Labour Laws and Financial Aspects of Construction Project _ Unit 3 _ Construction Management _ Final Year (BE) _ Department of Civil Engineering _ TAE _ SPPU _ by Shrikant R. Kate

SPPU
BE CIVIL ENGINEERNG
Construction Management
© Mr. Shrikant R. Kate 1
Unit 3 Part-A. Labour Laws
Shrikant R. Kate
BE Civil, M Tech Construction Management

Syllabus
• Labour laws and financial aspects of construction
projects Labour laws. studies,
• Need and importance of labour laws, study of some
important labour laws associated with construction
sectorworkmans compensation act 1923
• Building and other construction workers act 1996, child
labour act, interstate migrant workers act Financial
aspects of construction projects.
• Capital investments: importance and difficulties, means
of finance,
• Working capital requirements, project cash flow
projections and statements, project balance sheet
• Profit loss account statements.

Need and Importance
• To guarantee the worker about their safety, basic
rights, working conditions and market protection
• Improves employee-employer relations
• Minimizes industrial disputes
• Helps workers in getting fair wages
• Minimizes labour conflict and strikes
• Ensures workers about their work safety
• Fixes working hours
• Provides compensation to workers who are
victims of accidents
• Prevent child labour

Workmen’s Compensation Act
• Aim of act is to provide relief and financial
protection to workmen and/or their dependents
in case of accidents, death or disablement
• Dependent:
1. Widow, minor legitimate or adopted son and
unmarried, adopted or legitimated daughter or
a widowed mother
2. Son or daughter who has attained 18 years of
age and who is infirm at the time of workmen’s
death if they totally depends on workers earning
3. A minor brother or an unmarried sister or a
widowed sister
4. Widowed daughter-in-law, paternal
grandparents if no parents of workmen are alive© Mr. Shrikant R. Kate 4

Cases for Compensation
1. Compensation in case of occupational
diseases
2. Accident arising out of and in the course of
employment
a) Worker must have been busy in work of
employer and not in his personal work at the
time of an accident
b) Accident occurred at the place where worker has
performing his duties.

Calculation of Compensation
1. In case of death:
(50% of monthly wages x relevant factor or Rs.
50000, whichever is more) + Rs. 1000 for funeral
expenses
2. In case of total permanent disability:
60% of monthly wages x relevant factor or Rs.
60000, whichever is more
3. In case of temporary disability:
Half monthly installment equal to 25% of the
monthly wages, for the period of disablement or 5
years, whichever is shorter

Child Labour Act
• Employment of children’s below 14 years are
prohibited which depends on nature of
employment, occupation or process.
• Acc to govt of New Delhi children below 14
years are eligible to work only in family
enterprises or entertainment industry
• Labour law includes strict action or
punishment for employers for violation of
rule while there is no penalty provision for
parents

Building and Other Construction
Workers Act 1996
This act is divided into 11 chapters and contains 64 sections.
• Objectives:
1. To regulate employment and conditions of service
2. To provide safety, health and welfare measure
3. To extend social security to workers
• Applicable to establishment employing min 10 workers on
any day of the year
• An individual employing workers for constructing his own
residence of value not more than Rs. 10 lakh is not an
establishment acc to act
• Act puts govt and non govt depts on same platform
• Work considered in factories act 1948 and mines act 1952
is exempted from this act

Building and Other Construction
Workers Act 1996
Chapter 1 of the act deals with safety and health
measures.
Section 38 : Safety committee and safety officers.(more
than 500 worker)
Section 39 : Requirement of notice for certain accident.
Chapter 9 –Section 44: Define responsibilities of
employers.
Chapter 10 –Section 47 : Deals with penalties and
procedure.
Section 48 : Penalty for delays or obstruction to work.

