A construction project is carried out by a general contractor with the following descriptions: Project Duration:...

A construction project is carried out by a general contractor with the following descriptions:

Project Duration: 3 months (Start: May 1st; End: July 31st)
Contract Amount: 20,713+30,081+50,630+40,978+60,886+70,089+30,500+100,165+152,181
Budget Amount: 100,936+200,081+300,685
Contract Terms and Conditions
- Materials: The construction company pays material suppliers in full when it receives payment from the owner. On the last day of each month the construction company may bill the owner for the work completed during the month. The owner pays the monthly bills one month after they are received.
- Labor: The construction company pays for labor on the 25th of each month.
- Subcontractor: The construction company pays subcontractors when it receives payment from the owner but withholds 5% from the subcontractor’s payment. Final payment will include payment of the retention.
- Between the contractor and the owner: On the last day of each month the construction company may bill the owner for the work completed during the month. The owner pays the monthly bills one month after they are received. The owner withholds 5% from the construction company's payment. Final payment will include payment of the retention.
Cost-loaded schedule and billing schedule to the owner

	Month	May	June	July
Cost-Loaded Schedule	Materials	20,713	30,081	50,630
	Labor	40,978	60,886	70,089
	Subcontractor	30,500	100,165	152,181
Bill to Owner		100,936	200,081	300,685

What is the amount of cash to maintain a positive cash flow in this project?

Expert Solution

Assumption:

1. The contracting company bills the owner on 30th of the month and the owner receives the bill on the same day and therefore makes the payment on the 30th of the next month.

The key here is the labor payment which is made on the 25th of each month and creates requirement for working capital. Primarily for first 2 months the labor payment is made by the contracting company which amounts to 101864. By 25th of the third month the company gets an additional cashflow due to billing of the first month to the tune of 46201 but that is not sufficient to meet labor payment of third month. An additional amount of 23888 is required to meet labor payment obligations.

Thus the total cash needed to maintain a positive cashflow in the project is 125752. Please refer the table for more details

	Month 1	25th of Month 2	Month 2	25th of Month 3	Month 3	Month 4
Billed amount	100936		200081		300685
Receipt from Owner			95889.2		190077	315735.9

Payment for Material	0		20713		30081	50630
Payment for Labour	40978	60886		70089		0
Payment to Subcontractor	0		28975		95156.75	158714.3

Cash Available / (Required)	(40978)	(60886)	46201	(23888)	64839	106392

jeff jeffy answered 1 year ago

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