Construction Journal
Cost management Delivering international value
Harmonising measurement
New models for life
Applying the golden rules
Reaching for global standards
Integrating asset information models
How the NRM suite has added to best practice
PG.
6
PG.
10
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September/October 2015
rics.org/journals
RICS CON ST RUCT I O N JO URN A L
A DV E RTI S I N G
RICS Legal Issues in Construction Conference 2015 13 October 2015 #RICSconstruction In association with:
RICS Legal Issues in Construction Conference offers a timely and essential legal update for practitioners in the construction sector. Covering case law, best practice and procedure, this year’s programme will again combine the expertise of the RICS with that of industry leaders Pinsent Masons and Keating Chambers. Attendees will share a wealth of business critical content, delivered by a selection of the most respected construction law specialists in the UK. This is a unique opportunity to hear key insights on avoiding common legal pitfalls that should not be missed.
Book your place today:
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Item code: 20221 Price: £202
New Dilapidations Dataset The 2015 edition is set out in accordance with the RICS New Rules of Measurement and includes over 4,000 supply and install costs. Its authoritative information is provided by experienced, specialist estimators, all presented in easily accessible trade sections – saving you time at the initial estimating stage for work required on a Schedule of Dilapidations.
Enhanced Schedule of Rates The BCIS Dilapidations Price Data information is accessible via the newly enhanced BCIS Schedule of Rates. The online service makes accessing the latest construction rates for comparing and benchmarking estimates easier than ever before. Find out more at rics.org/newscheduleofrates
Order your Dilapidations Dataset at rics.org/bcispricebooks or call us on +44 (0)24 7686 8555 BCIS – Provider of independent cost data and analysis
To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak @wearesu nday. c om 2 SEPTEMBER/OCTOBER 2015
C O NTENTS 1
3/8/15
RI CS CONST RU C TIO N JOUR NAL
9:11 am
Construction Journal
Cost management Delivering international value
Harmonising measurement Reaching for global standards PG.
6
New models for life Integrating asset information models PG.
10
Applying the golden rules
September/October 2015
rics.org/journals
How the NRM suite has added to best practice PG.
18
Front cover:
contents
@ Alamy
5 Update
C ON TACTS CO N STR UCTI O N J OU R NAL Editor: Robert Mallett T +44 (0)20 7695 1533 E rmallett@rics.org The Construction Journal is the journal of the Project Management and Quantity Surveying & Construction Professional Groups Advisory group: Emma-Kate Ryan (Faithful and Gould), Helen Brydson (Faithful and Gould), Martin Stubbington (RICS), Gerard Clohessy (EC Harris), Christopher Green (Capita Property and Infrastructure), William Hall (Lendlease), David Cohen (Amicus), Andrew McSmythurs (Sweett Group), David Reynolds, Tim Fry (Project Management Professional Group Chairman), Alan Muse (RICS) Construction Journal is available on annual subscription. All enquiries from non-RICS members for institutional or company subscriptions should be directed to: Proquest – Online Institutional Access E sales@proquest.co.uk T +44 (0)1223 215512 for online subscriptions or SWETS Print Institutional Access E info@uk.swets.com T +44 (0)1235 857500 for print subscriptions To take out a personal subscription, members and non-members should contact Licensing Manager Louise Weale E lweale@rics.org
Published by: Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)24 7686 8555 W www.rics.org ISSN: ISSN 1752-8720 (Print) ISSN 1759-3360 (Online) Editorial and production manager: Toni Gill Sub editor: Gill Rastall Senior designer: Wasim Akande Creative director: Mark Parry Advertising: Emma Kennedy T +44 (0)20 7871 5734 E emmak@wearesunday.com Design by: Redactive Media Group Printed by: Page Bros
14 Making the sums add up
Chris Green details new RICS guidance on cost reporting
6 Measuring up
16 On the right lines
Alan Muse looks at the new International Construction Measurement Standards
The important of appropriate contract selection
8 Keeping track
Joe Martin explains how the BCIS provides construction cost advice from project inception to delivery
10 New lease of life
Andy Green outlines NRM1 and 3’s contribution to BIM
12 Aligning principles
18 Golden rules
David Benge and Stuart Earl show how the NRM suite has added to best practice
20 Known quantity
Ian Aldous sets out the possibilities for BIM as a cost planning tool
23 An occupational hazard
Peter Bolton King reports on the international ethics standards
Helen Crossland navigates the risks surrounding employment references
26 Legal Q&A
Journal goes interactive
QSanand Constructio Your RICS Journal is now available inRICS ISSUU, Conference interactive page-turning digital reader. Ideal for 2015 20 May 2015 reading on a tablet or desktop, it allows you toVictoria, ‘clip’ London etc.Venues, and share part or whole articles and isThiscompatible must attend event will examine the crucial role the Qu has to play in delivering the Construction 2025 targets. Brin speakers from across the construction sector, this with android or iOS mobile devices. expert give insight into the demands on the sector at a time when
is a dominant concern and will examine the evolving role o adapts to a changing market.
Once signed in, just go to your usual Key journal sessions will address some of the most pressing concerns profession including, a CDM regulations update, the impact of B of the QS in infrastructure, implications of early supply chain eng home page and click on the link or follow adding value across the profession. the link from your regular email alert. Book your place online today:
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While every reasonable effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the opinions expressed in the journal, or by any person acting or refraining to act as a result of the material included in the journal. All rights in the journal, including full copyright or publishing right, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v1.0 for public sector information: www.nationalarchives.gov.uk/ doc/open-government-licence
www.rics.org/journals
SEPTEMBER/OCTOBER 2015 3
rics.org/qsco
RICS CON ST RUCT I O N JO URN A L
C H A I R M A N ’S CO L U MN
CHAIRMAN'S COLUMN After the recent sudden death of global and UK QS&C board chairman David Bucknall, Alan Muse, RICS Global Director of Built Environment, plays tribute
David Bucknall remembered
D David Bucknall was a team player. Whether in sport (a rugby and football player and supporter), quantity surveying or his local community charity work, David epitomised collaborative working. He also put great passion into everything he did. A chartered quantity surveyor with over 50 years’ professional experience, he graduated from Birmingham College of Art and Technology in 1961. He led Bucknall Austin from a small West Midlands base into a large PLC consultancy. He then retired, in 1999, only to buy back his old company and lead a successful merger with
Rider Hunt in Australia and Levett and Bailey in Hong Kong to form the current global practice of Rider Levett Bucknall (RLB). He retired as Chairman in 2012. During this time in practice he was responsible for major projects including the development of Birmingham’s International Convention Centre (1987-91) and the rebuilding of Windsor Castle following fire damage (1992-95). As Chairman of RLB he devoted his energy to supporting opportunities for young people to establish careers in the construction industry. In 2006, he personally set up a protégé scheme which provides industry experience for
aspiring professionals and in 2010 RLB was voted Number One in the Corporate Research Foundation’s Top 100 British Employers. He was awarded two honorary doctorates, one from the University of Wolverhampton (2000) for “outstanding contribution and eminence within the field of construction consultancy”, and one from Birmingham City University (2007) for “outstanding business achievements and significant contribution to the regeneration and promotion of Birmingham”. He was also always active in his professional body. Latterly at RICS he was both Chair of the global and UK quantity surveying boards
David always took the opportunity to advance the profession, on both the national and international stage
4 SEPTEMBER/OCTOBER 2015
and led both with drive, enthusiasm and his vast experience in the industry. David always took the opportunity to advance the profession, on both the national and international stage, and his insight, mixed always with a disarming humour, allowed him to communicate effectively at all levels. He felt quantity surveyors should always add value and prove their worth in a straightforward, integrated business way. Passive accounting was not his style. David’s strenuous efforts for industry and his local charities were recognised with an OBE in December 2012. RICS and the construction industry have lost an iconic, well-loved figure. b
More information > A temporary chair will be elected for the remaining term of the chair and a formal re-election process will begin next year.
UPDATE
RI CS CONST RU C TIO N JOUR NAL
UPDATE Responsible business RICS has been working with the United Nations Global Compact on identifying the most critical issues facing companies with a stake in land, real estate and construction. The aim is to make responsible business the status quo and encourage companies to think holistically about the environmental and social impact of their business activities, and strategic investment decisions.
Get involved – comment today All RICS standards and guidance notes go through a public consultation, which remains open for one month. Members and non-members can contribute by logging their comments via iConsult. bb go to www.rics.org/iconsult bb select register and fill in details to be informed about consultations bb fill in subject areas of interest and select ‘Yes’ when asked if you want to be notified about consultations. Although users can view live consultations without logging in, they must register to submit comments. Please note that all comments need to go through iConsult for auditing purposes and should not be sent in via email.
The resulting resource, Advancing responsible business practices in land, construction, real estate use and investment, takes a holistic approach in both its scope and its target users. The key areas of the UN Global Compact, and the action items are of universal relevance for decision makers within every company. n Download at www.rics.org/uk/ about-rics/responsible-business
Journal goes interactive Your RICS Construction Journal is now available as an interactive ISSUU page-turning digital reader. Ideal for reading on a tablet or desktop, it allows you to ‘clip’ and share part or whole articles and is compatible with android or iOS mobile devices. Once signed in, just go to your usual journal home page and click on the link or follow the link from your regular email alert.