Interstate Migrant Workers Act (regulation of
employment and conditions of service) 1979
• Enforced on June 1987
• Law is applicable for employer who employs on
any day in twelve months a interstate migrant
worker
A) Appropriate government :
i. Establishment of any industry which is carried by or
authorized by central govt.
ii. Establishment of railway , major port, mines or oil
field
iii. Establishment of bank , insurance company

Interstate Migrant Workers Act (regulation of
employment and conditions of service) 1979
• Payment of employees is acc to Payment of
Wages Act 1936
• Passbook to be provided to worker by employer
which indicates:
1. Name and place of establishment
2. Working period
3. Mode of payment and rates
4. Displacement allowance (50% of monthly wages
or Rs.75/- whichever is higher)
5. Return fare

Unit 3B. Financial Aspects of
Construction Project

Introduction
• Finance may be defined as the provision of
money at the time when it required.
• Finance refers to the management of flow of
money through an organization.
• Business finance is an activity or a process
which is concerned with acquisition of funds,
use of funds and distribution of profits by a
business firm

Business Finance
Business
Finance
Sole-
Propritory
Single
individual
promotes
Risk Business
Partnership
firm
Two or more
person
Company of
corporation
Legal entity

Sources of Finance
Sources of
Finance
Type
External Internal
Time
Short
Term
Medium
Term
Long Term

Sources of
Finance
External
Sources
Equity Capital
Debentures
Leasing
Internal
Sources
Retained Profit
Owners Fund
Sale of Assets
Short
Term
Overdraft
Medium
Term
Loans
Hire Purchase
Trade Credit
Long Term
Govt Grants
Issuing Shares
Venture Capital© Mr. Shrikant R. Kate 16

Important term :
1. Assets : an item of property owned by person or company,
regarded as having value and available to meet debts.
Eg. Land , car, building , machines
2.Liabilities : The state of being legally responsible for
something.
Eg. Loans payable, interest payable, wages payable, taxes
payable.
3. Equity : Is difference between value of assets and value of the
liabilities of something owned.
4. Debentures : The ability of customers to obtain goods or
services before payment, based on the trust that payment will
be made in the future.
Assets = liabilities + Equity

External Sources
 External Sources of finance are those sources
of finance which comes from outside the
business.
 External sources of finance are comes from
individual or organization who do not directly
related with business. Eg.Bank
 External sources of finance are Equity capital ,
Debentures, leasing.

External Sources
1. Equity capital : It is the difference between the value
of interest and the cost of liabilities of something
owned.
eg. Price of smart phone =25000, X person =15000 rs.
With him, take 10000 rs. From other.
2 . Debentures : It is long term instrument used by large
companies to borrow money at fixed rate of interest.
Eg. loan
3. Leasing: Contract between two parties lesser (owner)
and lessee (user).
Eg. Apartment rent

Internal Sources
Internal source is quick and easy way to solve
short-term financial problems for most firms.
1. Retained Profit : Profit that owner have
reinvest into business after paying cost and
tax.
2. Owners fund : Money put in business by
owner themselves.
3. Sale of assets : Owner sale his assets during
financial struggles and raise money.

Finance based on time
1.Short term finance : Used for daily expenses.
2. Medium term finance : Used to pay for repair and
small improvements. (pay back 1-5 year)
Eg.Loans, hire purchase, trade credit
3. Long term credit : Used to pay major expenditure
such as buying new premises (pay back over many
year)
Eg. Government grant, Issuing shares

Liquidity refers to the assets a company has that it can
quickly and easily convert to cash without losing
value, and profitability is a company's ability to make
aprofit. The money a company has left after
deducting all expenses like income and operating
costs is its profitability.
Liquidity, means is to get money at the time of need,
i.e. it is the company's ability to cover its financial
obligations in the short run. Solvency refers to the
firm's ability of a business to have enough assets to
meet its debts as they become due for payment

Need of Business Finance
1. Startup Capital- Land, Building
2. Expansion of Business-new technology
3. Research and Development- updating
4. Running of business - advertising
5. Take over or acquisition – buys another
business
6. Moving to new premises – rental cost
7. To pay for the day to day running of business

Working Capital
Competition among all type of companies
with different financial structure to win
contract.
For that working capital is required, so that
company can avoid probable problem such
cash flow and failure to pay suppliers , sub-
contractor.
Working capital = Current assets – current
liabilities

Need of Working Capital
1. To maximize the shareholders wealth
2. To generate sufficient profit
3. Earned profit through business enterprises
4. Help in form of current assets to deals with
problem
5. Necessary to sustain sale activity

Components
of Working
Capital
Current
Assets
Loans and
advances
Cash
Bank
Debtors
Stocks
Investment
Current
Liabilities
Long term
liabilities
Provision for
taxes, dividends,
etc.
Credit© Mr. Shrikant R. Kate 29

