Surveyors' Construction Handbook

Update 15 published December 2003 Update 14 published September 2003 Update 13 published May 2003 Update 12 published J...

Author: Royal Institution of Chartered Surveyors

377 downloads 2939 Views 3MB Size Report

This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
Report copyright / DMCA form

DOWNLOAD PDF

Update 15 published December 2003 Update 14 published September 2003 Update 13 published May 2003 Update 12 published January 2003 Update 11 published October 2002 Update 10 published August 2002 Update 9 published December 2001 Update 8 published October 2001 Update 7 published July 2001 Update 6 published December 2000 Update 5 published October 2000 Update 4 published May 2000 Update 3 published December 1999 Update 2 published October 1999 Update 1 published April 1999

Please note: References to the masculine include, where appropriate, the feminine. Extracts from Parry’s Valuation and Conversion Tables, A W Davidson (1989), (Estates Gazette) reproduced by permission of the College of Estate Management which owns the copyright. Appendix A, Section 2.3 is reproduced from the Building Cost Information Service publication, Standard Form of Cost Analysis: Principles, Instructions and Definitions (1969). Published by RICS Business Services Limited a wholly owned subsidiary of The Royal Institution of Chartered Surveyors under the RICS Books imprint Surveyor Court Westwood Business Park Coventry CV4 8JE UK No responsibility for loss occasioned to any person acting or refraining from action as a result of the material included in this publication can be accepted by the author or publisher. ISBN 0 85406 865 1 © RICS Business Services Limited (RBS) December 2003. Copyright in all or part of this publication rests with RBS, and save by prior consent of RBS, no part or parts shall be reproduced by any means electronic, mechanical, photocopying, recording or otherwise, now known or to be devised. Typeset and printed by Q3 Print Project Management Ltd, Loughborough.

1998 FOREWORD Knowledge is of two kinds: we know a subject ourselves, or we know where we can find information upon it. Samuel Johnson (1709–1784)

The fact that our profession serves a changing world increases the need for it to rely on well thought-out and reliable practices and procedures. Events move at an ever-increasing pace, imposing a requirement for quicker response times. Modern communication methods such as facsimile and now e-mail result in the need for information to be available almost instantly. This is made more difficult by an industry growing in complexity and which is subject to increasing customer expectations in terms of service and quality. The RICS has published this Surveyors’ Construction Handbook to help surveyors meet these needs. It is intended to become an important source of reliable information and guidance to all Chartered Surveyors who practise in construction. Much of the excellent information produced by the divisions in the past has now been updated for inclusion. Other material not yet revised will be added. The whole will be regularly reviewed and updated as necessary. RICS practice panels are continuing to produce information for inclusion to make it a useful construction reference document. We hope that this Handbook will become an invaluable aid to your day-to-day activities.

Christopher Powell, FRICS PRESID ENT, QUANTITY SURVEYORS DIVISION, 1997–98

Trevor Mole, FRICS PRESID ENT, BUILDING SURVEYORS DIVISIO N, 1997–98

ACKNOWLEDGEMENTS Professor Roy Morledge, Professor of Construction Procurement at The Nottingham Trent University, for contributing the text of Part 3, Section 1. Major D.R. Bassett, Royal Engineers, for his contribution to the research underpinning the construction time charts in Part 3, Section 1; Central Unit for Procurement, HM Treasury (now Office for Government Commerce), for permission to use CUP guides extensively in the drafting of Part 1, Section 1 and Part 3, Section 1. Alan Turner, JP FRICS ACIArb, author of Building Procurement, for permission to use a number of the diagrams from his text in Part 3, Section 1.

CONTENTS Foreword Acknowledgements List of Abbreviations Introduction A B C D E F

Aim and Scope of this Handbook Arrangement of Content Status of Content Currency of References Invitation Subscription Service

1 1 1 2 3 3 3

Part 1: The Client Section 1.1: The Client’s Requirements and Roles 1.1.1 Establishing the Client’s Objectives 1.1.2 The Role for Independent Advice 1.1.3 Project Brief 1.1.4 The Client’s Role 1.1.5 The Client’s Responsibilities 1.1.6 Appointment of Project Manager (where appropriate) 1.1.7 Appointment of Consultants 1.1.8 Appointment of Constructors Appendix A: Further Reading

1 1 3 3 4 6 8 8 9 1

Section 1.2: Value Engineering

1 Introduction 1 1.2.1 Why Value Engineering? 2 1.2.2 Applicability 2 1.2.3 At What Stage Should Value Engineering be Carried Out? 3 1.2.4 Who Should Carry Out Value Engineering? 4 1.2.5 How Long Should It Last? 5 1.2.6 Preparing for a Value Engineering Workshop 5 1.2.7 Functional Analysis of Design Relative to the Client’s Requirements 5 1.2.8 Pricing the FAST Diagram 8 1.2.9 Presenting a Design Solution to a Value Engineering Workshop 8 1.2.10 The Workshop 8 1.2.11 Assessing the Value of the Workshop 9 1.2.12 Implementing the Results 10 1.2.13 Feedback from Post-Occupancy Evaluation 10 Appendix A: Health Centre Value Tree 1 Appendix B: Typical Example of a Value Engineering Process 1 Appendix C: Further Reading 1

The Surveyors’ Construction Handbook

Contents (12/03)

Page 1

Part 2: Construction Design and Economics Section 2.1: Pre-contract Cost Planning and Cost Management Introduction 2.1.1 Pre-contract Cost Planning and Cost Management 2.1.2 Preliminary Cost Studies and Feasibility Studies 2.1.3 Budget 2.1.4 The Cost Plan at Outline Proposals Stage 2.1.5 The Cost Plan at Scheme Design Stage 2.1.6 Cost Checking 2.1.7 Action after Receipt of Tenders Appendix A: Sources of Cost Information Appendix B: Format of Budget and Cost Plans Appendix C: Element Unit Quantities Generation for Hypothetical Buildings Appendix D: Further Reading

Section 2.2: Life Cycle Costing Introduction 2.2.1 The Client Context 2.2.2 The Life Cycle Costing Calculation 2.2.3 Tax Allowances, Incentives and Business Rates 2.2.4 Data Sources 2.2.5 Worked Examples Appendix A: Residual Values Appendix B: Obsolescence Appendix C: Costs And Values Appendix D: Glossary of Terms for Taxation Appendix E: Examples of Items of Expenditure Likely to Attract Taxation Allowances Appendix F: Further Reading

Section 2.3: Elements for Buildings

Section 2.4: Design and Build - Guidance for Employer’s Agents Introduction 2.4.1 Background 2.4.2 Contract Documentation 2.4.3 Additional Services 2.4.4 Employer’s Requirements and Contractor’s Proposals (including contract sum analysis) 2.4.5 Design and Build Variants 2.4.6 Novation Appendix A: Potential Services Associated with the Role of Employer’s Agent Appendix B: Employer’s Requirements/Contractor’s Proposal Checklist

Contents (12/03)

1 1 1 1 1 5 10 14 15 1 1 1 1 1 1 1 1 1 1 2 1

Introduction 2.3.1 Elements 2.3.2 Elemental Cost Analysis 2.3.3 Other Uses Appendix A: BCIS Standard Elements

Page 2

1 1 2 4 4 8 11 13 14 1 1

1 1 2 3 3 5 6 8 1 1


Section 2.5: The Chartered Surveyor as Lead Consultant 2.5.1 2.5.2 2.5.3 2.5.4

Introduction Definitions: The Difference Between a Project Manager and Lead Consultant Benefits of Appointing a Chartered Surveyor as Lead Consultant Issues to Consider before Undertaking the Role Schedule of Lead Consultant Duties

Section 2.6 Defining Sustainable Construction Introduction 2.6.1 Technology Swaps 2.6.2 How Can the Environment and Sustainability be Valued? 2.6.3 How Does This Effect the Construction Industry? 2.6.4 Green Building Materials 2.6.5 Whole Building Sustainability 2.6.6 The Government Line 2.6.7 What Might the Future Hold Appendix A: Embodied Energy Content of Building Material Appendix B: Useful Addresses

1 1 1 2 3 3 1 1 2 3 4 7 8 9 11 1 1

Part 3: Construction Planning and Procurement Section 3.1: Developing an Appropriate Building Procurement Strategy Introduction 3.1.1 The Client’s Role 3.1.2 Procurement Strategy 3.1.3 Selection of Most Appropriate Procurement Strategy 3.1.4 Implementation Appendix A: Procurement Options

Section 3.2: Building Services Procurement Introduction 3.2.1 Appointing the Building Services Designer 3.2.2 Design Coordination 3.2.3 Appointing a Building Services Contractor 3.2.4 Tender Documents Appendix A: Typical Example

1 1 2 12 25 29 1 1 1 3 11 19 34 1

Part 4: Construction Administration and Management Section 4.1: The Problems of Practical Completion Introduction 4.1.1 What Happens in Practice 4.1.2 Standard Form Approaches 4.1.3 Effects of Practical Completion 4.1.4 Methods for Dealing with Practical Completion 4.1.5 Definitions 4.1.6 Subsidiary Issues Appendix A: General Objectives to be Achieved at Practical Completion for Small to Medium-sized Building Projects Appendix B: Table of Cases Appendix C: Further Reading


Contents (12/03)

1 1 1 3 13 14 16 20 1 1 1

Page 3

Section 4.2: Ascertaining the Amount of Loss and Expense Incurred in Building Projects Introduction 4.2.1 General Principles 4.2.2 Definitions 4.2.3 Entitlement 4.2.4 Ascertainment 4.2.5 Admissible Items 4.2.6 Inadmissible Items Appendix A: Ascertaining the Cost of Running a Site Appendix B: Disruption Appendix C: Ascertaining the Cost of Head Office Overheads Appendix D: Checklist of Items for which Loss and/or Expense are Allowed Appendix E: Checklist of Steps Required when Considering Submissions by Contractor Appendix F: Further Reading

1 1 1 4 4 7 9 13 1 1 1 1 1 1

Section 4.3: The Management of Risk

1 Introduction 1 4.3.1 Definitions 2 4.3.2 The Rationale for Risk Management in the Construction Process 2 4.3.3 The Risk Management Process 5 4.3.4 Summary 14 Appendix A: Further Reading 1

Section 4.4: Valuations for Interim Certificates Introduction 4.4.1 Valuations 4.4.2 Assumptions 4.4.3 Valuation Under a JCT Contract: Background 4.4.4 Recommended Action at the Start of a Contract 4.4.5 Communications 4.4.6 Approach 4.4.7 Content of a Valuation 4.4.8 Administration 4.4.9 Special Situations 4.4.10 Other Contract Terms (relative to valuations) 4.4.11 Valuations Under Other Forms of Contract Appendix A: Further Reading Appendix B: JCT Definition of ‘Reasonable Proof’ Appendix C: Example of Priced Activity Schedule

Section 4.5: Extension of Time 4.5.1 4.5.2 4.5.3 4.5.4 4.5.5 4.5.6 4.5.7 4.5.8 4.5.9 Page 4

Introduction Extension of Time Clauses Assumptions Extension of Time Under a JCT Contract Notice by the Contractor of Delay to Progress The Award of an Extension of Time during the Contract Period and Before the Completion Date The Award of an Extension of Time after the Completion Date Relevant Events Concurrent Delays Consequential Entitlement Contents (12/03)

1 1 1 2 3 4 5 6 8 15 16 17 18 1 1 1 1 1 2 2 3 4 5 6 7 12 13


4.5.10 Administration 4.5.11 Extension of Time under an ICE Contract 4.5.12 Extension of Time under a GC Works Contract Appendix A: Further Reading

13 14 14 1

Part 5: Additional Guidance and Information Section 5.1: Surveying Safely Section 5.2: Construction (Design and Management) Information 5.2.1 Schedule of Sources of Useful CDM Information

Section 5.3: Built environment group roles and information Section 5.4: Building Cost Information Service 5.4.3 BCIS Online 5.4.4 Other BCIS Publications and Services 5.4.5 Further details

Section 5.5: Building Occupancy Cost Information (BMI) 5.5.2 5.5.3 5.5.4 5.5.5

BMI Quarterly Cost Briefing Building Maintenance Price Book Special Reports for Benchmarking News, Digests and Reports

Section 5.6: Electronic document storage – legal admissibility Introduction 5.6.1 Code of Practice – DISC PD 0008: 1999 5.6.2 Weight of evidence and document destruction 5.6.3 Authenticity 5.6.4 Photocopies, microfilm and image processing 5.6.5 Document storage 5.6.6 Storage and access procedures 5.6.7 Format of the Code of Practice 5.6.8 Conclusion Appendix A: Specimen form for recording scanning information Appendix B: Specimen form for recording retrieval Appendix C: References

Index


1 1 2 1 1 1 2 4 1 1 1 2 2 1 1 2 3 3 4 4 5 6 20 1 1 1 1

Contents (12/03)

Page 5

LIST OF ABBREVIATIONS ABE ABI ACA ACE AQL BCIS BEC BMI BRE BRECSU BREEAM BSI BSRIA BWIC CA CAWS CDM CD-R CECA CIB CIBSE CIC CIRIA CITES CCT CSM DBFO DoE DETR DMS DOM EC EU FAST FCEC GNP HBF HMSO HSE IChemE ICE IDMA The Surveyors’ Construction Handbook

Association of Building Engineers Association of British Insurers Association of Consultant Architects Association of Consulting Engineers Acceptable quality level Building Cost Information Service Building Employers’ Confederation Building Maintenance Information Building Research Establishment Building Research Energy Conservation Support Unit Building Research Establishment Environmental Assessment Method Building Standards’ Institution Building Services Research and Information Association Builder’s Work in Connection Contract Administrator Common Arrangement of Works Section for Building Works Construction (Design and Management) Compact disc recordable Civil Engineering Contractors’ Association Construction Industry Board Chartered Institution of Building Services Engineers Construction Industry Council Construction Industry Research and Information Association Control in Trade of Endangered Species Compulsory Competitive Tendering Chartered Surveyors Monthly Design Build Fund and Operate Department of the Environment (now known as the DETR) Department of the Environment, Transport and the Regions (formerly the DoE) Document Management System Domestic Sub-Contract European Commission European Union Functional Analysis Systems Technique Federation of Civil Engineering Contractors Gross National Product House Builders’ Federation Her Majesty’s Stationery Office (now known as The Stationery Office) Health and Safety Executive Institution of Chemical Engineers Institution of Civil Engineers Information and Document Management Association Abbreviations (10/02)

Page 1

IFC JCT LCC LQ M&E MERA MW NEC NEDO NJCC NSC OMR PFI PSA RIBA RICS VAT WCD WORM WRC

Page 2

Intermediage Form of Contract Joint Contracts Tribunal Life Cycle Costing Limiting quality Mechanical and Electrical Multiple Estimate Risk Anaylsis Minor Works New Engineering Contract National Economics Development Office National Joint Consultative Committee for Building Nominated Sub-Contract Optical Mark Reading Private Finance Initiative Property Services Agency Royal Institute of British Architects Royal Institution of Chartered Surveyors Value Added Tax With Contractor’s Design Write-Once-Read-Many Water Research Centre

Abbreviations (10/02)


I NTRODUCTION

INTRODUCTION A Aim and Scope of this Handbook A1

The aim of this Handbook is to help both building and quantity surveyors to provide construction-related professional services effectively and efficiently. It seeks to achieve this by providing guidance which reflects what is often good custom and practice, and relevant information (including references to other useful material). It should be appreciated that this Handbook does not attempt comprehensive coverage of necessary or good practice. The Handbook is addressed to surveyors providing services to clients (as defined), not surveyors undertaking the role of the client’s representative who gives instructions to surveyors on behalf of the Client.

A2

‘Construction’ in this Handbook means new construction, conversion, refurbishment works and alterations to the form of buildings, and also civil engineering works. The contents of this Handbook apply across the complete range of this definition unless otherwise stated. So ‘construction’ does not embrace building surveys or building maintenance.

A3

‘Client’ in this Handbook is used to include companies and their Directors or Officers, Trusts and their Trustees, partners, managers and employees who may instruct a surveyor.

A4

Throughout the Handbook, it is assumed that possession and necessary access to the site are available and, in principle, the rights to construct the development and use the buildings when constructed. The Handbook does not cover project management services, obtaining planning permission and building regulation approvals, or dispute resolution.

A5

The document is drafted on the basis of UK law and practice, although much of it is relevant to practice elsewhere.