Encouraging diversity RICS has launched a new initiative to make the land, property and construction sector more inclusive and diverse. The Inclusive Employer Quality Mark is designed to help firms gain a competitive advantage. Register your interest with RICS External Affairs Director Kim Worts. n kworts@rics.org
Digital Construction Week 19-23 October, London Whether you have been exploring BIM adoption, experimenting with emerging smart technologies or investigating advances in manufacturing and materials, you will have witnessed the impact of digital technologies and the changes taking place in the architecture, engineering, construction, and operation world. The event series will launch with a VIP Westminster reception attended by
key stakeholder from the government, the industry and BIM community. The Digital Construction Show will be the centre-piece of the week’s activities – a two-day event that will showcase the thought leaders and leading suppliers from across the supply chain, and focus on how digital innovation and advanced construction together with BIM, and new technologies are changing the face of the built environment.
TRAINING Working with target cost contracts
17 November, Bristol
A successfully managed target cost contract can benefit all parties through aligned objectives, better collaboration and increased flexibility to change. By attending this course you will be able to: bb explain when and why target cost contracts are beneficial bb identify the different risks that can arise in target cost projects, as compared to other forms of contracting bb apply the mechanisms for establishing the target, and monitoring spend against the target. bb examine cost, share and disallowable cost bb how to prevent your target cost contract from becoming a problem project.
Construction technology and environmental services – competency masterclass 18 November
This interactive web class will take you through good and bad submission responses for the construction technology and environmental services competency. You will discuss the types of questions, review potential responses, and as a group assess if the required level was reached.
Construction project management: loss and expense 25 November
This web class will enable the participants to deal with loss and expense procedure when managing construction projects governed by JCT 2011. n For more details, visit www.rics.org/uk/training-events
SEPTEMBER/OCTOBER 2015 5
RICS CON ST RUCT I O N JO URN A L
I N TE R N ATI O N A L STA N DA R D S
Alan Muse looks at how the new International Construction Measurement Standards will harmonise cost, classification and measurement definitions across the global construction sector
Measuring up
W
hatever your view of it, football is a global success story. It is worth reflecting, however, that the humble origins of the game, played in the medieval villages of England, would not have developed into a truly international game without the formulation of agreed rules and standards. Business practices are increasingly demanding global rules. We have seen this in the accounting arena, with international financial accounting standards, and, with 70% of global wealth in land and property, valuation, measurement of property and ethics are prime candidates. Similarly, construction is the risky intervention that turns land into property or an asset. In the UK, standards have made an annual contribution of £2.5bn to the economy, and 13% of the growth in labour productivity was attributed to standards. Standards have also been identified as enablers of innovation and facilitators of technological change. Construction is a large contributor to world GDP and is recognised as having a significant ‘multiplier’ effect on national economies. It is also an increasingly mobile industry with projects carried out on an international basis. Global investment in construction is also rapidly changing (see Figure 1) and standards are required in emerging and developing economies. Principally in developing and emerging economies, construction is also forecast to grow by 70% by 2025 as urbanisation gathers pace (see Figure 2). However, uncertainty, or risk, is a major drag on investment in construction and infrastructure, often caused by a lack of comparable, consistent and 6 SEPTEMBER/OCTOBER 2015
collaborative standards. This lack of measurement standards means that construction projects, their inherent works elements and the resultant assets are incomparable from one geographical market to another. In addition, robust global benchmarks for cost, time, quality, risk and technology are not available. At a micro level, surveys carried out by RICS (BCIS) in 2009 and the European Council of Construction Economists of cost consultants in 40 countries have shown that: bb approximately 50% of countries did not claim any published standard elemental classification of building parts bb in the absence of locally agreed standards, professionals frequently adopt ‘foreign’ standards or ad hoc in-house developed standards bb there is no common way of expressing cost per m2, both in terms of the cost definition and the floor area bb there are many countries where the quality of cost information and data classification falls short of what local professionals might wish. BCIS concluded in its survey: “Although there are countries with quite complete cost related standards and information sources, there appear to be many more where the quality of published guidance and cost information falls short of what local professionals might wish.”
Consistency call At a macro level and based on research carried out by Stephen Gruneberg at the University of Westminster, consistent approaches are required as to what is included in, or excluded from, construction activity, and how variables should be measured and presented. This needs to take account of the data requirements of statisticians, Image © Alamy
policy makers, international bodies, industry, researchers and others. It is an international issue and needs to be addressed at that level; construction is too important a sector of the economy to be measured so poorly. One product of the lack of international measurement standards is that comparison of construction works between countries is inefficient and inconsistent. This scenario creates a barrier to well-informed investment decisions, from commercial real estate portfolios, through to the individual dwellings and land rights of the poorest sections of society. Hence, the need for international standards in land, property and construction is well founded. International Property Measurement Standards (IPMS) have already been established as a coalition of bodies to agree, sector by sector, international standards for floor areas used in valuation, property management and construction. This now constitutes more than 60 organisations and a new code, RICS Property Measurement (incorporating
RI CS CONST RU C TIO N JOUR NAL
Figure 1:
Figure 3:
International growth in construction to 2020
Connecting international land, property and construction standards
Construction (ICMS)
Percentage contribution to growth in Global Construction Output 2010-20 by country
34% others
4% Indonesia
28% China
3% Australia
16% USA
3% Canada
10% India
2% Russia
Valuation and Ethics (IVS/IES) Land (ILMS)
Property (IPMS)
Figure 2: Growth in cities to 2030 1.1bn 1.0bn Cities of 500,000 to 1 million
0.9bn
Cities of 1 to 5 million
0.8bn
Cities of 5 to 10 million
0.7bn
Megacities of over 10 million
0.6bn 0.5bn 0.4bn 0.3bn 0.2bn 0.1bn 0
294 cities
239 cities
21 cities
10 cities
525 cities
417 cities
1990
IPMS) 1st edition, has been issued. IPMS for residential has also recently been published for consultation (http://ipmsc.org/consultation). Construction, land and property standards will connect at a measurement level, and cross-professional valuation and ethical standards will sit at the core (see Figure 3). The international measurement standard principles will integrate with detailed measurement standards in accordance with local market jurisdictions, to ensure that standards are adopted bottom up. These will be developed in consultation with expert, international practitioners and panels, subject to international consultation and stakeholder review. All this will improve certainty in construction and enhance project performance for the users of the industry. This, we believe, is central to the mission of a professional body.
Coalition starts work Accordingly, more than 30 professional bodies from around the world met at the beginning of June 2015 at
the International Monetary Fund in Washington DC to launch the International Construction Measurement Standards (ICMS). The ICMS Coalition was established by non-profit organisations representing professionals in more than 140 countries. Collectively, the group aims to harmonise cost, classification and measurement definitions to enhance comparability, consistency, statistics, and benchmarking of capital projects. Inevitably, the coalition will continue to grow as further professional organisations come forward. Industry corporations, contractors and key government stakeholders are encouraged to contribute to, and lead adoption of, the new international framework in their capital markets. Work is already underway by an independent committee of construction experts, appointed by the coalition. Indeed, the Washington meeting represented a landmark moment for the construction, project management, cost engineering and quantity surveying sectors as a whole. This is the first time
43 cities
2014
28 cities
731 cities
558 cities
63 cities
41 cities
2030
these professions have come together in this way to develop unifying standards that reflect and enhance the increasingly international construction market. The coalition has stated its ambition to make tangible progress immediately, and to deliver an internationally agreed and adopted standard in the near future. Global is the new local. As overseas developers continue to invest significantly in UK property and the construction industry, ICMS is as relevant to UK practitioners as overseas professionals. It will connect to, and enhance, quantity surveying and cost management guidance in national markets and across measurement issues in land and property. It does, however, require some new thinking. As Albert Einstein remarked: “We cannot solve our problems with the same level of thinking that created them.” And team games require team solutions. b Alan Muse FRICS is RICS Global Director of Built Environment amuse@rics.org
SEPTEMBER/OCTOBER 2015 7
RICS CON ST RUCT I O N JO URN A L
C O ST P L A N N I N G
Joe Martin explains how the BCIS is able to provide construction cost advice from project inception to delivery
Keeping track
W
hen a client first approaches a quantity surveyor about a project, they will be seeking cost advice. This sounds obvious, but the initial response is what the client remembers. It is therefore important that this is defined in such a way that as the project evolves the costs develop in a structured way and the route from the initial estimate to the built cost can be clearly seen. New Rules of Measurement – order of cost estimating and cost planning for capital building works (NRM1) provides the structure. The key to NRM1 is that it is based on an elemental structure inherited from the RICS Standard Form of Cost Analysis (SFCA). The SFCA defines an element as: “A major physical part of a building that fulfils a specific function or functions irrespective of its design, specification or construction”. The elemental structure allows for cost advice to be provided before any design work is undertaken. It will allow the design team to design to a cost rather than the QS costing a design, or in current parlance provides the ‘should cost’ as opposed to the ‘will cost’. BCIS was set up to provide a database of such costs, and the preparation of elemental cost analyses of projects is standard practice for many QS firms and clients. Its online database contains details of 30,000 projects and provides more than 7,000 elemental cost analyses.
