay within the guarantee's upper limit.

5. The job is completed within the time frames outlined in the guarantee


These warranties must be stored in a safe location.

If the contractor has to use the guarantee to get paid, they must make sure they follow the right steps.




Verify the contract paperwork.

Make sure the following before signing the contract: 1. The document is identical to the tender document, including ensuring that: 1. No clauses have been changed (unless agreed-upon changes have been made).

2. The drawings referenced or included match the drawings in the tender and bear the same revision number.

3. No fresh artwork has been uploaded 4. The requirements are the same.

2. All post-tender modifications are included in the price, which is in accordance with the tender. 3. The tender submission includes the exclusions

4. The timetable follows the mutually agreed-upon dates


I frequently received paperwork with terms that were not what was agreed upon. The meaning and intent of a sentence can be substantially changed by even little phrasing changes. Failure to notice these changes might lead to the contractor agreeing to perform work for a price they haven't set or under conditions they haven't budgeted for.

The contract agreement is sometimes signed weeks or even months after the work has begun, therefore it's crucial that it recognises any delays or modifications that have happened after the date of signing.




Documentation

On every project, good documentation is essential, especially in the event of a disagreement or when submitting a variant.

Photographs documenting the progress, variations, and completed work, as well as minutes of meetings with customers and subcontractors, are examples of documentation that might be crucial.

3. Daily journals

4. communication

5. inquiries for information Drawing registers, sixth

7. creating receipts to issue 8. Website directions

notifications 9.

The contract's schedule, 10. Updates on the project's status and the signed contract document

13. the offer (including the submission, correspondence, schedule, drawings, specifications and the post-tender meeting minutes)

14. Accepted time sheets for work


This communication should be constant, since I frequently observe project personnel reporting one thing in the weekly report and another in the daily diary. Lack of supporting evidence or discrepancies in the documentation might lead claims or variations to fail.




warranties and assurances

When things break down during the contract guarantee term, contractors frequently suffer additional charges because: 1. The part's warranty has expired even if it is still inside the contractor's guarantee period with the client

2. The component hasn't been handled, installed, moved, or used in accordance with the guidelines.

3. Repairs were performed by someone other than the authorised contractor




Checking guarantees and warranties is necessary to make sure they are: 1. Reliable

2. use the item and provide it the necessary cover 3. There is enough time for the assurance

4. The guarantee's installation, service, and repair requirements are followed.


The following guidelines should be followed while collecting and storing guarantees and warranties:

2. Have the original delivered to the customer together with the handover paperwork, and the client should confirm receipt of it.

3. After the project is finished, keep a copy in a file.




Disputes Disputes should be avoided since they are time-consuming, damaging to the contractor's image, harming to the client-contractor relationship, and expensive, especially if they go to court.

5. They could not go well for the contractor because they don't get paid the entire amount of their claim.


Conflicts should be avoided wherever feasible by making sure: 1. A binding contract that is enforceable in court exists. 2. The contract provides protection for the contractor. 3. The contract is well-written and free of inconsistencies or legal ambiguities.

4. The contractor is aware of the terms of the contract and follows them. 5. The contractor keeps the client and their subcontractors informed.

When possible, the contractor submits variations and resolves them. Accurate records are kept. There is a willingness to talk and negotiate. Personalities and emotions are kept out of the dispute. The contractor admits when they are mistaken. The consequences of escalating the dispute are carefully considered because the costs of legal action may outweigh the benefits.

12. When necessary, experts are consulted. 13. All parties administer the contract honestly and cooperatively.




Unfortunately, unresolvable issues can occasionally happen, and when they do, it's critical to adhere to the contract's dispute resolution procedure. You should only choose the legal path as a last option. Having said that, don't be reluctant to seek legal counsel or guidance.

Even while disagreements may arise occasionally, I've discovered that 99% of disagreements and claims can be resolved peacefully without resorting to formal dispute resolution procedures.

Managers need to be aware of conflicts and issues on a project so they can act as needed and step in if necessary to prevent the issue from getting worse.




Dispute settlement

There are several ways to settle disputes:

1. Negotiating with the persons engaged in the project is the cheapest and easiest option, however it could necessitate some concessions from the parties.

2. The matter should be brought to the top managers of the parties if negotiations fail. When these roadblocks are removed, managers may frequently find a solution to the problem, which frequently arises from a personality conflict or someone's wrong understanding of the contract.

3. The facility owner may occasionally be contacted to help resolve a disagreement even if they are not a party to it.


The dispute resolution procedure to be used after discussions fail is frequently included in the contract document. One or more of the following might be included in this route:

1. Mediation, in which a neutral third party is chosen to convene the parties and facilitate discussion and resolution of the issue.

2. Arbitration, in which a neutral third party is chosen to hear the evidence and render a decision on what they deem to be the best course of action. Arbitration is typically not enforceable.

3. Litigation, which frequently takes a more legal approach and focuses on a party's legal rights without necessarily comprehending the project or how different parties' activities affected the construction procedures and timeline.


Arbitration and litigation are generally protracted processes that take several years to conclude. Additionally, they are expensive and could not yield the results that either side was hoping for.

Some projects call for the appointment of a conflict resolution panel at the outset, which is typically composed of three members (one chosen by the contractor, another by the client, and the third by these two members). Typically, the board's expenses are split between the parties. The board often visits the project on a regular basis, allowing them to be informed of any concerns or problems as they develop. In the event of a disagreement, the board is consulted for resolution.




cancelling a contract

Contract termination with a customer, subcontractor, or supplier must be handled carefully. Since termination is frequently expensive and disruptive to the project, it should only be utilised as a last resort.

Prior to a contract being terminated:

1. Make sure the other party has defaulted

2. confirm that there are no other options, such as offering help to the defaulting party or limiting their contract scope, and 3. seek legal counsel if there is any uncertainty over whether the contract may be cancelled.

4. If at all practicable, implement substitute measures

5. avoid taking actions that might push your business into default; 6. carefully analyse the benefits and drawbacks of terminating because the latter frequently outweighs the former.

7. When alerting the defaulting party, follow the right processes, which should include:

1. Giving the defaulting party sufficient notice in accordance with the contract so that they have an opportunity to fix the issue

2. Making sure the notice is sent to the appropriate individual, at the appropriate address, and that the recipient receives it

3. carrying out the relevant actions outlined in the contract.


Unfortunately, termination is frequently adopted too late to have an impact on the project's direction.




Contracts for joint ventures

It's crucial to have the client's approval before filing an offer under the name of a joint venture. If a customer feels that one of the partners isn't right for their project, they could not consider a joint venture.

The parties should draught and sign a joint venture agreement. This agreement should: 1. specify each partner's portion of the project; 2. name the project leader; 3. specify how the project will be managed and administered; and 4. specify what each partner will contribute throughout construction and how they will be compensated.

5. how risk sharing will be done

6. the joint venture's funding plan

7. Who will provide the project's bonds and insurance? 8. the method for allocating earnings or covering losses 9. the dispute-resolution procedure

10. The executive committee's composition, which will oversee the joint venture


Setting up a joint venture properly is similar to starting a new business.




Summary


1. It's crucial to have a contract in place since it outlines the rights and duties of both the customer and the contractor, protecting both parties.

2. Expensive and drawn-out legal challenges may result from failure to read and comprehend the contract.

3. When an offer is made by one party and accepted by another, a contract is created.