Cash flow in construction

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Contents 1 Client cash flow 2 Supply chain cash flow 3 Find out more 3.1 Related articles on Designing Buildings Wiki

[edit] Client cash flow

The cash flow sets out when costs will be incurred and how much they will amount to during the life of the project.

Predicting cash flow is important in order to ensure that an appropriate level of funding is in place and that suitable draw-down facilities are available.

Until the main contractor has been appointed, cash flow projections are likely to be based only on agreed fee payment schedules for consultants and a simple division of the construction cost over the likely construction period (or perhaps an allocation of construction cost over an s-curve distribution). It is only when the main contractor is appointed, a master programme prepared and some form of payment schedule agreed that cash flow projections become reliable.

Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).

[edit] Supply chain cash flow

Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly.

The government suggest that, 'Historically, it is has not been unusual for lower tier supply chain members to have to wait for up to 100 days to receive payment, which damages their cash flow and can harm their business.' Ref Cabinet Office, Project Bank Accounts – Briefing document.

A number of measures can be adopted to improve payment and so cash flow in the supply chain, including:

• Fair payment practices.
• Construction supply chain payment charter.
• Project bank accounts.

In addition there are a number of remedies for late payment.

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki

• Balance sheet.
• Budget.
• Business administration.
• Cash flow forecast.
• Construction organisations and strategy.
• Construction supply chain payment charter.
• Discounting.
• Discounted cash flow.
• Earned value.
• Escalation.
• Fair payment practices.
• Investment.
• Microeconomics.
• Net Present Value.
• Profitability.
• Project bank accounts.
• Remedies for late payment.
• Retention.
• The Late Payment of Commercial Debts Regulations 2013.
• Whole life costs.
• Working capital.

Comments

What is the procedure for payment s where extras at incurred due to design change or how is this documented and agreed between parties and does it have to be agreed before the work commences is the a procedure for agreeing the terms after the work is compleatedo

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Have a look at the article about variations - hopefully that should help.

http://www.designingbuildings.co.uk/wiki/Variations_in_construction_contracts