Financial Management of Building Projects

Planning

Building projects at the University are guided by the Estates Strategy and the Capital Plan, which is updated annually. Divisions are requested by the Planning and Resource Allocation Section (PRAS) to prioritise their capital plan projects for the following year. These are then prioritised for each division by Divisional Boards, and on the basis of these divisional submissions the Strategic Capital Steering Group (SCSG) prepares a University wide plan for approval by PRAC.

Project management

All projects must follow the guidelines set out in the Standing Orders, and in the Guide to Capital Building Projects.

Section 5 of the regulations covers the financial requirements in more detail.

The full end-to-end process documented here relates to building works, those over £1m as defined in the Standing Orders or other works projects >£100k where central University funds are being sought.

All other building projects are subject to divisional approval. Please contact your Divisional Office for exact requirements.

Major building works?

Yes: Initiate project 

No: Project Proposal (finance set-up) 

1. Discuss requirement with Division and Estates Services

For each new capital building project, departmental requirements should be discussed with your Divisional Office and then the Capital Projects Team in Estates Services team ensure the work both complies with divisional strategy and is technically viable. Departments may carry out initial feasibility work, but this will not replace the need for a formal feasibility study (see below) involving Estates Services.

2. Initiate feasibility study

A Project Sponsor Group (PSG) should be formed involving representatives from the department, division and Estates Services.

The Project Manager nominated by Estates Services will, with support from the PSG, develop a project outline that forms the initial section of the Project Initiation Document (PID A).

The funding elements of the proposal are detailed on the Project Initiation Document (PID B). The costs include the cost of the feasibility study and an estimation of the costs for the full project. Part C of the PID details technical aspects of the feasibility study.

The cost of a feasibility study will depend on the level of study required – there may be no cost involved if a quick visual assessment of the proposal is deemed to be sufficient by the PSG. In which case the next stage is: Project Proposal.

3. Submit PID for approval

When the PSG is happy with the PID documents the FEA (PID B) must be signed by the Head of the Division, Head of the Department and Head of Estates Services. The Feasibility Proposal (parts A & B of the PID) may only then be submitted for approval, as per the Financial Regulations, to the Strategic Capital Steering Group (SCSG) via the SCSG Secretary.

The SCSG may recommend the proposal to the Planning & Resource Allocation Committee (PRAC) or amendments may be required in which case the document will be returned to the department.

Approval may be given by PRAC or as above, the document will be returned to the department for amendment. Approved projects will be issued with a Project Passport.

Projects not approved will be declined and the department informed with reasons for the rejection.

Note: At the discretion of the Director of Estates, feasibility projects under £10k may be paid for directly by the department and so will not require a formal FEA.

For feasibility studies costing £100k to £1m (fees only), not requiring central capital funding, and which have been agreed as part of the divisional budgeting process, the next stage is Feasibility Study.

Where such a project has not been approved as part of the divisional budgeting process, it must be approved by the Divisional Office (including the Divisional Board where appropriate) before progressing.

1. Set-up for feasibility study

Subject to the necessary FEA approvals, and before activity and expenditure can occur on a feasibility study, the project and award (funding) must be setup in Oracle Financials.

The approved Feasibility Expenditure Approval (FEA) document is sent to the Estates Finance Team who set up a new project and funding sources.

A Feasibility Team, appointed by Estates Services, carries out the feasibility study. From a financial perspective a feasibility study should cover the following:

2. Carry out feasibility study

• Options Analysis – comparing the ‘do nothing’ option with other feasible options; usually carried out by the Estates Services-appointed quantity surveyor with input from the project departmental representative
• Capital cost assessment – usually carried out by an Estates Services-appointed quantity surveyor
• Revenue cost impact – involving the Divisional Financial Controller (DFC)
• VAT & other tax issues - involving the Tax Team
• Funding (capital & revenue) – involving the Development Office and Capital Projects Accounts Team
• Legal issues – involving Legal Services
• Accounting treatment – involving the Fixed Asset Accountant
• The feasibility study will provide much of the information for the full Project Proposal.