Costing the void The initial request for cost advice may come with a variety of levels of detail. A developer looking at a site “that would be just right for x000m2 of offices, x houses, etc.” may want to know: “If we get planning permission, what would it cost to build.” Apocryphally, this is the sort of call that comes in last thing on a Friday night with an added: “And I need to know by Monday”. 8 SEPTEMBER/OCTOBER 2015
A client making an outline business case, or seeking funding may well have a detailed schedule of accommodation and a view about specification but no design. Such requests have been known to be accompanied by the dreaded rider: “If we get the funding we will go out to architectural competition for the design.” A client, particularly regular clients with a programme of work, may have an outline design, drawings or building information model, and some level of specification. The initial estimate will be a benchmark one, what NRM1 calls an order of cost estimate, in the sense that is based on the costs of previous buildings with same function rather than a specific solution for this project. This sort of estimate is the basis of the government’s current cost led procurement strategy of using benchmark costs from previous projects to set the cost limits for future projects. NRM1 describes an order of cost estimate as the “application of unit rates, i.e. cost/m2 of gross internal floor area (GIFA), functional unit rates or element unit rates) to measured quantities to generate the base cost of the building works.” In some circumstances, where no design exists, the quantities may not be measured but derived by the QS from the employer’s requirement. The first estimate may be based only on the GIFA of functional units (pupils in a school, spaces in a car park) and can be presented as a total building cost. However, it is always better to present it in elemental form, either by allocating the costs to elements by percentages from previous analyses or by deriving elemental quantities from the GIFA, assumed number stories, storey height and so on. The advantage of presenting the costs elementally is that you can also attach notes on typical specification to better describe the benchmark data. This will give a base for understanding changes Image © iStock
as the design evolves. The BCIS provides average costs for: bb buildings £/m2 GIFA bb buildings £/functional unit bb group element prices £/m2 GIFA bb element prices £/m2 GIFA bb element prices £/element unit quantity, e.g. external walls expressed as £/m2 of the area of external wall. Alternatively, projects can be selected from the analyses section of BCIS, and downloaded to a spreadsheet for further analysis or they can be summarised within the service to provide a statistical analysis of average £/m2. To use the costs to prepare an order of cost estimate, ideally there is some information you will need to know. If assumptions need to be made, these should always be clearly stated. The following checklist is based on the NRM1 guidance, and on BCIS studies of the factors that affect pricing levels: bb location bb use and accommodation requirements bb size – both floor area and functional units bb availability of site bb status of any planning application bb any known planning constraints bb occupation target date bb level of specification bb client’s initial project design brief, or where not available, their views on design or your assumptions (the name of existing buildings that are broadly similar to the client’s concept is often a help here) bb number of storeys bb any special storey height requirements bb any specialist engineering or service requirements bb size of site bb access to site bb details of site conditions, ground conditions, access, etc. bb what is on the site at the moment, and details of any demolition or enabling works required
RI CS CONST RU C TIO N JOUR NAL
The format for a an LCC plan is set out in the Standardised Method of Life Cycle Costing Procurement, which classifies the costs as follows: bb maintenance costs bb renewal costs: replacements, redecorations, etc. bb cleaning costs bb utilities costs: fuel, water, waste disposal etc. bb administrative costs: Property management, insurance, rates, etc.
bb any problems with public utilities, either connection or existing services bb procurement route bb the scope of the costs to be included beyond the construction costs, e.g. fees. It is important that the assumptions made on these factors and any others are stated in the report to the client, even if they are only interested in the bottom line. All these factors need to be considered in two ways: bb as they affect the total cost bb as they affect the price level. For example, the size of the scheme will affect both the total cost, i.e. you pay more for more building, and the pricing level, i.e. the price per unit is likely to fall as size increases. However, the scheme location will only affect the pricing level. The BCIS Tender Price Studies offer guidance on the impact on pricing of: bb location bb building function bb selection of contractor (selected competition, negotiated, etc.) bb building height (number of storeys) bb site working space bb site access
bb type of work (newbuild, refurbishment) bb contract sum. The BCIS average prices are based on accepted tenders and include contractors overhead and profit and preliminaries. There are three approaches when producing an elemental order of cost estimate from this data: bb use the average £/m2 data, for the building and allocate the total to the elements using the percentage breakdowns, shown on cost analyses bb use the average elemental cost per m2 bb if sufficient information exists about the shape of the building, generate element unit quantities and use the average element unit rate study. Any assumptions about specification or design should be stated. The BCIS figures include contractor’s overheads and profit, and one must also consider whether an adjustment needs to be made to the average figures. A risk allowance should be spelt out to cover design development, construction, employer’s change and any other risk. It is also as well to highlight what is not included such as VAT and clients’ own costs.
Life cycle costs
Figure 1 Cost-in-use, offices: not air-conditioned
Annual average cost per 100m2 Decorations
200
Fabric
1,100
Services
1,650
Total maintenance
2,950
Cleaning
1,450
Utilities
2,400
Administrative costs
3,200
Total
10,000
At the same time as you offer advice on the construction costs you can also offer advice on the running costs (costs in use) of the building, using data from the BCIS Building Running Costs Online service to provide a life cycle cost (LCC) plan. For this, further information will be required or will need to be assumed, namely: bb the economic life of the building bb what is to be included, normally maintenance and operation costs bb the discount rate (expressed simply, the difference between the interest and inflation rate, used to convert future payments to present values) bb any tax implications.
Detailed advice on the maintenance and renewal estimate is given in New Rules of Measurement – Order of cost estimating and cost planning for building maintenance works (NRM3). The BCIS running cost data is again a benchmark estimate based on average costs from a range of similar buildings (see Figure 1).
Developing the cost plan Starting with an elemental order of cost estimate, a cost plan can be developed as the design develops. The benchmark costs can be replaced by costs for specific element designs and components. These costs can come from subcontractors or estimating price books and databases. NRM1 provides the structure for developing an elemental cost plan as well as the rules for measuring the designed elements. Similarly, the costs-in use part of the life cycle cost plan can be developed at the elemental level as the design identifies the components to be maintained, cleaned and replaced. Being able to produce a robust estimate at the earliest stages of a contract is one of the core skills of experienced quantity surveyors, and one of the keys to a successful project.b
More information > For details of BCIS services and products, visit www.rics.org.uk/knowledge/bcis
Joe Martin is Lead Consultant with the Building Cost Information Service jmartin@bcis.co.uk
Related competencies include Commercial management of construction
SEPTEMBER/OCTOBER 2015 9
RICS CON ST RUCT I O N JO URN A L
BIM
Andy Green outlines how the NRM1 and 3 can create asset information models needed for costing BIM
New models for life
T
he UK government’s building information modelling (BIM) strategy is a pivotal part of Construction 2025, which aims to enable projects to be delivered faster, greener and leaner. BIM will be mandated with the fundamental aim of significantly reducing carbon emissions and costs over the whole life), among other benefits (see Figure 1). One of the strands is to have whole life cost and asset information models, to be applied at key stages during the entire life cycle – from inception through design and construction, handover, in use phases and subsequent refurbishments and re-lifing the built assets. So BIM needs to take account of the building’s performance/risks on the whole life costs (see Figure 2): bb for newbuild and refurbishment/asset replacement projects bb for operating, maintaining and the energy use of built assets bb for future proofing the whole life cycle asset performance/risks. The quantity surveying profession recognises the need to simplify and digitise the applications of the RICS New Rules of Measurement (NRM1, 2 and 3) at each stage of the new digital plan of works, coupled with having the level of cost data and the level of information needed to make informed whole life 1 0 SEPTEMBER/OCTOBER 2015
decisions (Construction Journal April/May). Part of this is concerned with client specific purposes.
Definition The client’s specific purposes of BIM are set out in the BIM guidance standards PAS 1192 part 2 and 3, so aims should be agreed and defined in the employer’s information requirements. This should then determine the project information model (PIM) and asset information model requirements (AIM) applicable to design and construction, plus re-lifing, as well as the ‘in use’ phase (operation, maintenance, energy performance and other FM factors such as security and cleaning) – so BIM takes a whole life cycle asset management view (see Figure 3). Construction czar to both the Labour and coalition governments, Paul Morrell, was correct in claiming that the “construction industry appears to have got things upside down and back to front”. In reality, the BIM world has been far too focused on the project phase, and not on how the asset data and costs in use can be used to minimise life cycle cost through improving planning predictions during design specification and construction. This should be based on decision making informed by robust FM operations, maintenance, asset renewal life plans and energy/carbon use, applicable to newbuild, refurbishment and also running it.
Standardising classification Following extensive cross-industry collaboration with the BCIS, the Chartered Institution of Building Services Engineering and the Building & Engineering Services Association have now adopted NRM3 expanded cost structure, which links NRM1 construction cost data structure to the maintenance (SFG20) and to the asset life expectancy (CIBSE Guide M) and the BCIS cost analysis. NRM1 and 3 provide the cost breakdown structure to integrate the ‘Construct, Renewal, Operation, Maintenance and Energy costs’ (CROME) to put a cost to BIM asset data: bb NRM1 – for capital cost estimating, formal cost planning and the analysis of project works bb NRM3 – for order of cost estimating; cost planning of the building maintenance and LCC. So the NRM1 and 3 alignment with maintenance and renewal standards bridges the capital and revenue divide, and provides a standardised basis for creating asset information models for project cost estimating and planning of construction projects. It also facilitates the setting up, operation and maintenance and life cycle replacement plans, as well as providing the asset/cost classification structure for putting a life cycle cost to BIM that fully aligns to the digital plan of work stages.