B Arrangement of Content B1

After sets of Definitions and Abbreviations which apply throughout, the Handbook is arranged in five Parts. The first four Parts represent sequential phases of the construction process. The last Part, Part 5, provides Additional Guidance and Information. Each part is followed by Further Reading, to which the numbered cross references in the Parts apply.

B2

The first four Parts are as follows: Part 1: The Client seeks to help surveyors to work with clients. It discusses the establishment of their construction objectives and constraints, leading to the


Introduction (4/98)

Effective from 1/6/98

Page 1

I NTRODUCTION

development of construction briefs. It defines the client’s roles during the construction process, and comments on the engagement of professionals involved in the construction process. Part 2: Construction Design and Economics covers development of the design concept, feasibility studies, design and economics (including life-cycle costing, risk assessment, and cost-value relationships), and confirmation of the final design proposal. Part 3 relates to Construction Planning and Procurement, i.e. to the time the construction contract is placed. Part 4 covers Construction Administration and Management, i.e. all post-contract matters. Any Appendices are situated at the end of each Part. B3

An Index follows Part 5.

C Status of Content C1

For convenience, Guidance and Information is integrated. Each paragraph is prefixed with a G or an I to indicate its status.

C2

‘Guidance’, as the word implies advice to Members of the RICS on aspects of their profession. Where recommended for specific professional tasks, procedures are intended to embody ‘best practice’, i.e. procedures which in the opinion of the RICS meet a high standard of professional competence. Members are not required to follow the advice and recommendations contained in such paragraphs. They should, however, note the following points. Should an allegation of professional negligence be made against a surveyor, the Court is likely to take account of the contents of any relevant guidance notes published by the RICS in deciding whether or not the surveyor had acted with reasonable competence. In the opinion of the RICS, a Member conforming to the practices recommended in this Note should have at least a partial defence to an allegation of negligence by virtue of having followed those practices. However, Members have the responsibility of deciding when it is appropriate to follow the guidance. If the guidance has been followed in an appropriate case, the Member will not necessarily be exonerated merely because the recommendations were found in RICS Guidance.

Page 2

Introduction (4/98)



INTRODUCTION

On the other hand, it does not follow that a Member will be adjudged negligent if he has not followed the practices recommended in this Handbook. It is the responsibility of each individual surveyor to decide on the appropriate procedure to follow in any professional task. However, where Members depart from any practices recommended in this Handbook, they should do so only for good reason. In the event of litigation, the Court may require them to explain why they decided not to adopt a recommended practice. In addition, Guidance Notes are relevant to professional competence in that each surveyor should be up to date and should have informed himself of Guidance Notes within a reasonable time of their promulgation. C3

Material classified as ‘information’ is intended to provide information and explanations to Members of the RICS on specific topics of relevance to the profession. The function is not to recommend or advise on professional procedures to be followed by surveyors. It is again, however, relevant to professional competence to the extent that a surveyor should be up to date and should have informed himself of such information within a reasonable time of its promulgation. Members should note that if an allegation of professional negligence is made against a surveyor, the Court is likely to take account of the contents of any relevant information published by the RICS in deciding whether or not the surveyor has acted with reasonable competence.

D Currency of References The cases cited and the editions quoted were up-to-date at the time of writing. However, readers should check current rulings and additions.

E Invitation RICS Books would welcome comments upon and suggestions for additions and amendments to this Handbook. They should be provided in writing to RICS Books Publishing, Surveyor Court, Westwood Business Park, Coventry, CV4 8JE.

F Subscription Service Any change of address should be notified to the address appearing below: The Surveyors’ Construction Handbook Subscription Service RICS Books Surveyor Court Westwood Business Park Coventry CV4 8JE Tel: 020 7222 7000 ext 647


Introduction (revised 10/01)


Page 3

PART 1, SECTION 1

PART ONE: THE CLIENT SECTION 1: THE CLIENT’S REQUIREMENTS AND ROLES 1.1.1 Establishing the Client’s Objectives G

1.1.1.1

Client satisfaction will be maximised if the client’s objectives as established in the business case for the project are met. The surveyor should be able to assist with the development of the business case and the prioritisation of project objectives (see 3.1.1.6 and 3.1.1.9).

G

1.1.1.2

The type of client will affect the criteria which must be met if the client is to be satisfied with the project.

I

1.1.1.3

Owner occupiers are usually primarily concerned with building performance in terms of functionality and costs in use. They may also be concerned with image and building style. In this sense, value for money is a key criterion. Developers, on the other hand, may be driven by market conditions which enable the project to be let or sold at maximum commercial advantage. They may be predominantly concerned with speed rather than performance.

I

1.1.1.4

This is not to say that owner occupiers are unconcerned about time. Indeed, certainty of completion date may be a key issue. Nor is it fair to suggest that developers are unconcerned about building performance or cost. There are market conditions where both of these issues may become important.

I

1.1.1.5

However, the client’s purpose in initiating a building project is usually driven by the need for the project as a functional unit or as an investment. There will usually be particular criteria for achievement which are critical or important to each particular client. Possible objectives are as follows: (a) Cost-related • minimise capital cost • maximise capital cost/value ratio • maximise capital cost/worth to client ratio • achieve necessary income cash flow profile • minimise management costs • minimise maintenance and insurance costs • minimise tax liability • respect capital cost constraint • be energy efficient.


Part 1, Section 1 (01/03)


Page 1

PART 1, SECTION 1

(b) Marketability • maximise prompt or future disposal (freehold or otherwise). (c) Use-related • optimise operational requirements of intended occupier(s) • provide greatest flexibility in potential uses • reflect intended occupier’s requirements/preferences/ability to afford • meet social/management/occupier’s special needs (e.g. disabled). (d) Environmental • minimise health and safety risks • choose materials which reflect sustainability • aesthetically please (e.g. impression on occupier’s customers) • minimise any alterations to specific features • reflect planning authority’s brief/policies • minimise potential opposition • reflect corporate style or personal preferences of proposed occupier/employees • maximise comfort of occupants • minimise inconvenience to others during construction. (e) Timing • construct within a defined period • minimise risks of delay during construction. G

1.1.1.6

The importance of each of these criteria will be relative to the objectives of the client, the business case for the project and to the extent to which he/she is able to cope with risk (see 3.1.2.9). It is important that the client seek investment appraisal advice in respect of the project and that the appraisal considers ‘what if’ questions to ensure that the impact of changes of key components in the appraisal is clearly understood. A chartered surveyor will be able to assist the client in these matters. However, the giving of advice on some of the requirements listed above is, of course, outside the competence of the surveyor. Where such a particular requirement is important to the client and outside the client’s expertise, the client should be advised to seek other professional advice.

G

1.1.1.7

Many construction projects suffer from poor definition due to inadequate time and thought being given at an early stage1. This is often because there is a sense of urgency fuelled by the desire for an immediate solution. Investing time at the beginning of a project in developing a complete definition taking account of all the requirements will reduce the likelihood of changes later. The later that changes are made in a project, the more they are likely to cost in both direct and knock-on effects (see 3.1.4.14 and 3.1.2.14(f) & (g)).

1

Page 2

Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.




PART 1, SECTION 1

1.1.2 The Role for Independent Advice G

1.1.2.1

With the potential for the involvement of many consultants and/or constructors in a project and the range of contracts associated with their employment, all but the most experienced client may need advice. The advice offered should be informed and unbiased and it should be based upon a logical analysis of the needs of the client, the type and character of the project and the range of appropriate strategies available.

G

1.1.2.2

This advice can be offered by a member of the client’s design team or can be a separate function. It may be more difficult for a design team member to remain impartial in carrying out this process and it is recommended that any expert retained should be solely for this purpose. This function can be identified as the role of the principal adviser and may encompass:

• • • • •

I

1.1.2.3

Assistance in preparing the business case underpinning the project Identifying the needs and requirements of the client Defining the project Matching needs and project characteristics with appropriate procurement strategy Facilitating the associated selection and contractual processes and policies

(the business case) (briefing) (project definition) (procurement strategy) (implementation)

Possible sources for the appointment of independent advisers include suitably qualified and experienced construction professionals such as chartered surveyors.

1.1.3 Project Brief G

1.1.3.1

The importance of a clear project brief to the successful completion of the project and in ensuring appropriate performance of the project cannot be over emphasised. The inexperienced client will need professional help in the preparation of the brief. The project brief is a comprehensive statement of the client’s requirements for the project based on close consultation between the client and users and based upon the parameters established (see 3.1.1.10 and 3.1.1.12). The project brief may include: (a) project description; (b) how it fits into the client’s corporate plan (e.g. it may be part of a larger planned development);




Page 3

PART 1, SECTION 1

(c) number of people that are to occupy the building, together with their space requirements; (d) schedule of accommodation and quality of internal environment; (e) standards; (f) equipment and special services/requirements; (g) when the building needs to be available for use; (h) quality and cost limitations; (i) life span; (j) site; and (k) statutory controls. G

1.1.3.2

This is the initial control document for the early planning of the project; without it, little constructive work can be done. If all the information required for the project brief is not readily available, it is better to issue it in an incomplete form and to update it progressively1.

1.1.4 The Client’s Role G

1.1.4.1

This section briefly explains the client’s responsibilities through the life of a construction project. In carrying out their role, clients, depending on their knowledge and expertise, will need help from their professional advisers, project managers and other consultants, whose roles are also explained in this handbook. This section aims to outline the client’s task in setting policy and formulating strategy, and explains how it should be carried out.

G

1.1.4.2

The success of any project will depend upon the motivation given by the client. Experienced clients may take a leading role in the procurement process; less experienced clients will need to seek advice or to appoint advisers to assist them. Where projects are of a large or complex nature it may be advisable to consider the appointment of a project manager.

G

1.1.4.3

Effective management is vital in any construction project. The client’s prime role is to establish a structure for the management of the project and to make sure that it works. A crucial part of any effective management structure is efficient communication. To perform effectively, all parties must have timely

1

Page 4

Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.




PART 1, SECTION 1

access to all information relevant to their tasks and the project’s objectives and status (see 3.1.4.11). G

1.1.4.4

The client has substantial influence on the design of the project in respect both of functional efficiency and of overall appearance, and, therefore, has to take particular care to: (a) understand fully the purpose of the building; ensure that the requirements of the users are accommodated; and communicate those requirements to the designers (see 3.1.1.10); and (b) appoint designers with proven ability in designing buildings which satisfy users’ requirements and harmonise with and contribute to the quality of the built environment. The selection of the right people is emphasised as a key to success (see 3.1.4.8).

G

1.1.4.5

The accompanying figure indicates the activities in the procurement process and when activities are usually performed. As can be seen, the client’s role is significant, with a wide range of activities to perform and implement before both the design and the construction processes. In the performance of these activities, the client can expect to be supported and advised by his/her adviser or (if appointed) the project manager. More detail for each of these activities can be found in the section of this handbook indicated in brackets in the figure.




Page 5

PART 1, SECTION 1

FIGURE TO INDICATE THE ACTIVITIES IN THE P ROCUREMENT PROCESS

Client’s Role

Pre-Design Phase

Pre-Construction Phase

Construction

Post-Construction

Develop business case for project (3.1.1.9)

Procurement strategy (3.1.1.13)

Design overview (3.1.4.12)

Commissioning (3.1.1.17)

Appoint adviser (3.1.1.6)

Design overview* (3.1.4.12)

Cost control overview (3.1.4.13)

Occupation and takeover (3.1.1.18)

Define client’s responsibilities (3.1.1.7)

Cost Control overview* (3.1.4.13)

Time control overview (3.1.4.14)

Project Brief (3.1.1.12)

Whole-life Costs (3.1.4.15)

Quality control overview (3.1.4.18)

Appointment of PM (if appropriate) (3.1.4.7)

Value Engineering (3.1.4.17)

Appointment of design and cost consultants (3.1.4.8)

Time control overview* (3.1.4.14)

Change control overview (3.1.4.19)

Procurement strategy* (3.1.1.13)

Quality control overview* (3.1.4.18)

Value management (3.1.4.16)

Appointment of constructors (3.1.4.9) Confirming the business case (3.1.1.9)

Procurement Strategy

Procurement strategy development (3.1.2)

Implementation

Resources (Client) (3.1.4.3–5)

Contractual arrangements (3.1.4.10)

Organisational structure (3.1.4.6)

Systems and controls (3.1.4.11)

Systems and controls (3.1.4.11)

Contractual arrangements* (3.1.4.10) Systems and controls* (3.1.4.11) Implementation policy (3.1.4.2)

* ()

Indicates the activity will continue into the next phase Indicates the section of this document referring to the activity in more detail

1.1.5 The Client’s Responsibilities G

1.1.5.1

The client should set policy and outline strategy including: (a) setting and prioritising the project objectives within the business plan; (b) planing to meet the objectives (the pre-design phase); (c) implementing the plans (the pre-construction phase); (d) controlling their implementation (the construction phase);

Page 6




PART 1, SECTION 1

(e) arbitrating between conflicting demands; and (f) evaluating the complete post-construction phase). G

1.1.5.2

project

against

the

objectives

(the

The client also has a dual management function: (a) to manage the client input; to co-ordinate functional and administrative needs; to resolve conflicts; to act as the formal point of contact for the project (see 3.1.4.11); and (b) to supply the technical expertise, to assess, procure, monitor and control the external resources needed to implement the project (see 3.1.4.3–5).

G

1.1.5.3

In particular, the client should be satisfied that: (a) the project brief is comprehensive and clear and has the full support of the users1&2 (see 3.1.1.12); (b) any constraints demanded by the project funder(s) are known and their impact understood; (c) the critical assumptions made in preparing the initial estimates and programmes are valid, realistic and achievable (see 3.1.1.9); (d) cost estimates are comprehensive and include all capital and resource costs; (e) allowances made in the feasibility and viability assessments to cover possible risks are sufficient (contingency allowance); (f) substantial sensitivity analysis and ‘what if’ studies have been carried out to assess the effect of possible changed criteria on the viability of the project; and (g) plans are in place for adequate project management including systems for cost, time, quality and change control.

G

1.1.5.4

The client should also co-ordinate and resolve conflicts between all interested sections of the client organisation including (see 3.1.4.6): (a) user groups – who will work in the building;

1

Kelly, J., MacPherson, S., and Male, S. (1992), The Briefing Process: A Review and Critique, RICS, Department of Building Engineering and Surveying, Heriot Watt University. This document is out of print. 2 Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.




Page 7

PART 1, SECTION 1

(b) specialist groups – responsible for technical systems within the building, e.g. communications, computers; (c) facilities management – who will manage the completed building including maintenance and security; (d) finance and accounts – who will plan and control expenditure and pay bills as they arise; and (e) legal advisers – who will advise on and monitor the client’s formal relationships with outside parties. G

1.1.5.5

The client is responsible for ensuring that all necessary decisions are made on time. Timely decisions are necessary to avoid delays and increased costs: the decision-making process requires as much planning and management as any other activity. This will include (see 3.1.4.11): (a) scheduling the key decisions to be made; (b) identifying the decision makers and their required procedures; (c) ascertaining the time required for making decisions; (d) establishing a formal programme for decisions; (e) warning decision makers regarding forthcoming submissions – making sure items are on the agenda; (f) preparing on time fully detailed submissions and/or presentations in full compliance with procedural requirements; (g) following up submissions throughout the decision making process; and (h) promptly communicating decisions made to the parties affected by them.

1.1.6 Appointment of Project Manager (where appropriate) (see 3.1.4.7) G

Page 8

1.1.6.1

Due to the complexity of modern buildings and the potentially large number of parties involved in the process the client may wish to appoint a single person to draw the process together and manage it to ensure that the overall performance, time, cost and quality requirements are achieved. The project manager may be a member of the client organisation who is given sole, or predominant, responsibility for the project. Project management practices also exist to enable appointment to be made on a consultancy basis. In this case,




PART 1, SECTION 1

selection should be based upon resources, reputation, and price; and services should be clearly identified. G

1.1.6.2

It should be emphasised that the role of the project manager should be to act as part of the client organisation.

1.1.7 Appointment of Consultants (see 3.1.4.8) G

The process of selecting and appointing the design team and the cost consultant is carried out by the client who may seek the advice of his/her advisers. The terms and conditions of these appointments are governed by the procurement strategy adopted for the project.

1.1.8 Appointment of Constructors (see 3.1.4.9) G

The selection of those who will actually construct the project is often key to a successful outcome. Selection should always be on quality as well as price and ideally the procurement strategy governing when they are appointed should facilitate the early involvement of constructors in the design process. The selection of procurement strategy is a complex one and is referred to in Part 3 section 1 of this handbook.




