The Building Economist - September 2016 - The Mega Issue

THE MEGA ISSUE

FEATURING THE INFRASTRUCTURE AUSTRALIA PLAN SET TO SUBSTANTIALLY ENHANCE QUALITY,

SYDNEY 2000 OLYMPICS 16 YEARS ON: A MULTI AIQS INTERVIEW

CAPACITY AND EFFICIENCY

AFTER SOCHI 2014 COSTS AND IMPACTS OF RUSSIA’S OLYMPIC GAMES

SEPTEMBER 2016

AUSTRALIAN INSTITUTE OF QUANTITY SURVEYORS

AUSTRALIAN INSTITUTE OF QUANTITY SURVEYORS

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10 OLYMPICS

23 INSIGHT

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02 09 37 44 REGULARS 46 48

SYDNEY 2000

AFTER SOCHI 2014: COST AND IMPACTS OF RUSSIA’S OLYMPIC GAMES

“Every Olympic budget appears to escalate beyond reason, or so it seems.”

As the Rio 2016 Olympic season comes to a close. Four AIQS members reflect on their own Olympic Journey.

The 2014 Winter Olympic Games, held between 7 and 23 February 2014 in Sochi on the Black Sea Coast, broke a series of records. They had the highest number of participating nations (88), the highest number of athletes (2,873) and the highest number of events (98) of any Winter Games. At USD 1.26 billion, they also produced the highest revenue from broadcasting rights ever. But the one record that Sochi will be remembered for is a more dubious one: the most expensive Olympic Games ever – Summer or Winter.

SEP 2016 CONTENTS

REPORT THE INFRASTRUCTURE AUSTRALIA PLAN

This Plan has been developed through a collaborative 18-month process of research and consultation. They set out the case for substantially enhancing the quality, capacity and efficiency of Australia’s infrastructure.

Managing Editor Stephanie Ifill Graphic Designer Guilherme Santos CEO Grant Warner

Editorial Contributions The Australian Institute of Quantity Surveying encourages readers to submit their articles relating to quantity surveying, the built environment and associated industries including: construction economics, cost estimating, cost planning, contract administration, project engineering and the macroenvironment.

T: +61 (02) 8234 4009 E: marketing@aiqs.com.au

SNAP SHOT

FROM THE CEO

PROJECT

LEGAL CASE NOTES

EVENTS & SOCIAL

BUILDING COST INDEX AVAILABLE IN PRINT ONLY

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Disclaimer The Institute does not take any responsibility

Advertising To advertise in the Building Economist, contact AIQS Marketing & Communications for more information on available opportunities.

Marketing & Communications T: +61 (02) 8234 4009 E: marketing@aiqs.com.au W: www.aiqs.com.au

for the opinions express by any third parties involved in the development of the Building Economist Magazine.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 1

SNAPSHOT INDUSTRY NEWS

GLOBAL INFRASTRUCTURE INVESTMENT: SHORT TERM PAIN FOR LONG TERM GAIN AS GROWTH PROJECTED TO INCH TO 5% PA BY 2020 GLOBAL SPENDING GROWTH OF 5% PER ANNUM ON CAPITAL PROJECTS & INFRASTRUCTURE (CP&I) IS PROJECTED WITHIN FOUR YEARS, DOUBLING THE LOW RATES OF GROWTH OF JUST 2% EXPECTED THIS YEAR. By 2020, annual global infrastructure spending is forecast to reach $5.3tn, up from an estimated $4.3tn in 2015 (in constant 2014 exchange rates) according to an analysis released by PwC, underlining the long term strength of the sector.

The analysis by Oxford Economics for

2 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

PwC’s capital projects and infrastructure team examines projected spending across seven regions and six key infrastructure sectors. Given the recent volatility in the market, the report also examines two scenarios against the baseline projection a high growth recovery and a hard landing in the Chinese economy (given China is the world’s largest CP&I market).

On the baseline outlook, using current economic projections for economic growth, while current spending is showing signs of CP&I growth, it will remain low - around 2% - for the coming year. It will make a slow but sustained recovery to

SCENARIO 1: CHINA HARD LANDING 2020, when spending will be at 5% or $5.3tn per annum. The largest percentage increases in global CP&I investment between now and 2020 will be in social infrastructure (for example schools and hospitals) and in manufacturing related infrastructure.

Recent slowdowns are a result of the decline in oil and commodity prices, availability of public and private finance, a slowdown in China’s growth rate and currency volatility which have all weighed heavily on the sector. Slow growth was felt hardest in the Utilities sector, buffeted by a combination of subsidy cuts in Europe for renewable energy projects; sluggish global economic and trade growth, which reduces demand for electricity; and diminished private sector thirst for capital projects in the face of a negative commodities price environment.

The UK's recent decision to exit the European Union came after the research for this report was finalised. It is too early to comment on the specific UK and global impact of Brexit in 2020, however, in the short term the additional uncertainty and volatility is likely to directly impact the UK capital projects and infrastructure market and indirectly impact the global CP&I market, although the latter is unlikely to be severe.

Richard Abadie, PwC Capital Projects and Infrastructure team, comments: “Even in these volatile times, there are still opportunities. But sponsors and investors are being very selective on which projects to proceed with, for example ensuring mining and oil and gas projects are profitable at today’s depressed commodity prices. Companies will want to remain invested because the long term demand for infrastructure remains strong – particularly given its fundamental link to economic growth prospects.”

Outlook: In the China hard landing scenario, spending does not actually fall between 2015 and 2020 but rather it is lower in 2020 versus the baseline level Sector impacts: Compared to the baseline, industry infrastructure spending would drop about 4% with extraction taking the worst hit because weakness in Chinese infrastructure and manufacturing development would significantly slash demand for oil, gas, steel and other minerals.. Transport and utilities account for about half of infrastructure spending in Asia Pacific, and these sectors would also fare poorly if conditions in China worsen.

Regional impacts: Over 60% of the decline in infrastructure spending would occur in Asia Pacific. Latin America, the Middle East and countries like Russia, which depend on oil production and other extraction industries to propel their infrastructure-related exports and public or private development projects would also be affected. Western Europe would be least harmed since commodities trades are a relatively small part of the region’s global economic activities.

-Under the China hard landing scenario, Oxford Economics assumed an economic environment in which the Chinese Yuan depreciates by as much as 10 percent, housing sales slump sharply, consumers postpone new purchases and wage growth declines.

Moreover, the pressure on developers’ cash flow, under this scenario, would trigger a renewed decline in house prices and a sharp fall in housing construction. Domestic and external confidence would be hammered, resulting in a scaling back of private investment.

Capital projects and infrastructure spending growth falls to almost zero in 2016 and picks up only slightly in 2017.

SCENARIO 2: UPSIDE SCENARIO Outlook: In this analysis, global infrastructure investment between 2015 and 2020 would hit $28.8 trillion, about $1.7 trillion more than the outcome of a Chinese hard landing and a full $600 billion more than the baseline.

Regional impacts: Western Europe and Asia Pacific would gain the most, with over $350bn increased spending in Asia Pacific alone, due to enhanced demands for the region’s exports from Western economies and greater capital influx as the appetite for investing in emerging markets grows. Commoditydependent regions, particularly the Middle East, would benefit the least.

Sector impacts: Increased spending by both the private and public sectors would engineer broad-based improvements in CP&I expenditures. Utilities and transport would lead the way, reflecting greater industrial activity and renewed interest in building highways, airports and bridges.

-Under this scenario, in some parts of the world, governments would pursue more expansionary fiscal policies. And with greater confidence that bond markets will remain accommodative, countries with fiscal flexibility would increase public investment in infrastructure projects.

With renewed economic optimism, oil production rises more than expected under normal conditions, which in turn leads to a slightly slower increase in oil prices

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 3

GLOBAL TRANSPORT INFRASTRUCTURE INVESTMENT PREDICTED TO REACH UNPRECEDENTED LEVELS TRANSPORT INFRASTRUCTURE INVESTMENT IS PROJECTED TO INCREASE AT AN AVERAGE ANNUAL RATE OF ABOUT 5% WORLDWIDE BETWEEN 2014 AND 2025, ACCORDING TO ANALYSIS RELEASED BY PWC.

WESTERN EUROPE The analysis predicts that transport infrastructure investment growth in Western Europe will be moderate in the near future, given the already well-developed transport networks in many of the advanced countries as well as continuing fiscal constraints and a high demand for more social infrastructure, especially in healthcare. Infrastructure spending will likely be limited to targeted schemes for relieving traffic congestion. Rail investment, however, is poised for growth. For example, after a six-year slump, Spain is expected to see renewed investments in railways between 2016 and 2025. With this mix in subsector investments, Western Europe’s share of global transport infrastructure spending is forecast to remain broadly unchanged from 11% in 2014 to 10% in 2025.

AISA-PACIFIC Large-scale development of transport networks will likely continue in many Asia-Pacific economies, given the shift in economic power from the West to the East, the rise in Asian wealth and rapid urbanisation. Significant investment in road infrastructure to accommodate ever more cars, along with investment in public transport infrastructure to relieve congestion in urban areas, is expected. Strong growth in sea port infrastructure is also anticipated to support expansion in international trade.

USA AND CANADA Given the maturity of transport networks in the US and Canada, investment is expected to grow by an average of just 3% per year over the coming decade. Overall, a decline in the USCanada share of global transport spending – from 14% in 2014 to 11% by 2025 – is expected. The lack of emphasis on transport spending is best illustrated by Canada’s investment in airports, which is projected to decline year by year and will see modest growth only in 2023.

4 - JUNE 2016 - THE BUILDING ECONOMIST

RUSSIA AND CENTRAL & EASTERN EUROPE

LATIN AMERICA Rising wealth levels in Latin America are expected to drive strong increases in car ownership and, in turn, a need for investment in road infrastructure. Road spending is expected to increase by an average of 11% per year between 2014 and 2025, more than double the world average rate. Increased prosperity will likely also generate demand for other forms of transportation: in particular, investment in sea ports is expected to grow at a similar rate to that in roads due to both increased consumer demand for imports and commodity exports.

Airport spending is also expected to increase, particularly during the first half of the forecast period as the first stage of development of the new airport in Mexico City gets under way.

While the Former Soviet Union/ Central Eastern European (FSU/ CEE) countries currently devote a smaller percentage of infrastructure investments to transportation than the global average, this is projected to change over the forecast period. For most of the FSU countries, investment in good transport networks remains relatively important due to the need to transport extractive outputs to other markets. Spending on ports, in particular, is expected to increase an average of nearly 10% annually from 2014 to 2025. In contrast, nonmineral exporting countries like Poland and Hungary will have much slower growth in transport spending.

Sub-Saharan Africa is the fastest growing regional infrastructure market, with a projected average increase in transport spending of over 11% per year from 2015 to 2025.

Most of this growth is expected in roads and ports

NSW STADIA INVESTMENT "A global city like Sydney needs world class sporting venues and this investment will ensure fans and sporting teams have the facilities they deserve," Mr Baird said.

NSW Premier Mike Baird and Minister for Sport Stuart Ayres announced the biggest investment in sport and major event infrastructure in NSW since the 2000 Sydney Olympics, with a new 30,000 seat stadium at Parramatta the first project to be delivered as part of the package.

The investment in the state’s major stadia network includes: • A new rectangular stadium at Parramatta with 30,000 seats; • A new rectangular stadium at Moore Park with 50,000 to 55,000 seats; • The redevelopment of Stadium Australia, which may include a retractable roof; • A new indoor arena near the CBD; • A new outer western Sydney sporting venue; and

MIDDLE EAST While mega-projects such as the metro for Riyadh and Qatar airport grab headlines, roads still make up the largest subsector for transport spending in the Middle East. The rate of car ownership is expected to increase sharply over the coming decade; consequently, the investment in roads is expected to increase as well – by almost 116% over this period to reach $31bn per year by 2025.

• The completion of the SCG upgrade.

This report from PwC, with research by Oxford Economics, is part of an overall package of materials that provides the first consistent data analysing projected capital project and infrastructure spending across the globe. For investors, public officials and companies planning capital investments, it highlights the sectors and countries expected to benefit from this investment resurgence. And it provides insight into the factors driving the expected investment growth.

$600 million has been set aside in Rebuilding NSW and the NSW Government will provide a further allocation of funding to complete the projects.

Mr Ayres said NSW needs a mix of contemporary venues of varying sizes so we have options to bid for and host a wider range of events.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 5

SNAPSHOT OLYMPICS

PYEONGCHANG 2018 NEW SURF PARK TO BE DEVELOPED AT THE AUSTRALIAN HOME OF OLYMPIC SPORT MAKING PROGRESS IN DELIVERY PHASE At a closing news conference with PyeongChang 2018 Organising Committee (POCOG) President Yangho Cho, Coordination Commission Chair Gunilla Lindberg expressed satisfaction with construction progress at competition venues and congratulated Games organisers for the success of early test events.

The first round of recent test events — the Alpine World Cup, the Snowboard World Cup and the Freestyle Ski World Cup — won praise from athletes and positive reviews from technical experts.

The number of events and the workload for PyeongChang 2018 will soon increase dramatically, with 24 test events set for the next winter sports season.

Perth based Wave Park Group today confirmed that it has been nominated as the preferred proponent over a 3.2ha site located at Sydney Olympic Park. With the expectation that surfing will be confirmed as an Olympic medal sport for the 2020 Tokyo Games, the location is a perfect for the future of the sport.

The estimated $26.5 million development is to be located adjacent to the existing Monster BMX Track and Monster Mountain X developments, adding significantly to this existing public action sports precinct. The recently announced $1bn Parramatta Light Rail Project is likely to have a station adjacent to the facility, which will mean URBNSURF Sydney will

be accessible to over two million Sydney residents in under 30 minutes.

“Waves will range from up to 1.7m high, pitching waves, that are designed for the highest levels of performance surfing, down to 0.6m high, rolling white-water waves, which are ideal for beginner surfers.

With a north-south lagoon orientation, URBNSURF Sydney has been designed to suit prevailing wind conditions and LED lagoon lighting means there will be surfing night and day. The facility will also feature sustainable design, renewable energy and water saving systems, in keeping with Sydney Olympic Park’s strong environmental sustainability ethos.

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SNAPSHOT AIQS NEWS

MISSED THE TAX DEPRECIATION WEBINAR - NO WORRIES! YOU CAN ACCESS A RECORDING OF THE SESSION The CPD Webinar on Tax Depreciation explored recent changes and put to rest some of the biggest myths about tax depreciation!

For more information and to purchase a recording visit: www.cpdlive.com/ aiqs/recordings/index.html

JOBS BOARD

NEW MEMBER ADVANTAGE PROGRAM

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AIQS is pleased to offer more value to our members with the exciting launch of the Member Advantage Program, bringing you exclusive access to new discounts and savings only available through your membership.

