Project Management for Construction - Case Study Example

Construction – Project Management ment of the Problem I have just been asked by the Commercial Department of the Contractor for whom I work to examine contract No 205 (for the construction of offices and yards for Russ Ting metal Stockholders plc) and report on its financial status. Writing a report for my employers setting out the factors that need to be taken into account in determining its current financial/commercial status - The report includes a table setting out how the determination of different factors will affect the financial status of the project. Stating clearly the additional information I still require. Executive Summary – The report presented here gives a detailed analysis of the examination of a contract on construction offices and yards with regard to a company named Russ Ting Metal Stockholders plc. The report is based on the financial requirements specified by the Commercial Department of the Contractor and evaluates the financial status of the company considering the different factors that tend to determine the financial status of the project. These factors would relate to profits of the project, company mission and objectives, the financial issues in the company, the contractual obligations, commercial aspects and marketing procedures, and also the raw materials used by the contractor. Recommendations are provided on how the contractor should control its commercial department and what are the points that should be emphasized to report on the financial status of the company. Introduction This report is on the examination of the contract No. 205 for construction of offices and yards for Russ Ting metal Stockholders plc. The report will consider the factors that have to be taken into account for determining the current financial and commercial status of the project. In this report I would consider how these factors will affect the financial status of the project. For this all the financial elements are considered in accordance with the following points. 1) The contract sum is for ￡10,000,000 2) The contract is JCT 98 on a lump sum payment basis 3) The internally budgeted costs allocated by the contractor for this contract were ￡9,500,000 4) The total cost incurred by the contractor to date is ￡6,750,000 5) The total amounts paid to date to package contracts and suppliers is ￡6,200,000 6) The total amount certified for payment to the contractor by the client/employer is ￡6,750,000 7) The retention percentage is 10% prior to practical completion (for the main contract) 8) The amount received from the client to date is ￡5,850,000 9) The total amount certified for payment to package contractors is ￡5,800,000 10) The total value of package contracts let is ￡7,500,000 11) There are no retentions held against package contractors-however the current amounts certified but outstanding (i.e. unpaid) to them is ￡300,000 12) The cladding package contractor to whom the contractor owes ￡100,000 (including in the ￡300,000 above) has just become insolvent. The cladding is complete but no warranties have yet been received 13) The current certified installment is one month overdue for payment from the client/employer whose shares have halved in value during the last year 14) We have no other contracts with this client/employer 15) There has been exceptionally inclement weather for the last three months 16) The contract is currently expected to be completed three weeks late 17) Liquidated and ascertained damages are set at ￡30,000 per week 18) Claims by package contractors currently stand at ￡200,000 19) Counter-claims package contractors currently stand at ￡75,000 20) There was an accident on site last month in which a package contractor’s employee lost a leg. The Health and Safety Executive are currently investigating this accident. 21) In the last month there has been a two week strike by the Professional League of Plumber (PLoP) which affected the Mechanical, Electrical and plumbing package contractor on the site 22) We calculate that the value of uncertified work carried out is ￡300,000 of which ￡250,000 has been performed by package contractors (who have not yet been paid for this work) 23) The architect’s drawing (correctly) showed doors of width 920mm but the specification and door schedule showed a type of door of width 950mm of which we have bought ￡5,000 worth which have been delivered to site where the mistake was discovered 24) ￡25,000 worth of faulty partition work carried out by a package contractor has recently had to be replace 25) The Head Office charges allocated to the contract are 100% over budget Analysis A table could be prepared giving the contracted sum and budgeted costs and an analysis will be done according to the figures presented here contract sum ￡10,000,000 internally budgeted costs ￡9,500,000 total cost ￡6,750,000 total amounts paid ￡6,200,000 total amount certified for payment to the contractor ￡6,750,000 amount received from the client ￡5,850,000 total amount certified for payment to package contractors ￡5,800,000 total value of package contracts ￡7,500,000 current amounts certified but outstanding ￡300,000 Amount owed to contractor ￡100,000 Liquidated and ascertained damages ￡30,000 per week Claims by package contractors ￡200,000 Counter-claims package contractors ￡75,000 value of uncertified work carried out ￡300,000 Package contractors unpaid work ￡250,000 doors of width 950mm ￡5,000 faulty partition work ￡25,000 Head Office charges 100% over budget The tabular analysis shows that the contract sum used by the company is at ￡10,000,000 although initially budgeted costs were ￡9,500,000, thus a profit of £500,000 is expected. However the total costs of the yards and offices came to ￡6,750,000. The total amount that has been certified to be paid to the contractor for this particular project is at £6,750,000, although the total amount received from the client is ￡5,850,000, which means the client is still expected to pay £900,000. However other financial contracts such as packaged contracts are there and this shows that the total amount certified for packaged contracts are at ￡5,800,000 and the total value of packaged contracts are at ￡7,500,000. The current outstanding amounts are at ￡300,000 with specifically the current amounts owed to contractor being ￡100,000. However value of uncertified work carried out and unpaid