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————————————————- ————————————————- TABLE OF CONTENTSPAGE 1 STANDARD OPERATING PROCEDURES (SOP)2 1. 1 Introduction2 2 ROLE OF THE CONTRACT ADMINISTRATOR3 2. 1 Role and Responsibilities of the Contract Administrator3 3 PAYMENT PROCESS4 3. 1 AS 4000 – 19974 3. 2 JCC –C 19945 3. 3 AS 2124 – 19975 4 THE PROCESS OF CASH FLOW IN THE CONSTRUCTION INDUSTRY6 4. 1 The meaning of Cash Flow 6 4. 2 Cash Flow Concept6-7 4. 3 S Curve cash Flow model8 5. SECURITY8 5. 1 Cash Retention8-9 6. INTERCONNECTION RELATIONSHIP BETWEEN CASH FLOW/PROGRESS PAYMENT/SECURITY9 6. Discussion and Diagram between Cash Flow/Progress Payment/Security9-10 7. CONCLUSION 10 8. REFERENCE11-12 9. APPENDIXES 13 9. 1 Appendix A13-14 9. 2 Appendix B15 1. STANDARD OPERATING PROCEDURES (SOP) 1. 1 Introduction A construction [company] is focusing on becoming a mid -tier commercial building producer in Victoria. The Company has recently employed a contract administrator to prepare and develop standard operating procedures (SOP). The standard operating procedures will be a document that outlines the business practices that are approved by the company board and administered by the contract administrators.

It will intend to be used as a reference manual by administrators, and other management staffs that have budgetary/financial responsibilities. Its purpose is to provide an efficient cost control and accountability system that will help assure appropriate use of financials funds. This report has been prepared to provide general information about the role and responsibilities of a contract administrator in a construction [company] and will detail the function of the (CA) and the [company’s] cost controls system concerning: 1 Role of the contract administrator Payments process (progress claim/progress certificates/progress payments) 3 Detail of cash flow process( cash management) 4 Security (bank guarantee and cash retention) and 5 Interconnection relationship between cash flow, progress payment and security All five areas must be managed successfully by the contract administrator, in the contract is to be a success. In addition, good preparation and the right contract are essential foundations for good contract process management. 2. ROLE OF THE CONTRACT ADMINISTRATOR 2. Role and Responsibilities of the Contract Administrator The role of contract administrator is a vital component in a construction contract. The contract administrator acts as the representative of the employer. Therefore, placing the contract administrator in a role of the employer’s representative places him/her in a decision-making position. The contract administrator will be responsible for managing and negotiating the contract terms and conditions such as: the Initial tendering process, original budgets, purchase orders, committed contracts and payment processes.

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From the company’s perspectives, overall responsibility for contract administration will rests with the contract administrator. For instance, contract administration will likely to include negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing any changes that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creating, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk. 3. PAYMENT PROCESS

Payment process consists of different claims which include progress claims, progress certificates and progress payment which are discussed below. Like all other standard form of contracts the building and construction industry contains provisions for full progress claims and progress payments to be made to the contractor under the contract, for executing the client’s construction projects. Therefore, payment process claims cannot be reduced to an assembly line check list to be followed in automaton fashion and nothing in this report concerning the standard form contracts should be interpreted in that fashion.

There is no magic bullet. With this caution in maid I will turn to consider some standard form of contracts and how they each deal with payment process claims. I will look at some of the standard form of contracts in the building and construction industry including: 1- AS 4000 – 1997 2- JCC – C 1994 3- AS 2124 – 1992 3. 1 AS 4000 – 1997 AS 4000 released in August 1997, has a useful and detailed information regarding sections of progress claims, certificates and final payment claims.

Between them therefore sub clauses 37. 1, 37. 2 and 37. 4 attempt to impose a requirement that there be notice given of all claims whatsoever in connection with the subject matter of the contract at all times. For example, in AS 4000 – 1997 sub clauses 37. 1, 37. 2 and 37. 4 provide: | Prior to final payment claim| Certificates| At final payment claim| Claims in item 28| 37. 1| 37. 2| 37. 4| “37. 1 Progress Claims. The contractor shall claim payment progressively in accordance with item 28.

