ASSIGNMENT 4

Assignment 4

1. (A) Why is it important for the contractor to receive regular payments throughout the duration of the contract?

Ans. Since, the contractor is involved with the various parties including sub-contractors etc, hence he needed the payments time after time to circulate the money to the sub-contractors and other parties those are working on the behalf of the contractor. Moreover, since construction business involves huge amount money which cannot be financed from the pocket of the contractor throughout the construction, and cannot assumes the huge risk in terms assuming the whole cost of the project at his own (Ndekugri & Rycroft, 2002).

The regular payments which will be received by the contractor during the construction period will be circulated among his suppliers to get the work done on time. So, if the payments are delayed contractor might stop the work and thus resulting in the delay of the completion of the particular project. so it is clear now that, contractor require the payments throughout the project so as to smoothly run and complete the project by paying the partial payments to the sub-contractor, and other parties involved with the contractor (Oyegoke et.al, 2009).

b) Describe two methods of valuing works for this project?

Methods of valuation are important for the client point of view, as this issue has to be faced by the client throughout the construction of the particular project (Feng and Jiang, 2001). The importance of method valuation can be better interpreted by analysing the factors relating to the cash flow from the project, project variations, risk management, and the client control. Valuation could be according to the type of the contract signed by the client and contractor, however, the two basic methods of project valuation include:

Valuation based on Fixed price

Valuation based on Reimbursable price

First method include variety of techniques which can be used for the valuation of the work, these includes schedule of rates (measurement), bill of quantities (measurement), and the lump sum amount which is usually fixed.

The other method includes the valuation on the basis of reimbursable price, i.e. sometime the contractor requires to cost the percentage of fees in addition to the cost of the project. This method include variety of techniques again such as cost plus percentage fees, cost plus fixed fee, and the cost plus fluctuating fees, which is usually charges keeping in view the inflation over the year (Qiming, 1996). Therefore, these two methods are used for the valuation of the works.

c) Describe why information from past contracts can be used for future reference and usage for ascertaining costs (allowing for inflation) for future estimates and cost planning exercises.

It's very simple; the use of historical cost will benefit the contractor next time he will bid against the particular type of the project. The information received from the past will help the contractor to better estimate the costs of different head of the construction project. Since, the project usually lasts longer period of time, and the inflation accumulates each year into the construction cost of ...