Cash Flow Forecast (Initial)

Section 1

Purpose

Note on JCT editions: JCT has published the 2024 Edition. This guidance cites JCT SBC/Q 2016 clause references; the commercial and payment mechanisms are substantively unchanged in the 2024 edition, but specific clause references should be verified against the contract edition in use on any given project.

The initial Cash Flow Forecast prepared at RIBA Stage 2 provides the client with an indicative spend profile over the projected construction period. It enables the client to plan capital drawdowns, arrange funding facilities and schedule financial commitments well in advance of construction commencing. At Stage 2, the forecast is based on the Cost Plan 1 budget and an indicative construction programme — it is an order-of-magnitude planning tool, not a contractual payment schedule.

The QS applies S-curve methodology to model the characteristic pattern of construction expenditure: slow mobilisation at commencement, rapid acceleration through the main construction phase, and a tail-off during fit-out, commissioning and snagging. Professional fees, statutory charges and other non-construction costs are phased separately against the wider project programme.

The initial forecast should be reviewed and updated at each RIBA stage gate as the programme develops and contract arrangements are confirmed. The Stage 4 forecast, based on the contractor's accepted tender programme and cash-flow submission, replaces the Stage 2 indicative profile for financial management purposes.

Section 2

Key Principles

RICS Cash Flow Forecasting (RICS guidance note, 2014): the primary RICS framework for preparing and presenting construction project cash flow forecasts, including S-curve methodology and fee phasing.
NRM 1: Order of Cost Estimating and Cost Planning (2nd edition, 2012): Cost Plan 1 provides the total project budget that forms the basis of the Stage 2 forecast.
BCIS Tender Price Index (TPI) Forecast: BCIS publishes quarterly TPI forecasts used to adjust the cash flow for tender price inflation over the construction period.
JCT Standard Building Contract (SBC/Q, 2016 edition), Clause 4: defines interim payment provisions — monthly valuations, retention deduction (typically 3–5%) and release conditions — relevant context for post-contract cash flow accuracy.
RICS Cost Reporting (Professional Statement, 2nd edition): requires the QS to keep the client informed of the overall project financial position, including cash flow, at appropriate intervals.
VAT Act 1994 and HM Revenue & Customs Construction VAT guidance: VAT at 20% is payable on most construction contracts and must be included in the cash flow where the client cannot recover it.

Section 3

Practical Application

Step 1

Obtain the indicative construction programme from the project architect or lead designer. If a programme is not yet available, prepare an indicative Gantt chart using typical construction durations for the building type and size (sourced from BCIS or project-specific assessment).

Step 2

Divide the construction period into monthly (or quarterly for longer programmes) reporting periods. Apportion the Cost Plan 1 construction budget across these periods, weighted by the S-curve: slow start (months 1–3), rapid ramp-up (months 4–8), peak spend (middle third of programme), tailing off (final quarter).

Step 3

Apply front-loading for preliminaries: site establishment costs (hoarding, site offices, welfare, cranes) are typically incurred in months 1–3 and must not be spread evenly. Extract the Preliminaries allowance from Cost Plan 1 and phase it accordingly.

Step 4

Apply back-loading for external works, fit-out, commissioning and snagging: these activities occur in the final 15–20% of the construction programme. Identify relevant Cost Plan 1 elements and phase them to the tail of the forecast.

Step 5

Apply retention deduction: typically 3–5% is deducted from each interim payment. Model retention as a deduction from monthly valuations, half released at Practical Completion and half at the end of the Defects Liability Period (typically 12 months later).

Step 6

Phase professional fees separately. Fees are typically front-loaded relative to construction (design work precedes construction expenditure). Apportion across the pre-contract and construction periods based on the agreed fee payment schedule.

Step 7

Apply BCIS TPI inflation allowance. If the tender date is more than 6 months away, apply a BCIS TPI forecast uplift to the construction cost to reflect anticipated tender price inflation between the Cost Plan 1 base date and the expected tender return date.

Step 8

Issue the initial Cash Flow Forecast as an appendix to Cost Plan 1. State the programme assumptions, base date, TPI adjustment, inflation assumptions, VAT treatment and status (indicative — subject to revision at Stages 3 and 4).

Section 4

Common Mistakes to Avoid

Producing a linear (even-spread) forecast rather than an S-curve profile — this misrepresents the client's funding requirements and may lead to a mismatch between drawdowns and actual expenditure.
Omitting professional fees from the overall project cash flow — fees represent a significant early expenditure that must be funded alongside construction costs.
Failing to model retention correctly — omitting retention release at Practical Completion and the end of the Defects Liability Period understates cashflow in the tail of the programme.
Not stating whether VAT is included or excluded — for clients who cannot recover VAT (e.g. residential developers on exempt sales, many charities), 20% VAT on the construction cost has a material impact on cash requirements.
Presenting the Stage 2 forecast as a precise financial commitment — the indicative nature, dependence on an unconfirmed programme, and market inflation uncertainty must be clearly communicated.
Failing to update the cash flow when the programme changes — every programme revision must trigger a corresponding cash flow update.

Section 5

APC Competency & Quick Reference

APC Competencies: Cost Management (L2) | Programming & Planning (L1) | Commercial Management (L1) | Design Economics & Cost Planning (L2)

Why does construction expenditure follow an S-curve rather than a straight line?

Construction expenditure starts slowly (mobilisation, early groundworks), accelerates through the main construction phase as multiple trade packages work concurrently, then tails off during fit-out, commissioning and snagging — producing the characteristic S-shape. An even-spread forecast would over-state early expenditure and under-state peak spend.

How should VAT be treated in a Stage 2 cash flow forecast?

For most construction contracts, VAT at 20% is applied to each interim certificate. If the client is VAT-registered and can recover input tax, exclude from the construction cost but note the cash flow timing difference (typically 1–3 months). If the client cannot recover VAT (exempt or partially exempt), include in the cash requirement at 20%.

At what stage does the cash flow forecast become most accurate?

Accuracy improves significantly at Stage 4 when the contractor's accepted programme and cash flow submission are available. The Stage 2 forecast is an indicative planning tool; Stage 3 updates should reflect programme development; the Stage 4 forecast based on the contract programme is the basis for financial management.

Section 6

Cash Flow Forecast Checklist

☐

Construction programme obtained or indicative programme prepared

☐

Cost Plan 1 construction budget apportioned across programme periods

☐

S-curve profile applied (not linear spread)

☐

Preliminaries front-loaded for site establishment costs

☐

External works, commissioning and snagging back-loaded to tail of programme

☐

Retention deduction modelled (half released at PC; half at end of DLP)

☐

Professional fees phased separately

☐

BCIS TPI inflation allowance applied (where tender date >6 months away)

☐

VAT treatment confirmed and stated (included/excluded with basis)

☐

Cash flow issued as appendix to Cost Plan 1 with programme assumptions stated

Section 7

CPD Learning Outcomes

Prepare an initial project cash flow forecast from a Stage 2 elemental cost plan, applying S-curve methodology and correctly phasing preliminaries, retention, fees and external works.
Identify key cash flow drivers — retention, VAT, inflation and professional fee phasing — and advise clients on their practical impact on funding requirements.
Advise clients on the limitations and intended use of Stage 2 indicative cash flow forecasts, and the planned evolution through Stages 3 and 4 as programme and contract information develops.

Section 8