Andrew Ross - Financial Management in Construction Contracting

The books companion website is at www.wiley.com/go/rossfinancialmanagement and offers invaluable resources for both students and lecturers: PowerPoint slides for lectures on each chapter Excel worksheets to practice what you learn Sample valuations and cashflows

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This edition first published 2013
2013 Andrew Ross and Peter Williams

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Library of Congress Cataloging-in-Publication Data

Ross, Andrew, 1960
Financial management in construction contracting / Andrew Ross.
p. cm.
Includes bibliographical references and index.

ISBN 978-1-4051-2506-2 (pbk.)
1. Construction industryAccounting. 2. Construction industryFinance. I. Williams, Peter. II. Title.
HF5686.B7R67 2012
624.0681dc23

2012023207

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Cover design by Sandra Heath

Andrew Ross is Head of Postgraduate Programmes in the School of the Built Environment, Liverpool John Moores University. He teaches construction project financial management to undergraduate and post graduate students and has successfully supervised many PhD students as well as acting as external examiner to numerous UK and overseas Universities for undergraduate, postgraduate and research degree courses.

Peter Williams is a Consultant and Lecturer with extensive practical experience in building, civil engineering and surveying. Formerly a chartered builder, chartered quantity surveyor and principal lecturer, he is now a writer, researcher, lecturer and consultant with particular interests in contracts and finance, delay analysis and health and safety management.

For the love of money is the root of all evil

1 Timothy 6:10
The Holy Bible: King James Version (1769)

It could be argued that the love of money (or greed) has become an endemic evil in modern society and that this cannot be better exemplified than by reference to the worst excesses of the 2008 banking crisis. Whilst there may well be ideological, religious, political and other evils in society, few would argue that those who seek to profit at the expense of others are not evil. However, it is not money itself but the love of money which is the problem and it is greed that has impacted on the standards of humanity seen in modern society.

So whats new? you might ask the world is full of scams, cons, fraud, identity theft, unfair and underhand practices and downright dishonesty, and these manifestations of the worst in human nature can be seen at all levels of society from governments to utility companies to commercial enterprises and even within families.

The construction industry is not insulated from the worst excesses of the money motive either, whether in the name of profit, tax avoidance, business survival or sheer greed. Whilst it would be a sweeping generalisation to say that construction is evil, there is no doubt that sharp practice, deception and dishonesty are features of the industry.

The question arises as to when does sharp practice become dishonesty? and when does dishonesty become fraudulent? Sharp practice is not a crime fraud is but there is certainly a grey area regarding dishonesty. Dishonesty may have some moral justification (e.g. stealing from the rich to give to the poor) and there may well be degrees of dishonesty that fall short of a criminal act, but behaviour that is knowingly dishonest may not pass the test of what is expected of a reasonable and honest person in a court of law.

Deception? Well, thats another question! This is the act of deceiving someone with a view to mislead, distort or falsify and may involve equivocation, concealment of the truth, exaggeration of facts or figures, understatement of the true situation or plain telling lies and may or may not lead to a crime.

Sharp practice and deception short of the criminal might well be called questionable practice and there is no doubt that the construction industry is no stranger to either. Examples of questionable practice are not difficult to find. Some clients (and their professional advisers) are familiar with the art of deception and this can be seen in the way that their projects are tendered and documented. Main contractors are frequently accused of subbie-bashing often, but not always, with justification. On the other hand, subcontractors are not averse to making a fast buck when the opportunity arises and there have been several well documented cases of corrupt practices in the materials supply side of the industry.

The worst examples of questionable practice in the industry might nevertheless attract the soubriquet of crime, not in a legal sense, but in terms of a crime against the industry. This might happen where the greed of a main contractor squeezes a subcontractor to the point of insolvency or where a small businessman loses his home when a bank calls in an overdraft at the precise time when financial support is most needed. As a consequence, the industry loses skills that will be gone forever and the rare gift of entrepreneurship is lost, never to be replaced.

It would be disappointing, however, if the reader went away with the idea that the construction industry was a den of iniquity it is merely a microcosm of society. Exciting, challenging, rewarding, risky, insular and reactionary are all adjectives that could be used to describe an industry that is capable of breathtaking triumphs of architectural and engineering genius delivered by resourceful and talented people. Latham (1993), however, highlighted the fly in the ointment the mistrust that exists in the construction industry, especially when it comes to payment. It is this mistrust that conditions the relationships between all participants in the construction supply chain and influences peoples behaviour.