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*The Member Advantage Program is currently only available to Australian based Affiliate, Associate, Member and Fellow grade members.

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AIQS lists various career and employment opportunities via the Jobs Board under the 'Careers & Education' section. This contains job openings, internships and cadetships, scholarships and resources for organisations to advertise job vacancies.

If you are a job seeker looking for new opportunities, go to the AIQS Jobs Board to view the full list of Job Vacancies. Opportunities exist for employers to advertise their job vacancies on the AIQS Jobs Board.

If you are interested in posting a job or would like more information, email marketing@aiqs.com.au.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 7

FROM THE CEO

THE MEGA ISSUE

WHETHER THE THREE GORGES DAM IN CHINA, THE ONE WORLD TRADE CENTRE IN NEW YORK, OR THE OLYMPIC FACILITIES IN RIO DE JANEIRO, ALL THESE MEGAPROJECTS HAVE BENEFITED FROM THE PROFESSIONAL SERVICES OF A QUANTITY SURVEYOR. THE QUESTION IS, ARE THE PROFESSIONAL SERVICES AND SKILL SETS AVAILABLE THROUGH QUANTITY SURVEYORS FULLY AND CLEARLY ARTICULATED TO INFRASTRUCTURE PROPONENTS, AND WHAT IMPROVEMENTS COULD BE MADE TO FACILITATE CERTAINTY AND TRANSPARENCY IN INFRASTRUCTURE INVESTMENT.

The Infrastructure Australia Priority List (May 2016), has identified 92 government infrastructure and related projects costing an estimated $91bn to be delivered over the next 15 years.

While Australia has a record of delivering high-quality infrastructure projects, further work is required to ensure a whole-of-life approach to project development, delivery and operation. Funders of projects are often unaware of the quantifiable benefits of engaging a Quantity Surveyor from concept through construction, delivery and asset operation. In addition, there is a need for greater transparency of the business case, including cost benefit analysis and evidence supporting underlying assumptions, for all projects seeking government funding.

The Productivity Commission (2014) identified insufficient benchmarking capability for infrastructure projects as an issue in Australia, which can be used to provide evidence supporting cost estimates. The fact that there was no input into the Commission’s inquiry from the quantity surveying profession is evident, as benchmarking against other projects is a metric which quantity surveyors provide. This highlights yet another gap in the governments awareness of the specialised services quantity surveyors provide and something that must be rectified going forward.

The utilisation of Building Information Modelling (BIM) is a key technological

component in the whole-of-Life approach to mega-project construction economics, and one which the Institute needs to be at the forefront (to prevent a piecemeal approach to its application), with Institute members being ideally placed to provide independent, impartial and expert advice on the use and application of BIM. On the North West Rail Link, a web-based BIM project management system is being used for the control and evaluation of data to efficiently manage the building and operation of the rail project.

The question is, are the professional services and skill sets available through Quantity Surveyors fully and clearly articulated to infrastructure proponents, and what improvements could be made to facilitate certainty and transparency in infrastructure investment.

During the course of the project, data is collected and automatically linked to a 3D model, analysed and archived for future usage. This data is then able to more effectively manage the rail link, and improve its maintenance while it is operational.

The February 2016 Infrastructure Australia Plan recommended that post-completion reviews of infrastructure projects should be undertaken to provide an objective

assessment of a projects performance and how this compares to the forecasts in its business case, specifically; • Evaluating (upon completion of the delivery phase) whether the project was completed within scope, on time, and on budget, what variances occurred, and what un-scoped risks materialised This is yet another example of where the independence and expertise of a quantity surveyor should be engaged for the benefit of both government and private sector funders.

While I am largely preaching to the converted, continued and increasing investment in significant infrastructure projects, either by governments, the private sector, or via PPP arrangements, not all funders and operators of construction projects fully appreciate the significant benefits that can be delivered by engaging a quantity surveyor.

This, along with efficiencies in the tendering process affecting Quantity Surveyors, are issues that the Institute will be highlighting when engaging with government and other funders of not just major infrastructure projects, but all construction projects.

Grant Warner

CEO The Australian Institute of Quantity Surveyors

OLYMPIC

MULTI-INTERVIEW

THE 2000 SYDNEY

OLYMPICS

AS THE RIO 2016 OLYMPIC SEASON COMES TO A CLOSE. FOUR AIQS MEMBERS REFLECT ON THEIR OWN OLYMPIC JOURNEY

MARK CHAPPÉ FAQIS

MARK SIMS MAQIS

SPECIALISM: Overlay and Sports Costing for Major Events FIRM: Rider Levett Bucknall

SPECIALISM: Cost Management of Major Sporting Events & Stadia FIRM: Rider Levett Bucknall

SPECIALISM: Measurement Of Builders Bills Of Quantities FIRM: Project Anlaysis Pty Ltd

SPECIALISM: Cost Management FIRM: Turner & Townsend

Mark has worked in the property and construction industry since 1978. Prior to joining Rider Levett Bucknall in Australia, Mark was a senior partner of a quantity surveying practice in Durban, South Africa. He was involved in various construction sectors including health, commercial offices and industrial, education, entertainment, residential plus significant pipeline civil engineering projects. He also was a part time lecturer in quantity surveying at Natal University.

Mark is a Director at RLB NSW who has been involved in the cost management on major sporting events for 18 years.

Chris has worked in the construction industry for over 40 years. Following employment with small QS practices in England he joined Rider Hunt in 1981 and worked at the Sydney practice for 23 years. During this time he gained experience in various public hospitals, health facilities and rural roll out health programmes, Homebush Bay Showground Development, Olympic Overlay Works for the 2000 Sydney Olympic Games, Bank roll out programmes for NAB and CBA, Harcourt Hill Golf Course in Canberra, major retail redevelopment projects, project programming and planning, plus an assortment of new build and refurbishment projects in brewery, retail and commercial developments. Chris joined Project Analysis as a director in 2003, became Managing Director in January 2014, in his thirteen years with PA he has been involved with over 1300 commissions with the majority being the production of Builders Bills of Quantities for builders in the tendering stage.

Robbie has been in executive positions in the building industry since 1976. He was awarded the Association of SA Quantity Surveyors Merit Award for Excellence, for his contribution to the South African Construction Industry in 1997.

Since 1998 he has had significant exposure to construction processes and contracting methods within Australia whilst working with Rider Levett Bucknall. Mark has managed both pre-contract and post-contract quantity surveying services on projects varying from less than $1 million to over $3 billion.

Mark has worked within two Olympic organizing committees as a cost manager and provided budget advice to numerous other Olympic, Commonwealth, European, Pan Pacific and Asian games Host / Bidding nations. His knowledge of the operations of major sporting events enables him to provide robust budget advice at the early stages of design.

10 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

CHRIS SAUNDERS AAQIS

ROBBIE STEWART MAQIS

A former international sportsman and sports administrator his concern for employment creation and his background in Olympic sport led Robbie to initiate the Olympic bidding process in South Africa. He led the Durban initiative to bid for the Olympics in the internal selection of a Bid city. He then served as Director of Sport and Facilities for the Cape Town 2004 Olympic Bid. Robbie was a Director of SBDS Quantity Surveyors for 18 years before being brought to Australia

by Rider Hunt Sydney (now RLB) in 1999. Robbie joined Turner and Townsend Sydney in July 2006 as Principal Cost Manager and Director, he is now a Senior Consultant.

1. TELL ME ABOUT YOUR ROLE IN THE 2000 SYDNEY OLYMPICS? Mark Chappe (MC): My role was that of a Cost Planner working in a team to primarily cost the Overlay for several Olympic Park precincts, including Olympic Park at Homebush and the old Sydney Entertainment Centre in Darling Harbour. Overlay is all the temporary works that are needed for a major event such as an Olympic Games.

We had a leader team of about 6 working on different venue precincts/locations within and around the city, with our contract to the delivery section of the Sydney Organising Committee for the Olympic Games (SOCOG), called Olympic Coordination Authority (OCA).

OCA required us to determine budgets for each venue which were turned into Guaranteed Maximum Prices (GMPs) that they ‘contracted’ with SOCOG to deliver the works.

Another team within the company worked for the ‘client’, SOCOG, as their representative in the negotiations with the delivery ‘contractor’, OCA. Thus at times representatives of our company were sitting across the table from each other!

Mark Sims (MS): During the Sydney Olympics I was an Assistant Quantity Surveyor, initially I went there to help out a colleague for two weeks however I found myself seconded to SOCOG for 4 years.

During this time, I prepared budget updates for the temporary work or overlay for all the competition and noncompetition venues.

SOCOG essentially held budget responsibility for all of the overlay work, whilst the government through OCA was responsible for the construction of the permanent venues.

Chris Saunders (CS): I was involved in two cost planning roles related to the Sydney 2000 Olympic Games.

The first was the Royal Agricultural Society (RAS) relocation from Moore

Park in Sydney out to Homebush Bay. The initial budget allocation of $130 Million provided a very basic industrial solution to the RAS area requirement and through an extremely rigorous design development process the budget rose to $285 Million. Construction work saw approximately fifty separate work packages let and completed within a fourteen-month construction period on a 600m x 600m footprint.

The second was a cost planning role to the OCA for the Olympic Overlay which covered temporary works to existing facilities in order for the Games to proceed, the budget for Overlay works was approximately $390 Million.

At the time neither roles were the types of projects commonly undertaken, so there was no obvious cost data or cost bench marking data readily available. The cost planning process commenced from basic principles with the scope of work in a state of constant flux. It demanded continuous application of manpower which varied as the demands dictated.

Robbie Stewart (RS): I worked on the Overlay (Temporary Work) for the International Broadcasting Centre (IBC) and the Media Centre. These were housed in warehouses at Homebush.

Through this experience and my previous experience in cost and development management of major sporting facilities I participated in the preparation of capital budgets for Olympic and other Games.

These included the 2006 Asian Games in Doha, Qatar, the Beijing Olympic Bid, the Cape Town Olympic Bid and the Beijing Olympic Games.

WHAT WAS THE KEY DIFFERENCE WHEN WORKING ON THE OLYMPICS IN COMPARISON TO OTHER MAJOR PROJECTS? MS: The key difference between the Olympics and other major projects is the absolute finite finish date.

RS: The event is happening and the project cannot be delayed.

SOCOG Sydney Organising Committee

for the Olympic Games OCA Olympic Coordination Authority GMP Guaranteed Maximum Prices RAS

Royal Agricultural Society

CS: There are multiple separate work packages making up the total project all progressing at different rates; ever changing scope requirements, and the constant public and government scrutiny of the process which can affect the decision making process.

MS: There is also very little information and expertise locally, ie the last Olympics Australia hosted (prior to 2000) was in 1956, or Commonwealth Games in 1982.

Prior to the Sydney Games there was not a lot of cost information available or shared from prior games. However since Sydney, Quantity Surevyors have been far more involved and we now see a lot more cost information available, which makes

THE EVENT IS HAPPENING AND THE PROJECT CANNOT BE DELAYED benchmarking a lot easier.

MC: For our team it was a fast learning curve adjusting our knowledge of pricing construction works of a permanent nature to that of a temporary nature.

We had to use our core pricing skills of a quantity surveyor to build up rates from first principles for the unique items, acknowledging the capability of suppliers for the quantum of such a large project and the logistics of delivery.

The suppliers used for hiring of commodities are not your usual construction suppliers and they tend to

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 11

be large international companies who have the stock to provide for a mega project such as an Olympic Games.

They tend to move their wares around the world and Sydney being far away from Europe/USA, where most of the large events occur, was a challenge with respect to pricing due to transport costs.

We believe that our team was the first to build up such rates for the Olympics because there was no data available from previous Games, and the International Olympic Committee is committed to knowledge sharing.

The importance of such roles is that they provide a level of detail in terms of quantities and costs that allows both micro and macro decisions to be made on the adequacy of the scope of work or budget allocation.

2. WHAT IS THE TIME SCALE OF SUCH A PROJECT? MS: The vote for the selection of the host city takes place 7 years prior to the games, Sydney was announced the host city in September 1993. Work on this bid would have commenced at least a year prior.

MC: The first detailed budgets we did were around 5 years out from the Games and these were continually refined and cost planned until the GMP’s were agreed some 18 months prior to the Games commencing.

3. WHAT ROLE DO/DID QUANTITY SURVEYORS PLAY DURING THE BIDDING STAGE AND WHY IS THIS VITAL? CS: The role during the delivery stage was that of budgeting, estimating, cost planning, value engineering and cost reporting. With the numerous venues all in varying states of progress this role was resourced to accommodate the needs the project demanded.

Fast, thorough, clear cost advice was

necessary to allow decisions to be made promptly and the momentum of the project to be maintained.

MS: RLB was involved as far back as Sydney’s unsuccessful bids to be the Australian nomination for the 1992 and 1996 Olympics. We were also the QS for Sydney’s successful bid for the 2000 games. We were preparing estimates for the 2000 bid as early as 1992.

Within the bid is a commitment to deliver venues and infrastructure to support the games. Some venues are even delivered “on spec” prior to the winning the games, just to confirm the countries appetite and commitment to sport and to host the games.

The role of the QS in this case is clearly to advise the government on the costs of the venue and infrastructure designed to be delivered for the games. This is best compared to a feasibility estimate, very high level, lots of assumptions and very little design.

MC: Since Sydney 2000 I have been involved in four Olympic Bids and various other major international event bids such as Commonwealth Games and Asian Games and the role of the quantity surveyor has become critical in the success of this type of bidding. The cost of venue infrastructure for Olympic Games is huge and this is only one of the costs that a host city has to stump up for.

How many cities have been left financially destitute with ‘white elephants’ a few years after hosting Games? Without a proper budgeting process during the bid process the city would have no way of knowing what they are setting themselves up for.

RS: Whilst working on the South AfricanCape Town bid I had a team coordinating the scope and design of the Venues. We had more than forty Quantity Surveying practices preparing full elemental estimates of every Olympic venue and training facility.

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SINCE SYDNEY 2000 I HAVE BEEN INVOLVED IN FOUR OLYMPIC BIDS AND VARIOUS OTHER MAJOR INTERNATIONAL EVENT BIDS SUCH AS COMMONWEALTH GAMES AND ASIAN GAMES AND THE ROLE OF THE QUANTITY SURVEYOR HAS BECOME CRITICAL IN THE SUCCESS OF THIS TYPE OF BIDDING. THE COST OF VENUE INFRASTRUCTURE FOR OLYMPIC GAMES IS HUGE AND THIS IS ONLY ONE OF THE COSTS THAT A HOST CITY HAS TO STUMP UP FOR. MC: Cities are increasing facing public scrutiny and rejection if they start the bidding process without engaging the local people. Public referendums and opposition has resulted in several cities recently withdrawing after spending significant sums in the early bidding process. Examples of this include Boston (USA) and Hamburg (Germany) for the current bidding for the Summer Olympics in 2024. Rome (Italy) although still bidding for these Games, is under increasing political pressure to withdraw.