The key deliverable from the study is a Feasibility Report, which sets out the options and includes initial cost plans.

3. Review feasibility report

The PSG and Estates Services will review the final report and make one of the following decisions:

• Continue with the project
• Decide if further study is needed – go back to: Feasibility Study
• Decide if the project should not continue – all documentation should be filed for future reference, and no further action taken in this process.

1. Prepare project proposal

The departmental representative (supported by the Project Manager, the division etc.) should prepare a full Project Proposal to seek University approval for the project to go ahead, including the estates strategy, academic (or service) strategy and finance/funding details (see 2. below).

The proposal will cover similar ground to the feasibility study report but will present the case in more detail for full review by the relevant committees:

• Options Analysis – comparing the ‘do nothing’ option with other feasible options; usually carried out by the Estates Services-appointed quantity surveyor with input from the project departmental representative
• Capital cost assessment – usually carried out by a Estates Services-appointed quantity surveyor
• Revenue cost impact – involving the Divisional Financial Controller (DFC)
• VAT & other tax issues - involving the Tax Team
• Funding (capital & revenue) – involving the Development Office and Capital Project Accountant
• Legal issues – involving Legal Services
• Accounting treatment (capitalization) – involving Fixed Asset Accountant

While the proposal should cover the entire project, it is possible to seek approval for a defined stage of the project e.g. planning application rather than the full project. Approval for further stages may be conditional upon e.g. fundraising success or planning approval.

2. Complete funding/financial case

The financial/funding elements of the Project Proposal comprise various elements:

• Finance Case (Finance Report) – to be approved by the Divisional Financial Controller, detailing the ongoing budgetary implications and recurrent finances, e.g. ongoing maintenance costs.
• Funding evidence, such as letters of funding confirmation from external contributors.
• The Project Expenditure Approval Form (PEA) document which must be completed by the departmental representative, and signed off by the Head of Department, Head of Division, Estates Services and any other parties contributing funding.
• The Project VAT Review Form (PVR )(part of the PEA), completed by the departmental representative, which is used by the VAT team to provide VAT advice, informing the decision that also needs to be taken about whether to use Oxford University Fixed Asset Limited (OUFAL) to manage the project. (Note: OUFAL is a wholly owned subsidiary of OU, and undertakes design and build activities).
• The final part of the PEA is the Capitalisation Sign off Form, which details the way in which the funding is to be accounted (signed by the University Fixed Asset Accountant).

If fundraising is to be undertaken for any project >£1m in value, preliminary approval must be sought from PRAC and Council (the project proposal also has a signoff for the Director of Development to confirm the Development Office is aware of and supports any fundraising requirement).

3. Submit PID for approval

When the PSG is happy with the project proposal it must be submitted for approval, along with the authorised PEA, to the SCSG via the SCSG Secretary.

The SCSG may recommend the proposal to the Planning & Resource Allocation Committee (PRAC) or amendments may be required in which case the document will be returned to the department.

Approval may be given by PRAC or as above, the document will be returned to the department for amendment.

Projects over £1m must be reported to Council, whilst projects over £4m must be submitted to and approved by Council.

Projects not approved will be declined and the department informed with reasons for the rejection.

4. Finance set-up

As with feasibility studies, subject to the necessary approvals, and before activity and spend can occur on the project, the project and Agreement (funding) must be setup in Oracle Financials.

The authorised PEA is sent to the Estates Services Finance Team who set up a new project and relevant funding. 

1. Contracts - tender process

The tender process is the means by which the University appoints suppliers (see Standing Orders). Formal contracts will be drawn up by Estates Services between the selected supplier and the University. VAT certificates will be issued by Estates Services to suppliers as required. All tenders in excess of £500k need to have a supplier credit check undertaken by the Fixed Asset team.