Page 9

PART 1, SECTION 1, APPENDIX A

Appendix A: Further Reading Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997 Construction Industry Board, Partnering in the Team, Thomas Telford Publishing, London, 1997 Construction Industry Board, Selecting Consultants for the Team: Balancing Quality and Price, Thomas Telford Publishing, London, 1997 Construction Industry Council, The Procurement of Professional Services: Guidelines for the Value Assessment of Competitive Tenders, CIC, London, 1997 European Construction Institute, Partnering in the Public Sector: a Toolkit for the Implementation of Post-Award, Project Specific Partnering on Construction Projects, ECI, Loughborough, 1997 Kelly, J., MacPherson, S., and Male, S., The Briefing Process: A Review and Critique, RICS, Department of Building Engineering and Surveying, Heriot Watt University, 1992. This document is out of print.


Part 1, Section 1 Appendix A (01/03)


Page 1

PART 1, SECTION 2

PART ONE: THE CLIENT SECTION 2: VALUE ENGINEERING Introduction Value management (and within it, value engineering) is a structured method of eliminating waste from a client’s brief and from the design on a construction project before binding commitments are made. Used to deliver more effective and better quality buildings, for example, through taking unnecessary costs out of designs, value management ensures a clearer understanding of the brief by all project participants and improves team working. According to the Construction Task Force report, ‘Rethinking Construction’ (published by the DETR in July 1998) it is practiced by up to a quarter of the construction industry in the UK. The report also estimates that while the objective of value management is to increase value, it can also reduce costs by up to 10 per cent. Value management is the wider term used in the UK to describe the overall structured team-based approach to a construction project. It involves clearly defining the client’s strategic objectives, considering optimum design solutions within the context of the client’s business objectives and deciding which of these provides the optimum lifetime value to the client, as well as a review of the whole process after occupancy. Value management includes value engineering as part of this process. Value engineering is a ‘systematic approach to delivering the required functions to the required quality at the least cost’, i.e. a method of ensuring that the client gets the best possible value for money in terms of safety, performance and delivery targets. It is a structured form of consensus decision making that compares and assesses the design solutions against the value systems declared by the client. This section of the handbook looks at the carrying out of a value engineering exercise during the early design phase of a project, i.e. an evaluation of design solutions against the client’s brief. Value engineering, as described here, can be a stand-alone exercise (a value engineering workshop) or may be part of an overall value management process. In describing the value engineering process this section aims to assist surveyors both in advising clients on the use of value engineering and taking part in a value engineering exercise as part of the design team. It is not intended for surveyors acting as value engineering facilitators and makes no attempt to address the very particular skills required for this role.




Page 1

PART 1, S ECTION 2

G

G

1.2.1 Why Value Engineering? 1.2.1.1

Value engineering has grown in popularity for the simple reason that it actually works. Construction projects can often take on a life of their own when members of the design team become focused on their own particular problems and time constraints. Consequently, the true objectives of the client get lost along the way. Value engineering relates design proposals directly back to a client’s business, thus ensuring that a management system is in place which forces designers to justify their decisions when tested against the client’s required function.

1.2.1.2

A value engineering exercise can only relate design proposals to a client’s business requirements if early value management studies have encapsulated these requirements within the brief. If a value engineering exercise is carried out in isolation from any strategic review of the project requirements, it can only act as a functional assessment of the technical design solutions and their relative cost. However, even in this limited function it can still be very useful.

1.2.2 Applicability 1.2.2.1

The technique of value engineering can be employed on any project. However, more complicated and higher value buildings are likely to benefit the most (see figure 1). This is because it is more difficult to develop the design brief in such instances and consequently a design solution may be adopted without being questioned, usually because of time constraints placed upon the designers. Figure 1: Projects Benefiting from Value Engineering High

Essential

Complexity

Optional Low Low

High

Value

1.2.2.2

Page 2

Many client organisations will only undertake value engineering on schemes over a certain value. For example, Railtrack will carry out the technique on projects valued at £250,000 or more and Northumbrian Water will only consider it for projects worth over £1m. Despite this, there is no reason why the process should not be applied to smaller schemes. Furthermore, value engineering will be invaluable where repetitive schemes are being considered




PART 1, SECTION 2

as improvements and savings can be incorporated into future schemes. They can also be tested in practice, leading to the sort of continuous improvement recommended by the ‘Rethinking Construction’ report. 1.2.2.3

G

Value engineering works irrespective of the procurement route taken. It is a discipline upon the design team members and the clients who appoint them. Where the contractor is mainly responsible for the design, for example, design and build, develop and construct or PFI projects, the technique is just as appropriate in ensuring that a well-defined statement of requirements is first established and that subsequent design solutions address the function of the building most economically.

1.2.3 At What Stage Should Value Engineering be Carried Out? 1.2.3.1

The greatest benefits can be obtained by commencing the VE process at the earliest possible stage. Once it has been established that the client’s needs will best be met through a construction project the purpose of the first VE exercise should be to inform the brief. When an experienced client has prepared the brief, or a value management exercise has already examined the client’s requirements, the value engineering exercise (which will address the proposed design solutions) is best done towards the end of the ‘scheme design’. Several workshops may be necessary at each of the crucial decision-making stages of a project: (a) A first exercise (a functional analysis of requirements), to define the project needs and inform the brief, could be carried out as early as ‘option appraisal’, and since this could generate the greatest benefit to the client the timing is crucial. Carry it out too early and not enough will be known about the problems associated with the building function, whereas too late and minds become set on the solutions formulated by the design team. (b) A review of the project at ‘outline design’ could be conducted to ensure that the decisions taken earlier have been implemented or, if changed, that they still meet the functional requirements. (c) Another review (a functional analysis of the solutions) would then be carried out at ‘scheme design’ to test individual building elements involving traditional cost planning/life cycle costing techniques.

1.2.3.2

This section of the handbook considers the evaluation of a design at the end of the scheme design phase, but the process will be the same whenever it is carried out. The ‘objectives’ of the project should remain the same throughout the process and they should be validated at the beginning of each workshop. The objectives of each workshop may be different. If the project objectives do change the whole direction of the project will need to reassessed.

1.2.3.3

It is important that time for the value engineering process and any resultant redesign is included in the scheme design programme at the outset.


Part 1, Section 2 (revised 10/01)


Page 3

PART 1, SECTION 2

G

1.2.4 Who Should Carry Out Value Engineering? 1.2.4.1

It is strongly recommended that a value engineering exercise is organized by an experienced value management facilitator to ensure that the value engineering participants retain their objectivity and that an unbiased approach is maintained.

1.2.4.2

The value engineering participants should represent the principal stakeholders in the project namely, the client, the building users and the design team (designer, engineers and quantity surveyor) and also the contractor, where applicable. It is important that each of the participants have the authority to make decisions at the workshop. It may also be appropriate to include clients’ advisers, for example, letting agents or rating valuers. The participants should be those who can make decisions and provide information related to the specific aims and objectives of the workshop. These may include: • those people with responsibility for the needs of the business; • those with specific responsibility for development, design and implementation of the operation/project; • those with responsibility for the management and/or maintenance of the operation; and • those who will be affected by the outcome. Different stakeholders will be required to participate at different stages of the project.

Page 4

1.2.4.3

The optimum size of a value engineering panel would depend upon the complexity of the project as well as the skills of the facilitator. However, it is considered that panels of more than twelve members are difficult to manage. Panels with fewer than four members could be considered ineffective. However, it is important that all stakeholders are represented even if this results in a larger group.

1.2.4.4

It is common practice in North America to appoint an outside team of consultants to question the design team’s solutions. However, this practice has been known to cause resentment between the project team and the external advisers and might therefore compromise the final design solutions. It is considered that an experienced facilitator independent of the design team, with an appropriately briefed panel, will ensure that the design team’s solutions are adequately tested at the workshop.




PART 1, SECTION 2

G

G

1.2.5 How Long Should It Last? 1.2.5.1

The length of time taken over the value engineering workshop will depend on the complexity of the project and the level of design detail that has been completed.

1.2.5.2

The ‘40-hour workshop’ is the classic industrial value engineering standard. However, two-day workshops at key points during the design process are more common in the UK construction industry.

1.2.6 Preparing for a Value Engineering Workshop 1.2.6.1

Prior to the workshop, it is most important that an agenda is agreed by the panel and distributed by the facilitator.

1.2.6.2

In addition to an agenda, a functional analysis of the client’s requirements should be drawn up. The client’s value criteria will have been developed in the first value management workshop. With each successive workshop these criteria will be developed further into a function diagram. This should be included in the workshop handbook. If it is to be developed further this will take place as part of the information stage of the workshop. The functional analysis should always be generated by the client representatives with the help of the other members of the workshop. It is the role of the facilitator to facilitate this process, not to take part in it. All participants must be prepared to propose and challenge design solutions. The input of all participants (not just those who are experts in a particular discipline) is one of the strengths of the VE process and should be encouraged by the facilitator.

G

1.2.7 Functional Analysis of Design Relative to the Client’s Requirements 1.2.7.1

It should be understood that it is not possible to find meaningful alternatives to a technical solution without first identifying the function required of it.

1.2.7.2

Functional analysis is any technique designed to appraise value by careful analysis of function. This can be simple ‘creative session’ of the functions and possible alternatives, but the most common method is using a functional analysis systems technique (FAST) diagram.

1.2.7.3

The FAST system uses a ‘function diagram’ which identifies the basic function ‘what is required’ on the left-hand side and more detailed secondary functions working from left to right until all the means of achieving these




Page 5

PART 1, SECTION 2

functions ‘how are they to be fulfilled’ are identified on the right. See figure 2 for an example of a FAST diagram. It should be understood that this is a broad-brush technique. The objective of functional analysis is to produce a complete description of the end purpose of the design in terms of what it must do. Reference is sometimes made to different types of FAST diagram: Classical FAST, Technical FAST or Customer/Task FAST. The original FAST diagram was a presentation of the user-related and product-related functions of a design solution. It was a technique used to assemble the functions of a product in a hierarchy and to assess ‘why’ and ‘how’ they are delivered. This is known as a Classical FAST. Subsequently it was recognized that all functions did not fit into the flow logic so it was decided to separate out the functions that are always active, whether the product is operational or not. It was also decided to separate out those functions that only occur one time regardless of repetitiveness of the process. This diagram describes what a product, element or component must do and is known as a Technical FAST. It was then recognized that, ideally, it is the customer who should determine the value of the product and that the FAST diagram should include the customer/user in the development of value study projects. The resulting FAST Figure 2: FAST Diagram

Page 6




PART 1, SECTION 2

diagram has become known as a Customer or Task FAST. It is this concept from which the Value Tree has developed. All FAST diagrams should include a scope line on the left-hand side of the diagram. The scope line limits the area of the project on which attention is being focused. The scope is the portion of the project that is selected for the value study. The FAST model displays functions in a logical sequence and tests their dependency. It does not indicate how a function should be performed. There is no such thing as a correct FAST model, only a valid FAST model. 1.2.7.4

Most practitioners insist that functions are defined in terms of ‘active verb/measurable noun (or phrase)’ combinations, for example, ‘minimize energy consumption’. This improves clarity, helps all panel members develop a shared understanding and promotes the examination process. These should be interrogated by asking ‘why’ the client requires this in order to examine how it should be achieved.

1.2.7.5

The process of setting up a FAST diagram is of matching the functional elements of the building (object functions) to the client’s required functions (user functions). The functional requirements need to be broken down until they are reflected in elements which can be priced (and built). This process is called ‘functional decomposition’. For example, the requirement for increased energy efficiency might be provided by increased levels of insulation which might be achieved by changes to all or any of roof, walls, floor, windows and doors or finishes. The number of levels ‘of decomposition’ required cannot be predetermined.

1.2.7.6

VALUE TREE A Value Tree is a diagram that describes the business driver (mission) for a project or need and the criteria that need to be satisfied in order to achieve it. A Value Tree should be developed at an early stage in order to inform the brief. However, it can be developed at any stage in order to confirm the brief. It will generally be carried out by the client organization in order to establish whether a project is the solution to their needs. The criteria are then developed further into the functions required in order to achieve them. The scope line for a project will begin to the right of the Value Tree.

1.2.7.7

Appendix A gives an example of part of a Value Tree and a FAST diagram for a health centre. Function elements (object functions) are defined in the BCIS publication, Standard Form of Cost Analysis: Principles, Instructions and Definitions and in Section 2.3 of this handbook. A typical example of a value engineering process is included in Appendix B.




Page 7

PART 1, SECTION 2

G

G

1.2.8 Pricing the FAST Diagram 1.2.8.1

As the FAST diagram progresses and different solutions are found, it becomes possible to establish alternative costs for achieving a given function. However, it is important that all functions are clearly defined if costs of alternative proposals are to be meaningful. Also, it should be remembered that it is the design solutions to the functional requirements that are being priced and compared to the value and importance that the client puts on that function. For example, the client can identify the value of savings from reduced energy consumption or may rank this as important for other reasons. The value engineering team’s task is to put a price on the various design solutions suggested that will achieve this end. It is creativity in finding the most economical solution that is the essence of the value engineering exercise.

1.2.8.2

Fees and value added tax (VAT) and other financial and fiscal matters may also need to be considered.

1.2.9 Presenting a Design Solution to a Value Engineering Workshop 1.2.9.1

G

Design solutions should be presented as designers normally would to any panel of users. However, they should expect to be questioned quite extensively. They should keep an open mind and maintain objectivity in justifying their proposals because the objective is to find the most cost-effective solution, not to criticize for the sake of it. On the other hand, designers should be prepared to stand by their design solution if they think it is correct for the function being considered.

1.2.10 The Workshop 1.2.10.1

A value engineering workshop will work through phases of information, speculation, evaluation, development and presentation: (a) The ‘information phase’ identifies the spaces, elements and components in terms of the functions they fulfill. It asks the questions about what is the prime function of an element?; what are it’s subsidiary functions?; what does it cost?; what is it’s value? It is at this stage that the FAST diagram is developed and it is against the background of this information that the value engineering evaluation will be made. (b) ‘Speculation’ is the brainstorming stage which will generate the ideas from which solutions will be developed. It is important that each member of the panel thinks positively. The facilitator will ensure that no one is allowed to become overly critical of another member’s contribution in order that ideas flow. All ideas should be logged at this stage. However, in order to encourage idea building, they should not be analysed or rejected. It is important that the underlying functions of suggestions for improvement are listed for evaluation later. Design solutions should not be developed at this stage to ensure that

Page 8




PART 1, SECTION 2

‘what is to be achieved’ is properly addressed. All optional solutions should only be considered at the evaluation stage. (c) ‘Evaluation’ is the analysis of the ideas generated by the earlier speculation. Again, a positive feeling will be encouraged by the facilitator with advantages/disadvantages being discussed in an even-handed manner. At this stage some ideas will be rejected and the best taken forward. It is essential to ensure that all the ramifications of any suggested changes should be considered. For example, if the exercise has suggested a change to a piece of M&E equipment, the effects on the control management systems and structural requirements must also be considered. Life cycle costing can be an important factor in the process when considering optional solutions but the criticality of this aspect will hinge on the client’s philosophy. (d) ‘Development’ of the ideas to be taken forward will be initiated at the meeting and a programme established for completion of this stage. Often the detailed development including life cycle costing, if appropriate, will be continued beyond the initial meeting and the outcome presented to a subsequent meeting for the panel to determine which design options to adopt. (e) ‘Presentation’ takes the form of a report prepared by the facilitator which records in some detail all elements of the study and concludes with those options to be incorporated in the developed design. This report is normally presented to the client by the value engineering panel at a meeting held within one or two weeks of the date of the workshop. 1.2.10.2

G

The workshop should focus on expensive items or ‘mismatches’, for example, parts of the FAST diagram which are important to the client but which have been allocated little money or have cost a lot of money but do not contribute to the function.

1.2.11 Assessing the Value of the Workshop 1.2.11.1

Areas for research/change identified at the workshop could be grouped into three categories: (i) those that are removed/changed and result in reduced cost; (ii) those that are added/changed and result in additional cost; and (iii) those that are identified for investigation but not implemented

1.2.11.2

The financial benefit should then be identified against all elements within categories (i) or (ii).

1.2.11.3

A major benefit of the workshop which will be enjoyed by the panel members is a better understanding of the project functions and common ownership of the team-based designs solutions which have evolved.