For the 2022 Commonwealth Games,

only one city (Durban, South Africa) ended up submitting a bid for this same reason.

The IOC is very aware of this and has adopted the Olympic 2020 Agenda that encourages, amongst the 40 recommendations, more frugality in overall costs by using temporary or reusable facilities.

As a Quantity Surveyor during the bidding phase, some 8 years prior to the Games occurring, we use our data and knowledge from previous and current Games costings to put together indicative high level budgets so the city understands what the costs will be. Each city (or central government) as part of the bid process has to put up guarantees to the IOC that they will source and fund the finance for the works. Therefore, these budgets are crucial and need to be as accurate as possible as these guarantees are binding on the bidder if they are ultimately successful.

HOW MANY CITIES HAVE BEEN LEFT FINANCIALLY DESTITUTE WITH ‘WHITE ELEPHANTS’ A FEW YEARS AFTER HOSTING GAMES? WITHOUT A PROPER BUDGETING PROCESS DURING THE BID PROCESS THE CITY WOULD HAVE NO WAY OF KNOWING WHAT THEY ARE SETTING THEMSELVES UP FOR.

Secondly, the IOC wants to know as part of the bid process whether the city has an appreciation of these costs and this is part of the bid evaluation process.

High level numbers for both Legacy and Overlay are submitted by the city and these are scrutinised by the evaluators and sometimes the cost consultant is questioned during the city visit to make sure the numbers are real.

Our skills and processes as Quantity Surevyors are ideal to provide this level of detail for both the bid and later when the evaluation committee has questions of the bid city. How useful a detailed cost plan becomes when an IOC member across a table asks a curly cost question of the team as to whether the costs for rowing pontoons are included or not and what size they are!

4. WHAT IS VITAL DURING THE DELIVERY STAGE? CS: The role during the delivery stage was that of budgeting, estimating, cost planning, value engineering and cost reporting. With the numerous venues all in varying states of progress this role was resourced to accommodate the needs the project demanded. Fast, thorough and clear cost advice was necessary to allow decisions to be made promptly and the momentum of the project to be maintained.

MS: SOCOG was privately funded. This was done through sponsorship, ticket sales, licensing and other contributions.

From an expenditure side this funding has to pay staff wages, consultant fees, uniforms, overlay works, technology, transport, ceremonies, marketing, office rentals and so on.

Overlay works typically account for 20 – 30% of the total expenditure. To effectively manage this budget RLB had a team of about 10 people, 2 based within SOCOG and the remaining team based in our office.

Our approach to manage the costs were as follows: Make it lean - It is about minimising expenditure and maximising the value for money, make every dollar count, plan to deliver only what is required.

Make it light - Minimise the mark it leaves, use existing where ever possible, look at operational solutions, rather than building.

Make it focused - It is about prioritising to ensure that first and foremost the athletes can perform to their best, the city is showcased, all staff, volunteers and officials can do their job. If it is a “nice to have”, you have to do without it.

Make it last (for as long as it has to) – The Olympics and Paralympics go for about 5 weeks in total, so building overlay to withstand the test of time is not critical, it has to be safe and be functional.

I know many architects would cringe at this, but aesthetics are less important in many areas than functionality when it comes to overlay. The service we delivered was all about managing building costs and ensuring SOCOG got value for money. It is was about communication and providing comfort that the scope required has been captured and is covered by a budget allocation.

We successfully achieved this through the following steps: Firstly, with the preparation of a realistic cost estimate: This involved “fact finding “, i.e. speaking with internal functional areas, such as sport and technology to understand their requirements; Initial market engagement to find out “who can deliver what”, and for “how much”; and incorporating past experience to “fill in the blanks”.

Secondly, with updating cost estimates: The moving of venues or changing the combination of sports held in venues

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 13

meant that numerous cost benefit studies were done to ensure the most efficient use of resources. Functional areas grow and develop, this may mean changes to their overlay requirements need to be incorporated, but also checked against budget. The permanent venues delivered by the OCA or others also changed, which meant the overlay required to meet games needs also changed. Numerous presentations to the finance department, such as gap analysis, funding shortfalls, risks & opportunities were made.

Thirdly, Value Management: Facilitating workshops to drive value, benchmarking to other games (in area or quantity), looking at synergies, that is who can share with who; Always questioning, how much or what type of space do you really need; Looking at creative ways existing facilities can be used or adapted; Always looking for other available options and looking for operational solutions.

Finally, refinement of responsibilities: Who should be paying for what; liaison with OCA and other government bodies, to ensure what we were budgeting was aligned with what they were budgeting for, to ensure NO GAPS.

5. THE AVERAGE COST OVERRUN FOR PRODUCING THE OLYMPIC GAMES HAS BEEN MORE THAN 150% SINCE 1976. WHY DO YOU THINK THIS IS? MC: Essentially, in my view, the reasons for the budget overruns are twofold.

Firstly, the bidding city may not have wanted to set a realistic budget because perhaps it was a case of win and then we will find the money. Consequently, the budget was never going to be right in the first place, so there is no overrun of a budget, just overrun of an inappropriate bid value.

Secondly, the successful bid city does not set realistic times for the process of delivering the Games. They procrastinate in the early years for various reasons and no champion appears to guide them through the quagmire. The Opening Ceremony date does not change and as the delivery team is concertinaed towards this date something has to give. The loser is money, remember the project management triangle of money vs quality vs time. The delivery contractors have to resource up and pay premiums which inevitably will cause budget issues.

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EVERY OLYMPIC BUDGET APPEARS TO ESCALATE BEYOND REASON, OR SO IT SEEMS CS: Every Olympic budget appears to escalate beyond reason, or so it seems.

I believe the primary reasons for budget overruns in Olympic Games is that the scope initially receives inadequate cost provision or the scope is inadequate for the intended purpose.

The initial Royal Agricultural Society (RAS) budget rose from $130 Million to $285 Million and while this may not be a true Olympic budget it does illustrate how such change in budget can occur in a major project. When the Royal Agricultural Society (RAS) was first offered $130 Million Rider Hunt was engaged to provide a cost plan identifying what the budget would provide for the area footprint the RAS required. To illustrate the cost plan we were requested to produce crude

sketches of each of the buildings, they were very basic industrial structures.

When this cost plan and accompanying crude sketches were presented to the various interested parties it was quickly realised that the initial budget allocation did not provide the desire solution and a rigorous design development process ensued.

If anyone could have seen the initial design scope we received for cost planning purposes for the earliest Homebush Bay railway station concept and the structure that now stands they would be amazed at the immense growth in scope.

Other contributing factors to budget overruns could be; overheating of the supply markets, whether this be labour or materials; a lack of competition in the procurement process; inadequate planning and industry consultation on available products and services, lack of investment in the design phase by the client.

I also believe that low initial budgets are always more palatable especially when the project receives such public and

IF ANYONE COULD HAVE SEEN THE INITIAL DESIGN SCOPE WE RECEIVED FOR COST PLANNING PURPOSES FOR THE EARLIEST HOMEBUSH BAY RAILWAY STATION CONCEPT AND THE STRUCTURE THAT NOW STANDS THEY WOULD BE AMAZED AT THE IMMENSE GROWTH IN SCOPE

media scrutiny and may provide an easier early political position until the project gains public interest, acceptance and its own momentum.

MS: Yes. In addition, it also depends on what costs are being compared, for example in the 2012 London Games the original budget for the games did not include for the infrastructure and regeneration costs of Stratford. The opportunity to do these works in a time of recession was a huge economic stimulus for the east end of London, these works were delivered by the ODA but not essential for the games directly.

This is similar to the rejuvenation of Homebush prior to the Sydney Olympics.

In short what starts out as a response to brief, grows and evolves to include the opportunity of a social legacy beyond sporting facilities.

Similarly to most large projects, from the bid time for a site or project through concept design and as the design develops, more issues are identified, there is also the opportunity to move the goal posts, in the games you might think an existing arena is suitable to host an event, however with detailed surveys and better design, you might find it simply can’t work, which drives the need to either redevelop or build new.

There is also an underlying challenge to do better than the last, with facilities growing in size and grandeur simply to outdo the previous host.

These factors cannot be predicted at the time of writing or costing the bid, add to that, changes in governments, policies, and economic climate over an eight-year period and you get a perceived overrun, whilst in many cases the posts have moved.

Having said that there are also, as Mark Chappe stated the usual issues of opportunistic suppliers, time delays resulting in acceleration costs, industrial relations, and design changes.

6. TEMPORARY BUILDINGS ARE OFTEN USED IN EVENTS SUCH AS THE OLYMPICS. WHAT ARE THE BENEFITS OF USING TEMPORARY BUILDINGS? ARE TEMPORARY BUILDINGS MORE COST EFFECTIVE? ARE THERE ANY DISADVANTAGES? MC: Temporary buildings come in different forms. They can be hired buildings (more like structures) from the large international event hire companies, they can be purpose built venues for specific sports that can be built, dismantled and relocated to another city or they can be simple ‘warehouse’ type structures that could be sold to a purchaser after the Games, who would take them down and reuse them. They can also be the simple hired typical ‘site sheds’ and temporary toilets that we see on most construction sites.

This is now a strong focus of the IOC and they encourage the uses of temporary buildings.

The ‘site sheds’ and temporary toilets have conventionally been used on Games for decades and will continue to serve a purpose in the future. They are relatively inexpensive and provide the amenity of security that a tent structure does not do and transportability that a permanent building obviously does not have.

The hired large temporary structures are purpose made and expensive, but still a lot cheaper than building a legacy item that has no real use after the Games. At least the city does not have an asset on their books that is vacant and has on-going operational costs to keep it functional. Yes, the Games are expensive when you consider that it is only around 6 weeks long, but the costs have to be considered as a major marketing program cost for the city going forward (sometime good, sometimes not so good!).

The best scenario is that the structure is built temporarily and then on-sold to

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 15

a third party or city, either in the same country or elsewhere in the world.

London 2012 built their entire Olympic Stadium as partially temporary venue. In legacy it will seat only 25,000 spectators but in Games mode it had 80,000. The inner bowl of seating will remain and the upper bowl and roof will be removed and reused elsewhere.

I believe that the philosophy of only building what the city needs both after the Games and planned for in the near future, and can be supported and used post Games, is much better than leaving a legacy of venues that stand empty and become a drain on the city’s finances into the future. The more the Olympic venues become temporary, kit-form or recyclable from one Games to the next, the better that future is for the Olympic movement.

RS: Temporary building are essential for the Olympics –There should be a balance between temporary hired accommodation and relocatable structures that can be moved to other locations where they can provide a legacy.

DO YOU FEEL THAT THIS EFFECTS THE LEGACY OF THE OLYMPICS IN ANYWAY- IF THE BUILDINGS ARE ONCE THERE AND THEN REMOVED? RS: Yes, but there is always the balance between cost and the potential legacy.

The cycling track in Atlanta was a relocatable structure, it was not grand but it was moved to provide a legacy where the cyclists appreciated it.

What you want to avoid is venues like some of the facilities in Beijing and more notably South Africa after the Football World Cup where the after-use of the facility is not sufficient to pay for the maintenance and they are falling into disrepair. It would have been better to build temporary stands and leave a venue which is appropriate for its after life.

CS: I see no issue with use of temporary

buildings if permanent structures are unavailable to utilise or adapt, at the Sydney Olympics the Hospitality Centre was constructed on the edge of the Brick Pit from temporary structures and its removal after the Games has no negative effect of the legacy of the Games.

Temporary buildings are cost effective for situations where a short term peak of population occurs, such as the Olympics or even construction of a building where the construction crews need to be housed. The advantage of such structures is that they are quickly installed and equally quickly removed when no longer required, disadvantages of temporary building is that they are transported via road and therefore are limited in unit size and must be constructed to withstand such transport, they generally are utilitarian and not attractive structures.

For an event such as the Olympics they work well and can be dressed to camouflage their mundane appearance.

venues were not constructed where there was no Legacy, and as such the organising committee had a much higher reliance on temporary venues than had been the case for other organising committees.

Similarly for the government delivery agency, constant pressure from external Government bodies and along with prudent legacy planning meant that they were also driven to reduce spending on permanent construction to achieve their budgets. The London organising committee’s expenditure on temporary works would have been over A$1.2 billion, yet there is a widely held view that the games successfully left a legacy, just not by building a new venue for every sport.

It also means you can define the cities legacy beyond the construction of a permanent venue.

MC: As part of the bid process the IOC requires the city to indicate which venues are existing (with and without modifications), planned new (with and without Games occurring) and temporary.

The IOC stresses that any legacy (new) venues must be sustainable after the Games so there are less ‘white elephants’.

They therefore encourage temporary venues if cost effective or better still, venues that are adaptable by either downsizing or relocating to another city.

That is, why would one city need so many arenas and stadia when the athletes, TV crews and crowds have finally moved on? As Quantity Surveyors, both at bid and during delivery phases, we need to cost the temporaries as overlay and then cost both the legacy venues and parks in both their Games mode and then in the future when they are downsized or relocated. During the bid phase this assists in enabling the bidding team to make decisions as to what venues they should build the permanent mode and which they should not.

For example, London had a clear objective from the bid and throughout the planning and delivery phases and that was to achieve a Legacy for London post games. From a venue construction perspective this meant that permanent

RS: Quantity Surveyors should be involved in every project looking at the viability of the project, balancing the immediate need to provide an Olympic class venue against the purpose to which it will be used for the remainder of the life of the project.

MS: The choice of permanent construction vs temporary building is generally made early on. This decision will take into consideration: the profile of a sport in the host country; the future needs of the community; the level of participation in a sport; IOC bid commitments; the availability of suitable space or facilities; and cost.

All venues that host an Olympic event regardless of whether they are permanent or not, will have some element of overlay added to it. The benefit of using temporary works is that venues can be designed properly for their legacy use, and not for a one off event.

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The Sydney Olympic Swimming Pool was built during the Bidding stage for the Sydney Olympics and is a prime example of how a venue can be viable from day one even before the Olympics.

The Regatta Course at Penrith is a prime example of a venue built specifically for the Olympics without regard to the rest of the life of the facility. The layout of the course is almost identical to many other courses in the world. The technical advisor from the International Rowing (FISA) advised us on the layout of the venue in Cape Town and it replicated Sydney almost exactly. The problem (apart from the water) is that it is too spread out for everyday use. Instead of competitors being able to watch the racing on the course, the rest areas are remote from the course, which is ideal for the Olympics but not great for the majority of events held at the course.

Additionally, small things like the parking for the restaurant is remote from the venue making it less attractive to patrons on an everyday basis.