work amounts to £300,000 and £250,000 respectively. For faulty work, extra charges were at £25,000 and head office charges were also 100% over budget. Considering the extent to which unpaid charges remain and the damages and extra charges for faulty work incurred by the company, a clear statement could be drawn on not just the extra charges and unexpected expenses but also on recovering costs from the clients so that the company does not run on losses. The financial status of the project would thus be dependent on information on all current charges incurred by the company, the unexpected losses and extra charges for damages, the unpaid amounts and amounts certified as opposed to the actual or initial budgeted costs and considering the total costs or budget of the project, the profits or losses expected would be drawn up (also in Peurifoy, 1989; Schuette, 1994). Although the contract sum in total is quite high at £10,000,000, the total amount received from the client is only £5,850,000 and £300, 000 remains outstanding. The immediate focus of the company would be to recover the withstanding amounts and dues from the client considering that the charges are already running over budget and a lot of the project has suffered through faulty construction and damages that have affected the financial situation of the company adversely especially with regard to this particular project of building yards and offices. The specific goals of the company with regard to the financial status of the project could be given as follows: 1. Increasing profits for the company 2. Controlling damages 3. Preventing losses and extra charges 4. Recovering unpaid amounts from the clients 5. Specifying company financial goals in general 6. Suggesting financial prospects of the company 7. Delineating the profits and loss concerns for this particular project 8. Marking out the financial prospects of the company for this and similar projects in the future 9. Following contractual obligations and maintaining reputation of the company 10. Maintaining a balanced budget for projects to acquire the best deals for the company In this context it would be important to understand the specific factors that would lead to the delineation of project goals and help in drawing up the financial status both of the company and the specific project. Some of these factors would be related to the financial position of the company, the reputation of the company with regard to how it handles the projects and what are the profits, losses and turnover of the company. Some of the other factors that could determine the financial status of the company would be the payment plans or what kind of agreement the company has reached with the client, the payments made and outstaying and the damages or losses, both counted and unexpected as well as the extra charges that the company have incurred due to problems with the client or within the company. Actions to be Taken or Recommended As a consultant to the commercial section of the contractor, I would like to present a few valid points about the company suggesting why the company has been going through a rough phase in its financial status and what are the shortcoming in it s handling of the projects and its finances. An information processing approach as suggested by Winch (2002) could be beneficial in understanding the dynamics of acquiring and completing projects. The company seems to be apparently suffering from some losses with regard to the project as outstanding dues are quite high and there are many over budget costs, extra charges, unexpected damages and losses. In this regard certain factors that have to be considered here would involve 1. Specifying the needs of the project and the company, especially with regard to financial matters (Peurifoy, 1989) 2. Highlighting all the costs that have been incurred unexpectedly and what are the differences between expectations and reality in terms of finances and costs 3. Specifying whether the project meets company objectives and analyzing what these objectives would be. In fact having clear company objectives and keeping up to these objectives would be one of the primary factors that can define or even determine the financial situation of the company 4. Making a clear agreement with the clients so that none of the company agreements are broken and all objectives should be clearly reflected within the agreement so that the core values of the company are upheld. 5. Emphasizing on the need to cut down losses and boost profits would be essential to enhance company image and position (Peurifoy, 1989) 6. Setting out clear goals and decision making processes and structure would be essential for company long term successes. (Clough, 1972) 7. As far as the financial management of this particular project is concerned, the immediate focus should be on recovering unpaid amounts and recovering losses from unexpected charges 8. The company should also aim to bring in a balance between the payments made, the initial budgeting and costs for the project and the amount expected or due 9. For long term gain, a clear strategic and marketing goal could be specified to help the company to establish its reputation 10. Long term goals and aims of the company would also involve curbing losses and extra charges, unexpected damages and preventing all uncertain factors from affecting company budget on a project significantly as seems to have happened in this case. In conclusion, it could be stated that the company should focus on recovering all its dues on an immediate and urgent basis and focus on cutting down or preventing its damages and halting further losses. An eye on profits is emphasized and the company should focus on better deals in its future tenders, contracts and agreements preferably choosing from a wide range of projects and working on only those that will yield higher profits. References/ Bibliography CLOUGH, Richard Hudson. [1972]. Construction project management. New York, London: Wiley-Interscience, Peurifoy, R. L. 1989. Estimating construction costs / R.L. Peurifoy, G.D. Oberlender. 4th ed. New York : McGraw-Hill Schuette, Stephen D. 1994. Building construction estimating / Stephen D. Schuette, Roger W. Liska. New York ; London : McGraw-Hill,  Winch, Graham. 2002. Managing construction projects : an information processing approach / Graham M. Winch. Oxford : Blackwell Science,  Read More