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Linking models
Figure 1 BIM role in Construction 2025 Faster delivery
Cost efficiencies (over the whole life)
Contextual surrendings within design
Collaborate more
Increased planning and predictability
Health and safety (during build and operating/ maintaining)
Greener solutions
Whole life design / functional & enviromental performace
More innovation
Improved decision making (whole life value for money)
Figure 2 Key stages of the project life cycle
£
CAPEX
OPEX
Construction costs
End of life Maintenance Operation Renewal
LIFE CYCLE COST
1 Strategic brief
2 Concept design
3 Detailed design
4 Technical design
LIFE CYCLE COST IN USE
5 Construct
6 Handover
£
7 In use
Figure 3 Integrating AIM into BIM – Think of the end before beginning 1192 part 2
PIM
Pre-contract BIM execution plan
Employer’s information requirements
‘As-built’ model Model developed iteratively through design and construction
Suppliers define how they will coordinate their use of BIM
Suppliers respond through tender process
Define and capture client requirements
Project information Asset information Model Model
Post-contract BIM execution plan
1192 part 3
Figure 4 How to link the 3D PIM data to asset data and produce whole life costs
3D Revit (PIM Data)
VIE
Impact scenarios
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Site / building view
RT OOL
- Vi
lisa
Block / floor view
QUA
NTI
FICA TION
Level of DETAIL Level of INFORMATION (depends on application)
Space / zoning view
+C
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Option studies
sua
+S
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Room / function & objects view
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Capex plans
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Asset data & costs
This will have massive implications for the way buildings are designed and handed over for use. Early adopters of the AIM now have the data, defined by government soft landings. This enables the setting up and optimising of the functional performance in use; the definition of the fit for function operating and maintenance regimes; the monitoring of energy performance; setting and defending the cost in use budgets; and passing over the PIM data into FM management systems. By unlocking asset intelligence from the in use phases the QS can now provide robust life cycle costing for future projects, and tangible evidence of realised benefits. The QS can: bb save money versus baseline target efficiencies bb understand the gap between design and actual performance bb provide buildings that are more suited to end users’ needs bb put greater onus on the design team/ contractor to consider whole life issues bb offer impartial review of deliverability bb test whether innovations worked. b Andy Green is a Director at Faithful and Gould and lead author of NRM3 andy.green@fgould.com
Asset data & costs
Asset system component database
and
AIM
BIM 4FM needs to have an asset register, as well as salient, as-built data to set up and operate and maintain the built asset throughout is life cycle. Therefore, the key to unlocking the cost on BIM is simply to adopt the NRM asset classification and capture and build the relevant AIM to suit the client specific purpose – then generate the life cycle costings (as the CROME acronym) (see Figure 4). Linking AIM with the 3D visualisation models environment has achieved benefits in project delivery, such as: bb interactive demonstration of complex interventions and sequencing bb testing of design options in a collaboratively with client, consultant, contractor/others bb off-site manufacturer of construction elements from geometric data exported from design model bb transfer of construction data to the client FM team for ongoing estate management.
OM&A Plans
Related competencies include Commercial management of construction, Data management
5D SEPTEMBER/OCTOBER 2015 1 1
RICS CON ST RUCT I O N JO URN A L
I N TE R N ATI O N A L STA N DA R D S
Aligning principles Peter Bolton King reports on the International Ethics Standards Coalition
I
n October 2014, organisations representing property and related professional services from around the world, including RICS, met at the UN in New York to establish the International Ethics Standards Coalition (IESC). The coalition is made up of leading professional bodies from Asia, Europe, Oceania, North and South America and aims to develop and implement the first industry-wide, high-level
ethics standards. Member organisations, many of which already have their own code of conduct focusing on such issues as trustworthiness, integrity and respect, will endeavour to align fundamental ethics principles. The goal is that professionals will undertake their work, regardless of its nature, in an ethically consistent way, wherever in the world they are located. It is hoped that the new international ethics standards will be ready in the first half of 2016, following which the member bodies of the coalition will implement them
1 2   SEPTEMBER/OCTOBER 2015
through their own training and guidance to professionals. Although RICS is just one of the coalition members, this work is a natural fit to producing and implementing standards, which is a major part of its strategy and business plan. In addition, the recently published RICS Futures report Our changing world places “having ethics at the heart of everything we do� well up the list of actions in influencing our future (www.rics.org/uk/theprofession/rics-futures).
Why international standards? For many years, members have carried out valuations in accordance with the international valuation standards council as set out in the Red Book. Over the past two years great progress has also been made in establishing International Property Measurement Standards, although many organisations involved in this work correctly stated that everything we as professionals undertake must
be done in an ethical way. In addition, work has just started to form an International Construction Measurement Standards Coalition, which is attracting considerable global interest (see p6). Clearly, many professions and organisations already have their own robust ethics standards and codes. However, individual codes of conduct bodies (including RICS) can generate confusion, and impact on the legitimacy of professionals in an increasingly global and interconnected marketplace. Establishing a common ethics standard will enhance transparency and trust in the services offered by professionals, wherever they operate. The introduction of transparent international ethics standards should improve professional service standards, and promote stable property markets around the world. This will help to overcome the findings of the Chartered Management Institute report The moral DNA of performance, published in October 2014
RI CS CONST RU C TIO N JOUR NAL
m Members of the International Ethics Standards Coalition outside the UN in New York
IESC member organisations (http://bit.ly/1Gqx7Bb), which indicated that the public’s trust in the professions was still at a low level. We also see a growing body of evidence that suggests that transparency and ethics are becoming increasingly important in the global business market. The Dow Jones sustainability world index was created in 1999. The FTSE4good series was launched in 2001 as a response to investors seeking to measure the social, environmental and ethical performance of the companies they invest in. These companies have witnessed solid growth over the past five years, and it becomes clear that environmental social and governance are key factors being given greater consideration in investment. A further report released in September 2014, From stockholder to the stakeholder, finds “a remarkable correlation between diligent sustainability business practices and economic performance”. As far as the construction sector is concerned, behaving ethically lies at the heart of its work. Once the high-level ethics principles are established, there will need to be discussion and consultation as to how these
impact on the sector. RICS will, of course, be looking to provide guidance and training.
Progress so far It would be fair to say that everyone involved has been delighted and even a little surprised by the response. In just a few months, some 50 organisations have signed a declaration of intent, and, as will be seen by the list of members (see panel), the global interest in this project from property and related professional organisations shows that this is an important piece of work. Both the UK Land Registry and the Dubai government have already indicated that they wish to be supporters. I was honoured to be elected Chair of the IESC trustees, and the board has recently approved the formation of an independent standards setting committee representing both the diverse nature of professional practice, and the international scope of the project. Coincidentally, I am very pleased that a number of RICS members from around the world are part of the committee. b
More information > For details and to view an introductory film, visit www.ies-coalition.org
Peter Bolton King FRICS is RICS Global Property Standards Director and Chair of the International Ethics Standards Coalition pbking@rics.org
Related competencies include Conduct rules, ethics and professional practice
La Asociacion Espanola de Analisis de Valor American Society of Appaisers American Society of Farm Managers and Rural Appraisers Appraisal Foundation Asian association for Investors in Non-listed Real Estate Vehicles Asia-Pacific Real Estate Association Asian Real Estate Association of America Asociacion Professional de Sociedades de Valoracion Association of International Property Professionals (UK based) Assoimmobliare Association of Residential Managing Agents Bulgarian Chamber of Professional Valuers Chartered Institution of Water and Environmental Management China Electricity Council China Institute of Real Estate Appraisers and Agents China Real Estate Valuers and Agents Association Commonwealth Association of Surveying and Land Economy Council of European Geodetic Surveyors Dubai Real Estate Institute Counselors of Real Estate Ghana Institution of Surveyors The Hong Kong Association of Property Management Companies Indonesian Society of Appraisers Initiative Corporate Governance of the German Real Estate Industry International Consortium of Real Estate Associations European Association for Investors in Non-Listed Real Estate Vehicles Institute of Philippines Real Estate Appraisers Institute of Quantity Surveyors Indonesia Institute of Real Estate Management Institute of Residential Property Management International Real Estate Federation International Right of Way Association International Valuation Standards Council Japan Association of Real Estate Counselors Japanese Society of Independent Appraisers Lonja De Propriedad Raiz De Bogota National Association of Realtors India National Society of Professional Surveyors Royal Architectural Institute of Canada Real Estate Institute of Australia Real Estate Syndicate of Lebanon Royal Institute of British Architects Royal Institution of Surveyors Malaysia RICS Singapore Institute of Building Ltd South African Property Owners Association Society of Chartered Surveyors Ireland SECOVI Russian Society of Appraisers
SEPTEMBER/OCTOBER 2015 1 3
RICS CON ST RUCT I O N JO URN A L
C O ST R E P O RTI N G
Chris Green details new RICS guidance on cost reporting
Making the sums add up
A
key post-contract duty of the client’s quantity surveyor is to provide frequent, regular and accurate cost reports that provide the best available data on which to base project decisions. The QS is expected to fulfil the following duties, notwithstanding the detailed terms of any appointment or contractual obligation: bb report all known construction costs bb report all anticipated construction costs bb report on required risk allowances for construction costs bb provide reports on a regular and frequent basis. The quantity surveyor needs a comprehensive understanding of the adjustments to cost arising from the particular building contract between the client and the contractor. While there are many different forms, each with its own language, the type of adjustments to cost fall under a set of common categories. First, it is helpful to consider whether the cost has been incurred and how accurately it can be valued. A comprehensive cost report will therefore capture four categories: bb costs incurred at the date of the report, where they are known and can be accurately valued in accordance with the particular contract conditions bb costs incurred at the date of the report, where they are known and can be estimated in accordance with the particular contract conditions bb forecast costs to be incurred as can reasonably be foreseen at the date of the report, and estimated in accordance with the particular contract conditions bb risk allowances necessary as can reasonably be foreseen at the date of the report. Within these, there are further common categories of cost adjustment: 1 4   SEPTEMBER/OCTOBER 2015
Variable costs Provisional/undefined provisional sums The cost allowances for works or services whose design specification and extent are not known at the date of contract. Defined provisional sums The cost allowances for works or services whose design and specification is sufficiently well known to allow for programming and management. Provisional / approximate quantities The provisional quantities of work whose specification is known but the exact amount has yet to be determined. Prime cost sums The financial adjustment of work whose extent is known but whose specification has yet to be determined. Daywork allowances The monetary allowances made for labour, plant and materials, against which percentage uplifts are priced against the base rates of labour and prime cost of materials and plant. These allowances are for work whose quantity and specification are unknown, and whose instruction is likely to be on an ad hoc basis where the valuing of the work by reference to contract rates would be inappropriate.