7. WHAT ARE YOUR THOUGHTS ON THE UPCOMING PLANS FOR THE SYDNEY OLYMPIC PARK? CS: For those of us of a more mature age who can recall how desolate Homebush Bay was in the late 1980s and early 1990s, its neglected vast concrete abattoir sale yards, the Brick Pit, the pungent aroma from the tanning works and/or the Primo small goods facility and the apparent indiscriminate land fill, the SOP 2030 Master Plan must be somewhat of a surprise, albeit a most welcome one.

When I first viewed the site in the late 1980s I did not imagine such development would be undertaken in only a 30 year period. However, with the beauty of hindsight, having such a blank canvas so close to the city and having the opportunity to hold an Olympic Games, which probably pushed through

any inertia there may have been to ‘do nothing’ in Homebush Bay RS: Sydney Olympic Park is in my opinion working well but it is losing some of the WOW factor that was there during the Olympics as the area densifies.

MS: I think there is a definite need to revamp the park, to ensure that the land use is optimised, not only on event days, but also on non event days.

8. WHAT CAN WE LEARN FROM THE SYDNEY 2000 OLYMPICS? WHAT CHALLENGES DID YOU ENCOUNTER AND HOW DID YOU OVERCOME THEM? CS: Australia learnt that we could hold an Olympic event and do it well. If we look at the volume of business consultants associated with the Olympic Games in Sydney have gained on subsequent Olympic Games it confirms the fact that an expertise has been gained from their experience at the Sydney Games, is respected on the world stage and is being continually expanded.

RS:What can we learn from Sydney?

• It was extremely well managed. Venues were completed well in time so that there was no panic at the end.

• The legacy from the Sydney Olympics was not just in the facilities and the infrastructure built for the Games but the legacy left for Australian children who were inspired to live an active life and the funding gained by the Australian Olympic Committee to help those who get to compete for their country.

• The Sydney Olympics confirmed Australia’s status as a can-do country and boosted Sydney’s property market which unfortunately had a negative effect on those first time buyers who were youngsters when the Olympics came to their home town. Many of their

parents benefitted from that boom and they are assisting their offspring to get into the property market.

• It certainly boosted Sydney and Australia’s tourism before, during, and after the Games.

MC: I learnt that the skills of a Quantity Surveyor are transportable across industry sectors, not just pure building construction. I also learnt that megaprojects such as the Olympics can change your career and add spark and vitality because of the spontaneity and excitement of working on a world showcase event. Many folks who worked on Sydney 2000 Olympics have opted for the nomadic life of a sports and events specialist and move around the globe for the next major event. I have been fortunate in that I have been grounded yet still every couple of years get involved in another event bid that gets me visit and work on the great cities of the world.

A major challenge is working out costs for unique items and processes of the event world, and then keeping them up to date for the next event in a different country. They can be overcome easily if we just remember that we as Quantity Surveyors are proficient experts at breaking things up into units and determining the constituent parts to be costed. If we use fundamental measurement and pricing analysis, we can cost anything anywhere in the world.

MS: Thinking laterally and communicating with a wide range of people who are not involved in the construction industry is challenging.

However learning to communicate and negotiate effectively was really important, particularly with people who don’t know or sometimes don’t care about the build budget. Working on the Games, I found myself having to explain in much more depth, how and why we had done something, and how this piece of the puzzle fitted in to the rest, you couldn’t just assume someone understood.

THE BUILDING ECONOMIST - JUNE 2016 - 17

The need to speak up and offer opinion is a value add, and with a finite time to deliver, there was not the time to wait and be responsive, so we were more engaged in the design.

9. WHAT TIPS CAN YOU SHARE FOR OTHER QUANTITY SURVEYORS? WHAT ADVICE CAN YOU GIVE TO OTHER QUANTITY SURVEYORS WHO WANT TO BE INVOLVED IN SUCH A PROJECT? MS: I think the biggest tip with a project such as the Olympics is to immerse yourself in it, to get involved. These are once in a generation type events, and whilst its easy to just do your job, the real benefit is being involved in something special.

THE SKILLS OF A QUANTITY SURVEYOR ARE TRANSPORTABLE ACROSS INDUSTRY SECTORS, NOT JUST PURE BUILDING CONSTRUCTION

and cheap optimistic pricing does not constitute an efficient design, it is just wrong.

Never give a client or leading consultant the ability to reduce your estimates without valid reason, it will help when cost planning never to include large lump sums, clients, architects and PMs take pleasure in reducing all large numbers they find in cost plans.

Example: I have worked many years in public health facilities and one thing budgets never adequately provide for is landscaping. When working on the Coffs Harbour Hospital many years ago we had a large number of internal courtyards as well as the usual perimeter landscape treatment. Our measurement of the landscaping was by separate area and fairly well detailed so rather than include the detail we put a lump sum in the cost plan to see if we got the usual response.

As soon as the PM saw the large number against landscaping he requested it be reduced. When he was presented with the detailed measurement he realised the allocation was not extravagant.

Never let a client tell you that contingency belongs to them.

Be confident, inquisitive and show some class, be an industry leader, we can be a timid breed so aim not to be.

MC: Very simple, be good at what you do as a QS in the construction industry because your skills are transportable.

CS: Tips that I can share have not really arisen from my experience on the Sydney Olympics but more from hanging around the industry for 40 years, and I have not always lived by these myself.

Invest in your role completely, be thorough in your measurement and pricing, always bench mark your results whenever you can. A short measure

18 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

“ANZ STADIUM -THE ONLY MAJOR OLYMPIC STADIUM IN THE WORLD TO HOST FIVE SEPARATE SPORTING CODES, NRL, AFL, RUGBY UNION, SOCCER AND CRICKET”

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 19

OLYMPIC LEGACY

CREATING A

LEGACY “THE DECISION TO BUILD A PURPOSE-DESIGNED OLYMPIC PRECINCT, TOGETHER WITH A STRATEGY TO ENSURE AN ON-GOING AND SUSTAINABLE ECONOMIC LEGACY FOR THE GAMES, IS PERHAPS THE GREATEST LESSON THAT SYDNEY’S OLYMPIC GAMES HOLDS FOR FUTURE HOST CITIES OF MAJOR SPORTING EVENTS, AS SHOWN

BY THE INTEREST IN THE PRECINCT BY THE HOSTS OF THE BEIJING 2008, LONDON 2012, RIO 2016 AND TOKYO 2020 OLYMPIC GAMES,” SAID NSW MINISTER FOR TRADE, TOURISM & MAJOR EVENTS AND MINISTER FOR SPORT STUART AYRES.

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Sydney’s plans for the Olympics always included a commitment to a long-term legacy for the Sydney 2000 Olympic and Paralympic Games.

The long term development of the Park had been guided by the principles of building an economically and environmentally sustainable major events precinct incorporating residential, commercial, sporting and recreational infrastructure for the people of Sydney.

To this end, Sydney Olympic Park has attracted almost $3 billion in private sector investment in the years since the 2000 Olympics, resulting in a community which today boats a daily population of more than 20,000 workers, residents and students, is the base for almost 230 organisations and plays host to almost 6,000 events and 14.3 million people a year.

Sydney Olympic Park’s commitment to an environmentally sustainable future includes significant environmental benchmarks for all new developments, the connection of all buildings within the Park to the WRAMS water recycling system and the maintenance of some 3430 hectares of parklands and environmentally sensitive areas, including endangered species habitat.

To ensure Sydney Olympic Park continues to deliver for the people of New South Wales, the Park’s development is guided by the Sydney Olympic Park Master Plan 2030. This provides a blueprint for the future development of Sydney Olympic Park.

Initially calling for a 2030 daily population of 50,000 workers, residents and students plus 25,000 visitors a day, the Master Plan is currently undergoing a five yearly review to ensure that it continues to meet the needs of the NSW Government and the people of Sydney. The Master Plan is expected to go on Public Exhibition

shortly and for a revised Master Plan to come into effect in 2017.

“Sydney Olympic Park continues to attract significant investment from the private sector due in part to its long term strategy for sustainable growth to meet the needs of the people of New South Wales,” said NSW Minister for Trade, Tourism & Major Events and Minister for Sport Stuart Ayres.

“To this end, Sydney Olympic Park has attracted almost $3 billion in private sector investment in the years since the 2000 Olympics, resulting in a community which today boats a daily population of more than 20,000 workers, residents and students, is the base for almost 230 organisations and plays host to almost 6,000 events and 14.3 million people a year.”

“The decision to build a purposedesigned Olympic precinct, together with a strategy to ensure an on-going and sustainable economic legacy for the Games, is perhaps the greatest lesson that Sydney’s Olympic Games holds for future host cities of major sporting events, as shown by the interest in the precinct by the hosts of the Beijing 2008, London 2012, Rio 2016 and Tokyo 2020 Olympic Games,” Mr Ayres said.

growth and development of Sydney Olympic Park. Major sporting venues built for the Games continue to be extremely well utilised for events throughout the year. For example, ANZ Stadium is the only major Olympic Stadium in the world to host five separate sporting codes, NRL, AFL, Rugby Union, Soccer and Cricket.

Other non-sporting infrastructure continues to play an integral part in the daily operation of Sydney Olympic Park and surrounding areas.

For example, the Water Reclamation and Management System (WRAMS) recycled water system not only supports the existing infrastructure of Sydney Olympic Park and surrounding residential suburbs, it is connected to all new developments within Sydney Olympic Park. This in turn contributes to these developments achieving the high Green Star rating demanded of all new construction within the Park.

“The continuing success of Sydney Olympic Park is due in part, to the longterm legacy planning that permeated the decision to place the Olympic precinct at the gateway to Western Sydney, and the continuing use of that infrastructure to serve the needs of Sydney’s growing population,” said NSW Minister for Trade, Tourism & Major Events and Minister for Sport Stuart Ayres.

INFRASTRUCTURE DEVELOPMENTS

REUSED AND REGENERATED

A significant number of commercial and residential developments are either under construction, build-ready, or likely to receive planning approval within the next two years.

Infrastructure originally designed to support the 2000 Sydney Olympics continues to support the continued

Key developments include the following:

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 21

DATE STARTED: 2014 COMPLETION DATE: LATE 2016 COST

$31m completion value

PROJECT SUMMARY

LOCATION

9 Murray Rose Avenue

A six story commercial office building with associated ground floor retail premises, this building will be the future home of the NRMA. Construction is being undertaken by FDC

LOCATION

COST

DATE STARTED: 2016 COMPLETION DATE: 2018

10 story, 256 unit residential building over 3,000m2 of retail space being undertaken by Payce

LOCATION

COST

DATE STARTED: 2015 COMPLETION DATE: 2017

Botania, a 10 story, 357 unit residential development, undertaken by Meriton

1 Burroway Road (Adjacent to Sydney Olympic Park Ferry Wharf)

100 Bennelong Parkway

$155m completion value

PROJECT SUMMARY

$186m completion value

PROJECT SUMMARY

DATE STARTED: AWAITING DEVELOPMENT CONSENT COMPLETION DATE: TBC COST

$255m completion value

PROJECT SUMMARY

LOCATION

2 Figtree Drive

Pavillions, a 15 story, 422 unit residential tower development incorporating ground floor retail to be undertaken by Mirvac

LOCATION

Cnr Australia Avenue and Bennelong Parkway

DATE STARTED: 2016 COMPLETION DATE: 2018 COST

$300m completion value

DATE STARTED: AWAITING DEVELOPMENT CONSENT COMPLETION DATE: TBC COST

LOCATION

3 Olympic Boulevard

LOCATION

$230m completion value

4 Murray Rose Avenue

PROJECT SUMMARY

DATE STARTED: DEVELOPMENT CONSENT APPROVED COMPLETION DATE: TBC

Boomerang, a 32 story, 203 unit residential tower block incorporating commercial office being undertaken by Ecove

PROJECT SUMMARY

Opal, a 35 story, 390 unit residential tower development incorporating ground floor retail being undertaken by Ecove, following their ground-breaking Australia Towers residential development (the first in Sydney Olympic Park)

COST

$80m completion value

PROJECT SUMMARY

6 story commercial office development incorporating ground floor retail to be undertaken by GPT.

For more information on upcoming Olympic Park investments or to access the Sydney Olympic Park Master Plan 2030 please visit: http://www.sopa.nsw.gov.au/

22 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

INSIGHT SOCHI

AFTER SOCHI 2014: COST AND IMPACTS OF RUSSIA’S OLYMPIC GAMES

It was one of the biggest events in 2014, not just for Russia but for the world. The 2014 Winter Olympic Games, held between 7 and 23 February 2014 in Sochi on the Black Sea Coast, broke a series of records. They had the highest number of participating nations (88), the highest number of athletes (2,873) and the highest number of events (98) of any Winter Games. At USD 1.26 billion, they also produced the highest revenue from broadcasting rights ever. The Sochi Games were also among the top 10 of Wikipedia articles that were most frequently edited and viewed in 2014, further attesting to the public interest in the event. But the one record that Sochi will be remembered for is a more dubious one: the most expensive Olympic games ever – summer or winter.

Professor Dr. Martin Müller University Zürich, Switzerland

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 23

The Olympic Games in Sochi were more than a mere sports event, however. The vast funds spent on it and the priority it enjoyed in Russia were meant to expedite regional development in one big push, building state-of-the-art infrastructure and catapulting Sochi into a league of world-class resorts to rival the global winter sports elite of the likes of Zermatt, Vail and Whistler. It was this goal that President Putin highlighted in the pitch he made to the IOC at its meeting in Guatemala in 2007: “Sochi is going to become a new world class resort for the new Russia. And the whole world!”

evaluating them and their consequences (Fund for the Fight Against Corruption, Fitch Ratings, Pew Research Center), and coverage by independent, quality newspapers in Russia (Vedomosti, Gazeta.ru, Kommersant, Moscow Times) or news agencies (AP). For representing the view of the Russian government, it draws on official speeches and statements by government officials and state-run news media (e.g. RIA or RT, formerly Russia Today).

With the benefit of hindsight, this contribution takes a look at the ambitions linked to the Sochi 2014 mega-event and compares them to the actual outcomes.

In so doing, this paper presents the first full account of costs and cost overruns, separating out different types of costs and comparing them to other events.

The material for the analysis is drawn from official reports by companies and organisations, either involved in organising the Sochi Olympic Games (e.g. the Sochi Organising Committee of the Olympic Games, the IOC, the Olympic delivery agency Olimpstroy) or in

The superlative that will dominate public memory with regard to Sochi is not athletic but financial: “the most expensive Olympics ever.” Most Western media reported this fact as a sign of the megalomanic extravaganza that the event.

The figure of USD 51 billion has become the de facto accepted total cost of the event by virtue of its frequent repetition in the media.

