1. Contractor’s Post-contract Cost Management Processes
(Project Cashflow Forecasting & Postcontract Cost Control)
Dr Fiona Grant
School of the Built Environment

2. Post contract cost management
The two main areas of focus
Post contract cost management
Client/Employer
Contractor
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3. Contractor’s Cashflow Forecasting Cashflow?
The movement of money IN and OUT of a business.
For a contractor, this movement of money represents his income and expenditure.
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4. Contractor’s Cashflow Forecasting
Company Level
Annual budgetary estimates/forecasts/turnover
based on:
Current projects
Probable projects
Possible projects
Anticipated tender conversions
Project Level
Project specific, based on:
Project income
Project expenditure
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5. Value of Works executed
Contractor’s project cashflow
Elements of the cashflow:
Cost
Cost is the expenditure incurred by the contractor on a project and includes all overheads and finance cost associated with the project.
Value of Works executed
Value refers to all costs plus the contractor’s margin of profit. It is the figure paid by the client following the issuing of interim and final certificates.
School of the Built Environment

6. Types of contractor’s costs
Contractor’s project cashflow
Types of costs
General overheads
Direct Costs
Indirect Costs
Labour
Types of contractor’s costs
Preliminary costs
Materials
Plant
Finance cost
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7. Value of works executed – (influencing elements)
Contractor’s project cashflow
Value of works executed – (influencing elements)
Variations
Additions
Omissions
Provisional Items
Materials on and off site
Subcontractors
Nominated
Domestic
Timing, frequency and accuracy of interim valuations.
Fluctuations
Retention & retention guarantees or bonds
Advance Mobilization Loan
Liquidated and Ascertained (L&A) damages
Period of honouring interim payment certificates
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8. Reconciling Cost and Value
Contractor’s project cashflow
Reconciling Cost and Value
Before the commencement of works the contractor would analyse the tender price in terms of:
Net cost of production
Overheads
Profit
During the course of works income and expenditure are analysed periodically (usually monthly) to determine whether projected targets are being met.
School of the Built Environment

9. Reconciling Cost and Value
Contractor’s project cashflow
Reconciling Cost and Value
after submitting a successful tender, budgets or target costs for the various elements of the project are established to help plan and execute the works. These target costs are used as yardsticks against actual costs.
involves analysing what was planned during the tendering stage of the project and comparing with what actually takes place on site in order to effect corrective measures.
main purpose therefore is to reveal how efficiently an item of work is being carried out.
involves the control of all site activities and variables in order to take the relevant action to correct or improve productivity.
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10. The process of project cashflow forecasting:
Contractor’s project cashflow
The process of project cashflow forecasting:
Break the project down into work packages
Estimate the individual costs
Allocate cost codes
Allocate target costs
Build into the system a time-related element
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11. Typical work package/cost coding system
Contractor’s project cashflow
Typical work package/cost coding system
1000
XBZ Hotel Project
1020
superstructure
beams and columns
1022
external cladding
suspended slab
placing of concrete
provision of concrete
1021
structural frame
1011
excavation
1010
substructure
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12. Cost/value reconciliation
Contractor’s project cashflow
The planning and operating phases
Planning
Operating
Authorise
&
progress
works
on site
Cost data
collection
&
recording
Cost
accounting
&
comparison
Set up
budget/cost
targets
Cost/value reconciliation
&
management
accounting
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13. Typical Contractor’s project cashflow
Planned Cashflow
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14. Planned Cashflow Curves
Contractor’s project Cashflow Curve and Saw-tooth Diagram
Gross Profit
Planned Cashflow Curves
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15. Typical site level Action Plan to manage the cost control process
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16. Typical Headoffice level Action Plan to manage the cost control process
- Projects Director’s role
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17. A situation of improper project cashflow management.
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18. Cashflow improvement through early implementation of effective intervention measures.
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19. Benefits of an effective project cashflow management process:
- helps identify the inefficient use of plant and labour, and the excessive waste of materials on site.
- acts as a basis to support claims when variations result in the works being carried in a manner other than planned for.
- it provides cost data for the future management of other projects.
- facilitates the estimating process of future project by providing valuation data base.
- enables appropriate budgets to be set for future projects.
- enables effective reappraisal of future projects to determine how they could be carried out more efficiently or which ones to tender for.
School of the Built Environment

20. Machinery & Equipment Cost
Contractor’s project cashflow management – A summary
Overheads
Monthly Valuations
Cost-Value
Reconciliation
Project Risk Factors
Machinery & Equipment Cost
Labour Costs
Claims
Bill Rates
Materials Costs
Sub-contracts
Budget Forecast
Schedule Variance
Variation Orders
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21. Recommended reading
Ashworth, A. (1999) Cost Studies of Buildings. Chapter 19
Walker I & Wilkie R (2002) Commercial Management in Construction. Chapter 5 & Appendix 1
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