Construction Process

Cash flow management

Cash flow is the movement of money into (receipts) and out of (payments) a project over time. Cash flow management is the planning, monitoring and control of these flows, so that enough money is available when payments fall due. A project may be profitable on paper but fail if there is no cash at the right time.

Preparation of a cash flow forecast

1. Prepare the work programme (bar chart) and the cost of each activity (from the BOQ and rate analysis).
2. Spread the cost of each activity over its duration, month by month, to obtain the monthly expenditure (outflow); add overheads.
3. Add the contractor's profit and overhead to get the billing value for each month.
4. Apply the payment terms: certification and payment lag (for example, one month), mobilisation advance and its recovery, retention (for example, 5%) and its release.
5. Get the monthly inflow and the net cash flow = inflow - outflow; find the cumulative net cash flow.
6. Plot the cumulative outflow and inflow (S-curves); the maximum negative cumulative value is the peak financing requirement.

Example

Cost of work Rs 10 million over 5 months; contractor adds 10% profit and overhead, so the contract value is Rs 11 million. The client pays 95% of each bill one month later; 5% retention is released in month 7.

The contractor must arrange about Rs 2.87 million (peak deficit, end of month 3) from its own funds or an overdraft. The final profit is Rs 1.0 million.

Importance

• Shows when and how much money is needed, so finance and bank loans are arranged in time.
• Prevents shortage of cash for labour, materials and subcontractors, so work is not delayed.
• Helps to find the cost of financing (interest) and to include it in the bid.
• Helps to negotiate the payment terms, advance, and retention.
• Lets management compare actual and planned cash and take early action.
• Supports the decisions on when to purchase, rent or buy, and on the profit.
• For the client, it shows the budget needs over the project period.

Balance sheet

A balance sheet is a statement of the financial position of a firm on a given date. It shows assets (what the firm owns), liabilities (what it owes) and the owner's equity, and always balances: Assets = Liabilities + Equity.

Functions: shows the financial strength and liquidity (current assets/current liabilities); helps in judging solvency and borrowing capacity (used in pre-qualification); shows how funds were raised and used; and is a basis for tax and investor decisions.

Profit and loss account

It summarises the revenue and expenses of a firm for a period (usually one year) and shows the net profit or loss.

Functions: shows how profitable the business is; helps to control costs by comparing items with budget and previous years; provides the basis for tax and dividends; and helps to decide on pricing and bidding rates.

The balance sheet shows the position at a date, whereas the profit and loss account shows the performance over a period; the two are linked since the net profit is added to the reserves.

A job (site) layout plan shows the arrangement of the temporary facilities, access, stores and working areas on the site of a multi-storey building so that work is efficient, safe and without double handling. Assumed: a G+6 RCC building on a plot with a road on the south side.

 North
 +-----------------------------------------------+
 | Labour   Toilet  Water   |  Bar bending     |
 | camp     block   tank    |  yard + steel    |
 |                          |  store           |
 |--------------------------+------------------|
 | Aggregate | Cement  | Batching |  Formwork  |
 | & sand    | store   | & mixer  |  / carpentry|
 | bins      | (shed)  | plant    |  yard      |
 |-----------+---------+----------+------------|
 |            [ BUILDING UNDER                  |
 |       Tower crane   CONSTRUCTION ]  Hoist    |
 |-----------------------------------------------|
 | Site office  Parking   Security   Fire point  |
 +--------------[ GATE ]-----------------------+
 South                  Access road

Features

1. Boundary, hoarding and gate with a security cabin; separate entry and exit routes for vehicles.
2. Site office near the gate, with engineer's room, meeting room, and drawing store.
3. Stores: cement store in a dry shed; steel yard; store for tools, fittings.
4. Material stacks: sand, aggregate and bricks close to the mixer, within the reach of the crane/hoist, and with access for trucks.
5. Batching or mixing plant / concrete pump location with a water supply.
6. Vertical transport: tower crane or hoist placed near the building to cover the entire floor plan, with a base foundation.
7. Fabrication yards: for bar bending and carpentry (formwork), near the building.
8. Labour camp, toilets and canteen away from the working area; drinking water and first aid.
9. Utilities: temporary power (generator, distribution board), water tank and drainage.
10. Safety: fire extinguishers, signs, barricades, lighting, and covered walkways.
11. Parking and unloading space inside the site for trucks.

The layout should minimise handling distance, maintain a smooth flow of materials from the gate to the point of use, and leave space for later phases (finishing materials, and scaffolding).

A material handling system is the planned set of methods, equipment and labour used to move, store, protect and control construction materials from the point of delivery to the point of use on site, with minimum cost, delay, damage and wastage.

Typical elements: manual carrying, wheelbarrows and trolleys, forklifts, cranes and hoists, tower cranes, conveyors, concrete pumps and transit mixers, chutes, and storage yards or stores.

