Project budgets

The project manager is responsible for budget management for school property projects.

Overview

The board of trustees will be provided with funding for its property project from one of the Ministry’s capital funding programmes.

The budget will be an item in the project brief (see: Project briefs and files).

As the project manager, you manage the budget, which involves:

  • creating a budget for the project
  • advising the board about factors that may affect the budget, like site conditions
  • keeping the board of trustees informed of the status of the budget at all stages of the building project
  • keeping the project within budget
  • advising the board what to do if the project is going over budget
  • getting board approval and paying the project invoices.

The project budget must include all project costs, excluding GST.

These are:

  • construction costs, including prime cost and provisional sums
  • all consultants' fees
  • local council consent charges
  • a contingency sum to cover any unexpected costs during construction.

Manage estimates and provisional sums

Firm cost estimate

Work with a quantity surveyor to help create the budget for the project. A quantity surveyor trained in construction methods and costs can use the design drawings to work out the materials and labour needed and costs involved.

Many factors can affect the budget, including:

  • site conditions – for example, is there adequate access for construction vehicles?
  • site and building services – for example, can the project be connected to the existing electrical system or are new connections needed?
  • design and compliance issues – for example, will the project affect neighbouring properties?
  • construction issues – for example, are there any health risks, like asbestos or lead-based paints?

Work with the quantity surveyor to make an assessment that is as comprehensive as possible. However, some conditions cannot be foreseen. The contingency sum is set aside for this reason.

Prime cost sum

The budget may include a fixed prime cost sum for smaller costs such as hardware and light fittings. With the board, choose items as needed during the project based on this budget.

Provisional sum

The budget may include a provisional sum, which is an estimate if the cost of something is unknown. For example, the school may not have decided what type of heating it wants. But it is best to avoid provisional sums if possible. They can add expensive extras to the budget.

Note: The contract must clearly define both prime cost and provisional sums and what work they apply to. Before spending these sums, communication between all parties is essential. The project brief should set out the process for spending these sums (see: Project briefs and files).

Pay invoices

Getting an advance to pay the design consultant’s fees

If the project will cost more than $100,000, ask for board approval to apply to the Ministry for a 10% advance of the project budget to pay the design consultant. After the design phase is completed, there can be a long delay before construction starts and the board can call down Ministry funding.

We won’t advance these fees unless all of the following conditions are met.

  • The total project must cost over $100,000 of Ministry funds.
  • You must provide a scope of works and a timeline for releasing the fees.
  • The project must be in the school’s current 10 Year Property Plan (10YPP).
  • There must be an approved project budget.
  • You, the board and the Ministry must have approved the project brief, which must include performance targets (see: Project briefs and files).
  • The Ministry’s procurement process must be followed as appropriate for the type of project (see: Procurement)
  • You must use the advance on the design consultant’s fees.

If the project does not go ahead, the board must repay the advance to the Ministry.

We don’t advance designers’ fees for projects under $100,000 because they are likely to proceed more quickly.

Applying for the advance

To apply for an advance, prepare:

  • a fees release form
  • a tax invoice from the board.

The fees release form includes a declaration which must be signed by a board representative with appropriate delegation. In making the declaration, the representative is certifying that the board will:

  • undertake the project described in the application
  • repay the fees advanced if the construction does not go ahead
  • attach a tax invoice that we can use to pay the advance
  • follow the Ministry’s project management requirements for your project.

See: Project management forms

Ministry’s payment of invoices

We will pay invoices immediately if all the documentation is correct. All invoices should include the school’s:

  • terms and conditions
  • bank account details
  • unique invoice number.

During the construction period, we pay invoices up to 90% of the project’s value. We keep at least 10% as a retention sum that we only release when you meet certain requirements.

For an invoice template, see: Project management forms

Legal requirements for paying construction invoices

The Construction Contracts Act 2002 (New Zealand Legislation website) (external link) sets out fair and equitable procedures for paying construction contract invoices.

The Construction Contracts Act:

  • protects sub-contractors against inequitable payment terms and practices of anyone higher up the contractual chain
  • has quick and simple dispute resolution procedures
  • has remedies for recovering money due under construction contracts.

The Construction Contracts Act states what payments can be withheld from a contractor. The board may want to withhold a payment, for example, if the quality of work is poor. Check what you can do under the Act before taking this step.

For more details see the Consumer website (external link) .

Manage cashflow

A successful project is completed within the approved budget. To control the budget, you must control the project’s scope and schedule.

Manage the cash flow by:

  • matching payment dates to when the board will receive money from us
  • calculating how much money is needed to pay consultants and contractors
  • preparing a schedule showing when progress payments are made and the amount
  • checking payment claims are correct – that is, the work is done and to the specified standard
  • budgeting any variations against the contingency sum.

Adjust the budget

If the project looks like it is going over budget, you will need to talk to the board and the board’s Ministry advisor. Options to manage any overspend may include:

  • using uncommitted funds from board funding
  • working with the design consultants to re-scope the project, identifying ways to reduce costs
  • asking the board to review its 10 Year Property Plan (10YPP) to re-prioritise other work.

We will only increase the budget if it goes over because of something unforeseen, like finding asbestos.

Use the contingency sum

The contingency sum cannot be used on any other work until it is clear it will not be needed for unexpected costs. It cannot be used to:

  • fix poor planning
  • upgrade the project once it is accepted, such as to buy better quality products or add extra work.

We need to pre-approve the contingency sum and the board will have to account for it at the end of the project.

The board can only spend the contingency sum on the project that it’s allocated to. It must return any unspent funds, including the contingency sum, to the Ministry at the end of the project.

Receive the retention sum

We will release the 10% retention sum when we receive:

  • a copy of the Code Compliance Certificate
  • the Occupancy Use Certificate
  • the Construction Observation Certificate
  • confirmation that all outstanding requirements for the project have been met.

The retention sum can be considerable for a very large project. For example, it would be $700,000 if the value of the project was $7 million.

You can ask the board to contact the school’s Ministry property advisor to apply for a smaller retention.

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