It does not represent, however, the final cost nor does it encompass all costs for the Sochi 2014 Games. The figure originated from an estimate of construction costs by Olimpstroy, the state company in charge of most of the infrastructure construction

COST OF THE SOCHI GAMES

24 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

for the Olympics, from one year before the Games, on 4 February 2013. At that time, Olimpstroy forecast the total cost of construction at RUB 1525.9 billion (or USD 51.4 billion at the exchange rate of that day).

But what was the final cost of the Sochi Olympics? The Russian government has not presented a final accounting of all costs and answering this question is far from straightforward, because much depends on what is included in the cost.

Table 1 attempts an estimation of costs, based on public sources. It divides costs into three major categories: - operational costs: the costs of running the event itself. The largest items are typically salaries for staff and IT equipment, but the costs also include things such as transport, temporary venue overlay, accommodation of delegations, ceremonies and so on. The operation of the event is the responsibility of the organizing committee of the Olympic Games, the so-called OCOG, but not all costs are contained in the OCOG budget. Security costs, for example, are often separate, which was also the case for Sochi.

- Sports-related capital costs: the

construction cost of all event-related buildings required by the IOC, i.e. the venues, the Olympic villages and the media centers, but also that of supporting infrastructure (electricity supply, telecommunications, road access, water and sewage etc.).

- Non-sports-related capital costs: All infrastructure not required for the immediate construction and operation of sports-related venues, for example hotels, power stations, new roads and railway connections, an expansion of the airport, new train stations etc.

This division makes it possible to distinguish between direct costs (i.e. operational and sports-related capital costs) and indirect costs (non-sportsrelated capital cost).

Adding up these costs produces a figure higher than the frequently reported USD 51 billion: the total costs linked to the 2014 Sochi Olympics were just under USD 55 billion (RUB 1,652 billion) (see Table 1). More than 90% of the costs were capital costs, indicating the large share of construction for these Olympics (see Figure 1 for an overview of the most important construction). Indeed, such a high proportion of capital costs as a share of total investments was previously only reached by Tokyo for the Summer Games of 1964. It is these capital costs of USD 51 billion that have been reported as total costs, ignoring operational costs, which add more than USD 4 billion to the total.

Figure 1: Map of post-Olympic Sochi with key infrastructure and coastal and mountain clusters Table 1: Breakdown of total budget by type of cost (operational, sports-related capital, sports-related supporting infrastructure, non-sports-related capital) [all costs in nominal USD at average exchange rate of USD 1 = RUB 30.08] * security costs are a minimum estimate from 2011; no current data has been published But are all costs of Table 1 attributable to the Olympics? Organisers and state officials have maintained that not all expenditures should be counted as part of the event. According to them, the true

cost of the event was USD 7.1 billion (RUB 214 billion), which, they claim, includes just the sports-related venues. According to this view, all other costs were incurred as a result of the modernization of the larger Sochi region, which would have happened anyway and has long-term utility for the development of the region.

temporary structures. Since all venues were constructed from scratch, these expenditures were significant and added up to USD 4.4 billion, i.e. more than half of the costs of the venues themselves.

The total sports-related costs, including operating and capital costs, should thus be put at about USD 16.1 billion.

It is true that not all costs should be counted as unique costs of the event.

Russia had indeed launched a socalled Federal Target Program for the development of Sochi as a winter sports resort before it won the right to host the Olympic Games, which included many measures that were not required for the event. But USD 7.1 billion is too low a figure for the total sports-related costs for three reasons. First, it leaves out operational costs of USD 4.2 billion, which would not have been incurred without the event. Second, the figure of USD 7.1 billion underestimates the costs of sports-related venues by some 0.4 billion (RUB 12 billion) (see Table 1). Third, it ignores the costs for supporting infrastructure and site preparation for sports-related venues, for example water and electricity supply, access roads, telecommunications and

But the Olympics have also contributed to the remaining USD 38.8 billion of ostensibly non-sports-related costs.

This happened, first, because the Olympics increased the size of some of the infrastructure to fit Olympic peak demands. The largest project, a combined rail and road link between the coastal cluster and the mountain cluster, some 48 km apart (see Figure 1), which cost more than USD 10 billion, is a case in point. It was built to handle 20,000 passengers per hour – several times the total number of rooms in the mountain resort of Krasnaya Polyana it serves.

In addition, the Olympic Games drove up the cost of the non-sports-related infrastructure by imposing a fixed deadline, enabling contractors to engage in profiteering by delaying construction work. This is a well-known phenomenon, which causes mega-

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 25

COSTS

USD MILLION PLANNED ACTUAL (2007) (2014)

COST OVERRUN (NOMINAL) FUNDING SOURCE

AFTER-USE

TOTAL

12,287

54,914

347%

--

--

Operational Costs

1,648

4,249

158%

--

--

Organizing Committee

1,391

2,327

67%

ca. 75% private

--

Security

257

1,922*

647%

public

--

Capital Costs

10,638

50,665

376%

mostly public

--

n/a

11,894

n/a

1,052

7,532

585%

mostly public

--

Olympic Stadium

51

631

1131%

public

concerts, World Cup 2018

Large Hockey Stadium

164

336

105%

public

multi-purpose stadium

Small Hockey Stadium

24

116

382%

private

national sports center for children

Curling Arena

11

24

113%

state-secured loan

multi-purpose stadium

Speed Skating Oval

28

246

790%

state company

tennis academy

Figure Skating Stadium

38

270

610%

public

velodrome?

Main Olympic Village

66

772

1061%

state-secured loan

apartments

Main Media Center

246

1,274

417%

public

exhibition center

328

n/a

public

recreation, Formula 1

Sports-Related Capital Costs Direct Sports-Related Capital Costs Coastal Cluster

Olympic Park Coastal Cluster Biathlon And Cross-Country Complex

12

2,478

20759%

state company

training center

Bobsleigh Track

120

249

107%

public

training center

Ski Jumps

29

298

922%

state-secured loan

training center

Snowboard And Freestyle Park

21

113

430%

state-secured loan

training center

Alpine Skiing

240

396

65%

state-secured loan

ski resort (Roza Khutor)

Main Mountain Village

44

599

1251%

state-secured loan

hotel, apartments

Sports-Related Supporting Infrastructure

n/a

4,362

n/a

mostly public

--

n/a

38,771

n/a

public

--

Combined Rail-Road Link

n/a

10,546

n/a

mostly public

severely reduced rail service

Other Projects

n/a

28,225

n/a

mostly public

--

Non-Sports-Related Capital Costs

Table 1: Breakdown of total budget by type of cost (operational, sports-related capital, sports-related supporting infrastructure, non-sports-related capital) [all costs in nominal USD at average exchange rate of USD 1 = RUB 30.08] * security costs are a minimum estimate from 2011; no current data has been published

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events and related infrastructure to overrun their budgets much more than other mega-projects (Müller 2015a). It was also present in Sochi, or as one investor put it: “we were in so much of a hurry in the end that we did not count the money”. The average nominal (i.e. without correcting for inflation) cost overrun for capital costs was 347% (see Table 1). In other words, while some of the infrastructure may not have been built specifically for the event, the event made it significantly more expensive.

COST OVERRUNS AND COST INFLATION OF THE SOCHI GAMES But Sochi was not just an expensive Olympic Games, it also experienced significant cost overruns, i.e. the final budget was several times higher than the budget in the bid book. In nominal terms, the whole project became about 4.5 times more expensive than planned (USD 55.0 vs. USD 12.3 billion). The costs for venues escalated particularly strongly, with a nominal 585% cost overrun (337% in real terms, i.e. controlling for inflation). The Olympic Stadium and the Main Olympic Village came in 12 times more expensive than budgeted.

These massive overruns are all the more surprising, considering that the bid book stated that “expenses are forecast on the ‘high side,’ recognising that expenses for Olympic Winter Games are typically under-estimated at this stage” (Bidding Committee Sochi 2006, 99).

The changing scope of projects explains some overruns. The Biathlon and Cross-Country complex, for example, had to be relocated and had to have a separate “endurance village” for competing athletes, because of the elevation difference with the Mountain Olympic Village. Also, some venues had to conform to international sustainable building standards, a requirement that was introduced after the bid. On the other hand, however, the scope for

THE OLYMPIC STADIUM AND THE MAIN OLYMPIC VILLAGE CAME IN 12 TIMES MORE EXPENSIVE THAN BUDGETED some projects shrank. The road-rail link, for example, was downgraded to a two-lane road, after initial plans for a four-lane road, and the cargo port for bringing in construction material was downgraded from an annual capacity of 30 million tons to just 10 million. In fact, organisers were meant to cut the whole budget for the Olympics by USD 10 billion (RUB 300 billion) in 2009, when Russia’s GDP contracted by 7.8% during the financial crisis. Instead, it ended up almost USD 40 billion (RUB 1,200 billion) higher than expected.

Even allowing for unforeseen expansions of scope, the costs of the event itself are still considerably above those of other Olympics. Sochi thus experienced not just cost overrun, but also cost inflation, meaning that cost rose beyond the typical costs of comparable events elsewhere (Flyvbjerg and Stewart 2012).

To conduct such a comparison, costs need to be deflated to the same base year and have the same scope. Flyvbjerg and Stewart (2012) have conducted the most comprehensive and transparent assessment of Olympic costs and this paper uses their methodology for comparison. For this purpose, it first defines the scope of costs as the total sports-related costs, i.e. excluding nonsports-related capital costs, and then deflates them to 2009 as the base year.

For cost overruns, Flyvbjerg and Stewart

(2012) assume that the bid was not able to predict inflation, thus they deflate final costs to the bid year to arrive at the cost overrun in real terms.

Table 2: Comparison of cost and cost overruns of Winter Games in Sochi 2014 with previous Olympic Games [operational costs plus sports-related capital costs] (sources: Flyvbjerg and Stewart 2012; own calculations) Table 2 shows that Sochi 2014 is in second place for the most expensive Olympics ever if considering only the real sports-related costs of USD2009 11.8 billion. It ranks just behind London 2012, which reported estimated total costs of USD2009 14.8 billion. Yet, when the costs per sports event are calculated – one way of standardising expenditure by controlling for the size of the Olympics – Sochi leaps to the front. Organisers spent USD2009 120 million on each of the 98 events – 2.5 times more than the next most expensive candidates. The president of the IOC, Thomas Bach, is thus wrong when he claims that “costs for the Sochi Games are entirely within the bounds of those of previous Games”.

FURTHER USE OF VENUES The high construction costs would not be as problematic if there was a coherent plan for using the new venues. But while the majority of the venues in the mountain cluster will be used as training sites for future Olympic athletes (see Table 1), the future for the six stadia and the main media center in the coastal cluster is uncertain.

The current after-use of the Olympic Park and its venues is piecemeal. The Park sees few tourists, because of the absence of attractions and its remoteness relative to the city center and the main beaches. The after-use that exists is mostly not specific to the purpose of the venues, i.e. it does not use the venues for what they were built. The speed skating oval is now home to a tennis academy, the figure skating

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 27

COST PER EVENT (MLN USD 2009)

COST OVERRUN (REAL TERMS, ORIGINAL COST OVERRUN CURRENCIES) [%] (NOMINAL)

GAMES

COUNTRY

TYPE

FINAL SPORTSRELATED COST (BN USD 2009)

Sochi 2014

Russia

Winter

11.8

120

171**

324**

London 2012*

UK

Summer

14.8

49

101

133

Vancouver 2010

Canada

Winter

2.3

27

17

36

Beijing 2008

China

Summer

5.5

18

4

35

Torino 2006

Italy

Winter

4.1

49

82

113

Athens 2004

Greece

Summer

3.0

10

60

97

Salt Lake City 2002

USA

Winter

2.3

29

29

40

Sydney 2000

Australia

Summer

4.2

14

90

108

Nagano 1998

Japan

Winter

2.3

34

56

58

Atlanta 1996

USA

Summer

3.8

14

147

178

Lillehammer 1994

Norway

Winter

1.9

31

277

347

Barcelona 1992

Spain

Summer

11.4

44

417

609

Albertville 1992

France

Winter

1.9

33

135

169

Calgary 1988

Canada

Winter

1.0

22

59

131

Sarajevo 1984

Yugoslavia

Winter

0.01

0.3

173

1257

Lake Placid 1980

USA

Winter

0.4

11

321

502

Montréal 1976

Canada

Summer

6.0

30

796

1266

Grenoble 1968

France

Winter

1.0

29

201

230

Mean

4.3

31

174

313

Median

2.7

29

118

151

Maximum

14.8

120

796

1266

Minimum

0.01

0.3

4

35

Table 2: Comparison of cost and cost overruns of Winter Games in Sochi 2014 with previous Olympic Games [operational costs plus sports-related capital costs] (sources: Flyvbjerg and Stewart 2012; own calculations) *estimates, ** cost overruns do not include cost for supporting infrastructure (for which no original budget was available)

stadium might become a velodrome and the small hockey stadium is a sports center for children (see Table 1).

Other after-use plans require significant investments. The Olympic Stadium, which hosted just two events, the Opening and the Closing Ceremony, is undergoing reconstruction for hosting several matches during the 2018 Football World Cup, but for that purpose it will have to be expanded by another 5,000 seats and converted for an additional

cost of RUB 3.5 billion (USD 52 million).

What will happen after the four to five matches of the World Cup have been played is unclear, since Sochi lacks a football club to fill a stadium of this size.

The existing football stadium has just over 10,000 seats and has sold out only once in its entire history.

High maintenance and operation costs also hamper the after-use. Authorities initially estimated the annual costs at about USD 233 million (RUB 7 billion), but

28 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

then revised this figure upwards to USD 399 million (RUB 12 billion).

SOCHI'S POST-OLYMPIC INFRASTRUCTURE The preparation for the Olympic Games in Sochi started with a great promise by Vladimir Putin: “All of this is going to be used by millions and millions of citizens – even before the Games and many years after”. One of the big hopes attached

to the Sochi Games was to increase people’s quality of life, in exchange for the years of disruption and construction they had to endure in the run-up to the mega-event. And indeed much has been achieved on this count: Sochi now has bypass roads that alleviate the traffic on its main thoroughfare and a fast road connection from the coast to the mountains. With several new power stations, it also boasts more reliable energy supply. The implementation of new standards of urban planning pushed accessibility to the top of the agenda, with widespread level access for mobility-impaired groups such as wheelchair users or people with strollers.

Cycling and other means of slow transport have received more attention and separate road space.