Page 9

PART 1, SECTION 2

G

G

1.2.12 Implementing the Results 1.2.12.1

The value engineering panel’s decisions are recommendations that need to be accepted by all stakeholders. Those stakeholders that are not part of the panel are likely to have a right to comment before decisions are adopted.

1.2.12.2

Once the workshop’s proposals have been sanctioned by the client, decisions should be fed back to the design team, briefing those members whose work is affected as to why the changes were made.

1.2.12.3

If necessary, amendments to the design brief, design programme and scope of professional team’s brief should be incorporated into these documents.

1.2.13 Feedback from Post-Occupancy Evaluation 1.2.13.1

Page 10

It is important for any client to carry out a project review to demonstrate how project objectives have been achieved and particular problems overcome. As part of the project evaluation process, it should be established whether the project represents best value for money and whether or not key design changes made as a result of value engineering have achieved the benefits expected. These should always be set against the cost of carrying out the exercise.





Appendix A: Health Centre Value Tree


Part 1, Section 2 Appendix A (revised 10/01)


Page 1

PART 1, S ECTION 2, A PPENDIX B

Appendix B: Typical Example of a Value Engineering Process B1

BACKGROUND A retail client with a regular development programme for a series of new stores (typical size 8,000m2) entered into a partnering agreement with key members of the construction team for four new projects. To encourage value engineering, the partnering contractors share in any savings that relate to any accepted proposals. For two of these projects the client opted for a design and build contract for the services installations (mechanical, sprinklers and electrical). In an effort to reduce costs and ultimately add value to the schemes, the client set a target of reducing the costs on these projects by 10 per cent, with no material effect on quality or health and safety. To set a benchmark for this reduction model cost plan costs for a typical store (derived from historical records) were modified to suit the new scheme layouts. Allowances were included for any items that were classified as ‘site specific’ (e.g. acoustic requirements stipulated by the district surveyor). Cost plan figures were based on the client’s current specification. Due to the volume of developments undertaken by the client and the repetitive nature of the works, the savings generated by value engineering can be incorporated in any future schemes.

B2

SPECIFIC EXAMPLE: VENTILATION TO SALES FLOOR The original design was based on previous solutions and included ‘traditional’ ventilation. At the ‘information phase’, the functional requirement, including the need for ventilation, was examined against the client’s desire to reduce capital costs. This identified that a high proportion of the cost of the mechanical installation related to the provision of ventilation to the sales floor of the store (plant, distribution ductwork, diffusers, etc.) At the ‘speculation phase’, the client’s engineering department worked closely with the mechanical partnering contractor to consider alternative methods of ventilating the sales floor of the store. The alternative method of ventilation proposed was of the displacement type. With displacement ventilation, air is only conditioned at the level at which occupiers are breathing. Air is introduced at low level and at low velocity. Natural convection currents are utilised to remove excess heat and pollutants out of the occupied zone. There is a saving in the amount of ductwork required, as only two runs of ductwork are needed on the sales floor. (The


Part 1, Section 2 Appendix B (12/99)


Page 1

PART 1, S ECTION 2, A PPENDIX B

traditional method is designed for four separate branches of ductwork.) The new specification requires diffusers of the displacement type, with the facility of automatically varying the air throw pattern whether in heating or cooling mode. Furthermore, the proposed system required ventilation to the occupied zone only rather than the full building space. This has resulted in capital cost savings on plant and in the likely running costs of the system. The evaluation identified significant savings. Summary of Value Engineering Exercise

Original installation:

Traditional ventilation

Value engineering proposal: Displacement ventilation Benefits:

Saving on air handling plant size Saving on chiller plant size Saving on sales floor ductwork

Savings on capital cost:

Air handling plant Chiller plant Ductwork and diffusers

10% 5% 25%

At the ‘development phase’, the proposed method was discussed with other members of the design team to ensure that any impact on the other building elements, the project programme and the interface with other subcontractors were taken into account.

Page 2




PART 1, SECTION 2, APPENDIX C

Appendix C: Further Reading British Standards Institute. Value Engineering, Value Analysis Vocabulary – Part 1: Value Analysis and Functional Analysis, BS EN 1325–1 1997, British Standards Institute, London, 2000. Building Cost Information Service. Elements for Design and Build, BCIS Ltd, 1996 Building Cost Information Service. Standard Form of Cost Analysis; Principles, Instructions and Definitions, BCIS Ltd, 1969 (Reprinted 1997) Connaughton, John, N., Green, Stuart, D., Construction Industry Research and Information Association. Value Management in Construction: A Client’s Guide, CIRIA, London, 1996 Dell’isola, Alphonse. Value Engineering in the Construction Industry, Van Nostrand Reinhold Co., New York, 1983 Dell’isola, Alphonse. Value Engineering: Practical Software Applications for Design, Construction, Maintenance and Operations, R. S. Means & Co., Kingston, MA, 1997 Green, Stuart, D. and Popper, Peter, A. Value Engineering: The Search for Unnecessary Cost, Chartered Institute of Building, Berkshire, 1990 Institution of Civil Engineers. Creating Value in Enginering, Thomas Telford Publishing, London, 1996 Kelly, John and Male, Stephen. A Study of Value Management and Quantity Surveying Practice, RICS Books, Coventry, 1988 Kelly, J.R. and Male, S.P. A Study of Value Engineering and Quantity Surveying Practice, Heriott-Watt University, Edinburgh, 1989 Kelly, J.R. and Male, S.P., Heriot-Watt University, Department of Building Engineering and Surveying, Royal Institution of Chartered Surveyors. The Practice of Value Management: Enhancing Value or Cutting Cost? RICS, London, 1991 Law, Alastair, G. An Introduction to Value Engineering: A New Technique in Technology Assessment and Evalution, Alastair G. Law, Washington DC, 1981 May, Susan, C., College of Estate Management. Value Engineering and Value Management: A CPD Study Pack, College of Estate Management, Reading, 1994 Mole, Kelly, Fernie, Grongvist and Bowles. The Value Management Benchmark: Good Practice Framework for Clients and Practitioners. Thomas Telford Publishing, London 1998 Norton, Brian, R. and McElligott, William, C. Value Management in Construction: A Practical Guide, Macmillan, Basingstoke, 1995


Part 1, Section 2 Appendix C (revised 10/01)


Page 1


Palmer, Angela. A Critique of Value Management, Chartered Institute of Building, Berkshire, 1990 Royal Institution of Chartered Surveyors. Value and the Client (papers presented at a conference held at the RICS on 29 January 1992), RICS, London, 1992 Smith, J., Jackson, N., Wyatt, R., Smyth, H., Beck, M., Chapman, K., Shirazi, A., Hampson, K., Royal Institution of Chartered Surveyors. Can Any Facilitator Run a Value Engineering Workshop? RICS, London, 1998 Zimmerman, Larry, W. and Hart, Glen, D. Value Engineering: A Practical Approach for Owners, Designers and Contractors, Van Nostrand Reinhold & Co, New York, 1982

Page 2

Part 1, Section 2 Appendix C (10/01)



PART 2, SECTION 1

PART TWO: CONSTRUCTION DESIGN AND ECONOMICS SECTION 1: PRE-CONTRACT COST PLANNING AND COST MANAGEMENT Introduction This Section of the Handbook sets out procedures which enable pre-contract cost management of building projects to be carried out from the client’s brief, through the various design stages to the acceptance of a contractor’s tender. Control of costs can only be achieved by the actions of the whole project team, including the client. The quantity surveyor’s role is to facilitate the design process by systematic application of cost criteria so as to maintain a sensible and economic relationship between cost, quality, utility and appearance which thus helps in achieving the client’s requirements within the agreed budget. The information and guidance which follow are based on a traditionally procured new-build project, but varying client requirements and different procurement methods may prevent implementation of some aspects of the following procedures. In practice, the design of the elements may proceed at different speeds and the stages described here may overlap. However, the principles of budget, cost plan, cost checks and reconciliation should be adhered to whenever possible. (See the figure showing the outline of the cost planning procedure.) On projects where non-traditional procurement routes are used, the responsibility for developing the cost plan may change but the stages suggested here remain appropriate. For example, on Design and Build (D&B) schemes, the client’s quantity surveyor will be responsible for the cost plan at feasibility and outline proposal stage and the D&B contractor’s quantity surveyor will be responsible for developing the cost plan with the contractor’s design team to produce the tender. The process described would apply to refurbishment or conversion schemes and the elemental approach would be suitable even if all elements were not required. The procedures are not designed for use with civil engineering projects, but should provide a framework appropriate to civil engineering needs.




Page 1

PART 2, SECTION 1

2.1.1 Pre-contract Cost Planning and Cost Management I

2.1.1.1

DEFINITION Pre-contract cost planning is the technique by which the budget is allocated to the various elements of an intended building project to provide the design team with a balanced cost framework within which to produce a successful design. It allows for the redistribution of the budget between elements as the design develops. Cost management is the total process which ensures that the contract sum is within the client’s approved budget or cost limit. It is the process of helping the design team design to a cost rather than the quantity surveyor costing a design.

Page 2




PART 2, SECTION 1

G

2.1.1.2

OBJECTIVES (a) To ensure that the client obtains an economical and efficient project in accordance with the agreed brief and budget; (b) to make the design process more efficient, thus reducing the time needed to produce a successful design; (c) to ensure that all requirements arising from the client’s brief to the design team are included in the cost planning process (e.g. the engineering services should also be subject to the cost planning process); and (d) to advise the client and members of the design team of cost-in-use or life-cycle costing techniques.

G

2.1.1.3

GENERALLY (a) A general principle applies throughout the cost planning process that any agreed budget or cost limit is seen as the maximum cost, and the quantity surveyor should, at all times, work with the other design team members to satisfy the client at a lower cost if possible, whilst still maintaining the desired objectives for quality and function. (b) If, at any time, sums have been included in the approved budget, for example, for abnormal site costs which subsequently are found to have been wholly or partially unnecessary, the consequential saving should always be notified to the client.

G

2.1.1.4

DESIGN STAGES References to Design Stages are to the RIBA Plan of Work (taken from the RIBA Handbook of Architectural Practice and Management) and refer to the main stages through which a project design typically passes. The links to the cost planning procedures outlined in this section are summarised here: Design Stages

Quantity Surveyor

Stage B: Feasibility

Prepare feasibility studies and determine the budget

Stage C: Outline Proposals

Consider with client and design team alternative strategies and prepare cost plan

Stage D: Scheme Design

Carry out cost checks and update cost plan if necessary

Stage E: Detail Design Stage F: Production Information Carry out cost checks Stage H: Tender Action The Surveyors’ Construction Handbook

Prepare reconciliation statement



Page 3

PART 2, SECTION 1

I

2.1.1.5

VALUE ENGINEERING A value engineering exercise may be carried out on all or part of the design during the design process. (For further details see part 1, section 2 of this handbook.) This might affect both the client’s requirements and the chosen design solution and changes would, therefore, affect the budget and the cost plan.

2.1.2 Preliminary cost studies and feasibility studies G

2.1.2.1

It is recommended, as a matter of importance, that before and during the formulation of the client’s brief (Design Stage B: Feasibility), the quantity surveyor, in consultation with other members of the design team and the client, should undertake such feasibility studies as may be necessary to ensure that the client’s requirements can be reasonably accommodated within the finance that is available for the project. The client’s budget is established as a result of these studies. (See 2.1.3.)

2.1.3 Budget I

2.1.3.1

DEFINITION Budget is the total expenditure authorised by the client which is the responsibility of the design team at the end of the feasibility stage (Design Stage B).

G

2.1.3.2

OBJECTIVES (a) To establish the limit of expenditure necessary to meet the client’s brief. The client’s and project’s status with regard to VAT (Value Added Tax) will also need to be established; (b) to provide the client with a statement of the likely area and quality of building, which is achievable within the limit of expenditure; (c) to provide a statement of the recommended methods of construction and of the contractual procedures to achieve the required occupation date; and (d) to provide the client with alternative budgets for different occupation dates and qualities of building, if appropriate.

G

2.1.3.3

INFORMATION REQUIREMENTS (a) The ideal requirements from the client and members of the project team to the quantity surveyor are given below. On projects where this level of information is not available, the quantity surveyor should state clearly any assumptions made. It is possible to produce a typical elemental estimate for

Page 4




PART 2, SECTION 1

a particular type of building from very little information, but it is important to clarify as many information issues as possible before such an estimate is accepted as the budget for a particular project. (b) Information required from the client: • location of the site; availability of the site for commencement of construction work; • in conjunction with the designer, architect or building surveyor, a schedule of accommodation; • names of other similar buildings of broadly suitable quality if appropriate; • the required occupation date or phased occupation dates; • any specific requirements relating to life-cycle costs; • any specific requirements as to specification and/or procedures; • requirements in respect of the treatment of inflation; • instructions regarding Construction (Design and Management) Regulations; and • the client’s VAT status and any other tax matters which may affect the overall cost of the project. (c) Information required from the designer, architect, building surveyor, or other source: • approximate location of the building on the site; • advice on necessary storey heights for any specialist areas shown on schedule of accommodation; • advice on statutory regulations; • advice on routes of public sewers and the like; • designer’s concept of building; and • names of similar projects previously designed by the practice. (d) Information required from the structural engineer: • advice on probable ground conditions; • advice on probable floor loadings; and • any information on structural solutions. (e) Information required from the services engineer: • advice on areas of building which will require specialist engineering services; • any information on the types of systems; and • advice on availability of public utility services. Note: If the quantity surveyor is not responsible for cost planning the engineering services, this should be clearly stated in the budget and cost plan. The information from the quantity surveyor to the design team is as follows:




Page 5

PART 2, SECTION 1

(An example of a format for the quantity surveyor’s report is given in Appendix B to this Section.) (f) Information to be provided to the client involves a report containing: • the budget, with alternative proposals if appropriate; • a statement of the basis of the budget calculation including any important assumptions made; • a statement setting out the programme for design and construction on which the budget is based; • an outline cash-flow forecast; • a statement of any items not included; and • assumptions in respect of inflation forecasts and current/future market conditions. (g) Information to be provided to the designer: • a copy of the report sent to the client; and • a more detailed statement of the quantity and quality parameters included in the calculations. (h) Information to be provided to other consultants: • such quantity and quality parameters as relate to their area of design. G

2.1.3.4

METHODS OF PREPARATION (a) The method of preparation depends on the type of project involved. Unusual projects, projects of great complexity and projects containing a large element of alterations are more difficult to budget accurately at an early stage. (b) For most types of project, it is possible to build up an elemental budget using the parameters set out under G 2.1.3.5. This can be based on cost information from previous projects, from the RICS Building Cost Information Service (BCIS), other published sources, or on an appropriate cost model. (c) The main elemental quantities of hypothetical buildings can be generated using agreed parameters, to which rates applicable to agreed quality and performance standards can be applied. An example of a method of calculating hypothetical quantities is described in Appendix C to this Section. (d) Once the budget has been established, it provides the first cost plan for the project, and the framework for the actual design to be developed.

G

2.1.3.5

STATEMENT OF QUANTITY AND QUALITY PARAMETERS The main parameters which should normally be incorporated in the calculation are as follows (the list is not exhaustive):

Page 6




PART 2, SECTION 1

(a) Quantity • in addition to the briefed areas, a statement of the allowances (e.g. circulation) used to calculate a gross floor area; • the number of storeys of a possible solution; • the storey height(s); • the square index or wall/floor ratio (see appendix C to this section); • the density of vertical division or partition/floor ratio (see appendix C to this section); • proportion of window area; • floor loadings; • thermal resistance values of fabric; • air change rates; • heating and hot-water loads; • lighting levels; • total electrical load; • areas of the brief with special functions of significant cost; • road area and number of car parking spaces; • paved pedestrian areas; and • length of boundary walls or fencing. (b) Quality • A general statement of quality and specification which relates to the rates used for the budget calculation. This should cover specifically at least the following: foundations, roof, external walls, floors and vertical circulation, internal vertical division, internal finishes, lighting and other services. External works should include roads, paths, landscape, boundary walls and fences, and service mains, planting and the like. G

2.1.3.6

INFLATION (a) The prediction of future inflation may not be necessary for some clients, and a statement of cost at current prices may be adequate. Where an assessment of inflation is required for more than a few months ahead, a range of probable inflation is best provided. This can be calculated using predictions published, for example by BCIS or the Department of Trade and Industry. The assumptions upon which the prediction is made should be stated. (b) Some clients, particularly in the public sector, have their own inflation controls. Where the client requests that a particular level of inflation be included in the budget, the quantity surveyor should inform the client if he or she believes it to be unrealistic.