Each progress claim shall be given in writing to the superintendent and shall include details of the value of WUC done and may include details of other money then due to the contractor pursuant to provisions of the contract. …….. ” 37. 2 Certificates. The superintendent shall, within 14 days after receiving such a progress claim, that fully complies with sub clause 37. 1……….. ” 37. 4 Final payment claim and certificates. Within 28 days after the expiry of the last defects liability period, the contractor shall give the superintendent a written final payment claim endorsed “final payment claim”…. 3. 2 JCC- C1994 The JCC contracts have also been through a series of revisions and are now part of a suite of contracts. They use the language of Architects, Builders and Administrator to describe the three main roles in the contract. Claims in the JCC-C do not contain a general notification clause such as that contained AS4000 and AS2124. Some of these are claims for extra monies and some simply serve an administrative purpose. For example in the JCC-C, the requirement to give notice of claims in a proper, timely, manner is designed o ensure the efficient administration of the contract. There is a series of cases that have held that the requirements as to notice of claims are to be strictly applied both as to proper form and time. Notices that may need to consider include:- Section| Description| Time for Giving Notice| 10. 01 Progress Claim “Once each month and on the date as stated in item K1” 11. 02 Final Claim Within 15 days of the last of the 7 Events listed in section 11. 02. 3. AS 2124 – 1997 Clause 42. 1 payment claims, certificates, calculations and time for payment, of the general conditions of contract details the process for allowing payment for work physically completed. The contractor is required to submit details supporting its claim for payment. In most standard form contracts in the construction and building industry, the contract administrator is required to assess those progress claims by reference to the degree of completeness and the quality of the materials and workmanship. For example in AS 2124 – 1997 provides: 28 days maximum 4 days maximum An example of a progress claim and progress certificate (clause 42. 1) is included in appendix A and B). 4. THE PROCESS OF CASH FLOW IN THE CONSTRUCTION INDUSTRY 4. 1 The Meaning of Cash Flow Construction cash flow is view in two different ways in construction management literature. The first view defines cash flow as the net receipt or net payments resulting from receipts and payments occurring in the same interest period. Algebraically, this definition is expressed as: cash flow = receipts minus payments. The second view defines cash flow as the actual ovement of money in and out of a business. Therefore, cash flow is one of the most important elements in the construction industry. It is also one of the most fundamental elements and yet the most challenging task in management for contract administrators to survive in the industry. “Cash flow is the life blood,” they say and in this economy, cash has gained even more importance, especially in the building and construction industry. Without a proper cash management, this will definitely cause problem to a construction project and within the construction company itself. . 2 Cash Flow Concept There are models available for cash flow management and forecasting and these could be used as a starting point for contract administrators in rethinking their cash flow management practices. The view expressed by the second thought is adopted in this report and it is conceptualized as shown in Figure 1. According to this thought, on a construction project, the net cash flow will require funding by the contractor when there is a cash deficit and where cash is in surplus the contract is self-financing.

The positive cash flow is referred to variously in literature as earnings, income, value, receipts or cash in. The negative cash flow is also referred to variously as liability, expenditure, payments, cost committed or cash out. 4. 3 S Curve Cash Flow Model Building and construction companies have long used one or more forms of cash flow management made to their own needs. However, the systematic and scientific approaches are relatively new. The vast majority of project cash flow models are based on the use of ‘S’ curves to forecast project expenditure flow.

Initially, and for a long period, the forecast has consisted of the identification of production quantities, their multiplication by the estimated unit cost and their allocation to their respective time interval, based on a predetermined schedule. The concepts of the earned value method and performances measurement method are illustrated in Figure 2. 5. SECURITY 5. 1 Cash Retention Security, traditionally, is provides by cash retention. The principal may deduct retention moneys from moneys otherwise due to the contractor as stated in Item 18B of the annexure, of the general conditions of contract.