2. Requisitions / purchase orders

Once the tender process is completed, Purchase Requisitions are raised in line with the Purchase to pay process. The Estates Services Finance Team generates Purchase Orders for each supplier. Where covered by a contract, these should generally be raised for the full contract value. Note: Purchase Orders for costs covered by a contract are not physically sent to the suppliers as the formal contract is the agreement.

Where there are changes to scope etc. during the contract the Purchase Order will need to be amended, or a new one generated as appropriate.

3. Log and review invoices, receipt works

All Invoices received from contractors are sent to the Estates Services Finance Team where they are logged in a spreadsheet. They are then checked and passed onto specific individual Project Managers for approval.

The Project Manager will decide whether to approve payment based on valuation certificates, site inspections or other evidence of work being completed. If they are content with the works being invoiced they receipt the amount on Oracle Financials.

Where a problem is identified with the Invoice, the Project Manager must contact the supplier to discuss the problem and agree the solution.  The Project Manager advises Estates Finance of invoices in query/on hold.

4. Authorise and process invoice

The Invoice is signed by the Project Manager to accept that the work is complete and the Invoice amount is correct, and is authorised, according to Estates Services approval limits, before being entered onto Oracle Financials by the Estates Services Finance Team for payment as per the Purchase to pay process.

Estates Finance maintains a local register of delegated authority levels for Capital Project transactions.

1. Review spend to date

On a monthly basis the Finance Manager - Capital Projects generates financial reports for the Estates Services Project Managers to assist with their review of spend. Reports are circulated to the Project Managers and other Estates Services staff within 5 working days of the month end closure of the Oracle Financials Projects Module.

Financial surgeries are carried out each quarter with Project Managers, and involving the Estates Accountant and Estates Services representatives, to review:

• Spend to date
• Outstanding commitments
• VAT issues
• Corrections required
• Accuracy of project set-up
• Funding issues
• Compliance issues
• Closures
   

2. Management reports

Project Managers generate monthly financial reports based on the outcome of the quarterly finance surgeries summarising spend to date, latest forecast costs, outstanding commitments etc. These detailed reports are submitted to PSG meetings as part of the financial review process. These reports are also summarised, consolidated and sent to BESC and PRAC for review.

Where Project Managers identify funding shortfalls these are managed in the first instance using BESC or departmental funds where possible. Where this is not possible a report will need to be submitted to the SCSG. In both cases a revised Project Expenditure Approval Form (PEA) will be required.

HEFCE (Higher Education Funding Council for England) Capital Investment Fund

As per the Capital for Learning and Teaching, Research and Infrastructure 20012-15 document, HEFCE funds will be paid to an agreed profile. No claims will be generated.

Other external funders

1. Generate ‘Claim’ to send to funder

The Capital Projects team generate claims to external funders, based on the funding agencies terms and conditions. Some funders require an invoice in which case an invoice will be raised on Oracle Financials as per the Accounts Receivable Process to generate an invoice number but a manual ‘claim’ invoice will be sent.

Some funders require information to justify the claim, e.g. copies of expenditure invoices. In such circumstances the information will be collated by the Capital Projects Team, who will then send the claim and the justification information to the funder.

2. Send receipt letter to funder and copy to Development Office

On receipt of payment, the funder is acknowledged as per their requirements and where the Development Office has supported a funder, a copy of the receipt letter is sent to them for reference.

1. Practical completion reached

On practical completion of the project, subject to the appropriate documentation being in order, 50% of the contract retention amounts are invoiced by the contractor. The invoice is processed as per the Purchase to pay process.

 The defects-liability period begins at this time during which the PSG undertakes a post-project evaluation, the report from which is reviewed by BESC.

2. Making good defects certificate produced

Only after the final valuation is received and the defects inspection carried out, the Making Good Defects (MGD) certificate is generated by the contractor. University acceptance of the certificate (by Estates Services) triggers the approval to invoice the final 50% of the contact retention amount, marking the end of the defects-liability period.

If no further expenditure is due, the next stage is: Reconcile Project.