G

2.1.3.7

COST REPORTING If at any time during the design process it becomes apparent that the agreed budget is likely to be exceeded without the brief being changed, the client should be informed and instructions requested. Likewise, if it becomes




Page 7

PART 2, SECTION 1

apparent that the whole of the agreed budget will not be required, the client should be informed.

2.1.4 The cost plan at outline proposals stage I

2.1.4.1

DEFINITION The cost plan at outline proposals stage is a statement of the probable cost of the project at Design Stage C which sets out the cost targets for the main elements of a building, together with their approximate quantity and quality parameters.

G

2.1.4.2

OBJECTIVES (a) To describe, together with the outline proposal drawings, the chosen distribution of the resources within the budget to provide a balanced design to meet the client’s needs; (b) to set cost targets for the main elements so that, as the design develops, the targets can be checked and adjustments made so that the overall cost of the project is managed within the budget; (c) to provide the design team with controls which communicate the costs, quantity, quality and time parameters to be followed; and (d) to provide the opportunity for consideration of life-cycle costs.

G

2.1.4.3

INFORMATION REQUIREMENTS The basic information requirements from the members of the project team to be provided to the quantity surveyor are as follows: (a) Information required from the client: • the budget. Where alternative budgets have been quoted in the budget report, the client should state the preferred alternative; • confirmation of the programme for design and construction times stated in the budget report; • confirmation of the brief; • acceptance or variation of any other matters within the budget report; and • authority to proceed. (b) Information required from the designer: • outline drawings of the building and site works indicating alternative solutions; and • an indication of the preferred specification for the main elements. (c) Information required from the structural engineer: • outline proposals or alternative structural solutions.

Page 8




PART 2, SECTION 1

(d) Information required from the services engineer: • outline proposals for installations, indicating any alternative systems; and • an indication of the preferred specification, after acceptance by the designer of its visual implications. (e) Information required from specialist consultants: • outline proposals. The basic information requirements from the quantity surveyor to the design team are as follows: (An example of a format for the quantity surveyor’s report is given in Appendix B to this Section.) (f) Information to be provided to the client involves a report containing: • a statement of cost; • a broad indication of the specification; • a statement of floor areas; • a request for decisions on any alternative proposals and/or procurement routes, with advice thereon; • an updated cash-flow forecast; • allowances for contingencies and design reserve; and • an update of inflation projections. (g) Information to be provided to the designer: • a copy of the documents sent to the client; and • the cost plan with target costs for each element. (h) Information to be provided to other consultants: • such quality and quantity parameters as relate to their design responsibilities and target costs. G

2.1.4.4

METHODS OF PREPARATION (a) The method of preparation should be appropriate to the level of detail available for each element and may be: • the measurement of approximate quantities and the application of rates to the quantities generated; • comparison of the requirements with analyses of previous projects of a similar character; • use of appropriate cost models; and/or • a mixture of the above methods. (b) Evaluation should be made of the alternative forms of construction, or systems, of the ‘key’ elements, e.g. structural elements, and service installations. The ‘key’ elements on each project will vary. However, they are likely to be those with major financial consequences, and to include the structural and service elements.




Page 9

PART 2, SECTION 1

G

2.1.4.5

STATEMENT OF QUANTITY AND QUALITY PARAMETERS The quantity surveyor’s statement should include the following: (a) Quantity Confirmation of information provided at budget stage with the addition of: • the areas of the accommodation divided into use classification (e.g. office/classroom space, sanitary accommodation space, plant-room space, circulation space), totalled to give gross floor area; and • a schedule of those items for which lump sum allowances have been incorporated and a note on the sources of this information. (b) Quality • a statement of quality and specification, in a similar format to that provided at budget stage, expanded to incorporate additional information. The parameters should follow those included at the budget stage, and where possible, be based upon the outline drawings and preferred specifications.

G

2.1.4.6

DESIGN AND CONSTRUCTION PERIOD (a) In establishing the outline cost plan, it is recommended that the quantity surveyor take account of proposals made by the other members of the design team and their effects upon both the design and construction programmes. (b) If completion dates are critical, components and/or systems should be selected with a view to the availability of acceptable alternatives so as to avoid supply difficulties.

G

2.1.4.7

CONTROLLING CHANGES TO THE COST PLAN Should a change be proposed to the outline cost plan, or to the scope of the work, the following procedures should be implemented: • all relevant members of the design team should be informed; • the designer should confirm his agreement, in principle, to the proposal; • no proposal should be incorporated into the cost plan without the agreement of the quantity surveyor, and his confirmation or otherwise that the proposal can be met within the elemental target; • where the proposal involves additional cost over the elemental target, or would cause the total budget to be exceeded, the quantity surveyor should identify to the design team alternative savings that are available in order to maintain the overall budget; • the quantity surveyor should take into account, when considering a proposed change, any likely effect on the design and construction programme; • in all considerations of alternative proposals, the use of consultants for additional work should take into account any consequential addition to professional fees. In particular, this applies to consulting engineers, whose fees are calculated only on specific parts of the project; and

Page 10




PART 2, SECTION 1

• upon the determination of a proposed change, the quantity surveyor should communicate to the client and all members of the design team, the effects of such change and provide an updated cost plan. G

2.1.4.8

INFLATION Any changes in inflation forecasts should be reported periodically.

2.1.5 The Cost Plan at Scheme Design Stage Note: If the cost plan has been produced at an earlier design stage only updating may be required. I

2.1.5.1

DEFINITION The cost plan at scheme design stage is a statement of the cost of a selected design at Design Stage D which details the cost targets for all elements of a building, together with the quantity and quality parameters described by the scheme drawings and specifications.

G

2.1.5.2

OBJECTIVES (a) To set out for the design team the actual distribution of resources described by the scheme design; (b) To set cost targets for all the elements so that, as the detail design develops, the targets are checked and adjustments made in order that the overall cost of the project is managed within the budget; and (c) To provide the whole design team with a control document which describes, in detail, the costs, quantity, quality and time parameters which have been adopted.

G

2.1.5.3

INFORMATION REQUIREMENTS The information to be provided to the quantity surveyor is as follows: (a) Information required from the client: • confirmation or otherwise that the cost plan prepared at the outline stage is accepted; • confirmation of the brief; • an indication of any preferred alternatives in a previous cost plan; • acceptance or variation of any other matters within the previous cost plan report; and • authority to proceed. (b) Information required from the designer: • scheme drawings and scheme specifications. (c) Information required from the structural engineer; • scheme drawings and scheme specifications;




Page 11

PART 2, SECTION 1

• confirmation of floor loadings and the like; and • provisional indication of reinforcement weights, where appropriate. (d) Information required from the services engineer: • scheme drawings and scheme specifications; and • detailed design parameters, e.g. heat loads, and electrical loads. (e) Information required from specialist consultants: • scheme drawings and scheme specifications. The basic information requirements from the quantity surveyor to the design team are as follows: (An example of a format for the quantity surveyor’s report is given in Appendix B to this Section.) (f) Information to be provided to the client, involves a report containing: • a statement of the cost; • a statement of the specification; • a statement of the floor areas; • a statement of the proposed design and construction programme; • a cash-flow forecast, where appropriate; • a statement of the relevant life-cycle costs, where appropriate; and • an update of inflation forecasts. (g) Information to be provided to the designer: • a copy of documents sent to the client; and • the cost plan with target costs for each element. (h) Information to be provided to the other consultants: • such quality and quantity parameters as relate to their area of design and their target costs. G

2.1.5.4

METHODS OF PREPARATION (a) The method of preparation is normally by measurement of approximate quantities from the proposed scheme drawings. The degree of detail to be measured should relate to the cost significance of the elements in the particular design. The pricing should be similarly related. Some elements may still be most suitably priced on an elemental unit rate basis, where the cost significance is low. Major elements will normally need to be priced in greater detail. (b) The preliminary engineering and specialist services scheme drawings and outline specification notes will be required from the consulting engineers, from which approximate quantities of equipment can be measured and priced using all-in rates. Pipework and cables will normally still need to be priced on an overall basis relating to floor area or service points at this stage. This ensures that the likely implications of the builder’s work are understood by the design team and the costs are taken into account.

Page 12




PART 2, SECTION 1

G

2.1.5.5

STATEMENT OF QUANTITY AND QUALITY PARAMETERS The quantity surveyor’s statement should include the following: (a) Quantity confirmation of the information provided at outline proposal stage (b) Quality a statement of quality and specification based on scheme drawings in sufficient detail to provide control of the production information drawings by the designer and consultants (c) Life-cycle information a statement of the likely relevant maintenance, cleaning, and running costs which are required or implied by the scheme design proposals and the expected life of major components.

G

2.1.5.6

CONTROLLING CHANGES TO THE COST PLAN The principles have been described in G 2.1.4.7.

G

2.1.5.7

INFLATION Any changes in inflation forecasts should be reported.

2.1.6 Cost Checking I

2.1.6.1

DEFINITION Cost checking is the process of calculating the costs of specific design proposals and comparing them with the cost plan during the whole design process (Design Stages D–F).

G

2.1.6.2

OBJECTIVES (a) To confirm that as the design develops, the cost remains within the budget; and (b) To reduce the abortive design work and lost time caused through proceeding too far in the design process before realisation that the budget will be exceeded.

2.1.6.3

PRINCIPLES (a) The methods will vary according to the stage reached in the design process. Normally, however, this takes the form of measurement of approximate quantities from the consultants’ drawings to provide a check on the quantity and quality of parameters set down in the appropriate cost plan. The gross floor area should always be the first check at any stage. (b) The dominant considerations in deciding the priorities for cost checking elements are as follows:




Page 13

PART 2, SECTION 1

• the cost significance of an element related to the total cost of the project; and • the known variability in cost of any element. Should a wide range of cost be possible in an element, it becomes necessary to cost check it before checking any elements of low variability but of the same overall cost significance. G

2.1.6.4

IDENTIFICATION AND NOTIFICATION OF EXCESS COSTS (a) It is recommended that judgement be applied before notifying the designer of possible excess expenditure in a particular element. If an excess revealed during cost checking is of such significance that it is highly improbable that compensating savings are available elsewhere, then such excess should be reported immediately and the design team be asked to consider modification of the cost plan. If, however, the excess (or saving) revealed in an element is relatively small and there are still a number of elements to be checked, it is usually more appropriate to advise the designer of the difference and to suggest that action is held until other cost checks have been carried out. (b) It is important for the quantity surveyor to maintain records of the cost checking process, and to set down in summary the value of the elements cost checked compared with the cost plan targets. Identification of the drawings and information upon which the cost check has been based is also important.

2.1.7 Action after Receipt of Tenders G

2.1.7.1

DEFINITION (a) Action after receipt of tenders is that required at the tender stage (Design Stage H) in analysing each tender and updating information for the client and consultants. (b) The following points should be noted: • In most cases, sound cost planning will produce tenders within budget. If, due to market conditions or late changes in designs and specification, adjustments need to be made to a tender, information on potential savings will need to be identified by the design team; and • If there are significant changes from the initial tender documents, consideration should be given to the need for seeking revised tenders.

G

2.1.7.2

OBJECTIVES (a) To obtain a contract sum within the approved budget; and (b) To provide suitable analyses for future projects.

Page 14




PART 2, SECTION 1

G

2.1.7.3

INFORMATION REQUIREMENTS Information to be provided to the quantity surveyor is as follows: (a) Information required from the client: • acceptance of potential savings, if required; • details in respect of any analyses required. (Where the client body is a Public Authority or similar, where standard analyses are always required, consideration of this matter should be given during the preparation of the Bills of Quantities); and • permission to submit analyses to BCIS if appropriate. (b) Information required from the designer, architect, building surveyor and other consultants; • a provisional list of potential areas of saving (to be considered during tendering period and before tender acceptance); and • a detailed list of drawings and other sources of data from which to determine actual savings, if required. (c) Information required from other sources: • indexing of the tender by BCIS to establish confirmation of tender levels, if appropriate. The basic information requirements from the quantity surveyor are as follows: (d) Information to be provided to the client involves a report containing: • a statement of the cost reconciled to the latest budget; • any further information in respect of the construction programme; and • an updated preliminary cash-flow forecast, where appropriate. (e) Information to be provided to the designer: • a copy of documents sent to the client; and • a detailed reconciliation between the tender and the latest cost plan. (f) Information to be provided to the other consultants: • such information as relates to their area of design and associated costs.




Page 15


Appendix A: Sources of cost information A1

OBJECTIVE To ensure that all costs used are up to date and accurate.

A2

SOURCES

A2.1

Elemental cost analysis • in-house cost analyses of previous projects; • Building Cost Information Service (BCIS); and • Architects’ Journal.

A2.2

Unit rate information • in-house priced bills of quantities; • specialist suppliers’ quotations; • Spon’s (E & FN Spon) – a range of price books covering most areas of construction; • Laxton’s – a range of price books covering most areas of construction; • Ti Wessex – a range of price books covering most areas of construction; • Griffiths Building Price Book; • Building Maintenance Information’s Building Maintenance Price Book; and • Glenigan Cost Information Services – Material Price Guides. Note: Current editions of price books are available from RICS Books.

A2.3

Published indices • tender indices and cost studies on regional variations – BCIS; • the published indices of the Department of Trade and Industry; • Price Adjustment Formulae for Construction Contracts (NEDO) Indices – Department of the Environment, Transport and the Regions; • Architects’ Journal; and • Building.

A3

The use of published information The following points should be considered carefully when using any of the above information: • differential rates of inflation on various aspects/elements of the building; • acute shortages in specific trades at different times; • regional variations; • market conditions applicable to information based on project specific information such as elemental cost analyses and bills of quantities; • external published information;


Part 2, Section 1, Appendix A (05/03)


Page 1


• • •

• •

• • •

Page 2

consideration of the tender period of the analysis and its relationship to the current project’s tender period; high levels of inflation demand constant checking and revision of rates and prices; the assumption that cost information in elemental cost analysis is tendered price information, whereas a significant amount could be in prime cost or provisional sums; initial quotations from specialists are likely to be low; building regulations can be statutorily amended, e.g. energy conservation measures have increased the ‘U’ value (a measurement of thermal resistance) requirements for insulation properties of roofs and walls. Care must therefore be taken to ensure that the analysis used is consistent with current building standards; firm price or fluctuating contract terms; special planning conditions applying either to the analysed or to the current project; and site-specific constraints in either the analysed or current project.

Part 2, Section 1, Appendix A (05/03)



PART 2, SECTION 1, APPENDIX B

Appendix B: Format of budget and cost plans B1

OBJECTIVE

B1.1

To communicate clearly the basis of the budget and cost plans to the client, designer and consultants.

B2

FORMAT

B2.1

The presentation of information to the client and design team should be of a high standard. Budget and cost plans result from the application of a high level of professional skill, and the format of documents should reflect the importance that the profession attaches to this service.

B2.2

The example format included here is intended to be an example of good practice showing the main areas of information that may require coverage. The presentation and content will need to be adjusted to meet the specific requirements of individual organisations and their clients. The ‘Report to Client and Design Team’ is intended as a guide as to what can be provided to a client to ensure that there is a clear statement of the budget or cost limits, its inclusions and exclusions, together with the total programme to which the budget relates and the standards which have been used in its calculation. These are client orientated. Provision is made for the quantity surveyor to suggest alternatives which the client may wish to consider. A copy of information sent to the client should also be sent to the design team.

B2.3

Additional information to be sent to the design team once the cost plan is prepared is set out in the ‘Report to the Design Team’. The main parameters affecting the cost targets should be clearly set out.

B2.4

The level of detail to be included in these documents should relate to the size and complexity of projects. Simple projects may require less information than shown in the example; complex projects significantly more.


