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Discuss about the Commercial And Residential Interest In Real Estate.

The progressive payment methods in a construction contract

In the face of urbanization, there is an increased pace of commercial and residential interest in the real estate development. This means that the number of commercial and residential buildings in the urban centers is being dictated by the influx of people into the urban areas for one socio-economic reason or another. Due to this, as a construction managers, it is recognizable the  high alert and demand because under our watch, projects are directed, completed, and planned based on time and budget at any level of management-client agreement.  In this case, the line of tasks for the construction managers involves planning, budgeting, and supervising the construction project from the initial step, which is conception of the project, to the final steps, that is project completion.

In the construction management, there is a strategy that is used in the payment process. This strategy, as stated by Hughes, Champion & Murdoch (2015), involves a systematic procedure in a progress style of payment since under the standard contracts of building; it is usually prudent to pay the contractor progressively throughout the project with the required progress claims being submitted on a regular manner to the architect.  This means that in every stage of payment, architecture is involved that is presented with the progress claim from the contractor before the payment at that stage.

Based on this progressive nature of payments financing for the construction contractors, most construction companies avoid the construction sub-contractors because of the progress payments that are common in the construction industry. This financing process is normally complicated and risky at the same time, thus making very few companies to specialize in construction.

In a construction process, payments are made in partial manner, being made only to cover for the work that has been completed up to the point at which invoicing is done.  According to the statement of Wong, San Chan & Wadu (2016), in this case, this is done using two methods of billing progress payments; the billing stage and the invoicing stage based on the proportion of completion.

One challenge, however, of the progressiveness in payment of the construction contract is that it is often accompanied by disputes with an often disagreement between the contractor in general and their sub-contractors concerning the quality and the amount of work completed (Dewsbury, Bhat & Fourqurean, 2016).  Considering the fact that dispute resolution process may also take longer time, it becomes apparent that the disputes and resolutions involved make the financing of these invoices very difficult.

There are certain factors that influence the financing of the progressive payments in a construction management process. Apart from the specialized invoice verification processes that are used to lower the risk levels, there is every possibility that the progress payments may not be invoked if there is no direct discussion between the general contractor and the sub-contractor (Sourani & Sohail, 2015). The main factors of influence therefore involves the inspected work by the general contractor or the client, the work that has been done to the acceptable quality and standards, and the invoice will be paid in full. Therefore, the billing process of the construction contract start with the good schedule of values, establishing the rate of construction retainage, the frequency of progress payments, the establishment of the percentage of completion as well as the correct submission for payment.

The approaches to valuing construction progress

In a construction contract, it is rare to find the absence of a nor-partly finished work in progress since there are always some quantities that are unfinished and has a work in process or progress. The valuation process of the work in progress in a construction process has certain approaches that are used in valuing construction progress.  There are basically two approaches as discussed below:

The construction in progress can be valued from the perspective of the actual basis which involves determining the value of the materials that have been used on the unfinished sections as well as the value of labor that has been spent on the finished sections of the whole construction process (Dewsbury, Bhat, & Fourqurean, 2016). It therefore means that under this perspective, it is very difficult to determine the value with an accurate degree in a satisfactory manner.

There other approach involves the conversion of the partly finished sections of the construction process into the finished sections equivalence. Under this approach, the cost of the work in progress becomes equated to the cost of the finished work, thus being known as the concept of equivalent production or equivalent unit approach as shown in the illustration example below:

The cost estimation process in construction management is very unique because there are many factors that are involved. There are many factors for estimation and, thus, a number of estimation techniques follow the queue (Langford, Fellows, Hancock, & Gale, 2014).  Before determining the construction process, the costs involved in the whole project involves the capital costs and the included expenses in the initial establishment of the facility and the operational and maintenance costs in the subsequent years over the project life cycle.

The cost estimates in a construction process involves establishing the base line for project cost strategies at different stages of the project development.  Based on the available data, the cost estimations are done using the following techniques:

The production function technique:  This is a macroeconomic technique involving the use of the output and the input in the production process. Under this process, there are a number of resource inputs that are involved and an output is expected (Cummins, Graham, Thomas, & Lucey (2016). In construction process, the production function may be expressed in terms of the volume of construction and the labor or capital as the factors of production. It therefore, means, that the production function in construction that must be estimated include the material inputs, labor and equipment. The values can be set in numerical values to initiate the process of cost minimization. Thus, the size of the building construction project is determined by the input labor and the size itself.

