A contractor is starting a project with the following programme and costs. Months Activity Site preparation Substructure Superstructure Cladding Service Finishes Cost 300,000 1,600,000 1,500,000 720,000 1,400,000 850,000 1 2 3 4 5 6 The contractor has applied a fixed mark-up rate of 20% on activities to be performed by the contractor's own labour (Site preparation and substructure) and 10% on subcontracted activities (the rest). The retention to be held by the client is 15% of each valuation and for up to 75% of the contract value. The retention held will be paid back to the contractor in two instalments: at completion of construction and 3 months after. The client is to measure the work monthly and must pay the cash after one month of each measurement. The percentage of labour cost for site preparation and substructure is 40% (materials and plant associated will be purchased/hired by the contractor). The contractor's monthly cost is invoiced in such a way that activities performed by their own labour will be paid in the same month the cost has incurred. Material purchases and plant hire are paid one month after the cost has been committed. Subcontractors are paid one month after the payment is received from the client. a) Assuming that the contractor holds no retention against subcontractors, calculate the contractor's cumulative monthly cash flow for the project. b) Assume that the contractor is considering options for improving the cash flow profile of this contract. One of the ways being considered is to apply a retention rate of 10% of all subcontracted work. This retention is released back to the subcontractors in full at construction completion. Calculate the cash flow that will result from this strategy and discuss the impact of this strategy on the cashflow and the business. c) Please propose another strategy that can improve the contractor's cash flow and discuss their impacts on the business and project. You may use calculation examples to support your argument or analysis (where assumptions can be allowed).