Part 2, Section 1, Appendix B (05/03)


Page 1


REPORT TO CLIENT AND DESIGN TEAM (referred to in B2.2 of this appendix) CONSTRUCTION BUDGET AND PROGRAMME Client Project Location Budget serial number: COSTS (for basis see sheet .......) Price base date: New building work:

Site works:

Alterations:

Construction costs (at stated price base) Estimate inflation to probable tender date of

Construction costs at tender Estimated increased costs payable to contractors during construction period Construction costs at completion Professional fees of all consultants including expenses

Value Added Tax – On construction On fee

% %

Total budget of construction works and fees

Exclusions from budget

Page 2





zzz

REPORT TO CLIENT AND DESIGN TEAM (continued) TIME Preliminary/Final Programme (weeks) as Budget Cost 0

Alternative 1 0

Alternative 2 0

Client decision to accept budget and proceed Final brief and scheme design approved

Receipt of first tenders

Formation of contract

Construction commencement

Client occupation: phase phase phase phase Total Cost Variation (including fees)

Contractor and/or construction implications of programme

The alternative time scales shown make the following assumptions: Alternative 1

Alternative 2

CASH FLOW – FORECAST Quarterly from acceptance of budget and authority to proceed (including fees)

1Q

2Q

3Q

4Q

5Q

6Q

7Q

8Q

9Q

10Q 11Q 12Q

Balance

Total

As Budget Cost

Alternative 1 Alternative 2

Note: All figures in thousands ’Occupation quarter indicated by ‘O’


Construction commencement quarter indicated by ‘C Balance shown normally payable during first year of occupation



Page 3


REPORT TO CLIENT AND DESIGN TEAM (continued) BASIS OF BUDGET Areas Schedule of accommodation

Area m2

Min. floor to ceiling height (m)

Max. floor loadings – kN/m2

Comment

TOTAL FLOOR AREA

Quality Standards External elevations:

Internal finishes:

Heating & ventilation:

Lighting:

Site works:

Other (specify):

Exclusions from budget:

Page 4





REPORT TO CLIENT AND DESIGN TEAM (continued) Alternative standards

Alternatives

Cost: extra/saving

Comment

Budget prepared by:

Signature:

____________________________________________

Firm:

____________________________________________

Date: ____________________

____________________________________________ ____________________________________________ ____________________________________________




Page 5


REPORT TO DESIGN TEAM (referred to in B2.3 of this appendix) TECHNICAL QUANTITY AND QUALITY PARAMETERS Budget serial number BUILDING

Quantity Gross floor area

m2

Maximum square index

(Perimeter on plan

m.)

No. of storeys

Floor to ceiling heights: lowest floor

m.

intermediate floors

m.

highest floor

m.

Floor/roof zone

m.

Calculated external wall/floor ratio

Proportion of glazed external wall area

%

Density of vertical division

(length of partitions and internal walls measured over door openings m.)

Calculated partition/floor ratio Lifts ____________________________

Number ____________________

Type _______________________________

Stairs: number of flights

Structural Ground bearing pressure

kN/m2

Floor loadings:

Ground water level Ground

kN/m2 (maximum live)

Intermediate

kN/m2 (maximum live)

Highest

kN/m2 (maximum live) kN/m2 (maximum live)

Roof loading:

Environmental Fabric ‘U’ values:

Roof

W/m2°C

Walls (average)

W/m2°C

Ground floor

W/m2°C

Air change rates and air temperature (Specify spaces and rates/hour and minimum temperatures) Heating load

kW

Hot water load

kW

Page 6


(


W/m2)



REPORT TO DESIGN TEAM (continued) REPORT TO CLIENT AND DESIGN TEAM (continued) TECHNICAL QUANTITY AND QUALITY PARAMETERS (continued) Lighting levels (Specify spaces, lux level and load in W/m2)

Total lighting load

kW

(

w/m2)

Total power load

kW

(

w/m2)

Special areas with higher than average service or other costs (specify)

Other

External Works Site area Road area

hectares m2

Pedestrian paved area

m2

Boundary walls or fencing

m2

Car Parking: Number of spaces

No.

Area

m2

Other

If quantities calculated from drawings state drawing number(s) etc.




Page 7


REPORT TO DESIGN TEAM (continued) REPORT TO CLIENT AND DESIGN TEAM (continued) COST PLAN

Building: .....................................................................................................

Element

Total cost

1

Substructure

2A 2B 2C 2D 2E 2F 2G 2H 2

Frame Upper floors Roof Stairs External walls Windows and external doors Internal walls and partitions Internal doors Superstructure

Cost per m2

Element unit quantity

Element unit rate

3A Wall finishes 3B Floor finishes 3C Ceiling finishes Internal finishes 4

Fittings

5A 5B 5C 5D 5E 5F 5G 5H 5I 5J 5K 5L 5M 5N 5O 5

Sanitary appliances Services equipment Disposal installations Water installations Heat source Space heating and air treatment Ventilating systems Electrical installations Gas installations Lift and conveyor installations Protective installations Communications installations Special installations Builder’s work in connection Builder’s profit and attendance Services Building sub-total

6A 6B 6C 6D 6

Site works Drainage External services Minor building works External works

7

Preliminaries Total (less contingencies)

8

Contingencies Construction costs

Page 8





REPORT TO CLIENT AND DESIGN TEAM (continued) REPORT TO DESIGN TEAM (continued) COST PLAN

Building: .....................................................................................................

Elements

1

Specification included in budget/cost plan

Alternatives

Cost + or –

Substructure

2A Frame 2B Upper floors 2C Roof 2D Stairs 2E External walls 2F

Windows and external doors

2G Internal walls and partitions 2H Internal doors 3A Wall finishes 3B Floor finishes 3C Ceiling finishes 4

Fittings and furnishings

5A Sanitary appliances 5B Services equipment 5C Disposal installations

Page 9





REPORT TO CLIENT AND DESIGN TEAM (continued) REPORT TO DESIGN TEAM (continued) SPECIFICATION

Building: ................................................................................................

Elements

Specification included in budget/cost plan

Alternatives

Cost + or –

5D Water installations 5E Heat source 5F

Space heating and air treatment

5G Ventilating systems 5H Electrical installations 5I

Gas installations

5J

Lift and conveyor installations

5K Protective installations 5L

Communication installations

5M Special installations 5N Builder’s work in connection with services 5O Builder’s profit and attendance on services 6A Site work 6B Drainage 6C External services 6D Minor building works

Page 10





REPORT TO CLIENT AND DESIGN TEAM (continued) REPORT TO DESIGN TEAM (continued) COST TARGETS Building: .......................................................... Elements

Page 11

Price base: ............................................ Parameter


Rate


Target cost

19 ............... Cost per m2



Appendix C: Element Unit Quantities Generation for Hypothetical Buildings Where very little quantity information is available at the early stages of a project, estimates of elemental quantities can be produced using standard formulae and typical assumptions. Some of the most common formulae and some worked examples are given here. WALL TO FLOOR RATIO This is a simple method of expressing the relationship of the external walls to internal floor area. It is the ratio of the area of external walls (including windows and doors) to the gross internal floor area. Formula w = e A

where e = area of external walls including windows and doors A = gross internal floor area w = wall to floor ratio

SQUARE INDEX This is an alternative way of expressing the relationship between the floor area and the external walls. It describes the degree to which the perimeter length of an actual building exceeds that of a building of the same area which is a perfect square. Any single storey building can be described, as can also multi-storey buildings, with a constant shape on each floor. Formula s =

where p = perimeter length on plan

p — 4í a

a = area on plan (not the gross floor area in multi-storey buildings) s = square index

DENSITY OF VERTICAL DIVISION This density provides a coarse measure of the amount of partitioning, loadbearing walls, etc. that a building contains. As the formula includes the perimeter of the building, it takes into account the contribution to the enclosure of spaces that this makes. Formula d = ( 1–2 åp) + L A



where p = sum of the perimeter lengths of a building measured on each floor L = total length of partitions, etc. measured over doors A = gross internal floor area d = density of vertical division


Page 1


Example of element quantity generation for a hypothetical building ASSUMPTIONS From brief, gross floor area = 1350 m2 (including circulation) Site area dictates a two storey solution = 2 storeys Average floor to ceiling height: 2.7 m. Assumed floor/roof zone: 0.6 m. Square index*: 1.4 Wall to floor ratio*: 0.7 Percentage of windows and doors in external walls*: 30% Density of vertical division*: 0.3 Area of ground floor = 675 m2 * These parameters can be based on information from typical or similar schemes.

The quantities calculated in this, or similar ways, can then be used with selected element unit rates to calculate budgets and cost plans for projects in the earliest stages of design, or for checking the approximate cost difference of alternative design solutions. † A percentage can be used to split ‘wall’ from ‘window’, e.g. window and door area = external walls × w = 945 m2 × 30% = 284 m2.

Page 2





where

A= n= a= s= f= d= w=


gross floor area number of storeys ground floor area square index floor to wall ratio density of vertical division percentage of windows and doors in external walls.



Page 3

PART 2, SECTION 1, APPENDIX D

Appendix D: Further reading A selection of further reading is given below. Whilst not comprehensive it is considered to be appropriate. Copies of articles and older books are available from the RICS Library whilst current books are available from RICS Books (www.ricsbooks.com). BOOKS Ahuja, H. N., Successful Construction Cost Control, John Wiley & Sons, New York, 1980 Ashworth, A. and Hogg, K., Willis’s Practice and Procedure for the Quantity Surveyor (11th edition), Blackwell Science, Oxford, 2001 Ashworth, A., Building Economics and Cost Control: Worked Solutions, Butterworths, London, 1983 Ashworth, A., Contractual Procedures in the Construction Industry (4th edition), Longman, 2001 Ashworth, A., Cost Studies of Buildings (3rd edition), Longman, Harlow, 1999 Ashworth, A., Pre-Contract Studies: Development, Economics, Tendering and Estimating (2nd edition), Blackwell, Oxford, 2002 Bathurst, P. E. and Butler, D. A., Building Cost Control Techniques and Economics (2nd edition), Heinemann, London, 1980 Brandon, P. (ed.), Building Cost Techniques: New Directions, E & FN Spon, London, 1982 Brandon, P. S. (ed.), Building Cost Modelling and Computers, E & FN Spon, London, 1987 Buchan, R. D., Fleming, F. W. E. and Grant, F. E. K., Estimating for Builders and Surveyors (2nd edition), Butterworth Heinemann, Oxford, 2003 Building Cost Information Service, Elements for Design and Build, BCIS, Kingston upon Thames, 1996 Building Cost Information Service, Standard Form of Cost Analysis: Principles, Instructions and Definitions, RICS, 1969 (reprinted August 2001) Cartlidge, D. P. and Mehrtens, I. N., Practical Cost Planning: A Guide for Surveyors and Architects, Hutchinson, London, 1982 Chudley, R. and Greeno, R., Building Construction Handbook (4th edition), Butterworth Heinemann, Oxford, 2001 Ferry, D. J., Ferry, J. D. and Brandon, P. S., Cost Planning of Buildings (7th edition), Blackwell Science, 1999 Egan, J. and Construction Task Force, Rethinking Construction, DETR, London, 1998 Gruneberg, S. L. and Weight, D. H., Feasibility Studies in Construction, Mitchell, London, 1990


Part 2, Section 1, Appendix D (05/03)


Page 1


Hackett, M. et al., Pre-Contract Practice and Contract Administration for the Building Team (9th edition), Blackwell, Oxford, 2002 Hall, F. and Greeno, R., Building Services Handbook (2nd edition), Butterworth Heinemann, Oxford, 2003 Institution of Civil Engineers, Management of International Construction Projects, Thomas Telford, London, 1985 Jaggar, D. et al., Building Design Cost Management, Blackwell, Oxford, 2002 Jaggar, D. and Morton, R., Design and the Economics of Building, E & FN Spon, London, 1995 Jaggar, D. M. and Liverpool John Moores University, Civil Engineering Cost Analysis (CECA), BCIS, Kingston upon Thames, 1997 Kelly, J. et al., Best Value in Construction, Blackwell, Oxford, 2002 Kharbanda, O. P., Stallworthy, E. A. and Williams, L. F., Project Cost Control in Action (2nd edition), Gower Technical Press, Aldershot, 1987 Latham, M. and Department of the Environment, Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry: Final Report July 1994, HMSO, London, 1994 Masterman, J., Introduction to Building Procurement Systems (2nd edition), Spon Press, 2001 McCabe, S., Benchmarking in Construction, Blackwell Science, Oxford, 2001 Miller, F., Building and Civil Engineering Cost-Value Comparisons, Ruthtrek Limited, Herne Bay, 1992 Neil, J. N., Constructing Cost Estimating for Project Control, Prentice Hall Inc., New Jersey, 1982 Nisbet, J., Estimating and Cost Control, Batsford, London, 1961 Pilcher, R., Project Cost Control in Construction (2nd edition), Blackwell Scientific Publications Ltd, Oxford, 1994 Royal Institution of Chartered Surveyors, Developing an Appropriate Building Procurement Strategy (see part 3, section 1 of this handbook) Seeley, I. H., Building Economics: Appraisal and Control of Building Design Cost and Efficiency (4th edition), Macmillan, Basingstoke, 1996 Stone, P. A., Building Design Evaluation: Costs in Use (3rd edition), Spon, 1980 Stone, P. A., Building Economy, Design Production and Organisation (3rd edition), Pergamon Press, Oxford, 1983 Strategic Forum for Construction, Accelerating Change, Rethinking Construction, 2002 Ward, S. A., Cost Engineering for Effective Project Control, John Wiley & Sons, New York, 1992

Page 2





Wilson, R. M. S., Cost Control Handbook (2nd edition), Gower Publishing, Aldershot, 1983 ARTICLES AND REPORTS Abdullah, R. Z. and Tyler, A. H., ‘Meeting the Problems of Cost Control Systems’, Building Technology & Management, 24(4) August/September 1988, 14–16(3) Baxendale, A. T., Integration of Time and Cost Control, Chartered Institute of Building (Construction Papers 7), Ascot, 1992 Betts, M. and Gunner, J., ‘Consultant Cost Control in The Pacific Rim’, Cost Engineering, 34 (1) January 1992, 17–24(8) Bowen, P. and Edwards, P., ‘Interpersonal Communication in Cost Planning During the Building Design Phase’, Construction Management & Economics, (1996) 14, 395–404(10) Costing Services, Building Services, 14(11) November 1992, 25–31(7) Farrow, J. J. and Rutter, D. K., Performance Setting and Monitoring on Building Projects for Contractors, Chartered Institute of Building (Construction Papers 67), Ascot, 1996 Ferry, D. J. O. and Flanagan, R., Life Cycle Costing: a Radical Approach, CIRIA Report 122, Construction Industry Research and Information Association, London, 1991 Gilmour, J. and Skitmore, M., ‘A New Approach to Early Stage Estimating’, Chartered Quantity Surveyor, 11(9) May 1989, 36–38(2) Kaka, A. P. and Price, A. D. F., ‘Modelling Standard Cost Commitment Curves for Contractors’ Cash Flow Forecasting’, Construction Management & Economics, 11(4) July 1993, 271–283(13) Ministry of Education Building Bulletin No. 4, Cost Study, first edition March 1951, second edition March 1957, third edition 1972 Ministry of Public Building and Works/International Tutor Machines Ltd, ‘Cost Control in Building Design’, R and D Building Management Handbook 4, HMSO, London, 1968 Morris, A., ‘A Rational Approach to Cost’, Building, 260(7889) 21 April 1995, 33(1) Skitmore, M. et al., ‘The Accuracy of Construction Price Forecasts’, University of Salford, Salford, 1990 Southgate, T., ‘A New Approach’, Chartered Quantity Surveyor, 11(3) November 1988, 35–36 Watson, B., ‘Cost Planning Engineering Services Contracts’, Cost Engineer, 28(4) 1990, 8–10(3) Watson, K., ‘Procurement – the Key Area for Cost Control’, Construction Computing, (52) April 1996, 12–13(2)




Page 3

PART 2, SECTION 2

PART TWO: CONSTRUCTION DESIGN & ECONOMICS I

SECTION 2: LIFE CYCLE COSTING Introduction It is becoming increasingly important that investment appraisal uses a whole life approach in a more systematic way than at present. Major construction clients are now insisting upon an analysis of life cycle costs and not just capital costs. The life cycle cost (LCC) of an asset is defined as the present value of the total cost of that asset over its operating life (including initial capital cost, occupation costs, operating costs and the cost or benefit of the eventual disposal of the asset at the end of its life). Life cycle cost techniques can be used, for example, to:

• evaluate design options at the elemental or component level; • evaluate total building options, for example refurbishment versus new build; • determine optimum maintenance strategies; • analyse relocation strategies; and • determine sinking fund requirements to finance planned maintenance programmes. Worked examples for the above are included in 2.2.5. The objective of this Section is to inform chartered surveyors of the increasing need to adopt life cycle costing (2.2.1) and to introduce them to the techniques and their application.

2.2.1 The Client Context 2.2.1.1

Following the recession of the early 1990s construction clients are generally more streamlined and competitive and some recognise that their ongoing property costs may provide them with the business ‘edge’ they need. There is therefore increased attention to life cycle costing. The following Sub-sections expand on this trend by covering recent changes in the industry and their effect on LCC.