Empirical cost inference: The other technique in cost estimation in construction management involves the empirical cost inference whereby there is need for a cost determination relating to the cost of constructing or operating a facility to a few important characteristics or attributes of the system (Myers, 2016). Therefore, the cost inference estimates the value of the parameters by assuming the cost function, normally involving the regression analysis techniques.

The estimation technique for valuing work progress and their relative merits

The BQ costs:  BQ stands for the bill of quantities that gives the platform for assigning every component of the work and quantities with the cost assigned to each of them (Barbier, 2016). The overall cost or cost in total is the product of the quantities and units cost that correspond with them.

The NZS3910 Conditions of Contract constitute rules and regulations that administer and manage civil engineering and building contracts. As a practical construction ordeal, the NZS3910 Conditions of Contract, from a practical perspective have benefits to the construction client, the consultants, and the contractors based on the management and administration of the construction contract. More than that, it assists the construction team and management to understand their obligations, expectations, and liabilities based on the terms of the general conditions of the contract into which they have entered (Burr, 2016). For complete understanding of the NZS3910 Conditions of Contract there are certain aspects of construction that are involved in the NZS3910 Conditions of Contract. Some of the include the types of the contracts, the contractor and client obligations, the role of the engineer or his/her representative, the variations and their valuations, the extension period, the disagreements,  and contract termination or sub contract termination (Raina, 2015).

The calculation of the percentages for the onsite costs as well as the overhead costs and profits or rate in a day’s working are also involved (Ross, 2017).  Through the NZS3910 Conditions of Contract knowledge, it is easier to effectively understand and utilize the management of contracts, to be familiar with the different types of contracts and the fitting process of the tender documents into the contracts, the procedure of the lodging claims, and to be able to value the existing variations as well as extension time with their implications and costs that are involved.

According to the study done by Paracchini, Correia, Loupa-Ramos, Capitani & Madeira (2016), the construction management processes are in the phase of being tailored to meet the tastes and preferences of the clients without infringing any construction standard in the process.  Also known as the New Zealand Standards of construction, the NZS3910 Conditions of Contract, has paved way for the progress of the building and civil engineering construction conditions of contract into a new level. In this new level, there are substantive changes that it has come with. Some of them involve clarification of the nature of the cost reimbursement contract, the clarification of the process of contract, simplification of the payment process, provision of the design and construct contract, as well as provision for warranty on the works among others. All the above issues make the NZS3910 Conditions of Contract to have a real meaning in the construction management process.

In accordance with the Conditions of Contract, the requirements of the Construction Contracts Act and other governing legislation, the spreadsheet attached shows the measure and value of the construction progress.

References

Barbier, E. B. (2016). The protective service of mangrove ecosystems: A review of valuation methods. Marine pollution bulletin, 109(2), 676-681.

Burr, A. (2016). Delay and disruption in construction contracts. Informa Law from Routledge.

Cummins, A., Graham, B., Thomas, K., & Lucey, T. (2016, September). The Effectiveness of Managing Through Trust the Middle Management Layer of a Construction Company: Proposed Ethnographic Research. In Proceedings of the 32nd Annual ARCOM Conference (pp. 5-7).

Dewsbury, B. M., Bhat, M., & Fourqurean, J. W. (2016). A review of seagrass economic valuations: gaps and progress in valuation approaches. Ecosystem Services, 18, 68-77.

Hughes, W., Champion, R., & Murdoch, J. (2015). Construction contracts: law and management. Routledge.

Langford, D., Fellows, R. F., Hancock, M. R., & Gale, A. W. (2014). Human resources management in construction. Routledge.

Maynard, S., James, D., & Davidson, A. (2015). Determining the value of multiple ecosystem services in terms of community wellbeing: who should be the valuing agent?. Ecological Economics, 115, 22-28.

Myers, D. (2016). Construction economics: A new approach. Routledge.

Paracchini, M. L., Correia, T. P., Loupa-Ramos, I., Capitani, C., & Madeira, L. (2016). Progress in indicators to assess agricultural landscape valuation: how and what is measured at different levels of governance. Land Use Policy, 53, 71-85.

Raina, P. (2015). An examination of the retention practice in the New Zealand construction industry (Doctoral dissertation, Auckland University of Technology).

Ross, A. (2017). Retaining Retention Money A Critical Analysis of the Retentions Regime in the Construction Contracts Amendment Act 2015.

Sourani, A., & Sohail, M. (2015). The Delphi method: Review and use in construction management research. International Journal of Construction Education and Research, 11(1), 54-76.

 Wong, J. K. W., San Chan, J. K., & Wadu, M. J. (2016). Facilitating effective green procurement in construction projects: An empirical study of the enablers. Journal of cleaner production, 135, 859-871.

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