The most ambitious and expensive project – and the most advertised one - , however, has not come off the ground. The railway connection from Sochi and the airport to the mountains has not become, as its name lastochka suggests, a swallow but rather a lame duck. Its first problem had to do with the

routing, which turned the station at the airport into a branch line, as is evident from Figure 1. This both thinned out service to the airport to a frequency of less than one train an hour, which made the train uncompetitive vis-à-vis road transport, and also made it necessary to change trains if one wanted to travel from the airport to the mountains. The schedule of trains, however, was not synchronised, causing long waiting times for that journey. On top of this, the operator, Russian Railways, reduced the train service to six train pairs a day, taking on average 45 minutes to cover the 48 kilometers from Adler to Krasnaya Polyana. The upshot is a new USD 10 billion road-railway connection – with the highest per-kilometer cost for rail construction worldwide – where the branch to the airport is completely abandoned and the main line sees just six trains per day in each direction. A white elephant if there ever was one.

The oversized and expensive infrastructure and the dire economic situation of many investors will thus require funding for years to come. Table

ONE OF THE BIG HOPES ATTACHED TO THE SOCHI GAMES WAS TO INCREASE PEOPLE’S QUALITY OF LIFE, IN EXCHANGE FOR THE YEARS OF DISRUPTION AND CONSTRUCTION THEY HAD TO ENDURE IN THE RUN-UP TO THE MEGA-EVENT 3 lists an overview of expenses and foregone interest that the government has already announced, including the costs for the maintenance and operation of Olympic venues, the operation of Formula 1, tax breaks for owners of Olympic infrastructure and the moratorium on interests owed for mortgages with the state development

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 29

COST PER YEAR (USD MILLION) Venue operation and maintenance

399

Formula 1 operation

55

Tax break for owners of Olympic infrastructure

133

Moratorium on interest on mortgages

632

TOTAL

1,219

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For conversion from rubles (RUB) into US-Dollars (USD), the average exchange rate from the date of awarding the Winter Olympics (04 July 2007) to their conclusion (23 February 2014) is used for all conversions in this paper, except where indicated otherwise. This rate is USD 1 for RUB 30.08. This method smoothes out exchange rate fluctuations. In all cases, the original ruble values are also reported, to allow readers to apply different exchange rates.

For making costs comparable among different Olympic Games, they were converted from Russian rubles (RUB), incurred during the preparation from 2007 to 2014, to US-Dollars for the base year of 2009.

For this purpose, the costs in rubles were first inflated or deflated from the year in which they were incurred to 2009, using World Bank GDP deflators for Russia. They were then converted to US-Dollars using the average exchange rate for 2009 (1 USD = 31.74 RUB). This methodology follows Flyvbjerg and Stewart (2012) for comparison.

bank. Future event-induced costs add up to more than USD 1.2 billion per year, of which USD 400 million are for maintenance and more than USD 750 million for foregone revenue. This is not counting the cost of other measures, such as moving state-sponsored events to Sochi, which is a net loss somewhere else in Russia.

Table 3: Estimation of future costs of Sochi Olympic venues and tourist infrastructure (see Müller 2014)

CONCLUSION Russia intended the Sochi Games to achieve two things: to facilitate a big push development of the region into a global, year-round holiday resort and to show to the world and its own population alike the face of a new, modern Russia. Yet, the results were sobering. As the opening ceremony approached, both international opinion toward Russia and domestic attitudes toward the Games deteriorated, instead of improving. The main legacy of the Games is oversized infrastructure at inflated prices, paid for almost exclusively by the public. While this applies to many mega-events elsewhere, also and particularly in emerging economies (Gaffney 2010; Maharaj 2011), the extent of underutilisation and the expenditure for the infrastructure in Russia are unparalleled. As if the $55 billion of total costs were not enough, the government will have to subsidize the

AFTER THE GAME IS BEFORE THE GAME

operation and maintenance of venues, tourist, and transport infrastructures in the order of $1.2 billion per year for the foreseeable future.

Yet, “after the game is before the game,” as German football legend Sepp Herberger liked to quip. Even after the Olympic Games, neither the megaevent chapter nor the Sochi chapter are closed for Russia. In 2018, Russia will host the Football World Cup, and despite the intention to reform the planning and management process, costs, cost overruns, and oversized stadia are already a concern (Müller 2015b). Sochi, for its part, will play host to the Formula 1 until at least 2020 and to several matches of the Football World Cup in 2018. This, and continued subsidies to Olympic venues and infrastructure, will mean that federal monies will flow to the region for the years to come.

With a recession of 4.5 percent of GDP forecast for 2015 and Crimea as another major drain on the federal budget, excesses of the kind that Sochi presents will become more difficult to fund and justify vis-à-vis the public.

MARTIN MÜLLER A Swiss National Science Foundation Professor at the University Zürich in Switzerland and a Senior Research Fellow at the University of Birmingham, UK. He studies the planning and impacts of mega-events. As an expert of Russia, he has examined the preparation and outcomes of the Sochi 2014 Winter Games and the 2018 Football World Cup. Among his publications is "The Mega-Event Syndrome", a much-discussed piece in the Journal of the American Planning Association on the challenges of hosting mega-events

This paper was originally published in: Eurasian Geography and Economics Volume: 55 Issue: 6. For full access to this paper (including all references) please visit: http://ssrn.com/abstract=2572479 Photographs are by Bruno Helbling. Sochi is one of six Olympic cities in his photo book Olympic Realities which appeared with Birkhäuser in 2015. www.olympicrealities.info

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 31

Integration with estimating tools

REPORT

THE INFRASTRUCTURE AUSTRALIA PLAN In developing this Plan, Infrastructure Australia has prioritised the user: the commuter waiting for a train, the family paying their electricity bill and the business looking to access new markets. If we get our infrastructure right, these customers will experience energy, telecommunications, water and transport services that are modern, effective and affordable.” – Mark Birrell Chairman, Infrastructure Australia In May 2015, Infrastructure Australia released the Northern Australia Audit, which identified a program of investments and reforms to transform the north of Australia. This was followed by the release of the Australian Infrastructure Audit – the nation’s first comprehensive examination of infrastructure across the energy, telecommunications, water and transport sectors.

Together, the two Audits provide the primary evidence base for the Infrastructure Australia Plan. They set out the case for substantially enhancing the quality, capacity and efficiency of infrastructure and overhauling the way our infrastructure is planned, funded, constructed, operated and maintained.

FINDINGS PRODUCTIVITY DRIVING GREATER EFFICIENCY THROUGH INNOVATION Innovation drives productivity growth.

Ideas for improving the delivery of our infrastructure services should be encouraged, and given an opportunity to be developed and tested.

New transport systems, which disrupt traditional patterns of infrastructure service delivery and use, are increasing in popularity. By capitalising on advances in smartphone technology, data collection, and the growth of the sharing economy, these new systems are able to provide high-quality, on-demand, point-to-point transport services that more directly and intuitively meet the needs of users.

Managed well, the result can be a win for consumers, often with higher quality and lower costs than existing services.

Over the past 20 years, there has been significant progress in opening up Australian infrastructure sector to innovation. The benefits of this in the energy and telecommunications sectors are clear. Greater competition has motivated service providers to put customers’ interests first, and develop new models of delivery. These developments need to be extended across other sectors to drive greater efficiency from our infrastructure and provide even better outcomes for users and taxpayers alike.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 33

WHAT THE AUDIT FOUND

POPULATION ENABLE THE FOUR BIGGEST CITIES TO GROW UP, NOT OUT, TO MEET POPULATION GROWTH

■ Almost three-quarters of Australia’s population growth is projected to be in the four largest capitals (Sydney, Melbourne, Brisbane and Perth), placing pressure on urban infrastructure already subject to high levels of demand.

■ Steps should be taken to foster greater long-term growth in Australia’s smaller capital cities, increasing their vitality while moderating the infrastructure challenges facing the larger cities.

■ Amalgamation of local government is required to enable local councils to achieve the necessary scale and financial capacity to meet their local infrastructure needs.

■ Australia needs integrated infrastructure and land use planning, across all levels of government.

Improvements in planning are necessary if Australians’ infrastructure and economic aspirations are to be realise.

Historically, Australian cities have grown principally through the delivery of lowdensity housing at the edge of established urban areas. In the 1950s and 1960s, this strategy worked well. Widespread car ownership, combined with the relatively smaller size of Australia’s cities and comparatively higher rates of employment in manufacturing areas on the outskirts of cities, meant that new suburbs remained in close proximity to employment and service centres. Over time, the continued expansion of Australia’s cities through greenfield development has meant that the outer suburbs of our cities are increasingly removed from major employment centres. The outcomes have been long journey times, high transport costs for individuals and families, high infrastructure connection costs for taxpayers, and negative social and environmental consequences. Population growth across Australia’s cities in the

next 15 years and beyond will exacerbate these problems. A re-think of the current development pattern of our cities is required to ensure Australia is able to effectively capitalise on the potential opportunities delivered by a growing population.

WELL-DESIGNED, HIGHER DENSITY LIVING FOR OUR BIGGEST CITIES Increasing the delivery of high-quality, medium to high-density development in established urban areas and close to transport infrastructure will provide Australia’s four largest cities with a viable path towards more compact, affordable and environmentallysustainable urban environments.

Meeting the projections for a larger population with higher density provides five key benefits:

34 - SEPTEMBER 2016 - THE BUILDING ECONOMIST

■ The infrastructure costs of housing are usually lower for developments in established urban areas. Much of the necessary connecting infrastructure already exists. Depending on the intensity of the development, investment to augment existing assets, rather than delivery of wholly new infrastructure assets, will be required.

By contrast, greenfield developments must be accompanied by connecting infrastructure such as roads, water and sewer lines, energy sub-stations, connections to telecommunications networks, and access to social infrastructure such as schools and medical facilities. Research undertaken

by Curtin University indicates that the cost difference between the two development pathways can be substantial. The research finds that, the average cost (in 2007 dollars) of providing energy, telecommunications,

water and transport infrastructure services to a unit of housing in existing inner urban areas is $26,500, while for outer urban greenfield locations the cost is $69,500. This represents a difference of $43,000 per unit.13 ■ Development in existing areas is more likely to be located close to public transport, employment centres, services and amenities. Residents benefit from shorter journey times, lower transport costs and more opportunities for recreational and work related walking and cycling. The result is improved social, economic and public health outcomes. At the same time, increasing the density of people living and working within an area improves the economic feasibility of delivering high-frequency public transport services in that neighbourhood and city.

■ Increasing densities across a city places employees and businesses in closer proximity with each other, creating robust labour markets and facilitating the clustering of economic and social activity. There are economy-wide benefits in enabling businesses, in particular knowledge intensive businesses, to be closely located to employees, and other similar businesses. The clustering of economic activity, known as agglomeration, provides individual businesses with wider benefits including economies of scale and improved networks, which reduce transaction costs and provide greater opportunities for knowledge sharing and innovation. These benefits extend beyond our knowledgeintensive sectors. Increasing densities in existing urban areas could also enable a greater number of key workers to live close to where they work, increasing the available labour pool for essential services.

■ Densification in existing urban boundaries has the potential to deliver a range of wider benefits for the ongoing health of Australia’s natural environment. Containing development within existing urban boundaries

allows cities to preserve valuable rural land on the outskirts for other uses, such as agriculture, recreation and environmental preservation.

Densification creates opportunities for lower motor vehicle use, and increased uptake of public and active transport. As a result, the intensity of greenhouse gas emissions can be reduced.

■ The increased delivery of higher densities can assist in addressing housing affordability by increasing the total level of housing supply. The delivery of higher densities also presents an opportunity to expand the range of housing choice in our cities; increasing the availability of lower cost options, such as apartments and townhouses.

While additional reforms are ultimately required to address Australia’s housing affordability issues, the movement towards greater densities can play a useful supporting role.

RECOMMENDATIONS ■ Governments should aim to grow the population of our smaller capital cities, in particular Adelaide, Hobart and Darwin beyond their current projections. These cities offer access to impressive natural and built environments, high-quality infrastructure and services, cultural diversity and a skilled and dynamic workforce. We must ensure that we make the best use of these cities by growing their population and ensuring their continued economic prosperity.

■ The cities of Newcastle, Wollongong, Geelong, the Sunshine Coast and the Gold Coast should be supported by governments, businesses and local communities to grow their populations and economies. Access to new or upgraded infrastructure will be important in enabling these cities to develop strong economic and employment links with our bigger cities.

CONNECTIVITY CAPITAL CITY PUBLIC TRANSPORT INITIATIVES Infrastructure Australia has identified several proposals to expand the capacity of urban passenger rail networks as high priority initiatives on the updated Infrastructure Priority List.

These proposals, combined with other investments and reforms, could represent a viable pathway to transform our major passenger transport systems to accommodate population growth and change across Australia’s largest cities.

Sydney Metro: Sydney’s train network faces a number of challenges. The growth in demand for services combined with worsening capacity constraints, means that without action the network will be unable to meet the city’s ongoing transport needs. The New South Wales Government is proposing to deliver a new 30-kilometre metro-style rail line, from the Metro North West Line at Chatswood, under Sydney Harbour through the Sydney CBD to Sydenham and then, using converted rail tracks on the existing line, to Bankstown. The proposal would deliver 30 trains per hour through the CBD in each direction, and increase capacity across the network by 60 per cent during the peak.

Melbourne Metro: The Victorian Government is proposing to construct twin nine-kilometre rail tunnels from South Kensington to South Yarra, under the Melbourne CBD and linking the Sunbury and Cranbourne/Pakenham rail lines. If delivered, the proposal would reduce existing and future capacity constraints by enabling 20,000 more passengers to use Melbourne’s rail network during peak hour and increasing the capacity, reliability and efficiency of train lines serving growth areas in the city’s north, west and south-east.

Brisbane Cross River Rail: On current projections, the rail connections into

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 35

the Brisbane CBD are expected to reach capacity by 2020 on the back of strong population and employment growth across South East Queensland.

The Cross River Rail Initiative would see a new north-south passenger line constructed in Brisbane’s inner city, running from Bowen Hills to Salisbury through the CBD and providing a second rail crossing of the Brisbane River. The initiative would ensure that the Brisbane CBD rail network has capacity to meet demand beyond 2031, and reduce journey times and crowding.

ACCESS TO JOBS ACROSS OUR BIGGEST CITIES The Grattan Institute report Productive Cities: Opportunities in a Changing Economy shows that large areas of all four cities, mainly on the outskirts, are poorly serviced by critical road and public transport infrastructure.

Sydney: In Sydney, access to jobs by a 45-minute car journey is significantly limited for large sections of the city, with the middle and outer suburbs only able to access between 30 and less than 10 per cent of jobs. Public transport is different.

While large sections of the city are only able to access less than 10 per cent of jobs by a one-hour public transport journey, the city’s rail network improves access along key corridors. As a result, some middle and outer suburbs can access a larger portion of jobs as a result of their proximity to passenger rail corridors.