Variations
macro-economic level by reference to input costs, price indices and price adjustment formulae.
Risk allowances The monetary allowances for works or services, whose quantity and specification are unknown and at the risk of the client. By considering each of these cost adjustment categories, the QS can provide a comprehensive cost report.
Cost control The quantity surveyor should consider each cost report produced in the context of the project brief, and provide possible courses of action to address any deviation. In the case of cost increases above the brief or approved construction budget: bb omit elements that are not immediately critical for the required functionality of the building bb reduce the scale of elements without diminishing the required functionality of the building. bb reduce the specification of elements of remaining construction work.
Additional costs arising from delays to programme or the disruption to the performance of the contract works.
Each of these measures should be evaluated within the constraints of the planning consent to ensure no breach is committed. The quantity surveyor should note the importance of advising the client of the whole life impact of potential savings, looking at capital cost, renewal cost and frequency, operating cost, maintenance cost, and end of life cost impact. The QS should also advise of the consequential cost savings, with regard to programme, other cost element, statutory compliance, asset value, and funding conditions.
Fluctuations
Frequency
Financial adjustments to the original contract prices to compensate for changes in pricing levels at a
Thought should be given to the duration of the project. Minor works may only take a few weeks, therefore weekly cost
Contract instructions The financial adjustment arising from instructions issued in accordance with the contract for variations to the works. Anticipated instructions/early warnings The financial adjustment arising from instructions known to be required, but not yet issued in accordance with the contract for variations to the works.
Loss and expense
Image Š Shutterstock
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Cost reports should avoid use of a general contingency allowance and instead adopt risk allowances for anticipated cost occurrences reporting may be appropriate. The UK construction industry operates on a monthly payment cycle. Production of the cost report should accord with the availability of updated data and is usually prepared in conjunction with the payment cycle. This is recommended practice even if stage payments are to be made less frequently. If the volume of variations is such that cost reporting should be carried out at shorter intervals, the QS should advise the client and seek instruction.
emerges. If the client requires a general contingency in the budget, then its reporting treatment should be agreed at the outset of the project. There are two accepted methods: 1 The balance of remaining risk allowance should be maintained throughout the remainder of the project. 2 The balance of remaining allowance should be progressively reduced on an agreed basis pro-rata to: bb percentage completion of programme bb percentage completion of cost.
Contractor consultation
Reporting of loss and expense
The content of a cost report is confidential and should not be disclosed to anyone without the express consent of the client. A comprehensive cost report should not be prepared without a detailed consultation with the building contractor, to identify the amounts being claimed and forecast against each category. This information can be included in addition to the quantity surveyor’s assessment. This allows the client to see the degree of agreement and hence the residual risk in outturn cost.
Risk allowance management Cost reports should avoid use of a general contingency allowance and instead adopt risk allowances for anticipated cost occurrences. Quantity surveyors should measure and value the costs being incurred and reduce the risk allowance as the actual cost
The form of construction contract may permit the building contractor to claim loss and expense arising from specified types of delay, and/or disruption to the regular progress of the works. Valuing a claim may be instructed by a client as an additional service for the quantity surveyor to perform. The cost report should include the amount being claimed by the contractor and, if instructed, the amount assessed by the quantity surveyor, as being reasonable. The difficulty lies in the fact that loss and expense claims are not readily measurable, and hence capable of being accurately determined without detailed submissions from the contractor. The burden of proof lies with the building contractor, and may include prolongation and disruption claims from its subcontractors in addition to their
own loss and expense. This information may not be provided to the QS until sometime after completion of the project. The quantity surveyor should make the client aware of the difficulty. The cost report should state whether an assessment for loss and/or expense has been included and on what basis the allowance is made.
Liquidated and ascertained damages If the form of contract permits and the building contractor fails to complete the works by the date for completion, the amount of liquidated and ascertained damages the client is entitled to recover should be reported unless instructed otherwise by the client.
Tender adjustments Tenders received for construction works may be subject to overall adjustments: Fixed price adjustment (NRM2.13.1) should be taken into account in the valuation of variable costs and variations where the basis is the tender price. Where these have been adjusted on the basis of fair rates, then no fixed price adjustment should be made. Director’s adjustments (NRM2.13.2) is deemed to be a one off that should not be applied to any subsequent adjustment of either variable costs or variations. Clearly, there are many factors to account for if the quantity surveyor is to provide a comprehensive cost reporting service. Reflect on your own approach and see how it measures up. b
More information > Cost reporting 1st edition is available from the RICS shop
Chris Green FRICS is director of Capita Chris.Green@capita.co.uk
Related competencies include Project financial control and reporting
SEPTEMBER/OCTOBER 2015  1 5
RICS CON ST RUCT I O N JO URN A L
G U I DA N C E
Richard Dartnell discusses the new RICS guidance on appropriate contract selection and its value to the quantity surveyor
On the right lines
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dvising on the most appropriate construction contract for a new project is a task that many RICS members will be called on to carry out at some stage in their careers. Until recently, the subject of contract selection had lacked any formal guidance. However, the publication in November 2014 of a new RICS guidance note now provides a useful reference tool for anyone who may have to advise on or those who have an interest in this topic. Appropriate contract selection is part of the RICS’ Black Book suite that define best practice and good technical standards both for younger professionals working through their APC or more experienced construction practitioners. Providing certainty and consistency in quantity surveying processes, the suite offers clear standards against which professionals can perform their duties and eliminate ambiguity. They also help to ensure clients receive objective advice, delivered in a professional manner and allow the benchmarking of services. Topics such as cost reporting, extensions of time, tendering and procurement strategies are covered, along with defects and rectifications and valuing change. Each guidance note is produced by a lead author in conjunction with a cross-industry working group – made up of representatives from employers, contractors, quantity surveying firms, academia and other industry bodies. As such, they are extremely useful reference points for construction professionals throughout the lifetime of a project. It is also helpful to read the Appropriate contract selection guidance note in conjunction with Tendering strategies by James Garner of Gleeds, and Developing a construction procurement strategy and selecting an appropriate route by Roy Morledge of Nottingham Trent University. Together they provide a full 1 6 SEPTEMBER/OCTOBER 2015
understanding of matters to consider at the outset of a construction project.
Why the need for guidance? Selecting an inappropriate form of contract or equally, not having a contract at all, is fraught with problems – the rights and obligations of the parties involved are unclear and disputes often occur. The choice of procurement route, the tendering strategy, the skills of the chosen contractor and its supply chain, and the goals and attitude of each party will all help to determine the success or otherwise of a project, but using a contract inappropriately will greatly increase the chance of failure. Image © Shutterstock
The document details how employers and their professional advisers should select a construction contract to engage a main contractor for private or public sector projects. Although focused on the UK market, the principles are broadly applicable in other jurisdictions. However, the guidance note intentionally does not cover the needs of the consumer/ domestic market and other contracts that an employer may require, such as the appointment of the professional consultants (the architect, cost consultant, project manager, etc). A key theme running through the guidance note is the need to select the most appropriate procurement
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Understanding the main procurement routes is critical for those who advise on contract selection
route for a project before selecting the construction contract. This ensures that the employer’s requirements, and any project-specific factors, are provided for in the chosen form of contract. Different procurement routes place greater emphasis on performance, cost and time, and the decision of the procurement route should be made after analysing the relationship between these elements. The most appropriate construction contract will then flow from that. The guidance note is divided into three main sections – general principles (knowing), practical application (doing) and practical considerations (doing/advising), which conform to RICS Assessment of Professional Competence. An appendix contains a comprehensive table comparing the JCT Standard Building Contract (2011), the NEC3 Engineering and Construction Contract (April 2013), PPC2000 (2013 edition) and the Infrastructure Conditions of Contract Measurement Version (2011).
