Feasibility of Contract - Rus Ting Metal Stockholders Plc - Case Study Example

REPORT ON THE FEASIBILITY OF CONTRACT NO. 205 (RUS TING METAL STOCKHOLDERS PLC) ABC construction, Leeds, United Kingdom. 27th February, 2007. Timothy Dalton, General Manager, ABC construction, Leeds, United Kingdom. Dear Mr. Dalton, This report is in response to the directions on the part of the commercial department of ABC Corporation towards assessing the financial status of the project concerning the construction of offices and yards for the Rus Ting Metal Stockholders plc, Contract no. 205. as per the directions of the commercial department, I have been in the process of undertaking an assessment of the project and its progress from all possible financial aspects and have made a number of observations with regards to the financial status of the project. As per my observations, I have proposed a number of actions that could be taken by the company in the near future. The findings of my analysis are explained one by one. The project as per contract No.205 is for a total sum of 10,000,000 and has been prepared under the JCT 98 format. Initially, the company had calculated the internal budget for the project and had projected it at 9,500,000, out of which 750,000 was allocated for package contracts. the project is still ongoing and has been facing some problems of late, which will be discussed in the forthcoming paragraphs. From the existing financial records, the total cost of the project incurred by the company has so far been close to 6,750,000, out of which 6,200,000 was spent on paying the package contractors and suppliers. However, the amount that has been obtained from the client since the commencement of the project has been to the tune of only 5,850,000, which means that the company has spent an extra amount of 900,000 on this project. In fact, it can be seen that the spending of the company has been more directed towards the package contracts and has in fact been more than the income that has been obtained from this project so far. This suggests that the company has not been efficient enough in monitoring the deficit, which has resulted in an extra investment of nearly a million pounds into the project that is yet to be cleared by the client. Apart from this, I have calculated the retention ratio at 10%, which is usually deemed quite less, especially for bigger projects such as these. At present, the company owes around 300,000 to the package contractors, out of which around 100,000 meant for a contractor has become insolvent. This leaves the existing dues to the package contractors at 200,000. I would like to note here that the situation on the part of the client has not been encouraging in terms of their financial performance during the past year. The shares of Rus Ting plc have not been performing well and their value has dropped by as much as half of their value. The poor performance of the client can be further reflected by the fact that they are yet to pay their certified installment due last month. To make matters worse, bad weather over the past few months has been constantly hampering the smooth flow of work at the construction site. The major concern of the company at the present moment is with regards to the time of completion of the project. By taking various factors into account, it has been estimated that the project would be completed three weeks behind schedule. Under such a situation, the company would have to pay up to 90,000 under Liquidated and ascertained damages to the client. Thus, it can be seen that apart from the outstanding costs that have been incurred by the company, another danger still looms large if no immediate steps are taken to bring about a change in the company's strategy and practices. Apart from these problems that the project is facing at the moment, there have been various other problems that have been hampering the progress of the project from time to time. From my analysis it has come to my notice that in addition to the mishap involving an employee of a package contractor, there was a major strike by the professional league of the plumber, which put related works behind by as much as two weeks. I have also calculated that as of now, the company owes an additional 250,000 to package contractors for uncertified work that had been going on until the preceding week. I would also like to note in this aspect that there have also bee some instances where mistakes have been committed by the package contractors, due to which delays and financial losses have been occurring on a regular basis. In this regard, I propose a few suggestions that would prove beneficial for the company with regards to the current project under discussion. The most important aspect that I wish to point out in this regard is with respect to the current spending on the package contracts. From the figures obtained, it can bee seen that around 75% of the total project is meant to be allocated to the package contractors. However, as on today, it seems that the total amount of work handled by the package contractors as on today is nearly 99%. Therefore, this suggests that such an overwhelming involvement of package contractors needs to be cut down. The next major action that is being suggested has got to do with the completion of the project. As has been pointed out above, the company stands to lose a lot of money if the project is not completed on time. Therefore, It I suggested that the company make special efforts towards ensuring that proper analysis is done on the areas that need to be completed so that they may be done within the requisite time frame. This would help the company in determining the left over areas, which can be dealt with accordingly. Such an effort would not only help cut down the costs that are being incurred at the moment, but would in fact ensure that the company does not have to end up paying any kind of damages. It is sincerely recommended that the company keep track of the costs incurred and to ensure that they are close to the financial inflows from the client in order to ensure that the difference between the two is always under check. As the project completion deadline is quite near and as the weather conditions have been quite unsupportive during the past few months, it is strongly suggested that additional facilities be provided to the workmen (such as better water proof clothing, etc) so that the pace of work is unhampered to the maximum extent possible. This will also help avoid unnecessary accidents at the site, which can go a long way into ensuring that this project can be completed on time. Another major area that needs special attention is related to events such as strikes, which is left unattended to, can cause great damage to the interests of the project and the company. In order to overcome such potential threats in the future, it is suggested that package contractor be made to pay penalties under such instances. This will ensure that during such periods, procuring labor would not be a problem, the burden would be on the package contractor and the losses would not have to be borne by the company. Additionally, the staff of the package contractors have been found wanting for good quality on numerous occasions. These have been impacting the reputation of the company both financially as well as in terms of quality of service. As such, It is highly recommended that contractors who have not being providing quality work are made responsible for their acts by way of fines. This will help ensure that greater care is taken by the contractors as well, which will in turn help provide good quality to the customer. The final point with regards to the recommendation is directed towards choosing the right client for providing service. Prior to taking up an contract, it is suggested that the company conduct a detailed study on the performance of the company so that in the future, there are no problems of any kind for the company. The various factors that are thought to be having a major influence on the project under study are as shown in the table below: //table to be added Read More