2.2.1.2

VALUE ENGINEERING Value engineering involves preparing structured option appraisals during the design process so demonstrating value for money for clients. Its use is




Page 1

PART 2, SECTION 2

increasing and with it comes the opportunity and need for LCC to be part of the options appraisal criteria. 2.2.1.3

THE LATHAM REPORT Sir Michael Latham’s report Constructing the Team1, calls for a 30% real reduction in construction costs. This statement includes life cycle costs. The report also strongly advocates the need to ‘build right first time’ in which environment life cycle cost calculations (involving assumptions about future maintenance) have more credibility.

2.2.1.4

CONSTRUCTION (DESIGN AND MANAGEMENT) REGULATIONS 1994 The Construction (Design and Management) Regulations 1994 place a specific duty upon clients and their designers to consider the potential hazards associated with the construction process during design, and furthermore to consider the health and safety implications of maintaining the structure when complete. Such increased focus on maintenance may therefore encourage greater consideration of maintenance costs. This principle is enshrined in Regulation 13(2)(a)(i) and (ii) which states: “(2)

Every designer shall: (a)

ensure that any design he prepares and which he is aware will be used for the purposes of construction work includes among the design considerations adequate regard to the need: (i)

to avoid foreseeable risks to the health and safety of any person at work carrying out construction work or cleaning work in or on the structure at any time, or of any person who may be affected by the work of such a person at work,

(ii)

to combat at source risks to the health and safety of any person at work carrying out construction work or cleaning work in or on the structure at any time, or of any person who may be affected by the work of such a person at work.”

It follows that the selection of materials for certain elements of a structure that may involve maintenance, (particularly where access to those elements involves working at height), complies with the spirit of Regulation 13. For example, the selection of PVCu window frames with ‘easy clean’ hinges involves limited maintenance and allows cleaning from the inside. Similarly marble flooring is cheaper than cork tiles over a 60-year period and while the decision to use marble is economically sound it also removes health hazards

1

Latham, M., Sir, (1994), Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry: Final Report, HMSO London

Page 2




PART 2, SECTION 2

associated with fumes and vapour when cork has to be resealed. In purely capital cost terms, the selection of the materials referred to above may be more expensive than their traditional counterparts. The use of life cycle costing places initial capital cost in the context of future maintenance expenditure, and helps justify decisions which have beneficial health and safety implications. 2.2.1.5

THE PRIVATE FINANCE INITIATIVE (PFI) The PFI is driven by a cash flow which is achieved by the private sector provider delivering a service to the client. This service will include the management of a building which should be heated, cooled, lighted, cleaned, maintained, secured, insured and renovated. This cash flow should sufficiently cover all costs and outgoings, leaving the provider with a surplus or profit which should be commensurate with his risk exposure. It is therefore critical that the provider accurately predicts the cost in use of the service or the facility over its operational life so that he can calculate the cash flows generated by the assets over the term of the contract. Such data is vital so as to negotiate the complexities of the contract to both parties’ satisfaction. To assist this process some suppliers give guaranteed long-term costs, e.g. for lifts and kitchen equipment. By reducing costs over this term it should be financially viable for the private sector to provide a service to the public sector and to achieve an acceptable return. Life cycle costs and their accurate prediction, control and reduction are critical to the successful performance of a PFI deal.

2.2.1.

ENERGY EFFICIENCY ISSUES IN RELATION TO BUILDING PROJECTS Studies by the Building Research Establishment through the BRECSU (Building Research Energy Conservation Support Unit) ‘Best Practice Programme’ have found that energy consumed to heat, light and service buildings accounts for almost half of the UK’s energy bill, and there is considerable scope to reduce it. Office buildings were found to have the highest energy costs, especially prestigious, air conditioned property (typically £20/m2 per year in 1991 compared to £15/m2 for the same ‘best practice’ office). There is common feeling that property overheads are too large, with energy bills contributing significantly to the operating costs. Energy costs are potentially one of the most controllable items of overheads and life cycle costing can be used as a tool for predicting the benefits of investment in energy efficiency. Typical investments for analysis would be economic thickness of insulation, energy efficient services, building energy management system installations, intelligent buildings, energy conscious refurbishment of buildings and passive cooling techniques versus air conditioned design. For example, a manufacturer can supply a light bulb some ten times more expensive than a normal one, however, it lasts longer, uses less




Page 3

PART 2, SECTION 2

electricity and performs better. Similarly, condensing gas boilers can save 10–20% of fossil fuel bills with pay back in five years. It is also worth noting that oil is becoming increasingly harder to extract and environmental concerns generally will increase in the very near future. Sainsbury has been the first grocery retailer to produce an environmental report and recognises that energy probably accounts for its single biggest direct environmental impact. Significantly it is also the third largest controllable cost in running a typical supermarket. 2.2.1.7

MECHANICAL AND ELECTRICAL BUILDING SERVICES The increasing capital cost significance and complexity of M & E services has resulted in greater cost emphasis during the early design stages. Such costing is increasingly carried out by a specialist Quantity Surveyor so bringing greater opportunity to focus on M & E life cycle costs which are a significant proportion of a building’s cost in use, accounted for by the operation, energy use and replacement costs associated with the M & E installations.

2.2.1.8

BUILDING SUSTAINABILITY If there is to be a conscious shift of opinion towards sustainable buildings i.e. those which have a viable life expectancy beyond their initial designed use, then there has to be a simultaneous re-examination of a building’s costs in use or perhaps more correctly costs in uses. Buildings have not been traditionally designed for anything beyond their immediate requirement. However, as more are being converted to alternative uses it is probably only a matter of time before investors in property call for properties to be constructed with a view to extending the building’s usable life, e.g. conversion to house a growing less mobile and aged population. Such consideration is more valid the shorter the predicted current building life, e.g. some light industrial units for English Partnerships have been designed for a ten-year life. Similarly, Hertfordshire County Council have housing and nursing homes with a 20-year life expectancy. Such a concept will require building layouts and structures to be more flexible with maintenance, re-servicing and conversion to alternative uses being simplified and made more economical. A cost in use study at design stage may justify larger bay sizes, raised flooring or greater storey heights to demonstrate continual viability for future generations. A cost in use study would explore the economics involved of using a building for its notional design life and for its intended use in the usual way. However, supplementary investigations would explore potential alternative uses for the building and the conversion cost (and possibly the cost in use for a further notional period). If sufficient consideration were to be given at the initial design stage for potential future uses of a building, it could be used to demonstrate the continued asset value of the property and go a considerable

Page 4




PART 2, SECTION 2

way to minimising the obsolescent properties which currently dominate certain market sectors.

2.2.2 The Life Cycle Costing Calculation INTRODUCTION The calculation generally involves the appraisal of options, each option having different capital and future costs. To determine and analyse the future costs it is necessary to establish:

• the building life; • the discount rate (which, expressed simply, is the difference between the interest and inflation rate and is used to convert future payments to present values); • the cost and frequency of future payments (at the component, elemental or total building level as appropriate); • any tax implications (see 2.2.3). 2.2.2.1

THE BUILDING LIFE An essential element of life cycle costing is defining the life cycle period to be adopted. An assessment must therefore be made of the life of the investment – ‘building life’. Typically the relevant building life will be the period over which the organisation, for whom the study is being conducted, will be expected to hold an interest in the building, and would take into account the residual value. At the end of the life of a building, the building (or component) and the land will have a residual value. In the case of relatively short life cycles or high value land, residual values can be very significant factors in determining the optimum life cycle cost options. Residual values are briefly discussed in Appendix A (and worked example 2.2.5.3 includes a residual value in the calculation). When the building life is assessed to be over 40 years, the precise life is not critical for the purposes of life cycle costing (as discounting, explained below, minimises the effect of such future payments). In cases where calculations are based on a relatively short building life, say 20 years or less, the assessment of the time horizons must be considered with special care. Building life is influenced by obsolescence, the causes of which are summarised in Appendix B.

2.2.2.2

THE DISCOUNT RATE The life cycle cost technique is concerned with the assessment of the time stream of costs and revenues that will flow throughout the life of a construction project option.




Page 5

PART 2, SECTION 2

As ‘money today’ has a different value from ‘money tomorrow’ or ‘money in ten years’ time’, a technique has to be adopted that will express future costs or revenues in present values. The process of converting ‘future money’ to ‘present money’ is called discounting. Discounting involves establishing the discount rate to be used. In making the decision on a discount rate for a particular project, some judgement will need to be made about the degree of risk return (interest) and the likely levels of future inflation rates. Interest rates are particular to the client and the degree of risk. It is therefore essential to involve the client (and his accountant if appropriate) in the process and reach agreement on the discount rate to be used. Economists, accountants and clients will all have different views about future levels of inflation and interest rates. Some forecasters may take the view that as different categories of cost inflate at different rates, these differences should be taken into account in setting discount rates. These diversities of view ‘before the fact’ make it difficult to recommend any firm guidelines for surveyors to adopt for selecting discount rates. There are two main approaches to discounting: (a) use a rate which ‘implies’ inflation of future costs and values (in this case future costs and values will be priced at today’s prices); (b) use a rate which requires an ‘explicit treatment’ of inflation in relation to future costs and values, (in this case future costs and values will be priced at today’s prices and adjusted by a factor to reflect future inflation). It is suggested that it is easier to deal with the former situation where future costs and values are assessed at current prices. Three approaches on the selection of discount rates are given for guidance purposes and in each the future costs are priced at current prices. 2.2.2.3

DISCOUNT RATE METHODS (a) Test Discount Rate In the absence of better information it is recommended that a test discount rate should be used. This recommendation is based on the assumption that when inflation rates are reasonably low, i.e. less than 15%, there is quite a stable relationship between inflation and the bank base interest rate, implying a real discount rate of between 4% and 5% (i.e. the interest rate is 4 to 5% greater than inflation). It is recommended that in the circumstances, where no better information is

Page 6




PART 2, SECTION 2

available, a test discount rate of 4% is used. This method is often adopted in the public sector where minimal risk associated with the investment is assumed. (b) No risk return discount rate Investment in long-term Treasury Bonds can be assumed as having no risk, and are a good reflection of the return to be expected on other investments where there is no risk. Therefore the discount rate can be taken as the Treasury Bond rate less an allowance for the expected rate of inflation. On this basis the discount rate would be assessed as: Treasury Bond rate of return Less Inflation No risk return discount rate

8% 5% —— 3% ——

(c) Average risk premium discount rate The average return on equities reflects the interest required on an average risk. The excess of this rate of return over that expected from the above Treasury Bonds can then be taken as the premium expected for the average risk. On this basis the average risk premium could therefore be calculated as: Average equity rate return Less Treasury Bond rate Average risk premium discount rate

16% 8% ——– 8% ——–

Therefore if construction is deemed to be half as risky as equities, the discount rate for construction investment could be assessed as: No risk return Construction premium risk (8% × ½) Average construction risk return discount rate

3% 4% ——– 7% ——–

(d) A further approach to establishing a discount rate is to analyse transactions involving the sale of comparable properties, and to utilise the ‘all risks’ yield as the discount rate. In the examples of the calculation of discount rates, concurrent interest and inflation rates have been added and subtracted in order to clarify the methodology. This is mathematically imprecise. The actual calculation will need to be compounded.




Page 7

PART 2, SECTION 2

In the ‘no risk return discount rate’ method, for example, the calculation should be as follows: Treasury Bond rate of return Inflation rate

8% 5%

Discount rate (i.e. Treasury Bond rate net of inflation (1 = Treasury Bond rate) = ——————————— – 1 (1 + Inflation rate) 1.08 = —— – 1 1.05 = 0.02857 = 2.857% The same methodology should be adopted for actual calculations using other methods. As an approximation however this may be ignored. (e) In summary, the effect of future payments on an LCC calculation is in inverse proportion to the level of discount rates i.e. the higher the discount rate the less effect future payments have on the LCC calculation. For example, a risk taking client is less likely to spend money on the building to reduce future costs since he can use this money to get a higher return elsewhere. Selection of a suitable discount rate is crucial as it can overwhelm all other decisions. Once the discount rate is established valuation tables can be used to convert future payments to present value. For example, the present value of £100 to be paid in five years’ time at a discount rate of £4% = £100 × 0.82192 (from valuation tables at 2.2.5.7 ‘present value of £1’) = £82.19 Such conversion of future payments to present value provides a basis for comparing alternative expenditures. 2.2.2.4

THE COST AND FREQUENCY OF FUTURE PAYMENTS The costs are generally dealt with using current prices (using the discount rate to allow for inflation), with assumptions made regarding when payments will occur in the future. 2.2.4 includes possible sources for such data. Depending upon requirements, some calculations will be relatively straightforward (see the option appraisal exercise for internal doors as shown

Page 8




PART 2, SECTION 2

in the worked examples). However, all expenditure throughout the life of the building could be included if the total building analysis were required. The major categories of costs are:

• • • • • • •

capital costs financing costs operation costs annual maintenance costs intermittent maintenance, replacement and alterations costs occupancy costs residual values and disposal costs.

An expanded check list of costs is given in Appendix C. Estimates for these costs will be based upon assumptions about future events and should be clearly stated. Indeed an additional advantage of life cycle costing is that it requires design assumptions to be stated explicitly rather than implied. Although current costs are generally used, it is important that future cost assessment should reflect any expected divergence of a specific cost from the level of inflation allowed in the discount rate. For example, it would be unwise to assume that market conditions would remain unchanged for any extended period when tender levels for building work are very depressed. Some allowance should therefore be made to adjust current building prices to more normal market conditions when pricing future building work. The level of detail used will be dictated by the availability of information and the requirements of the client. The following costs for each category should be considered and where necessary established with the client. (a) Capital costs – include land, building, professional fees, furniture and equipment, or permanent improvements thereto, which form assets for the business to use in its operation, with an intended useful life of more than one year. The significance of any tax benefits and grants should be established with the client. (b) Financing costs – the method of funding the project should include, inter alia, the cost effect of alternative sources of funds, the future flexibility of funds in terms of amounts and sources, and gearing. Consideration should also be given to

• the accounting effect of capital employed; • construction period finance charges and long-term finance costs; and • the taxation implications of the various options. The Surveyors’ Construction Handbook



Page 9

PART 2, SECTION 2

(c) Operation costs – include estimates of rent, rates, energy costs, cleaning costs, building related staffing costs and other staffing costs. (d) Annual maintenance costs – average maintenance costs are available but once details of design are completed, a more relevant estimate can be produced based on information obtained from manufacturers or maintenance managers. (e) Intermittent maintenance, replacement and alteration costs – replacement costs can be produced using normal cost estimating techniques. In seeking a realistic assessment of the life of materials and components, reference should be made to manufacturers, maintenance managers and other sources of such data (as discussed in 2.2.4). (f) Occupancy costs – the cost of performing the function for which the building is intended (e.g. producing motor vehicles). Occupancy costs are distinguished from operation costs, as they relate to costs attributable to a specific process undertaken by the client, which may change within the life of the building. As an example, a car manufacturer may change to the production of heavy goods vehicles. This would impact on his occupancy costs, whereas his building related operation costs could be relatively unchanged. Some clients might not require the surveyor to take these costs into account, as not relating directly to the building. (g) Residual values and disposal costs – estimate of the resale value and the cost of disposing of the building, plant, land and other assets after the expiry of the life cycle. Many buildings, particularly those with an ‘open market value’ will have a significant residual value. Care should be taken in assessing this value as it can have a major effect on the life cycle costing calculations (see Appendix A).

2.2.3 Tax Allowances, Incentives and Business Rates INTRODUCTION This Sub-section deals with the effect of taxation allowances and incentives available for expenditure upon property and construction applicable in the United Kingdom to date, during the life of the asset. A glossary of terms is included in Appendix D. Currently, legislation offers tax relief by allowing expenditure upon certain assets to be depreciated, and to be offset against a private commercial organisation’s taxable profits. Tax relief is available on both capital and revenue expenditure. Capital costs receive this relief by way of capital allowances which are deductible items from the taxpayer’s taxation liability account. Maintenance costs are a charge on the profit and loss account, which again reduces the tax payable. Page 10




PART 2, SECTION 2

The significance of tax relief depends upon the amount of allowable expenditure. This varies considerably, being dependent upon the type and function of the asset, its design and sophistication (particularly in respect of services) and whether or not the project is a new building or a refurbishment. The impact of tax relief on the life cycle evaluation lessens proportionately with the ratio of allowable expenditure to the total expenditure and the timing of relief, which is dependent on the annual rate of taxation allowances. For example, a new oil refinery will have a greater proportion of allowance than a shop unit shell. It is also worth noting that capital allowances tend to be greater on plant than on buildings, so making the use of efficient plant more attractive than increasing the thermal efficiency of the building. The impact of tax relief should be sensitively tested at the earliest possible stage. A detailed estimate of the allowable expenditure should only be prepared if tax relief is found to be significant. 2.2.3.1

The following example shows the net discounted cost, after tax relief, of £1,000 spent on differing types of expenditure.