Melbourne: There are clear gaps in the connectivity of Melbourne’s outer suburbs. Across large parts of the

metropolitan centre it is possible to access more than half of all jobs by car. The proportion of jobs that can be accessed by car declines by distance from the city centre. Some outer suburbs are only able to access 10 per cent of all jobs with a 45-minute car journey. Access to work in Melbourne by a one-hour public transport journey is significantly lower. The bulk of the outer suburbs can access less than 10 per cent of the city’s jobs with a onehour journey on public transport.

Brisbane: Mirroring Melbourne, Brisbane displays a high degree of connectivity by car, with a large component of metropolitan Brisbane able to access over 50 per cent of the city’s jobs by a 45-minute car trip.

In contrast, public transport connectivity is much lower. In large sections of the metropolitan area, fewer than 10 per cent of jobs can be reached by a one-hour public transport journey.

Perth: Access to jobs via car in Perth is higher than the other cities and, except for a small group of suburbs on the city’s outer fringe, it is possible to reach more than half of the city’s jobs from any point in the greater metropolitan area within 45 minutes. In contrast, good public transport access to jobs diminishes the greater the distance from the city centre.

This feature is observed to a varying degree in all four cities.25

BEST PRACTICE Improving the delivery and operation of infrastructure requires detailed information. Reliable, comparable data

about how projects, networks and systems are performing supports a ‘feedback loop’ that guides continuous improvement. Sharing these lessons, and exposing areas in need of additional attention, can inform policy makers and drive better decision making.

WHAT THE AUDIT FOUND ■ Demand for urban transport infrastructure is projected to increase significantly. Without action, the cost of congestion on urban roads could rise to more than $50 billion each year by 2031.

Demand for many key urban road and rail corridors is projected to significantly exceed current capacity by 2031.

■ The national land freight task is expected to grow by 86 per cent between 2011 and 2031, with much of that expected to be handled by road freight.

■ Access to transport remains a critical social equity consideration, particularly for the outer suburbs of Australia’s cities and most parts of regional Australia. These areas generally have an undersupply of transport services (especially public transport) and of local employment options.

■ The quality of telecommunications service across Australia is mixed, with generally good services in cities and with lower quality services in rural and some outer urban suburbs. The NBN is expected to materially improve service levels and the ability of households in rural and remote regions to connect to their wider social networks.

Infrastructure Australia was established in July 2008 to provide advice to the Australian Government under the Infrastructure Australia Act 2008. In 2014, the Act was amended to enhance the organisation’s independence and to task Infrastructure Australia with responsibility to develop 15-year rolling infrastructure plans.

For more information on this plan please visit http:// infrastructureaustralia.gov.au/

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PROJECT INTERVIEW

WILLIAM FOWLER, AAIQS SPECIALISM: Engineering Projects in the LNG and Mining Industries Originating out of South Africa and having trained and worked in one of the most respected Quantity Surveying practices in the country, William arrived in Western Australia some 12 years ago to work in the engineering construction industry, initially commencing with an alumina project, followed by nickel and LNG projects, offering Quantity Surveying and contract management services.

William completed his QS training and successfully completed the South African APC in 1996 to become a registered Quantity Surveyor. Arriving in Australia, he joined the AIQS and became a corporate member in 2007.

THE 3RD LARGEST PROJECT UNDERTAKEN IN AUSTRALIA BE TALKS TO AIQS MEMBER WILLIAM FOWLER ABOUT HIS NATURAL GAS MEGAPROJECT EXPERIENCE.

William has enjoyed providing Quantity Surveying services on a variety of megaprojects, predominantly around Western Australia, and is currently involved in one of Australia’s largest projects in the Top End, Darwin.

In his leisure time, William enjoys spending time with his wife of almost 25 years and challenging his two children to any sport they think they may beat him at, that is until they beat him, then reality sets in.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 37

$11.2B 180KMS 2,500M3 150,000M3 180KM 264 15,000 US

1. TELL US ABOUT A MEGAPROJECT THAT YOU HAVE WORKED ON? WHAT WAS YOUR ROLE? I was involved in the execution phase of a liquefied natural gas (LNG) megaproject from the beginning of 2009 through to the end of 2012. I was initially appointed as a senior Quantity Surveyor within the contracts management team on the project.

My Quantity Surveying (QS) knowledge and experience resulted in my role being extended to the dual role of Quantity Surveyor and contracts engineer, managing the civil site works and concrete packages.

I subsequently managed a range of packages on the project including remeasure, contract management, cost management, the concrete civil works package, mechanical installation, electrical and instrumentation, painting and insulation package and the civil finishing package.

WHAT WAS THE INITIAL BUDGET FOR THIS PROJECT? The initial budget for this project was set at US$11.2B across numerous currencies with various aspects of the project undertaken in multiple centres across the globe. Design engineering was undertaken largely in the UK, with the majority of the process facility modules fabricated in module yards in Thailand.

At the time, this project was recognised as the 3rd largest project undertaken in Australia. It comprised an offshore facility, some 180kms off the Pilbara coast of WA, with a LNG process train and two condensate oil storage tanks located on the WA mainland.

The project saw some 2,500 m3 of rock being extracted, crushed

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The initial budget across numerous currencies with various aspects of the project undertaken in multiple centres across the globe.

The offshore facility distance from some the Pilbara coast of Western Australia,

The amount of rock being extracted, crushed and processed

The amount of concrete used

The length of pipeline laid on the Indian Ocean seabed The number of prefabricated modules, the largest being over 6 storeys high and in excess of 2,000 tons, shipped from Thailand to the Pilbara coast of WA The number of jobs created for Australians

and processed, 1.600kms of cable installation, 150,000m3 of concrete and 180km of pipeline laid on the Indian Ocean seabed, with 264 prefabricated modules, the largest being over 6 storeys high and in excess of 2,000 tons, shipped from Thailand to the Pilbara coast of WA. During the execution of the project, there were constant and on-going schedule and cost reviews, as the project started experiencing delays and escalating costs, further hampered by the increasing activity in the mining construction industry and the subsequent commencement of 7 other LNG projects around Australia.

The project ultimately achieved first gas production in 2012, some 7 years after initially finding the gas, with final costs of the project escalating to US$15B. Whilst this may seem a significant cost increase in the Quantity Surveying profession, particularly in comparison to the commercial construction arena, looking back now, a 30% increase in cost is comparatively low in relation to some of the subsequent LNG megaproject cost blowouts. This cost increase is ultimately surpassed by the success of LNG production in a timely manner

HOW WOULD YOU CONCLUDE THIS PROJECT? In consideration of the extreme timeline for this megaproject, from initially finding gas in 2005, to making the investment decision in 2007, commencing initial design engineering, and soon after commencing with construction activities, whilst still completing design engineering, through to ultimately producing first gas in 2012; this megaproject has been seen as a significant Australian success story, creating in excess of 15,000 jobs for Australians, and paving the way for the construction of seven subsequent LNG megaprojects around Australia.

Like any other construction project, this megaproject had its highs and lows during the seven years of development.

KEY PROJECT IMPACTS Some of the key impacts on this megaproject included: • ONSHORE CONSTRUCTION: The complexity of obtaining experienced and appropriately skilled resources, to design and manage the procurement and construction of the onshore facilities; whilst in a heated and stretched project environment, resulted in delays to completion of the onshore construction.

With the complexity of the project, the onshore processing facility was modular in design. To minimise expensive site construction labour costs and the complexity of construction activities on site, the majority of the facility modules were fabricated in module yards in Thailand.

• LATE ENGINEERING AND PROCUREMENT: Late engineering and procurement resulted in decisions being made to either ship modules incomplete, to be completed on site, or delaying the module shipments and incurring delay costs from the shipping company and additional charges from the module yard owners. These engineering and procurement delays, further resulted in out of sequence construction activities being undertaken as a result of significant re-work and carry-over work. Substantially higher labour costs were coupled with significantly reduced labour efficiencies, exactly what the modular design was meant to avoid.

• INCREASE IN PEAK MANNING LEVELS: The out of sequence carry-over and rework requirements resulted in a significant increase in peak manning levels, with the knockon effect in terms of accommodation requirements and availability. The accommodation for the labour force was changed from one room exclusive use of each worker, to “motel-style” accommodation where a worker’s accommodation was vacated when departing for R&R, and passed on to an incoming person, and returning to a different room on return from R&R. This lead to increased union attention and activity. Until the accommodation crisis, unions had limited access to the project, but the Fair Work Act of 2009 subsequently gave unions the right to access work sites. The increased union attention and activity resulted in Fair Work Australia authorising a protected action ballot, and subsequently a 28-day stoppage and further lockouts and stoppages during 2010.

• COST BLOW-OUT: The late engineering and procurement, significant modular rework and carry-over work, delays in construction activities, the increased demand for labour coupled with escalating labour costs in Australia, all cumulated in ultimately incurring a cost blow-out to this megaproject.

• DELIVERY OF CARGO: Delivery of first cargo achieved within 7 years of first discovery of the gas field is considered to be very fast in comparison to most other Greenfields LNG megaprojects. This allowed investors to start realising income against their capital expenditure in a timely manner, overshadowing the difficulties encountered in completing the project.

Looking back now, the real success and achievements attained in such a short time period, and the positive results being achieved for the developers are all that are focused on now.

2. WHAT IS CRUCIAL WHEN WORKING ON A MASSIVE INFRASTRUCTURE PROJECT? From a QS perspective, I consider the most important aspect in a megaproject

of this nature is having confidence in one’s skills and abilities, and tenacity to run the distance. Being involved in engineering projects, engineers generally see themselves as the key project players, and don’t necessarily enjoy constraints a QS may place on them in terms of offering up commercially advantageous alternatives.

The QS therefore requires a good overall grounding and the knowledge, experience and confidence when challenging engineers in their field of expertise.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 39

The majority of mining and LNG megaprojects are generally located in remote regions of Australia and require predominantly a FIFO work force. The added demands and working hours on a megaproject are usually extended beyond the normal 9 to 5 job, with personnel working between 10 to 12 hour per days, often up to 4 weeks on 1 week off rosters, and international personnel working rosters as much as 8 weeks on 2 weeks off. These sort of working conditions can become overwhelming for personnel, including personnel burning themselves out due to the extended lengths of megaprojects, or due to apparent chaos, becoming dissatisfied with the megaproject, and subsequently leaving the project prematurely.

There will always be significant challenges to overcome on any project, but due to the long durations, scale and complexity of these megaprojects, the nature and number of challenges experienced over the increased life of a megaproject become increasingly daunting, often appearing to be major chaos, particularly when personnel come and go over the life of the megaproject, with information disappearing as personnel demobilise from the project.

The increased demands of a megaproject often lead to high attrition of personnel.

Once a person leaves the project, the knowledge and information leaves with that person, ultimately having detrimental impacts on the project, particularly when it comes to commercial close out and finalisation of contracts where potential disagreements and disputes arise.

3. WHAT VALUE DO QUANTITY SURVEYORS BRING TO LARGE INFRASTRUCTURE PROJECTS? A Quantity Surveyor’s training, skills and knowledge in terms of standard methods of quantity measurement, preparation of tender documentation, tender analysis,

contract management, construction law, project cost management and project scheduling offer significant and broad expertise to megaprojects.

Unfortunately, the QS is often underrated and undervalued on engineering projects until a project starts experiencing significant cost constraints and disputes, at which time the QS is requested to facilitate cost improvements and contract resolutions, which is often very late in the construction process.

The challenge for the Quantity Surveyor, is getting involved in a megaproject from the outset. If the initial project team has utilised a QS on a previous project, or if a QS is able to be appointed on the management team of a project, the opportunities for QS involvement on the future megaproject is increased.

4. MEGAPROJECTS CAN BRING MANY CHALLENGES. WHAT CHALLENGES DID YOU ENCOUNTER AND HOW DID YOU OVERCOME THEM? One of the biggest challenges many people struggle with is the sheer magnitude of everything involved in a megaproject, starting with the number of people involved, the size and value of contracts, and the amount of documentation, procedures and processes involved in bringing a megaproject together.

The number of people involved in a megaproject results in the culmination of many different languages and cultures, often resulting in miss-communication and miss-understandings.

Single contracts, within a multitude of contracts required to bring the megaproject together, have been as much as $2 billion each. This size contract on its own would be equivalent to a megaproject in its own rights.

In order to prevent being overwhelmed

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by the magnitude of aspects of a megaproject, I try to remain calm and approach each contract I’m involved in no differently to that of a standard size project, relying on my fundamental QS training, knowledge and experience to get me through each day. I consider each project has largely the same characteristics, whether large or small, and merely requires a mind shift in accepting the scale of the megaproject.

MY VIEW IS, SIMILAR TO ENGINEERING BEING RESERVED FOR QUALIFIED ENGINEERS, PROJECT COMMERCIAL, CONTRACT AND COST MANAGEMENT SHOULD BE RESERVED FOR QUALIFIED QUANTITY SURVEYORS. TOO OFTEN I HAVE SEEN THESE POSITIONS FILLED

BY INEXPERIENCED PERSONNEL. 5. MEGAPROJECTS HAVE BEEN NOTED TO GO OVER BUDGET. WHY DO YOU THINK THIS IS? HOW CAN ONE AVOID THIS ISSUE? My theory as to why megaprojects often go over budget includes a number of factors, but generally come back to the lack of professional Quantity Surveyor input from the early stages of the project.

Generally, developers of megaprojects will approach engineering EPC/EPCM companies, and these companies tend to be fairly protective of their turf, only calling on outsiders if absolutely needed.

These EPC/EPCM companies may have their own in-house commercial and estimating departments, thus finding little need to call on QS firms to providing outside professional expertise. Personnel within these EPCM commercial and estimating departments don’t necessarily have a professional QS background, but rather developed certain contract, cost and estimating management skills over time, and are therefore considered fit for purpose in the early stages of the project.

The project is then often under estimated on a substandard basis, and often massaged to ensure approval is given for the go-ahead of the project. Due to the magnitude of the megaproject, significant details are often overlooked and ignored with the view of managing the outcome at a later stage in the project, when it is too late to stop the project.

My view is, similar to engineering being reserved for qualified engineers, project commercial, contract and cost management should be reserved for qualified Quantity Surveyors. Too often I have seen these positions filled by inexperienced personnel.

6. IT SEEMS MOST MEGAPROJECTS TAKE LONGER TO BUILD THAN INITIALLY PROJECTED. WHY IS THIS THE CASE, AND WHAT CAN BE DONE ABOUT IT? The magnitude and scale of megaprojects, time constraints and the desire by investors to have a megaproject completed ahead of what is practical, results in poor front end engineering and design; ultimately having a domino effect on all activities after this.

Without thorough pre-planning of the megaproject, decisions end up being

made during the execution phase of the project, resulting in changes in strategy mid-way, as opposed to sticking to the plan.

7. ARE YOU CURRENTLY WORKING ON A MEGAPROJECT? I am currently on my 3rd LNG megaproject since 2009. We are currently 65% complete in the construction phase of this megaproject, which probably represents the most critical and crucial phase of the project, which is currently reaching peak manning levels on site whilst coupled with heightened safety risks.