Usefulness in construction

• Saves cost: material handling is 30–50% of the cost of many items; a good system reduces labour and double handling.
• Saves time: materials reach the work front when needed, so activities are not delayed and the schedule is kept.
• Reduces wastage and damage: bricks, cement, glass, tiles and steel are less broken, spoiled or lost.
• Improves safety: less manual lifting reduces back injuries and accidents.
• Better productivity: workers and equipment spend more time on productive work than on searching for or carrying materials.
• Better site use: controlled stacking and short haul routes keep the site tidy and access roads free.
• Better quality: materials stored and moved correctly (cement off the floor, aggregates unmixed) keep their quality.
• Easier control: with fixed routes and stores, quantities received and issued are easy to record.

Example: a tower crane lifting rebar bundles and concrete buckets to upper floors of a multistorey building saves many labour-hours compared with carrying by hand up the staircase.

Job layout

Job layout (site layout) is the planned arrangement of temporary facilities on the site, such as the site office, stores, material stacking yards, workshops, labour camp, batching area, plant and equipment, access roads, water and power supply and the work area itself, so that construction runs efficiently and safely.

Factors to consider in site planning

1. Site features: size, shape, slope, soil, drainage, existing trees, structures and utilities.
2. Access and transport: entry and exit gates, internal haul roads, turning space for trucks, one-way movement.
3. Location of the permanent works: temporary facilities must not block excavation, future work or the structure.
4. Material flow: stores and stacks near the work point and the crane or hoist to avoid double handling; heavy and frequently used items nearest.
5. Equipment placement: cranes, mixers and batching plants placed to cover the whole building within their reach.
6. Services: water, electricity, sanitation, drainage and telephone for the site and labour camp.
7. Safety and security: fencing, a gate with watchman, fire-fighting points, safe storage of explosives and fuel, and clear routes.
8. Labour facilities: canteen, toilets, first aid, rest sheds and camp away from noise and dust.
9. Office and supervision: the site office with a good view of the works, close to the entrance.
10. Environment and neighbours: noise, dust and nuisance control, and local by-laws.
11. Weather: protection of cement and steel in monsoon, shade, wind direction.
12. Future change: space for expansion as work stages change, and the cost of shifting facilities.

 Gate -> Office | Store | Yard
           \       |      /
            Haul road ---- Crane -- Building
 Labour camp & toilets (away from work)

Need for cash flow management

Cash flow is the movement of money in (client payments) and out (labour, material, equipment, overhead). A contractor needs to manage it because:

• Expenses are paid before the client pays, so a shortage of cash can stop work.
• Payments come late (bill certification, retention, delays), so the gap must be financed.
• It shows how much working capital or bank overdraft is required and when.
• Interest on borrowing reduces profit; proper planning lowers it.
• It allows timely payment of workers, suppliers and subcontractors, so the contractor keeps its credit.
• It helps to plan the best time for bidding, purchases and mobilisation.

Typical cash flow estimate

The contractor plots cumulative income (value of work certified and paid, lagging behind the work) and cumulative expenditure (actual cost, which runs ahead). The gap between the contract value curve and the cost curve is the contractor's margin (profit and overhead). The gap between expenditure and payment received is the cash deficit.

 Rs
  |                                 ___ Contract value
  |                             ___/
  |                         ___/   } Contractor's
  |                    ____/       } margin
  |              _____/   ___ Cost (expenditure)
  |         ____/  ____--
  |     ___/ ___--  <- Payment received (lagging)
  |  __/--          
  | /  ^ most critical stage
  +----------------------------------- Time
   Start    Mid-project           End

Most critical stage

The most critical stage is the early to middle period: the contractor has spent heavily on mobilisation, materials and wages, but bills and the retention (5% in PPR practice) are not yet paid. The vertical gap between the expenditure and the payment curves is largest here, so peak borrowing is needed. A mobilisation advance and prompt running bills reduce this peak.

Assumptions: the 1000 m² public building (say 2–3 storeys, plinth about 400 m²) is built in the middle of a 190 m × 125 m plot, the road is on the 125 m (front) side, and a RCC frame is built with a mixer and a hoist or small tower crane.

Layout plan (not to scale)

            190 m
 +--------------------------------------------+
 | Labour camp   Toilets   Canteen  First aid  |
 |                                            |
 | Steel yard    Carpentry   Bar-bending      |
 |                                            |
 | Sand/Agg.     +------------+   Cement store|
 | stacks        |  BUILDING  |   Mixer/batch |
 | Brick yard    |  (1000 m2) |   Water tank  |
 |               +------------+               |
 | Parking     Fire point     Generator       |
 | Site office  Security  Test lab corner     |
 +----------[ Main gate ]--[ Material gate ]--+
                  Access road (125 m side)

Facilities provided

• Gates and roads: separate main gate and material gate; 4–5 m wide haul road in a loop around the building, one-way if possible.
• Site office near the gate with space for drawings, meetings, a store for site records and a small lab corner for cube and slump tests.
• Stores: a closed cement store (raised floor, near the mixer), a general store for tools, fittings and paint, and a steel yard with covered area.
• Stacking yards: sand, aggregate and brick on firm ground near the mixer and hoist, with drainage.
• Workshops: carpentry and shuttering yard, bar-bending yard.
• Mixer / batching plant, water tank and curing point near the building, within the crane reach.
• Labour camp, canteen, toilets and first aid on one side, away from the dust and noise.
• Services: temporary electricity with a generator, a bore or tank water supply, drainage and sewerage.
• Safety and security: boundary fence, fire extinguishers and sand buckets, a watchman, helmets and sign boards.
• Parking for visitors and vehicles, and an assembly point for emergencies.
• Space for future work: the remaining area is kept free for later finishing and landscaping.

