Analysis of Modification Number 5:

Standard Sub-Clause 14.3: Cash Flow Estimate to be Submitted

The Contractor shall, within the time stated in Part II of these Conditions after the date of the Letter of Acceptance, provide to the Engineer for his information a detailed cash flow estimate, in quarterly periods, of all payments to which the Contactor will be entitled under the Contract and the Contractor shall subsequently supply revised cash flow estimates at quarterly intervals, if required to do so by the Engineer.

Modifications

The modifications being introduced to Sub-Clause 14.3 can be summarized in the following table:

Modification

Selection

Criteria

Organization 1 Organization 2 Organization 3 Organization 4 Organization 5 Organization 6 Organization 7 Majority MRI = 3

(previously considered) 2 2 3 2 3 3 3

Modification Description Organizations Adoption

Delete and replace this Sub-Clause by giving full authority to the Engineer in relation to the same

X X X 3

Delete this Sub-Clause X 1

Keep the original wording of this Sub-Clause but add specific date(s) time(s) to visit the site

X X X -

From the above table, the deletion and replacement of the wording of this Sub-Clause is the most recurring modification and shall be considered for further analysis.

Modifications to be analyzed

Delete the text of sub-Clause 14.3 and substitute with the following:

The submittal of the cash flow shall be provided to the Engineer in the form as may be advised by the Engineer and upon his request. The Contractor shall supply revised cash flow estimates also upon the Engineer’s request. The resulting S

curve shall be updated to reflect the actual progress payments versus the planned progress payments.

A. Why the specific modification is being introduced?

The semi structured interview revealed that the reason behind the said modification introduction is the need to provide the Employer with enough flexibility to be able to align the project payments with the project scheduled financing scheme. The quarterly intervals depicted in the original wording of this sub-clause may not reflect sufficiently the project financial commitments. If the same was not properly handled, the Employer may be unable to fulfill his contractual financial commitments to the Contractor which would create unfavorable situation to any project.

Concerning cash flow updates, the same is essential since the Employer may need to modify/ update his original cash flow by allocating more or less money for a given month hence securing proper project financing and payment progress to the Contractor.

B. What are the implications of such modification?

During the semi structured interview, it was noted that the modification omits the requirement for the date that is set in part II which specifies the date of submittal of the first report. However, such omission should have no implications as it is replaced with a provision that gives the Engineer ample flexibility in setting his own timing and frequency of submittals.

One major advantage was recorded is that it allows the Engineer to control the timing and frequency of the cash flow submittals which is a tool that would assist in planning to ensure the needed financial requirements.

All seven participants noted that the said modification will not affect the project time frame nor the project cost.

C. What consequences of the modifications can be drawn?

Several concerns during the semi structured interview were recorded, but no major unease was recorded in relation to the same. For instance:

 The modification omits the description of a cash flow. For instance, The original clause defines what the cash flow is about “a detailed cash flow estimate, in quarterly periods, of all payments to which the Contactor will be entitled under the Contract” whereas the modified wording goes straight to using the term “cash flow” and

assumes that such terminology is known to the Contractor. The lack of definition of the cash flow may cause confusion or difference in interpretation between the parties.

 The term ‘S curve’ is also not defined. While the wording presumes that based on the norms of the industry such term is known to all, the lack of its definition leaves room for misinterpretation and confusion.

 The modification misses to identify the extent of coverage span in time of the cash flow. While the original clause specifically states “all payments to which the Contactor will be entitled under the Contract” which would include change orders and covers the whole period of the Works, the modified version does not state any period of coverage which the cash flow is to represent. It basically takes for granted that the “planned progress payments” should mean all payments but the Contractor may not necessarily understand it as such. It may very well be understood that the “planned” covers up to the end of the reporting period rather than the whole duration of the Works.

D. Any other proposition/ recommendation concerning the modifications being witnessed

One important recommendation that was provided by one organization is to modify the clause by amending it rather than replacing it. The modifications presume that the original clause is still part of the Contract, which is not the case, with several “beneficial” terms have been unnecessarily deleted, as explained above.

E. Benchmarking the Sub-Clause Modification

Bunni (2005) noted that “Sub-clause 14.3 now requires the contractor to provide a detailed cash flow estimate, in quarterly periods, of all payments to which the contractor will be entitled under the contract”. Also, the standard guide provides no different understanding from Bunni. Accordingly, the modification being introduced is not a traditional one.

F. Conclusion(s) about the Modification

As advised earlier, rather than deleting the original clause, it is recommended to supplement it with the language added in the modified clause. This way the ‘good’ part is maintained and the added language improves the existing clause by granting flexibility to the Engineer as explained above.

Proposed Modification- Guideline(s) for this sub-Clause

The Contractor shall, within XXXX days of the Letter of Acceptance, provide to the Engineer for his information a detailed cash flow estimate, in the form as may be advised by the Engineer and upon his request, of all payments to which the Contactor will be entitled under the Contract and the Contractor shall subsequently supply revised cash flow estimates when advised by the Engineer, if required to do so by the Engineer. The resulting S curve shall be updated to reflect the actual progress payments versus the planned progress payments.