3. Generate report

Where further expenditure is due, e.g. fitting out works, a report is generated by the Project Manager detailing likely timescales, outturn costs, delivery dates, activity required, etc.

The report is sent to Estates Services Management for review to assess whether or not the further activity is allowed within the project or whether it will be charged to the department.

Where the extension is refused go to: Reconcile Project.

4. Set date for and carry out review

Where a decision is granted to allow further activity within the project, a date is set for the PSG to carry out and track further reviews. At each review stage and where further expenditure is due or where a final account is negotiated the Project Manager must again generate a report to detail future activity. The Project Expenditure Approval Form (PEA) will need to be amended accordingly.

If no further expenditure due/final account negotiated the next stage is: Reconcile Project.

When the works are completed and all expenditure accrued and claims submitted, the project has to be ‘reconciled’. The following are the key steps:

1. Reconcile Agreements against invoices and address open purchase orders

At the end of the process, the Project Manager must ensure all expenditure is charged accurately to the project and funding is claimed in line with the agreement.

2. Complete project closedown form (PCF)

Once all outstanding transactions are resolved, the Project Manager will complete the Project Closedown Form and forward it to the Capital Projects administrator to verify and obtain necessary approvals.

The Capital Projects Team will review the form to ensure all outstanding transactions have been completed. Where issues are found the form is returned to the Project Manager to resolve outstanding issues. The final version will then be authorised by the Head of Capital Projects, and a copy kept in the project file. A copy will also be forwarded to Estates Services Finance.

3. Refund/fund relevant projects as per PRAC guidelines

Following authorisation of the closedown form, any unspent funds will be available to the University or reimbursed to the sponsor as per PRAC guidelines (usually funding surpluses are returned pro rata to funding sources).

4. Change status of project to ‘Closed’

Once the project account is balanced and all outstanding commitments closed, the Estates Services Finance Team changes the status of the project to ‘closed’ on Oracle Financials. All relevant paperwork is filed as per local procedures. Any funding adjustments will also be made according to PRAC guidelines.

• BESC Funding – returned to BESC budgets
• Central University Funding - returned to Estates Services Project Reserve Fund to maximum of £500K balance
• HEFCE Funding – returned to HEFCE funds for reallocation
• Departmental Funding – returned to the relevant departments
• External Funding – returned to external donors as per their terms and conditions

5. Post occupancy review

Arranged by Estates Services a year after occupancy, this review looks at the execution of the project, including any noteworthy issues. The resulting report must be approved by the PSG before being reviewed by BESC.

1. The controls that are embedded in the Managing Capital Building Projects process are listed below. When following the Managing Capital Building Projects process, Estates Services staff should ensure that all of these controls take place. All Invoices received from contractors are sent to the Estates Services Finance Team where they are logged in a spreadsheet. They are then checked and passed onto specific individual Project Managers for approval.

2. The Project Manager decides whether to approve payment of invoices based on valuation certificates, site inspections or other evidence of work being completed. Approved invoices are signed by the project manager and the amount is receipted in Oracle Financials. Unapproved invoices are not signed and are returned to the Estates Services Finance Team.

3. Approved Invoices are authorised by Estates Services Management according to Estates Services approval limits, before being entered onto Oracle Financials by the Estates Services Finance Team for payment.

4. On a monthly basis the Finance Manager - Capital Projects generates financial reports for the Estates Services Project Managers to assist with their review of spend. Reports are circulated to the Project Managers and other Estates Services staff within 5 working days of the month end closure of the Oracle Financials Projects Module.

Segregation of duties

One of the key financial control principles to be adopted in all University finance processes is the need to ensure no single member of staff completes all stages of any particular process. This principle requires an adequate 'segregation of duties' when designing work flows. As an example in the Managing Capital Projects process:

• Staff responsible for the authorisation, management, or reconciliation of a project should not also enter individual project transactions onto Oracle financials.

For further advice on this subject please contact Financial Assurance Team.