contract and cash flows in construction

[attachment=17052]

Introduction
Construction Industry is one of the most booming industries in the whole world. This industry is mainly an urban based one which is concerned with preparation as well as construction of real estate properties. The repairing of any existing building or making certain alterations in the same also comes under Construction Industry. This industry can be categorized into three basic categories namely:-
• Construction involving heavy and civil engineering - The construction of large projects such as bridge, road, etc comes under this category.
• General construction - The construction works that involve building of real estate ones such as residential or commercial real estate assets, etc.
• Construction projects involving specialty trades- Construction works that involve building up of specialized items namely, electric related works.



Contracts
Contract may be the most important part of any project.
The written contract allows for an understanding so both parties will be clear about what to expect. But of more importance to the contractor, it provides the legal mechanism to get paid for the work agreed-upon. As with any contract, each “i” should be dotted and each “t” crossed. All bases need to be covered in the event of a dispute. States have gone out of their way to protect the consumer who enters a contract. This is especially true when it involves real property since the contractor can lien such property to collect a debt. Because of this power, the contractor is subjected to rigorous rules, regulations, laws and timelines.


Cash Flows
Cash flow refers to the movement of cash into or out of a business, a project, or a financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used
• To determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return, and net present value.
• To determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.



Types of Contracts

With certain specific exceptions, contracts do not have to be in writing to be legally binding. However, signed written contracts are usually the most desirable form of contract, especially when it comes to business arrangements. After all:

• The contents (‘terms’) are in writing for all to see
• They can ensure that precise language is used in describing the terms of the agreement
• There is, therefore, less opportunity for misunderstandings and conflicting assumptions
• There is less need to rely on memories of what was originally agreed
• The individuals involved in the transaction may change over time.