The project, like most previous megaprojects, is experiencing engineering delays, budget constraints, and construction delays, ultimately resulting in numerous claims from the construction contractors.

THE BEST PREPARATION FOR TOMORROW IS DOING YOUR BEST TODAY. - H. JACKSON BROWN, JR

challenging to be involved in, and generally LNG projects tend to require personnel with previous LNG project experience. The challenge is obtaining that previous experience.

As a QS, continuing your professional development plays a big part in successfully being selected for such megaprojects.

As an added complexity, the current low LNG price and low economic sentiment around the globe has not helped in the nervousness of investors in the decision to proceed with the project well before these factors came into play. This is resulting in increased focus on cost and schedule, with the ultimate goal of reaching first cargo in the shortest time at the lowest cost, without compromising on safety.

I firmly believe a good QS practice offers good foundations for the up and coming Quantity Surveyor. Take the time to learn the basics, and build on these with patience. If ever offered the opportunity to work on a normal scale project site, cease the opportunity, and whilst on site, take the time to learn the methods of construction, adding to the QS training and giving the advantage of being able to discuss and negotiate with confidence and experience.

No doubt, by the time first cargo is achieved, the investors and all those involved in the execution of the project will look back and see the challenges as having been successfully overcome, and merely a speed bump along the way, no differently to any other project.

In developing the QS skills, have the open mind to learn and acquire new skills as you progress through a project, increasing interaction with other project players and developing strong networks for the next project and subsequent projects.

8. WHAT TIPS CAN YOU SHARE FOR OTHER QS? WHAT ADVICE CAN YOU GIVE TO OTHER QS WHO WANT TO BE INVOLVED IN SUCH A PROJECT?

“The best preparation for tomorrow is doing your best today” - H. Jackson Brown, Jr.

Megaprojects are exciting and

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AIQS

INTERVIEW

10 MINUTES WITH AIQS ACADEMY AUTHOR: GRACE DING AAIQS

SPECIALISM: Cost management, Sustainable construction, Energy analysis, Life cycle assessment AIQS ACADEMY TOPICS: Basic measurement skills, Concrete, Doors & Hardware, Masonry, Reinforcement, Applied finishes & suspended ceilings (extend with a summary on each)

1. WHAT INTERESTS YOU MOST ABOUT THE BUILT ENVIRONMENT? The design and construction of environmentally friendly buildings in the built environment.

The built environment plays a big part in the consumption of natural resources and the generation of waste to the environment. It will therefore be important that sustainable construction practices are adopted to achieve the goal of sustainable development in the construction industry.

2. HOW DO YOU THINK THE ROLE OF A QUANTITY SURVEYOR HAS DEVELOPED OVER TIME? The role of a Quantity Surveyor has changed dramatically since the introduction of BIM and will continue to be challenged with the advancement of digital technology.

3. WHAT WOULD YOU SAY IS YOUR GREATEST ACHIEVEMENT THUS FAR IN YOUR PROFESSION? My greatest achievement thus far relates to the development of 5D BIM curriculum for the undergraduate degree course at

the University of Technology Sydney. I predict that 5D BIM will be the future of the construction industry and it is important that students are challenged and equipped with the BIM knowledge as early as possible.

4. WHY IS IT IMPORTANT TO CONTINUE OUR PROFESSIONAL DEVELOPMENT? It is important to stay up-to-date with developments within the industry. More so with the use of digital technology in the construction industry.

5. YOU AUTHORED A NUMBER OF TOPICS IN RELATION TO THE MEASUREMENT OF BUILDING WORKS. THE NEW AUSTRALIAN STANDARDS METHOD OF MEASUREMENT OF BUILDING WORKS (ASMM6) BECAME AVAILABLE APRIL 2016. WHY IS IT IMPORTANCE TO CONTINUE YOUR PROFESSIONAL DEVELOPMENT IN THIS AREA? The profession continues to evolve and it is therefore important to update one’s knowledge and skills so that we do not fall behind.

The ability to understand and measure quantity from drawings is important as

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it will help to improve our accuracy in pricing for construction projects.

These topics will be a good revision on the trades that they have learned at university and it will always be benefical to keep practising and revising measurement skills.

Learning the materials that we put together and completing the assessment questions in each topic will ensure that the professional’s measurement skills are up-to-date with the newly released ASMM6.

6. WHAT WOULD YOU SAY IS A KEY BENEFIT OF THE AIQS ACADEMY? The AIQS Academy provides an important avenue for professionals to upskill their measurement knowledge.

THE AIQS ACADEMY IS AN ON DEMAND, ONLINE TRAINING PORTAL AVAILABLE FOR ALL PROFESSIONALS. THIS PLATFORM PROVIDES FURTHER CPD OPTIONS TO AIQS MEMBERS OR NON-MEMBERS AND CAN BE ACCESSED FROM A LOCATION OF YOUR CHOICE.

AIQS Topics Available as at 31 August 2016 BASIC SKILLS

CLAIMS & DISPUTE RESOLUTION

STRATEGIC PLANNING

- Basic Measurement Skills - Communication Skills - Personal & Interpersonal Skills - Business & Management Skills - Computers & IT Essentials - Construction Law & Regulation - Diversity in the Workplace - Safety in the Workplace - Professional Practice - Construction Technology

- Establish Background and Collect Data - Negotiate Claims Under Contract - Dispute Resolution Processes - Expert Witness - Introduction to Securities of Payment - Introduction to Arbitration

- Strategic Advice on Construction Costs - Development of the Project Brief

BUDGETARY PROCESS - Cost Management & Monitoring Procedures - Cash Flow - Budgeting for Projects - Preparing Cost Reports - Appraise Cost Reporting Systems

COST ESTIMATING - Preparing Estimates - Developing Cost Components - Evaluating Cost Estimates - Estimating Procedures & Estimate Reviews

COST PLANNING - Data Required to Prepare Cost Plans - Provide Advice on Cost Plan to Client - Undertake Scope Audit - Analyse & Advise on Various Alternative Design Solutions - Project Cost Objectives & Parameters - Prepare Cost Plan - Prepare Project Implementation &

Procurement Plan - Analyse Time Related Cost Data - Cost Estimate Using the Time Related Data

GENERAL PROCUREMENT ADVICE - Provide Input into the Development of the Project Brief - Collect Procurement Requirements - Evaluate Project Delivery Systems - Undertake Constructability Analysis - Advise on Alternate Contract Types

SPECIALISATION - An introduction to Facilitation - Value Engineering & Value Management

CONSTRUCTION CHANGE MANAGEMENT - Establish Extent of Proposed and Actual Scope Changes - Manage Cost Claims During Construction Resource Analysis

MEASUREMENT OF BUILDING WORKS - Preliminaries - Demolition - Ground works – Excavation, Filling &

Hardcore, mPaper & Plastic Membranes - Ground works – Underpinning & Rock Stabilisation - Natural Stonework, Artificial Stone,

Terracotta and Similar Work - Metalwork - Windows and Glazing - Driven Piling & Cast Insitu Piling - Formwork - Prestressing - Insitu Concrete - Reinforcement - Drainage - Mechanical Installations - Facade Systems - Doors & Hardware - Painting - Masonry - Landscaping & Road Works - Precast Concrete - Tanking And Waterproof Membranes - Structural Steel - Roofing - Carpentry - Partitions - Wall and Ceiling Finishes - Tiling And Paving - Joinery, Furniture, Fittings And Equipment - Electrical Installations - Carpet, Resilient Finishes And Access Floor

ETHICS & STANDARDS - Recognising Australian Consumer Law Issues

TENDER PROCESS - Prepare Documentation Inputs to the Tender - Evaluate & Award of Tenders

FINANCIAL AUDIT - Bank Reports

ACCOUNT MANAGEMENT - Recommend Progress Payments

FAQS HOW DO I PURCHASE ACADEMY TOPICS? Visit www.aiqsacademy.com.au to sign-in or create a login before viewing or purchasing the topics available.

HOW MUCH DOES A TOPIC COST AND ARE THERE DISCOUNTS AVAILABLE FOR AIQS MEMBERS? - Members = $65 per topic and NonMembers = $75.

- Purchase topic bundles (5-10) to receive up to a 20% discount.

- Pre-purchase all 100 Topics and save $1,500.

(Members = $5,000, Non-Members = $6,000).

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 43

LEGAL CASE NOTES

THE BENEFITS OF MEDIATION IN COMMERCIAL DISPUTE Court cases are expensive and legal costs can escalate to an intolerable level. Lawyers will often recommend alternative dispute resolution options – mediation being one.

Mediation allows parties to remain in control of their own disputes and outcome while facilitating parties to tell their side of the story to the other party and the mediator.

WHAT EXACTLY IS MEDIATION? Mediation is one form of alternative dispute resolution while others available include Early Neutral Evaluation, Expert Determination and Arbitration.

In essence mediation is an informal conflict resolution process brought before an independent, neutral third party. Mediation gives the parties the

opportunity to discuss their issues, clear up misunderstandings, and find areas of agreement in a way that would never be possible in a court case.

Mediation is often voluntary. Typically, the mediator has no authority to make a binding decision unless both parties agree to give the mediator that power which is dealt with in advance of the mediation commencing.

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WHEN PARTIES SHOULD CONSIDER MEDIATION In practical terms mediation is likely to be quicker and more cost-effective than the more formal processes of arbitration or litigation (in Court). Mediation should be considered as early as possible after a dispute has arisen. It is particularly appropriate where a dispute involves complex issues and/or multiple parties.

In addition, mediation can be implemented prior to, or in conjunction with, other forms of dispute resolution such as arbitration or court proceedings.

Usually, the contract will provide for negotiation or mediation before litigation.

In a recent dispute between Flour and Santos over a claim in respect of Curtis Island Queensland, the Court held that the parties must negotiate as agreed in their contract before resort could be made to litigation.

In circumstances where privacy and confidentiality are important, mediation enables parties to preserve these rights without public disclosure. This often leads to more satisfactory outcomes for both parties.

ADVANTAGES OF MEDIATION There are many advantages, in summary these can be described as: • You get to decide: The responsibility and authority for coming to an agreement remain with the people who have the conflict. The dispute is viewed as a problem to be solved. The mediator doesn’t make the decisions, and you don’t need to “take your chances” in the courtroom.

increase hostility. Mediation looks to the future. It helps end the problem, not the relationship.

• Mediation deals with feelings: Each person is encouraged to tell their own story in their own way. Discussing both legal and personal issues can help you develop a new understanding of yourself and the other person. You are encouraged to see things from the other person’s perspective.

• Higher satisfaction: Participants in mediation report higher satisfaction rates than people who go to Court. Because of their active involvement, they have a higher commitment to upholding the settlement than people who have a judge decide for them. Mediations end in agreement about 80% of the time and have high rates of compliance.

• Informality:

In doing this however, naturally you need to understand your legal rights so that you can make decisions that are in your own best interests.

Mediation can be a less intimidating process than going to Court. Since there are no strict rules of procedure, this flexibility allows the people involved to find the best path to agreement.

Although it is normal for any dispute resolution to be taxing emotionally, mediation is a process that is much less confronting and is conducted in a much more comfortable environment than litigation.

• The focus is on needs and interests:

• Faster than going to court:

Mediation examines the underlying causes of the problem and looks at what solutions best suit your unique needs and to satisfy your interests.

Time can pass before a case comes to trial, while a mediated agreement may be obtained in a couple of hours or in sessions over a few weeks. Court proceedings can take months or years to resolve and even then end in a negotiated settlement.

• For a continuing relationship: Colleagues, business partners, and family members have to continue to deal with each other co-operatively.

Going to court can divide people and

• Lower cost: The Court process is expensive, and

costs can exceed benefits. It may be more important to apply that money to solving the problem, to repairing damages, or to paying someone back. If you can’t agree, other legal options are still possible. Even a partial settlement can lessen later litigation fees.

• Privacy: Unlike most Court cases, which are matters of public record, most mediations are confidential.

WHERE MEDIATION IS NOT THE SOLUTION With mediation a resolution is not guaranteed. There is the potential that parties may invest time and money in trying to resolve a dispute out of Court, and still end up having to go to Court.

Ultimately it is a call that should be made in consultation with an experienced lawyer.

Mediation should not be a solution in circumstances where it is not appropriate. For example, where a Court remedy is necessary such as an injunction or seeking specific urgent Court orders.

It must also be remembered that the mediator has no power to impose a binding decision on the parties.

Therefore, even after the mediation the matter may be unresolved and you may still need to go to Court.

Fundamentally, mediation rarely produces a satisfactory resolution unless both parties to a dispute are committed to a resolution.

CONCLUSION Mediation is an alternative to using the Court system. It is suitable for people who are willing to communicate with the other party and attempt to better understand and settle their dispute with the help of a trained third party.

This Legal Case Note has been brought to you by Doyles Construction Lawyers; for further information or if you have questions in relation to this article please visit www.doylesconstructionlawyers.com.au or contact doyles@doylesconstructionlawyers.com

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SOCIALS

ACT SOCIAL: TEN PIN BOWLING

Belconnen, Canberra 27th July 2016

THAILAND: SOCIAL NETWORK GATHERING International Chapter, Bangkok 23rd August 2016

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QATAR CPD: OVERHEAD CLAIMS Millennium Hotel, Doha 2 August 2016

VICTORIAN CPD: DIGITAL TECHNOLOGY IN CONSTRUCTION University of Melbourne 16th June, 2016

Amanda Ismail, Principal Consultant, ZUUSE presented Project Collaboration in a Common Data Environment followed by Caitlin Shield’s, Associate 5D Quantity Surveyor, Mitchell Brandtman, presentation of Cost Control with 4D/5D BIM during project execution.

The presentations highlighted how Quantity Surveyors can play an integral part in the uptake and use of digital technology throughout the design, construction and operations of the built assets.

Attendees responded very positively to the BIM methodologies and their application in contemporary Quantity Surveying practices.

THE BUILDING ECONOMIST - SEPTEMBER 2016 - 47

BCI

BUILDING COST INDEX THE BUILDING COST INDEX IS PUBLISHED IN THE PRINT VERSION OF THE BUILDING ECONOMIST. IT CONTAINS DATA THAT CAN BE USED AS A PREDICTOR FOR THE ESTIMATED TIMES FOR DESIGN AND CONSTRUCTION AND INCLUDES A SUMMARY OF THE PAST, PRESENT AND ESTIMATED FUTURE CONSTRUCTION COSTS. 48- SEPTEMBER 2016 - THE BUILDING ECONOMIST

BUILDING COST I N DEX SEPTEMBER 2016 THE BUILDING ECONOMIST - SEPTEMBER 2016 - 49