CONSTRUCTION

Construction

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

A chronic problem faced by many homeowners involves contractor payments. The League office receives calls on a regular basis from homeowners that involve advance payments to contractors who suddenly fail to reappear for work and even take extended leaves of absence from the job site. Meanwhile, the homeowner has to live with part of the house torn up and cannot get a return phone call from their contractor. Here is when the contractor has taken the homeowner's money and goes off to finish or even start another job without making arrangements with their client. This is highly unprofessional and unfortunately, it happens far too frequently (Banco, 2003, pp. 10).

Your business must satisfy the terms of the independent contractor's work agreement in addition to any bonus issued. For example, if a worker's contract specifies that she will receive $10,000 at the end of the contract period, you cannot pay her $5,000 for regular work and $5,000 for a bonus. Bonuses imply extra compensation beyond the contract agreement. If possible, create a clause in the contract of your independent workers that outlines the criteria for bonuses and how much the worker will receive (Ashworth, et.al, 2007, pp. 22).

Depending on the laws of your state, the offer or promise of a bonus to an independent contractor might be a legally binding agreement. If you agree to the terms of a bonus with your contractor, including any performance metrics or additional work necessary for the bonus, you must pay the bonus if the terms are satisfied. Your independent contractor may file a civil suit against your company if she does not receive her bonus.

b) Describe two methods of valuing works for a project.

Payback Period

The payback period calculates the length of time required to recoup the original investment. For example, if a capital budgeting projects requires an initial cash outlay of $1 million, the PB reveals how many years are required to for the cash inflows to equate to the one million dollar outflow (RICS, 1998, pp. 160). A short PB period is preferred as it indicated that the project will "pay for itself" within a smaller time frame.

Internal Rate of Return

The internal rate of return (IRR) is the discount rate that would result in a net present value of zero. Since the NPV of a project is inversely correlated with the discount rate - if the discount rate increases future cash flows become more uncertain and thus become worth less - the benchmark for IRR calculations is the actual rate used by the firm to discount after tax cash flows (Bcis, 2004, pp. 19). An IRR which is higher than the weighted average cost of capital suggests that the capital project is a profitable endeavour, and vice versa.

2. Write an architect's instruction to a contractor for the addition listed below. Assume the item has been added into the contract as an ...