LEEDS METROPOLITAN UNIVERSITY SCHOOL OF THE BUILT ENVIRONMENT EXAMINATION MODULE: ADVANCED COMMERCIAL MANAGEMENT LEVEL 3 EXAMINER: SAM

ZULU DURATION: 3 HOURS 15 MINUTES NOTES FOR CANDIDATES: a) ANSWER ANY FOUR QUESTIONS. b) THE MARKS ALLOCATED FOR EACH FULL OR PART QUESTION ARE INDICATED ON THE TEXT. c) TIME ALLOWED 3 HOURS PLUS 15 MINUTES READING TIME. DURING THIS TIME CANDIDATES ARE ALLOWED TO READ THE EXAMINATION SCRIPT BUT NOT WRITE d) THE TABLES IN THE APPENDIX HAVE BEEN PROVIDED TO BE USED WHEN ANSWERING QUESTION 2 AND QUESTION 5 e) NO MATERIAL OR NOTES OF ANY KIND WILL BE PERMITTED IN THE EXAMINATION JANUARY 2007

QUESTION 1 Table 1 below shows a contractors project budget and profit distribution for a newly awarded contract. The conditions of contract allow interim measurements to be made monthly and payment of the amount certified less 5% retention to be paid to the contractor one month later. Half the retention is included in the final certificate on practical completion and the other half is released six months after practical completion. Table 1: Project Budget
Month No. Value of work in each month Profit (10% of value) 1 60000 10% 2 9000 0 10% 3 20000 0 10% 4 25000 0 10% 5 21000 0 10% 6 12000 0 10% 7 11000 0 10% 8 110000 10%

(i) Determine the monthly net cash flow assuming 20% of the cost is paid in the month in which it occurs and 80% is paid in the following month. (15 marks) (ii) Determine the impact that front-end loading would have on the contractors cash flow if the overall mark-up of 10% is unbalanced by applying 20% to the first 50% of the contract value and 0% to the rest. (10 marks) QUESTION 2 (i) A client has two alternative schemes to improve his plant. Scheme A involves a complete modernisation now of a plant which will cost 9 million. Annual operation and maintenance charges will amount to 455000 per year. Scheme B would involve investing 5 million now and the remainder of the work carried out in 10 years time at a cost of 4.7 million. In this alternative case annual operating and maintenance charges will be 400000 per year for the first 11 years and 450000 per year thereafter. Using the annual equivalent method, advise the client which scheme should be selected. Justify your answer. Assume an annual interest rate of 12% and an assert life of 60 years for both schemes. (10 marks) (ii) Would the same scheme be selected if the present value method was used in the assessment? Justify your answer. (10 marks) (iii) Briefly discuss the advantages and disadvantages of the traditional methods of economic assessment (5 marks)

QUESTION 3 Tradition procurement in construction poses significant barriers to supply chain management. Discuss this statement giving examples of how traditional procurement in the construction industry hinders effective supply chain management. (25 marks)

QUESTION 4 (i) You have been approached to help a client select a suitable Design and Build contractor for a multi-million pound project. Advise the client how you would go about selecting a suitable contractor. (18 marks) (ii) Discuss the advantages and disadvantages of a contractor selection criterion that is based on price. (7 marks) QUESTION 5 (i) It is proposed to construct a 10km ring road to ease the congestion on a busy town centre road. The ring road will have the benefits of improving safety and saving the time of users. It is expected that construction of the ring road will cost 13 million and will involve an additional operating cost of 210000 per annum. It is estimated that each of the 420 vehicles making daily use of the road will save approximately 10 minutes at an estimated cost saving of 12 per hour. Studies show that the congestion occurs on approximately 262 days in the year. It is expected that safety provisions on the bypass will result in an average of 4 less accidents per day. The estimated cost of each accident is 1000. Using cost-benefit analysis, a discount rate of 9% and an asset life of 40 years, determine whether the ring road should be constructed. (20 marks) (ii) Briefly discuss the advantages and disadvantages of Cost Benefit Analysis as an economic assessment method. (5 marks) QUESTION 6 (i) What is the relationship between the following o Insolvency o Bankruptcy o Liquidation o Receivership (ii) JCT 2005 contains provisions dealing with either the insolvency of the contractor or the employer. Discuss the consequences and the actions each party needs to take, in the event that the other party becomes insolvent. (18 marks) (7 marks)

Appendix Interest Tables

Extract from Pilcher R, (1992), Principles of Construction Management, McGraw-Hill

Extract from Pilcher R, (1992), Principles of Construction Management, McGraw-Hill

Extract from Pilcher R, (1992), Principles of Construction Management, McGraw-Hill

Extract from Pilcher R, (1992), Principles of Construction Management, McGraw-Hill

Extract from Pilcher R, (1992), Principles of Construction Management, McGraw-Hill