Section 1: General principles The first section includes a summary of the most commonly adopted procurement routes in the UK, and is an abridged version of the RICS guidance note Developing a construction procurement strategy and selecting an appropriate route. Diagrams explain the contractual structure of each main route (e.g. traditional procurement, design and build and construction management), and details the key differences between them. Understanding the main procurement routes is critical for those who advise on contract selection, and this part of the guidance note provides a basis of knowledge for what then follows. Following this analysis, the guidance discusses why standard form construction contracts are used, with an introduction and review to the bodies that publish the various forms for use in the UK (e.g. the JCT and NEC).
Section 2: Practical application
Section 3: Practical considerations
The second section begins with a short analysis of the differences and interrelationship between procurement, tendering and contract selection, elements that are frequently blurred in practice. This leads on to a review of other factors influencing the contract selection. These may include: bb The nature of the work and sector: certain standard form contracts are more suited to particular types of work, whereas others have been developed for use in specific sectors (e.g. civil engineering or process engineering). bb Size, value and complexity of the project: while these are important factors, they are not necessarily interdependent of each other, e.g. a large-scale project may be relatively simple to construct. bb The employer, and their level of sophistication and familiarity with construction: some contracts demand more involvement from the employer, whereas others can be handled by a contract administrator or employer’s agent. bb The balance of risk: the parties to the construction contract should be considered during procurement and when choosing the form of contract for a project. For example, a design and build contract is inherently more risky for a contractor than a construction management appointment. bb design responsibility: the associated risk either for the whole or part of a project will affect the choice of procurement route and the form of contract. bb the basis of the contract sum and payment: this can influence both the procurement route and form of contract chosen e.g. fixed priced lump sum or target cost. bb control over subcontractors: although not a primary factor for choosing a form of contract, this remains important to some employers.
Once an appropriate contract has been selected, the contractual requirements have been negotiated and agreed and the tendering process completed, the parties will be ready to sign the documents. Professional consultants who assist in the collation of the contract documents and execution process need to be aware of the basic elements required to create a contract, and the practical issues of agreeing and executing it. Therefore, the third section of the guidance note covers: bb essential elements required to create a contract bb understanding the contract documents and pitfalls to avoid bb how to amend standard form construction contracts and to incorporate schedules of amendments, including why this might be necessary bb executing a contract and duration of liability bb the jurisdiction in which the works are located. The guidance note is recommended reading for all those construction professionals who advise on this topic. b
More information > The guidance note is available for download at http://bit.ly/1LRYBUK or the RICS shop
Richard Dartnell is a Senior Associate at Pinsent Masons LLP and lead author of the Appropriate contract selection guidance note Richard.Dartnell@pinsentmasons.com
Related competencies include Contract practice
SEPTEMBER/OCTOBER 2015 1 7
RICS CON ST RUCT I O N JO URN A L
C O ST P L A N N I N G
David Benge and Stuart Earl show how the RICS NRM documents have contributed to best practice
T
Golden rules
The reforms set out in the UK Government Construction Strategy, the Chief Construction Adviser’s efficiency agenda, the increasing focus on building information modelling (BIM) and the economic challenges currently facing the industry, all demand a step change in working culture, including that of the cost manager.
The relevance of NRM1 in a BIM-enabled construction industry is particularly pertinent. BIM is intended to address issues of process management and data retention, bringing the collection of coordinated data to the forefront. NRM1 is linked to this, enabling the consistent collection of construction cost data that is synchronised with the design data, as is NRM3 in respect of building maintenance. As part of its commitment to continually raising the professional standards to which its members work, RICS developed its New rules of measurement: order of cost estimating and cost planning for capital building works (NRM1), which is now
Figure 1: Relationship and purpose of the RICS NRM suite of measurement rules NRM1
NRM3
Order of Cost Estimating
Order of Cost Estimating
Whole life cost estimate/ cost planning Cost planning
Cost of Capital Building Works Initial capital costs of building (newbuild and refurbishment) Replacement costs (of sub-elements and components) Disposal costs
Cost planning
NRM2 Detailed measurement
Cost of Maintenance Works Planned/Preventative maintenance costs (of building components and building engineering services) Unplanned maintenance costs
Detailed measurement for the purpose of obtaining bids for capital building works (newbuild and refurbishment)
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Replacement of components and subcomponents Emergency works Disposal costs in connection with components and sub-components
part of a suite designed to support the cost management of construction projects from cradle to grave (see Figure 1). The rules were arguably the most significant launch to the construction sector by RICS in the past 35 years. Before NRM1, quantity surveyors had used the Standard Method of Measurement (SMM), now replaced by the RICS New rules of measurement: Detailed measurement of building works (NRM2). These rules were specifically drafted to advise quantity surveyors on the detailed measurement of building works for inclusion in bills of quantities that, in turn, were used to obtain tender prices from contractors. They also aided the measurement and valuation of variations issued during the construction phase. A key requirement of the SMM was the need for a full and detailed specification and drawings from the designers, which are now seldom provided. This resulted in the overuse of provisional sums and abuse of bills of quantities. The lack of detailed design is primarily caused by the cost of finance, and the need for clients to complete and put the building to use as quickly as possible. Equally, the impetus lies with ensuring that contractors are involved early in the design process to provide input on buildability and value for money. As a consequence, over the past 20 years, the use of design and build contracts
have come to the forefront; commonly awarded on a concept design or developed design (RIBA Work Stages 2 or 3) basis – well before the completion of technical design (RIBA Work Stage 4), when the bills of quantities could be considered. For these reasons, cost planning has become an essential cost management tool.
Step forward NRM1 is an overdue statement of how cost planning is applied in practice, and is a significant step forward in improving standards. First, it re-establishes measurement as the core of our professional standing and second, it makes it easier to benchmark against widely accepted best practice. It also provides learning establishments with a clearer statement of the competencies required by students. Its framework facilitates a systematic approach to compiling and managing cost estimates and cost plans. As the cornerstone of good cost management of construction projects, the rules provide a standard of measuring for developing the order of cost estimates and costs plans, as well as enabling effective, accurate and transparent cost advice to be given. They also facilitate better pre- and post-contract cost control. Consequently, NRM1 sets out the standards required of all parties involved in the cost management of construction projects.
RI CS CONST RU C TIO N JOUR NAL
Figure 2: Build-up of total building project estimate
Understanding and using NRM1 will be an essential selling point when working in other countries
Inflation estimate Risk allowance estimate
Risk allowance estimate
Other development and project costs estimate
Total building project estimate
Project and design team fees estimate Base cost estimate Works cost estimate
Figure 3: The cost management cycle (The Benge Cycle) Determining viability of options
Cost data retrieval and reprocessing
Setting cost limit for preferred option
Analysis, collection and storage of actual cost data
Cost control of design development
Cost control of procurement and construction stages
All figures sourced from Benge, David P, NRM1 Cost Management Handbook (2014)
It is important to understand that NRM1 is a toolkit, not just a set of rules for the quantification of capital building works. The rules provide guidance on: bb How the method of measurement changes as the building design develops: from high-level measurement of areas and/or functional units to the measurement of more detailed elements, sub-elements and cost significant components. bb Total project fees: considering consultancy services from cost managers, architects, engineers and legal advisers, as well as those from site surveys – both desktop and intrusive investigations; in addition to main contractor’s pre-construction fees, plus
the main contractor’s and subcontractors’ design fees. bb Total building project costs: how all cost centres, including non-construction items, can be pulled together into a single cost plan for the entire building project (see Figure 2). bb Risk: based on the properly considered assessment – dispensing with the widely mismanaged concept of contingences. bb Information requirements: from the employer and other project team members at each design stage to enable more certainty in cost advice. bb Key decisions: made by client at each project stage of the RIBA Plan of Work, or Office of Government Commerce gateway.
bb Codification: providing a framework for elements, sub-elements and components so that the structure of cost plans can be converted to work package or vice versa, through both the bid and construction phases. bb Reporting: communicating cost advice to clients. bb Data collection: providing a common basis for analysing and collecting real-time cost data that can be used for benchmarking and to estimate the cost of future building projects (see Figure 3).
Applying the rules To be effective, a cost manager must be able to understand and use the rules of measurement, as well as being able to apply common sense. An effective project manager, on the other hand, must have an understanding of how cost managers construct their estimates and plans to discuss them from a position of knowledge. For practitioners, NRM1 should be seen as an indispensable aid to embrace
best practices in cost estimating and cost planning. Furthermore, understanding and using NRM1 will be an essential selling point when working in other countries, to avoid misunderstandings that arise due to different cultures. Use of the rules demonstrates a professional and responsible approach to the cost management of building projects. But they are equally essential for project managers, clients and others involved in financial management who wish for a better understanding. Be aware that cost managers will find it increasingly difficult to defend a position where they have ignored NRM1 when preparing cost plans. Having first been published in 2009, NRM1 can no longer be considered new. In the event of a legal dispute, a court or tribunal is likely to ask why the cost manager decided not to adopt recommended RICS best practice. Indeed, the question may even be asked whether they can be considered to be competent. b
David P Benge FRICS is a Director at Gleeds and lead author of NRM1 david.benge@gleeds.co.uk Stuart Earl FRICS is a Director at Gleeds and Chair of the RICS Measurement Initiative Steering Group stuart.earl@gleeds.co.uk
Related competencies include Commercial management of construction
SEPTEMBER/OCTOBER 2015 1 9
RICS CON ST RUCT I O N JO URN A L
C O ST P L A N N I N G
Ian Aldous sets out the possibilities for BIM as a cost planning tool
Known quantity
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uilding information modelling (BIM) has been an industry buzzword for some time, and interest has increased since it was cited in the Government Construction Strategy in May 2011. In this, it was confirmed that it “will require fully collaborative 3D BIM (with all project and asset information, documentation and data being electronic) as a minimum by 2016”. So for the government BIM is about collaborative working and information, not about the technology. The mandate is driven by the huge potential that a structured approach to information offers the industry. While visualisations can improve coordination and wider understanding, having data in an easily re-useable form should drive enormous efficiencies across the whole asset life cycle, with some commentators referencing operations savings of over 25%. However, the change will be delivered by those working in the industry truly embracing the potential. BIM can only thrive when there are processes, platforms and people working together.