This retention funds is also useful at the end of the job to ensure that making good of defects is carried out. Retention moneys and retention security are subject to the provisions of clause 5 security and retention moneys, of the general conditions of contract, for the purpose of ensuring the due and proper performance of the contract by the contractor (including, but not limited to, the satisfaction of any debts due from the contractor to the principal and any claims which the principal may have against the contractor); and satisfying claims of charge as provided in clause 5. notice of claim of charge received, of the General conditions of contract. Under clause 42. 3 Retention moneys, of the general conditions of contract retention moneys are withheld by the principal. 6. INTERCONECTION RELATIONSHIP BETWEEN CASH FLOW, PROGRESS PAYMENT AND SECURITY 6. 1 Discussion and Diagram between Cash Flow, Progress Payment and Security The interconnection between cash flow from progress payment and security in the building construction industry stated that:- cash flow is the monthly flow of payment funds for the achievement of progress work in accordance with the contract.

In certain circumstances (clause 44. 4, rights of the principal, of the general conditions of contract) the principal may suspend payment to the contractor. While, progress payments are the most common form of payment in construction contracts. Under this method, payment is calculated based on the work carried out by the contractor during a specified period of time (usually a month). After a month, the contractor submits an application for payment and is paid based on the work actually carried out during that time period and the conditions under the contract.

When it can to security, it is notable that clause 5. 1 and section 10. 21. 01 provides that all security, other than cash or retention moneys, shall be transferred in written documents, namely that the security has been provided on the basis that it be held until the conditions on which it was provided have been satisfied. Generally speaking, any portion of the security which is cash or retention moneys shall be held in trust for the party providing it until the principal or the contractor is entitled to receive them.

The diagram below shows the interconnection between of payment process, security and cash flow under the general condition of contract. 7- CONCLUSION In conclusion, from my point of view the overall responsibility for contract administration rests with the contract administrator. Therefore, contract administration, which is the formal governance of the contract, involves the activities that a party to a contract has to perform in order to meet the contract objective and to cope with the daily contractual matters until the formal closure of the contract.

It incorporates all dealings between the contracting parties and concerned stakeholders if required by the contract from the time the contract is awarded until the work has been completed, entire payment has been made, and disputes have been settled. Seeing that in my previous assignment I targeted all the points needed to be addressed, no negative feedback was given. Therefore I am addressing this assignment in the same manner. 8- REFERENCES 1- Prokscha, Susanne (2007) Practical guide to clinical data management, (2nd edition) Boca Raton, Fla. : CRC/Taylor & Francis 2- Phillip, Charles S. 999 Construction Contract Administration [electronic resources] Littleton: SME 1999 3- Phillip, Charles S. 1999 Construction Contract Administration [electronic resources] Littleton: SME 1999 4- Greg Goldfayl and David Picken (2004) Construction Contract Administration Published by Deakin University Press, Geelong Victoria, 3217 Australia 5- Australian Standards (1997) General Conditions of Contract (AS4000-1997) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 6- Australian Standards (1997) General Conditions of Contract (AS4000-1997) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 – Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia 8- JCC-C 1994 Building WorkContract- With Quantities Published by Royal Australian Institute of Architects; Master Builders Australia 9- Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia 10- Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 11- Oxley, R. and Poskitt, J. 1996) Management techniques applied to the construction industry, 5th Edition. Blackwell Science, London 12- Department of Industry, Technology and Commerce, Cash Flow – Cash Management C. J. Thompson, Commonwealth Government Printer, Canberra 13- Cooke, B. and Jepson, W. B. (1986) Cost and Financial Control for Construction Firms. London: Macmillan Educational Ltd 14- Dawnays Ltd v FG Minter [1971] 2 All ER 1389, cited with approval in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195, at 214 (HL) Lord Diplock 15- Cooke, B. and Jepson, W. B. (1986) Cost and Financial Control for Construction Firms.