Objectives and Sources of Working
Capital
• Objectives:
1. To minimize the amount of capital employed in financing
2. To manage the current asset
3. To maintain proper balance between amount of current
assets and current liabilities
• Sources:
1. Loans
2. Debentures
3. Public deposits
4. Issue of share
5. Trade credit and advances from customers
6. Bank credit

Determinants of Working Capital
1. Nature of Business- Construction or
manufacturing
2. Size of Business- large or small volume
3. Production cycle – time bet purchase and
completion of finish
4. Purchase and sale
5. Large stock of raw material
6. Rapidity of turnover
7. Expansion
8. Sales Policies

Project Cash Flow
• Cash Flow Statement: Describes inflow and
outflow of cash in an enterprise during a
specified period of time
• Objectives:
1. To provide information about cash
generation, cash equivalents, utilization of
cash
2. To make financial decisions
3. Operating, investing and financing activities

Advantages of Cash Flow statement
1. Useful in evaluation of cash position
2. CFS is essential for knowing future cash
position of firm concern to plan and
coordinate financial operation properly
3. Comparing previous CFS with current CFS
helps to find variation and deficiency
4. Helps to find out liquidity (short term paying
capacity)
5. Helpful in planning repayment of loans, long
term cash planning

Disadvantages of CFS
1. Not suitable for judging profitability of a firm
2. CFS is not substitute of an income tax
statement, it is complementary to an income
statement
3. Comparative study of cash flow statement
may give misleading results

Steps involved in CFS
Step 1
• Compute net increase or decrease in cash and cash equivalents
Step 2
• Calculate net cash flow from operating activities by 1.Direct method
2.Indirect Method
Step 3
• Calculate net cash flow from investing activities
Step 4
• Calculate net cash flow from financing activities
Step 5
• Prepare CFS highlighting net cash flow from operating, investing and
financing activities separately
Step 6
• Make aggregate of net cash flow from three activities
Step 7
• Report non cash transaction in separate schedule

Cash Flow Diagram Example
Date Description Amount (Rs.)
April 10 Receipt for running account bill # 9 2,00,000
April 15 Salary disbursement 80,000
April 20 Payment for supply of aggregate 25,000
April 25 Supply of stationery for office use 5,000
May 5 Receipt for running account bill # 10 2,30,000
May 10 Salary disbursement 80,000
May 20 Payment for supply of cement 50,000
June 5 Receipt for running account bill # 11 2,60,000
June 10 Salary disbursement 80,000
June 15 Payment for supply of structural steel 1,10,000
June 20 Payment of rent of premises for July and August 1,10,000

Cash Flow Diagram Example Cont.…
Sr. No. Month Receipts (Rs.) Expenditure (Rs.)
1 April 2,00,000 1,10,000
2 May 2,30,000 1,30,000
3 June 2,60,000 3,00,000
Total 6,90,000 5,40,000
Month
1,10,000
2,00,000
2,30,000
1,30,000
2,60,000
3,00,000
April May June +ve incoming
-ve outgoing

Project Balance Sheet
• It provides information about the overall
financial position of firm, clearly shows the
assets and liabilities of firm
• Balance sheet represents a summary of what
the company owns and what the company
owes
• PBS consist of record of assets and liabilities

• Liabilities: liabilities is nothing but availability
of fund from external agencies i.e. owners,
shareholders or financial institutes
• Types:
1. Long term liabilities (debenture, bonds,
mortgages)
2. Short term liabilities (taxes, short term
credits)

• Assets:
A resource is an asset if it fulfills following
conditions:
1. Asset must be valuable
2. Asset should be own by firm in legal sense
3. Asset should be measurable in terms of money
• Types
1. Fixed Assets
a) Tangible Fixed Assets-land , building
b) Intangible Fixed Assets- patents, trademark
2. Current Assets-cash and bank balance

Profit and Loss Account
• Also known as income expenditure statement.
• Is a statement of income and expenditure (revenues and
expenses) of company during accounting or financing year.
• Consist of following information:
1. Gross profit
2. Details of cost incurred
3. Income from other investment of the company
4. Interest details
5. Outstanding expenses
6. Prepaid expenses
7. Income received in advance
8. Outstanding income
9. Depreciation
10. Provision for bad and doubtful debt© Mr. Shrikant R. Kate 46

Labour Laws and Financial Aspects of Construction Project _ Unit 3 _ Construction Management _ Final Year (BE) _ Department of Civil Engineering _ TAE _ SPPU _ by Shrikant R. Kate

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