Benefits and uses BIM offers one version of the truth, a federated model that holds (either directly or via links to a database) all of the information needed to physically construct (and potentially operate) the asset. It can know where an object is located spatially, its size and weight, its specification, its place in the programme and its interdependencies. This information is extremely powerful. It can allow for better informed decisions during the design stages, because there is absolute clarity around what will be delivered and how. It can also help to 2 0 SEPTEMBER/OCTOBER 2015
de-risk the construction stages, with all parties working from a central information system. Following completion of the works, the same information can allow instant asset management, either from the database created during construction or by importing the information directly to a computer aided facilities maintenance system. There are also wider benefits in connection with collaboration and coordination (see Table 1).
Cost planning The same information that offers operations benefits also allows for the rapid production of a cost plan. Although currently not possible, in theory, eventually there is the potential to create a fully automated cost plan directly from a BIM or its associated database (see Table 2). Generally, the first option is the preferred route because it uses existing models from which to quantify. However, it is worth noting that on a number of projects cost managers create their own bespoke models. The benefit of this option is that rather than spending time doing a detailed take off, it is possible to get instant schedules and quantities from the model. The level of detail set against this is obviously dependent on the stage of design and the agreed inputs from the team, but in a managed process is generally suitable for cost planning. Having the scheduled quantities in hand removes some of the non-value adding processes, and gives more time to finalise costs, the context and challenge the design. This last point is key, because BIM allows practitioners to add great value by focusing not only on what assets should cost, but also on how they should be designed, allowing benchmarked information to drive efficiency and effectiveness. Image © Alamy
There is the potential to create a fully automated cost plan directly from a BIM or its associated database A model needs to be created in a consistent manner to ensure that the quantities can be used properly and their context is understood. Some of the issues are: bb incorrectly modelled elements bb inconsistently named elements bb improperly used elements bb missing elements.
Standards and coding structure To ensure the quality and context of information produced, it needs to be developed within a framework of
RI CS CONST RU C TIO N JOUR NAL
there are a range of structures available in the industry. The main ones are: bb Uniclass 2 bb New Rules of Measurement NRM1, 2 and 3 bb Civil Engineering Standard Method of Measurement bb BCIS bb Digital plan of work bb MasterFormat (US) bb UniFormat (US). BIM has developed using the Uniclass form of classification. While this is different to the classification used in NRM, it is possible to cross reference between the two. In terms of cost planning, it is recommended that an understanding of the coding structure to be used in the model is ascertained at the outset.
Process and protocols standards and structures. The key standards are: bb BS1192 – details how data should be structured and used bb PAS1192 – sets the information standards for the model, and defines core project processes including the common data environment. These ensure that the information is created in the right manner to enable its consistent re-use. It also ensures the full team are working to a common process and information structure. In regards to how information is coded,
There is a need to agree processes and protocols at the outset to ensure that everyone is working with the same outputs in mind. While the PAS1192 document details a number of standard processes, these need adoption and integration on a project. The employer will generally specify what information they want and in what form, which the wider team will then translate into a delivery document (see Table 3). A key part of the process is an awareness of the level of detail being produced, and how this increases during the design stages and varies between disciplines. When extracting
quantities, consideration needs to be given to the output required, because additional processing or supplementary quantification may be needed. It is therefore important to plan and communicate BIM deliverables to all parties, and it should be agreed at the outset what information (often referred to as work stage data drops) will be passed on for costing purposes. These work stages need to be aligned with the project milestones and client requirements, and should form part of the model production and delivery table included in the BIM execution plan. The key facet of BIM is that information is structured so that it can be re-used for various functions. As such, the process is important but the standards more so, because without these the information can become unusable. From a contractual perspective, a BIM protocol (such as that drafted by the Construction Industry Council) gives a client a right to the information being produced. While not a key element of cost planning, it is a key consideration for a quantity surveyor.
Quantity extraction The next step is the actual extraction of quantities. For this, a copy of the model and suitable software are needed to allow viewing and scheduling. Although it is possible to get quantity schedules directly from members of the design team (in a similar manner to the receipt of door schedules), it is becoming standard practice for the quantities to be extracted directly.
Table 1: BIM benefits Objective
Benefit
Value
Stakeholder engagement
Full visualisation
Understanding/alignment
Collaboration
Single platform
Clarity and consistency
Procurement
Shared/accurate data
Programme
Programming/planning
Visualisation
Optimised/logic tested
Costing
Cost linked model
Automation
Asset management
Coded for operations
Operational information
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n This has an additional benefit of ensuring that the context of quantities can be understood. The exchange formats need to be agreed between the design team and the quantity surveyor, who needs to confirm the required format and version of the model. Generally, quantities can be extracted from read only versions of models, typically in DWFX format. However, there are a range of formats (such as IFC, DWF, DWFx, DWG, RVT, NWD, PDF) available, and clarity should be sought. There are then three key ways to input the quantities into the cost plan: bb model quantities used, as generated bb model quantities used, subject to manual adjustment bb model quantities that cannot be used or do not exist, and therefore have to be replaced with manual measurement. In terms of the software, this can be free to use or come with a licence fee. The key element is being able to extract in a manner that allows for use within cost planning. In 2014, the RICS How can building information modelling (BIM) support the New Rules of Measurement (NRM1) Research paper concluded: “It is essential for the project team to agree on a set of requirements which is defined from the viewpoint of cost estimating and planning to enable the quantity surveyor to use BIM more effectively” (http://bit.ly/1zyjZrZ). While the cross coding for the use of differing information structures can be overcome, inaccurate or unusable information cannot. A final point on the ability to cost plan from BIM is around ensuring that the duty of care is met in the context of the suitability of extracted information. There remains a possible risk of loss of data integrity, following transmission to non-native formats. A series of independent checks and balances should therefore be put in place to test the model outputs. These could include: bb high-level quantity checks: using the gross internal floor area to compare against the extracted floor/ceiling areas bb scope gaps: a check to ensure no element is missing, especially if quantities are taken from multiple models bb coordination: is clash detection seen? bb element interfaces: for example, do columns stop at the underside of slabs? bb integrity: are any data fields missing or corrupt? 2 2 SEPTEMBER/OCTOBER 2015
Table 2: Creating cost plan from BIM Analyse and cost an existing model
Create and cost a new model
Uses existing intelligence to automate some QS functions
Provides control over data and level of detail
Builds on existing practice
Facilitates programme and cost modelling
Low barriers to entry
Allows potential integration with standard objects and costs
B U T…
B U T…
Reliability of objects
Duplicates activity
Comprehensiveness of model
Multiple version of the truth
Appropriateness of project controls to capture change
Additional cost/overhead to maintain
Table 3: Key processes Element
Plain language question
BIM strategy
What do you want to achieve?
Information manager
Who’s going to do it?
Employer’s information requirements
How do you want it delivered?
BIM execution plan
How will the strategy be delivered?
BIM protocol
What about the contract?
BIM design team requirements
Can the team deliver?
BIM implementation plan - design
How will the team deliver?
BIM contractor requirements
Can the contractor deliver?
Master information delivery plan
How will the contractor deliver?
Asset information delivery plan
How will the contractor deliver?
bb visual checks: does the asset look correct?
Future opportunities BIM is an enabler. While technology powers this enablement, it is the surrounding culture that turns it on and the expertise of the design team that drives it forward. BIM will enable better quality buildings by giving consistent, reuseable information. With the right environment, this will mean not just better value throughout the life cycle, but will lead to a more efficient business and better business outcomes. Quantity surveyors can use their core skills – measuring, analysing and interpreting – to add immense value from the plethora of new data that will become
available. Cost planning is an obvious start, but the future should see much wider application of model information to help drive efficiency, provide insights, push iterative improvements and create value. b
Ian Aldous is an Associate Director at EC Harris ian.aldous@echarris.com
Related competencies include Commercial management of construction
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Helen Crossland navigates the risks surrounding employment references
I
An occupational hazard
It is a common misconception that employers are obliged, if asked by a departing employee’s new company, to provide a job reference. Although this is a matter of discretion, businesses are normally quick to do so, often due to being unaware that they have a choice, or owing to their wish to be professional and support workers in their chosen career path. Notwithstanding this, references historically have proved to be hazardous for employers, with the potential for claims both from the individuals on whose behalf they are provided, to those relying on their contents, being ever possible.
bb does not give a misleading impression, which may include omitting something of pertinence. References should also be administered in line with company policy. This should stipulate the form of reference the business is prepared to give, the position regarding ‘bad leavers’, and the personnel assigned to processing them, which could include HR, the finance or managing director. Any company policy should ideally be in writing, be fair and consistent in its approach and have the protection of the business at its forefront. Adopting some core principles will vastly curtail the risks attributed to giving references.