London: Macmillan Educational Ltd 16- Mawdesley, M. , Askew, W. and O’Reilly, M. (1997) Planning and Controlling Construction Projects: The Best Laid Plans… Addison Wesley Longman and the Chartered Institute of Building, Essex. 17- Peer, S. (1982) Application of cost flow forecasting models. Journal of the Construction Division ASCE, 108, (CO2) 18- Singh, S. and Woon, P. W. (1984) Cash Flow Trends for High Rise Building Projects. In organising and managing construction, in Proceedings of the 4th International Symposium on Organisation and Management of Construction, University of Waterloo, Canada 9- Kaka, A. P. and Price, A. D. F. (1993) Modelling standard cost commitment curves for contractors’ cash flow forecasting. Construction Management and Economics 20- Marcus S. Jacobs 2007 Security of Payments in the Australian Building and Construction Industry,(2nd edition) Thomson Law book Co 21- Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia 22- Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 3- Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia 24- Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 25- JCC-C 1994 Building Work Contract- With Quantities Published by Royal Australian Institute of Architects; Master Builders Australia ——————————————– [ 1 ]. Prokscha, Susanne (2007) Practical guide to clinical data management, (2nd edition) Boca Raton, Fla. CRC/Taylor & Francis [ 2 ]. Phillip, Charles S. 1999 Construction Contract Administration [electronic resources] Littleton: SME 1999 [ 3 ]. Phillip, Charles S. 1999 Construction Contract Administration [electronic resources] Littleton: SME 1999 [ 4 ]. Greg Goldfayl and David Picken (2004) Construction Contract Administration Published by Deakin University Press, Geelong Victoria, 3217 Australia [ 5 ]. Australian Standards (1997) General Conditions of Contract (AS4000-1997) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 [ 6 ].

Australian Standards (1997) General Conditions of Contract (AS4000-1997) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 [ 7 ]. Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia [ 8 ]. JCC-C 1994 Building WorkContract- With Quantities Published by Royal Australian Institute of Architects; Master Builders Australia [ 9 ]. Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia [ 10 ].

Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 [ 11 ]. Oxley, R. and Poskitt, J. (1996) Management techniques applied to the construction industry, 5th Edition. Blackwell Science, London [ 12 ]. Department of Industry, Technology and Commerce, Cash Flow – Cash Management C. J. Thompson, Commonwealth Government Printer, Canberra [ 13 ]. Cooke, B. and Jepson, W. B. (1986) Cost and Financial Control for Construction Firms. London: Macmillan Educational Ltd [ 14 ].

Dawnays Ltd v FG Minter [1971] 2 All ER 1389, cited with approval in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195, at 214 (HL) Lord Diplock [ 15 ]. Cooke, B. and Jepson, W. B. (1986) Cost and Financial Control for Construction Firms. London: Macmillan Educational Ltd [ 16 ]. Mawdesley, M. , Askew, W. and O’Reilly, M. (1997) Planning and Controlling Construction Projects: The Best Laid Plans… Addison Wesley Longman and The Chartered Institute of Building, Essex. [ 17 ]. Singh, S. and Woon, P. W. (1984) Cash Flow Trends for High Rise Building Projects.

In organising and managing construction, in Proceedings of the 4th International Symposium on Organisation and Management of Construction, University of Waterloo, Canada [ 18 ]. Kaka, A. P. and Price, A. D. F. (1993) Modelling standard cost commitment curves for contractors’ cash flow forecasting. Construction Management and Economics [ 19 ]. Marcus S. Jacobs 2007 Security of Payments in the Australian Building and Construction Industry,(2nd edition) Thomson Law book Co [ 20 ]. Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia [ 21 ].

Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 [ 22 ]. Greg Goldfayl Construction Contract Administration (1999) Published by Deakin University Press, Geelong Victoria, 3217 Australia [ 23 ]. Australian Standards (1992) General Conditions of Contract (AS2124-1992) Published by Standards Australia 1 The Crescent, Homebush, NSW 2140 [ 24 ]. JCC-C 1994 Building Work Contract- With Quantities Published by Royal Australian Institute of Architects; Master Builders Australia

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