CIV4041F PROFESSIONAL PRACTICE

2022

PRE-TEST Q&A

Question 1
May you kindly explain how the answer highlighted in the solution was obtained. When I
calculate it, the answer I get is:
R74 281 500*0.05*(16/12)
= R 4 952 100

Solution:
Question 2
May you please explain how to manually compute IRR. I understand IRR to be the
percentage for which NPV is zero in the formula:
6
#$
IRR= " * − 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
67& (&'()
But I am not able to manually compute it.
Solution:
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I am a CIV4041F student keen to understand what conditions Architects, Contractors or
equivalent professionals in the construction industry consider before agreeing to do work
pro-bono. Also, in reality, what do you think they stand to benefit for doing such work and
perhaps have you ever had to do such work pro-bono or perhaps know someone who has? I
am keen to hear your views on this matter.

My apologies for the delayed response. I actually answered this question to my students
yesterday in lectures: Built Environment Professionals work pro-bono or "on risk" at their own
peril and that of their professions. I stressed to my students that we spend 4 years at university
3 years as candidates in order to become professionals, and therefore our intellectual
property should be respected, and people should be prepared to pay for our services. If a
firm consistently discounts their fees or works for free, it devalues the image of the profession
for everyone.

That said, BEPs work on risk - usually only at the start of a project for the initial estimates -
depending on a variety of factors such as

• who the client is,

• how much work the firm has on its books,
• nature of the project, etc.

If it is a new client, one you or your firm are keen to work with for the first time, then you may
opt to work on risk at first. If it is a "walk in" client, one you don't know from a bar of soap, you
may want to charge for your initial work. If it is a repeat or regular client, then you know you
will be paid, so you will do work "on risk". It is a difficult call to make - if you charge, the client
may take offense and not give you the job. For me the next evil is worse: if you don't charge,
the client loses respect for your services and devalues your contribution by fighting you for
every cent of your professional fee.

If a company is going through lean times, then they will be chasing turnover to pay salaries,
so then it is unlikely they can afford to do work at risk. If a company has enough work on its'
books, then they may feel they can do work on risk without compensation.

Occasionally the nature of a project is such that it is treated as a CSR (corporate social
responsibility) project - usually a small scale project - and the firm decides not to charge the
client.

In closing, I would say that your client should always pay - as much as they can afford.

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With regard to the Potential Test Question 2 – Viable Purchase, there were certain values that were
not given in the question i.e cost of construction per m^2, the percentage for preliminaries, TAX
percentages etc. Would we have to assume these values in the test or will they be provided?
Furthermore, there were parts of the question which would we have not covered in class i.e cap
rate. Will we be required to know this know this for test?

Also, with regard to the Potential Test Question 3 – DCF, would we be required to do a bond
calculation?

Regarding your queries, herewith some guidance:

 • If this type of question was asked in a test, you would be given the necessary
documentation or variables to use for your calculations. For example, I would give
you an extract from the AECOM booklet and ask you to determine which R/m2 you
would apply to a certain type of development.
• The cap rate is not something I would ask in a test because of its' contentious nature
• Bond calculation - no, you will not be asked to do a bond calculation, however, I
hope it helps you at some point in the future.

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I have a question about the structure of the test for the economics section will we be
provided with templates to answer in, also do we need to know some of the economics
jargon that you mentioned during the lecture and is in the slides provided.

No templates are provided for this test. The question involving the DCF calculation has been
simplified and does not warrant a template to be provided.

Yes, a basic understanding of the meaning of the “jargon” will be necessary for you to
execute the questions.

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I am not sure if l am correct. I applied the Haylett formula to get the escalation then l added
the VAT at 15% and finally professional fees at 16%.

The percentages l have used for are all assumed values . Is the procedure, right ?

Yes, that is correct. Always complete the calculation beyond just working out the escalation,
I.e. inform the client what the total construction cost will be. Your % values for VAT are
obviously correct and a good “guesstimate” on fees.

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How did you calculate the production hrs for 3 years for each mobile crane? (Indicated in blue)
Operational hours of crane = Project hours x crane usage x crane efficiency

Project hours 5 688 5 688 5 688

Crane usage during
50% 50% 50%
project
Crane Efficiency 140% 150% 100%
Crane operating hours
3 982 4 266 2 844
during entire project

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What relation is there between getting the operating hours and project hours, to be able to
determine the productive hours of the crane?
This goes for the Demag AC 100 crane as well, where does the 4266 operating hours come from?

The operating hours is a red herring and relates to the current state of the machine - how
many operating hours has it done. Its a bit like asking what mileage has a car done when
you want to buy it.

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