Content There is no law prescribing the content or comprehensiveness of references, but
typically there are two types – standard or detailed. A standard reference will cover the bare essentials including the subject’s dates of employment and job title. While this form of wording may have raised alarm in the past, it is now the most prevalent type of reference and employers are best advised to agree to provide references on this basis only. A detailed reference may offer substantially more, including observations of the person’s performance in their role, reasons for leaving, pay, absence record, time-keeping and suitability for the position applied for. It goes without saying that this type of offering is riskier owing to the element of subjectivity and wider content. In addition to, or instead of a company
Golden rules Employers ordinarily are under no legal requirement to accommodate a reference request, but it is customary and indeed good practice to do so in respect of good leavers or where the reason for the employee’s departure is uncontroversial. When providing a reference, however, a duty of care is triggered whereby reasonable care must be taken to ensure the content: bb Is true bb Is accurate and fair Image © iStock
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• Reputable privately owned company wishes to develop service lines into Quantity Surveying.
• Initially deputising for the lead partner and then taking control of a team. • You will be a proven project manager, trusted advisor and driven leader. • Potential mid term equity opportunity.
• Current QS work distributed to other consultants would be brought back in house. • You will have solid pre and post contract experience.
Partner – Project Management, Consultancy, East Midlands £BUVA* + full benefits package + bonus • Taking control of a service line for a well established and respected company who is a multi-disciplined construction consultancy. • Current clients range from developers, landlords and occupiers. • You will have demonstrable project management experience.
• Expectation of solid industry contacts, with ambition to grow team/service line.
• It is expected that you will have strong regional and potentially national contacts.
• Mid term shareholding available.
• Mid term equity opportunity.
If you are interested in one of these opportunities please contact Elliot Wright or Joe Moore on 0203 817 0000 or email info@carriera.co.uk. If one of these roles does not meet your brief, please still get in touch as we have other opportunities available. *Based upon value added
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bb defamation: if an untrue statement in a reference disparages the subject’s reputation bb malicious falsehood: if the reference states untruths that are malicious or reckless bb negligent misstatement: if a reference contains inaccuracies.
n
reference, it is not uncommon for employers to be asked to complete a pro-forma containing a series of questions about the individual. Since volunteering such information would attract risks akin to that of a detailed reference, businesses should ideally decline such requests, particularly where it is company policy to provide standard references only. Any refusal can be communicated on this basis; that the company has a policy concerning references from which it does not deviate. The same principles apply to telephone references. Verbal references should be avoided owing to the natural platform they offer to over-elaborate, for information to get lost in translation and lack of any record to verify what was said, or how information was presented. With any reference, a disclaimer should be added stating it is given in good faith, in confidence and without liability on behalf of the writer and employer.
Bad leavers Occasions will arise where an employer is asked to give a reference on behalf of an individual who was dismissed, or who departed in the midst of formal disciplinary or capability proceedings. In such scenarios the employer is advised to make one of two decisions: 1. decline to provide a reference 2. provide a reference ensuring it is true, accurate and fair, but which contains brief details of anything of pertinence. This may involve including a short statement confirming the subject was terminated pursuant to a formal capability process, or that the individual resigned in the course of formal disciplinary proceedings which may have resulted in their dismissal. Disciplinary proceedings ought only be referred to where the employer has a genuine belief in the employee’s guilt following a reasonable investigation. The first option is passive (and hence often more appealing) but will still likely
Employers are best advised to agree to provide standard references only alert the prospective employer to the fact all is not well. The downside is it could invite more questions from the enquiring party and leave open the chance it could arrive at its own, incorrect conclusions which could be passed on to the reference subject. The second is the safer and recommended course. The reference provider will be guaranteeing compliance with its legal duty of care both to the recipient and individual and leaving an accurate paper trail of what was disclosed. Clearly, there are consequences with both approaches, including the prospect of a job offer being withdrawn by the prospective employer, and the subject seeking retribution from the reference provider. That said, provided the information disclosed in the reference is accurate, option two will most effectively safeguard the business from legal challenges.
Risks In respect of individuals, employers should firstly note any person has a right to see a reference provided on their behalf provided they make a valid application under the Data Protection Act. Hence, it is paramount the employer ensures its contents are true and made without malice. Most challenges from individuals originate from when a reference leads to the removal of a job offer. Potential claims against the reference provider could be brought for:
An individual may also claim breach of contract where the employer fails to produce a reference contrary to the terms of a settlement agreement or the person’s contract of employment. Regarding recipients, the main risk is for negligent misstatement – where a prospective employer puts faith in a reference that is misleading. This most commonly arises where the beneficiary relies on an employer’s overstatements about an individual’s capabilities or potential, which they then fail to produce for the new employer, or due to an employer’s failure to disclose key information that the recipient takes assurances from (such as the subject was dismissed for gross misconduct or poor performance), only for the person to repeat their behaviour causing the new employer to suffer loss.
Conclusion Provided an employer maintains an honest, objective and minimalist approach to references, and controls who is authorised to process them on their behalf, its ability to fend off any resulting claims will be much boosted. Consistency is vital because this will also dilute an individual’s prospects of claiming a decision to refuse a reference, or that including unfavourable content was an act of discrimination or victimisation. The protection of the business should ultimately always take centre stage, and this, rather than loyalty to an employee or the desire to ‘over warn’ a recipient, should serve to avoid the factors most likely to land an employer in hot water when it comes to references. b Helen Crossland is a Partner in the employment team at Hamlins LLP hcrossland@hamlins.co.uk
Related competencies include Managing people
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LEGAL HELPLINE
Legal Q&A Remedying defects after completion
Q
I act as a contract administrator on a residential development using JCT. The works have been certified as complete subject to the usual snagging list but the employer decided he does not want the contractor to do these works, and will just make a deduction. The contractor is saying the employer cannot do that and insists he will deal with all such items.
> Shy Jackson
A
This is not an unusual situation, especially when the employer has lost confidence in the contractor and does not wish to allow they on site to complete works or remedy defects. Contractors sometimes assume they have an automatic right to carry out such works, but that is not the case and it is necessary to check what the contract provides for. Under the JCT standard form (SBC/Q 2011), for example, the contractor is expected to carry out such works post completion. If the contract administrator instructs otherwise, a deduction can be made under clause 2.38. Determining the quantum of such a deduction is not always straightforward. The employer may well wish to recover all the costs they had incurred, while the contractor will insist that they would have done the works themselves for no additional cost so should not be made to pay for others performing the works. This issue came before the technology and construction court last year in Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC). The contract in this case was the JCT Intermediate Building Contract, 2005 edition and completion was certified in 2010, with a list of incomplete and defective works worth around £1m. The contractor denied liability and after several exchanges of correspondence the employer arranged for other contractors to complete the works. The employer then commenced court proceedings to recover that cost. The contractor argued that any deduction under clause 2.30 must be based on the contract rates/priced schedule of works. The court therefore looked at whether such a deduction had to be based on: 1. the contract rates/priced schedule of works/specification 2. the cost to the contractor of remedying the defect (including the sums to be paid to third party subcontractors engaged by the contractor) 3. the reasonable cost to the employer of engaging another contractor to remedy the defect 4. the particular factual circumstances and/or expert evidence relating to each defect and/or the proposed remedial works. 2 6 SEPTEMBER/OCTOBER 2015
+info +info Shy Jeremy Jackson Ferris is a Partner is SenioratAssociate Pinsent at Masons Furley Page LLP LLP Shy.Jackson@ jcf@furleypage.co.uk pinsentmasons.com
Akenhead J found in favour of the employer, holding that “appropriate deduction” under clause 2.30 meant “a deduction which is reasonable in all the circumstances”, and could be calculated by reference to one or more of the factors listed. This was based on finding that the employer’s right to damages for breach of contract existed at practical completion and was not excluded or limited by clause 2.30. In that respect, it was observed that damages for such a breach would normally be based on the cost of putting right those defects. It was also noted that the contractor’s obligation to make good those defects that arise depends on the contract administrator notifying the contractor, and providing access and other cooperation needed. The court also considered the position if there was no rectification period. The employer would have a right to claim damages but that would subject to mitigation. Such mitigation may require allowing the contractor to rectify the defects. A refusal to allow that, however, might be reasonable if the defects were such that no reasonable employer would allow the contractor to return, the contractor had behaved fraudulently or made it clear it was unwilling to return to remedy the defects. In conclusion, therefore, it is important to start by checking the contractual provisions and whether they require or entitle the contractor to carry out any remedial works following completion, whether the employer has the right to instruct others and whether there is an express provision for a deduction. Any applicable contractual procedures should be followed. The employer should also consider carefully whether they are able to refuse a willing contractor an opportunity to remedy and complete the works, and whether such a refusal would be a failure to mitigate. If the employer is not willing to allow the contractor that opportunity, they should consider setting out their reasons in writing. As to the quantum of the deduction, there is no clear answer. The cost of the remedial works will often be regarded as the measure of damages, but it is also important to consider the duty to mitigate and the other factors identified in the Mul v Hutton decision. b
Related competencies include Contract practice