Components of site preparation

1. Study of the site: survey, soil investigation, drawings, utilities.
2. Legal clearance and permits: building permit, boundary demarcation, neighbours' consent.
3. Clearing: removal of trees, shrubs, old structures, debris and topsoil.
4. Setting out, benchmarks and levelling.
5. Fencing and gates, signboards and security.
6. Temporary access road and drainage.
7. Temporary services: water, electricity, telephone, sanitation.
8. Site office, stores, workshops, labour camp and welfare buildings.
9. Safety arrangements: fire fighting, first aid, barricades, protection of neighbouring buildings.
10. Dewatering and shoring for the excavation, if required.

Typical arrangement for an urban site in Nepal

An urban plot is small, so facilities are compact and vertical. The building usually covers most of the plot.

 Road (front)
 +-----[Gate]-------------------+
 | Office/ Security   Cement    |
 | Material unloading  store    |
 |  +-------------------+       |
 |  |    BUILDING       | Mixer |
 |  |                   | Lift  |
 |  +-------------------+       |
 | Bar-bend / carpentry  Water  |
 | Labour shed + toilet (rear)  |
 +------------------------------+

• Material delivered just in time because of limited stacking space; sand and aggregate on the road side with permission from the municipality.
• A small office and a locked store near the gate.
• Mixer and hoist or lift near the building with a water tank.
• Labour shed and toilet in the back corner; off-site accommodation if space is not enough.
• Scaffold nets and barricades to protect the road and neighbours.
• Pedestrian-safe gate and a night light, a fire extinguisher and a first-aid box.

Site preparation is the group of works carried out before the actual construction starts so that the site is ready, safe and accessible. Its components are:

1. Site investigation: topographic survey, soil test and study of existing utilities.
2. Permits and legal work: building permit and boundary verification.
3. Site clearing: removing trees, bushes, old structures, rubbish and topsoil.
4. Setting out and levelling: marking the building lines and fixing benchmarks and levels.
5. Earthwork for site grading, filling low areas and compaction if required.
6. Fencing, gates, security and signboards.
7. Temporary access roads and drainage for vehicles and rain water.
8. Temporary utilities: water supply, electricity, sanitation and communication.
9. Temporary buildings: site office, stores, workshops, labour camp and canteen.
10. Stacking and storage areas for materials and equipment.
11. Safety and fire protection arrangements and first aid.
12. Dewatering or shoring where the water table is high or neighbours are close.

Mobilization advance is an interest-bearing (or sometimes interest-free) advance paid by the client to the contractor at the start of the contract, normally about 10–15% of the contract price in Nepal (as per the Public Procurement Regulations), against a bank guarantee. It is recovered gradually from running bills.

Effect on the contractor's cash flow:

• It gives cash in the early stage, when expenses on equipment, camp, materials and wages are highest and no bill is yet paid. The cash flow deficit at the most critical stage is reduced.
• It lowers the need for bank overdraft and so the interest cost.
• It improves the contractor's ability to buy materials in bulk and pay workers on time.
• Later, the recovery (deduction from every bill) reduces the cash received per bill, so the curve of net payments is flatter in the later stage.
• Interest charged on the advance, and the cost of the bank guarantee, are small compared with the saving in financing cost.

In short, the advance moves the cash inflow curve upward in the early period and lowers peak borrowing.

Material handling is the movement, lifting, transport, storage and protection of construction materials from the source or delivery point to the place of use, using suitable labour, methods and equipment, so that they arrive in the right quantity, at the right time and in good condition. It covers loading and unloading, transport on site, storage, issue and placing.

Objectives

• Reduce handling cost and number of handlings.
• Avoid damage, loss and wastage.
• Supply materials on time to the work front.
• Provide safe working conditions.

Factors to consider in material handling

1. Nature of the material: weight, size, shape, fragility, hazard (cement, glass, steel, cement bags, liquids).
2. Quantity and rate of use: high volume needs mechanical handling (concrete pump, conveyor); small quantity may be done by hand.
3. Distance and route: horizontal and vertical distance, slope and condition of the road.
4. Type of equipment available: cost, capacity, availability and operator skill.
5. Cost: compare equipment cost with labour cost; choose the lowest total cost.
6. Time and schedule: the delivery should match the construction programme.
7. Site layout: stores, yards and crane position near the work point to avoid double handling.
8. Storage requirements: protection from rain, sun and theft; stacking height; first-in, first-out.
9. Safety: safe lifting, slings, signals, trained operators and PPE.
10. Weather and ground condition: rain, mud, wind that affect cranes.
11. Labour availability and skill and local customs on carrying weight.
12. Wastage and quality: methods that reduce breakage, spillage and segregation.

Example: for high-rise concrete, a ready-mix transit mixer plus a concrete pump gives a faster, cheaper and less wasteful movement than carrying by buckets.