Expenditure

No relief

Where capital allowances are allowed on 50% of capital expenditure

Where capital allowances are allowed on 100% of capital expenditure

Relief given on maintenance 100%

£

£

£

£

1,000

1,000

1111

222

350

889

778

650

1,000

Tax relief assuming 35% Corporation Tax Net discounted cost after tax relief 1

1,000

1,000

i.e. 50% of £1,000 × 25% reducing balance × 35% Corporation Tax with future allowances discounted at 10% per annum (a discounting calculation is required in order to establish the above figures).

2.2.3.2

TYPES OF ALLOWANCES The types of allowances and rates of depreciation often change. Following the Finance Act 1985, capital allowances available that relate to Real Property were as follows:




Page 11

PART 2, SECTION 2

Allowable expenditure Plant and machinery Industrial buildings Agricultural buildings Dredging Scientific research Cemeteries and crematoria Dwelling houses let on assured tenancies – only expenditure expended prior to 1 April 1987 Hotels Enterprise zone building expenditure Mining and certain related construction works

Timing or percentage per annum 25% (reducing balancing) 4% (straight line) 4% (straight line) 4% (straight line) 100% Ratio based upon grave spaces used

4% (straight line) 4% (straight line) 100% 40% plus a ratio based upon usable life

Subsequent to the Finance Act 1997 first year allowances were changed and at the time of writing were still being finalised. In certain circumstances allowances may be at a higher rate i.e. they relate to specific incentives, certain assisted projects or expenditure relates to a transitional period e.g. terms of the Finance Act 1984 (applicable until 31 March 1987). Different types of allowances, initial, first year and writing down are explained in the Glossary of Terms (Appendix D). Straight line allowances are calculated as a percentage of original cost and at 4% the allowance is spread evenly over 25 years. A reducing balance computation is achieved each year by first deducting all previous allowance amounts from original cost and then applying the allowable percentage to the balance, i.e. 25% in the first year, 25% of 75% in the second, and so on. While the building itself may be subject to a 4% straight line allowance the plant and machinery in the building will receive a 25% reducing balance. It should be noted that the significant part of capital allowance relief on a 25% reducing balance basis comes in the first five to seven years. This is included in the above example where the tax relief amount is a product of the incremental annual writing down allowance, discounted. Regional development grants (or their Northern Ireland equivalent) may also be available. These are not treated as taxable and may be disregarded when assessing the capital cost upon which tax relief is calculated. Currently the running and maintenance costs of an asset are deductible in full (i.e. 100% allowance) against taxable profits in the year of expenditure. 2.2.3.3

Page 12

VALUE ADDED TAX (VAT) Capital allowances are given against the net capital cost to the taxpayer. Therefore, as VAT is part of that capital cost, clients will incur differing overall capital expenditure for the same item depending upon whether they can or cannot recover, or recover only a proportion of, the VAT.




PART 2, SECTION 2

2.2.3.4

CALCULATION OF THE EFFECT OF CAPITAL AND REVENUE ALLOWANCES Before calculating the effect of taxation allowances, certain parameters need to be ascertained: (a) the Corporation Tax and allowances rate that will be current at the date of construction of first use; (b) the future Corporation Tax and allowance rate at the date of replacement; (c) the Corporation Tax rate current at dates between date of construction of first use and the date of replacement, against which revenue running costs can be charged; (d) whether the owner will be liable to tax during the period between the date of construction or first use and the date of replacement, and if the owner will have sufficient taxable profits to use the allowances generated in any one year. (e) whether the item’s economic life will be shorter than the tax write down period. This will either generate an added write down amount when it is demolished, or if the item or building is to be sold at the end of its economic life, its profit or loss on cost. These circumstances will generate a taxable profit or loss on proceeds above or below the tax write down value and will attract a balancing adjustment; (f) the value of the balancing allowances, charges or taxable profits needs to be considered against the relevant Corporation Tax rate; (g) the impact of these adjustments therefore needs to be taken into account in the life cycle costing assessment. Caution is further necessary as there are specific restrictions. The recipient has to prove to the Inland Revenue that he qualifies for allowances (i.e. the entitlements are aimed at providing incentives for commercial organisations and therefore expenditure upon residential property is largely excluded. Entitlements are also restricted between connected persons).

2.2.3.5

DYNAMICS The surveyor should therefore appreciate the variables and frequent changes that occur in respect to the application of taxation allowances. These arise because: (a) the Government uses taxation to impose fiscal policy and influence the economy and therefore statutes are introduced amending previous rates of depreciation, regulations and entitlements; (b) the interpretation of entitlement is affected by case law precedents.




Page 13

PART 2, SECTION 2

(c) the Inland Revenue practices and extra statutory concessions develop to address specific issues or vagaries. 2.2.3.6

APPLICATIONS Taxation allowances provide the opportunity for innovative funding arrangements whereby the tax relief can be ‘exported’ to a party who can enjoy more benefit from the entitlement. They also need to be advised during property transfers so the relevant balancing adjustments can be calculated and the purchasers advised of their proper entitlements.

2.2.3.7

WORKED EXAMPLES Worked example 2.2.5.3 summarises the effect of capital and revenue allowances. Worked example 2.2.5.6 includes a detailed calculation of the capital and revenue allowances. Business Rates Large plant and machinery regarded as an integral part of the building can attract additional rates which can be influenced by design niceties (such as how the plant is covered over). Expert advice should be sought in such a situation. Further reading for taxation Tolley’s Capital Allowances, Tolley Publishing Co. Ltd – generally published annually. Butterworths Yellow Tax Handbook, Butterworth & Co. (Publishers) Ltd – abstract of Statutes Tax Statutes and Statutory Instruments, CCH Editions Ltd – incorporating extra statutory concessions

2.2.4 Data Sources Lack of data in a suitable format for maintenance, replacement and energy costs is said to be a significant reason for LCC rarely being carried out at present. Notwithstanding this, Building Surveyors and Facility Managers will often have valuable in-house data. Furthermore, professional judgement should not be disregarded. LCC calculations require information regarding the durability of materials/components, and/or energy costs. Lack of such accurate data in a suitable format may affect the credibility of the LCC calculation. However, while historic data is useful, reality is dependent upon individual design, installation and usage as well as technical development. Page 14




PART 2, SECTION 2

Whilst the selection of data sources given in Appendix F is not comprehensive, it gives an indication of the level of information available. Trade literature which is a prime source of detailed information is not included.

2.2.5 Worked Examples INTRODUCTION Life cycle costing can be used in numerous situations. The intention of this Sub-section is to give the reader an appreciation of its application, as used by surveyors in practice, and the relative complexities of associated calculations, ranging from a simple elemental option appraisal to complex total building analyses. The examples follow in order of complexity, worked examples 2.2.5.1 and 2.2.5.2 will readily convey the principles of life cycle costing including discounting. The remainder consider more detailed scenarios. 2.2.5.1

DESIGN OPTION: INTERNAL DOORS This example is kindly provided by Messrs Gardiner & Theobald, Chartered Quantity Surveyors. The objective is to evaluate four comparative specifications over a building life of 60 years using a discount rate of 4% (7% interest rate less 3% inflation rate). The information is summarised in the table below with an explanation of the calculation for option 1 detailed at (a) to (d) below. Any tax implications are excluded. (a) The present value for purchasing the doors is obviously the same as the capital cost: £35,000 (b) For the annual running costs: • £10.89/m2 × 20 m2 = £218 • £218 incurred every year for 60 years at 4% discount = £218 × 22.6* = £4,927 present value (c) For maintenance the present cost of £6,040 for new ironmongery and repainting taking place in, say Year 12 at 4% discount = £6,040 × 0.62459** = £3,773 (d) The replacement cost after 40 years = £35,000 (present cost) × 0.20828** = £7,290 • The total present value of the capital cost, annual running cost, maintenance and replacement costs = £57,037 showing option 1 is the most expensive life cycle cost * from valuation tables at 2.2.5.7 (year’s purchase or present value of £1 per period) **from valuation tables at 2.2.5.7 (present value of £1)




Page 15

PART 2, SECTION 2

PROJECT: Life Cycle Model

PROJECT LIFE Discount Rate

Discount Rate

SHEET NUMBER: ELEMENT:

60 Years 4.00% per annum

4.00% per annum

(Interest Rate (7%), Inflation (3%))

COSTS Capital Costs Aluminium Glazed Hardwood Glazed Vision Panels Softwood Metal Contingency

£ 1750.00 m2

Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint OPTION 2 Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint

Page 16

OPTION 3 Softwood

OPTION 4 Metal

Finish Life 40 Years




Maintenance Period 4 Years




Estimated Cost

Present Value

35,000

35,000

Estimated Cost

Present Value

20,000

20,000

£

10.89 m2

£ £ £

9.99 m2 5.90 m2 17.99 m2

Year Present Cost 4 340 8 340

Estimated Cost

Present Value

14,000

14,000

Estimated Cost

17,000

Capital Costs

Total Annual Running Costs

OPTION 1

OPTION 2 Hardwood Glazed Vision Panels

–

Annual Running Costs Aluminium Glazed Hardwood Glazed Vision Panels Softwood Metal Maintenance

OPTION 1 Aluminium Glazed

£ 1000.00 m2 £ 700.00 m2 £ 850.00 m2

Total Year 1

LCCM5 Internal Doors Unit: 20 m2

35,000 218

–

–

17,000 –

20,000

14,000

17,000

4,927 200

4,520 118

13,068

4,927

340 340

291 248

11,988

4,520

300 300

256 219

12 16 20

6,040 340 340

6,040 340 340

3,773 182 155

24 28 32

6,040 340 340

6,040 340 340

2,356 113 97

36 40 44

6,040 340 340

6,040 340 340

1,472 71 61

48 52 56 4 8

6,040 340 340 300 300

6,040 340 340

919 44 38

12 16 20

6,000 300 300

6,000 300 300

3,748 160 137

24 28 32

6,000 300 300

6,000 300 300

2,341 100 86

36 40 44

6,000 300 300

6,000 300 300

1,462 62 53


Present Value


2,670

7,080

2,670

360

8,140

21,588

8,140


PART 2, SECTION 2

PROJECT: Life Cycle Model (continued

PROJECT LIFE Discount Rate

60 Years 4.00% per annum

Discount Rate

4.00% per annum

(Interest Rate (7%), Inflation (3%))

Maintenance

OPTION 2 Hardwood Glazed Vision Panels

OPTION 3 Softwood

OPTION 4 Metal









Present Value

Estimated Cost

Present Value

Estimated Cost

Present Value

Estimated Cost

Present Value

300 300 6,100 300 300 6,100 300 300 6,100 300 300 6,100 300 300 6,100

256 219 3,810 160 137 2,380 100 86 1,486 62 53 928 39 33 3,810

17,000

5,241

Year Present Cost

New ironmongery Repaint Repaint Repaint OPTION 3 Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint New ironmongery Repaint Repaint Repaint OPTION 4 Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Repaint Replacement

OPTION 4

LCCM5 Internal Doors Unit: 20 m2

OPTION 1 Aluminium Glazed

Estimated Cost

COSTS

OPTION 1 OPTION 2 OPTION 3

SHEET NUMBER: ELEMENT:

48 52 56 4 8

6,000 300 300 320 320

12 16 20

6,000 300 300

913 39 33 320 320

274 234

3,820 320 320

3,820 320 320

2,386 171 146

24 28 32

3,820 320 320

3,820 320 320

1,490 107 91

36 40 44

3,820 320 320

3,820 320 320

931 67 57

48 3,820 52 320 56 320 4 300 8 300 12 6,100 16 300 20 300 24 6,100 28 300 32 300 36 6,100 40 300 44 300 48 6,100 52 300 56 300 Year Present Cost 40 35,000 30 20,000 20 14,000 40 14,000 30 17,000

3,820 320 320

581 42 36

35,000

7,290 20,000

6,166 14,000 14,000

6,389 2,916

Total Maintenance/Replacement Costs

62,560

17,109

47,000

15,776

46,480

15,917

44,400

14,993

Total Running Costs

75,628

22,037

58,988

20,297

53,560

18,586

65,988

23,132

Total Net Present Value of Life Cycle Costs


57,037

40,297


32,586


40,132

Page 17

PART 2, SECTION 2

2.2.5.2

BUILDING SERVICES DESIGN OPTION: AIR CONDITIONING AND UNDER FLOOR TRUNKING VERSUS HOT WATER HEATING AND RING MAIN ELECTRICS This example is again provided by Messrs Gardiner & Theobald. The objective is to evaluate the above options for a building of 3,000 m2 floor area, a life of 60 years and a discount rate of 4% (7% interest less 3% inflation). The information is summarised overleaf with the methodology for the calculation being exactly as that for the previous example. Any taxation implications are excluded.

Page 18




PART 2, SECTION 2

Element: Services PROJECT LIFE Discount Rate

Unit: 3,000 m2 60 Years 4% per annum

Discount Rate 4.00% per annum (Interest Rate (7%), Inflation (3%)

COSTS

OPTION 1 Air Conditioning U/Floor Trunking

OPTION 2 HW Heating & Ring Main Electrics

OPTION 3

OPTION 4



Finish Life

Finish Life



Maintenance Period Years

Maintenance Period Years

Estimated Cost

Present Value

750,000

750,000

Estimated Cost

Present Value

450,000

450,000

Estimated Cost

Present Value

Estimated Cost

Present Value

Capital Cost Air Conditioning U/Floor Trunking HW Heating & Ring Main Electric

250 m2 150 m2

£ £

Contingency

5%

Total Year 1

Capital Costs

37,500

22,500

787,500

472,500

Annual Running Costs Air Conditioning U/Floor Trunking

£ 25.00 m2

HW Heating & Ring Main Electric

£

Total Annual Costs Maintenance

Year

75,000

1,696,762

5.00 m2 4,500,000

1,696,762

15,000

339,352

900,000

339,352

Present Cost

OPTION 1 Overhall

5 Equipment 10

5,000 5,000

5,000 5,000

4,110 3,378

Overhall Overhall

Equipment 15 Equipment 20

5,000 5,000

5,000 5,000

2,776 2,282

Overhall Overhall


5,000 5,000

5,000 5,000

1,876 1,542

Overhall Overhall


5,000 5,000

5,000 5,000

1,267 1,041

Overhall

Equipment 45

5,000

5,000

856

Overhall Overhall


5,000 5,000

5,000 5,000

704 578

OPTION 2 Genearl repaint/repair

7 14

2,000 2,000

2,000 2,000

1,520 1,155

Genearl repaint/repair Genearl repaint/repair

21 28

2,000 2,000

2,000 2,000

878 667


35 42

2,000 2,000

2,000 2,000

507 385


49 56

2,000 2,000

2,000 2,000

293 222

300,000 300,000

112,535 42,214

OPTION 3 OPTION 4 Replacement

Year

OPTION 1

OPTION 2

15

Present Cost 600,000

600,000

333,159

30 45

600,000 600,000

600,000 600,000

184,991 102,719

25 50

300,000 300,000

OPTION 3 OPTION 4 Total Maintenance/Replacement Costs

1,855,000

641,278

616,000

160,375

Total Running Costs

6,355,000

2,338,040

1,516,000

499,728

Total Net Present Value of Life Cycle Cost


3,125,540

972,228



Page 19

PART 2, SECTION 2

2.2.5.3

MAINTENANCE OPTION: WITH/WITHOUT CLEANING GANTRY This example is kindly provided by Gerald Hall. The following figure compares two options, firstly to provide the cleaning gantry and secondly to omit the gantry. The capital cost and costs associated with anticipated maintenance were calculated by using normal cost estimating techniques. Assumed criteria: – Building Life – VAT assumed to remain at current levels with the client being an ‘end user’ under VAT rules – Gantry capital cost – The gantry will have a residual value – Capital cost for opening lights in lieu of gantry – Discount rate (assuming the interest rate will average 11% over 25 years and the inflation rate 6%) – Corporation Tax

25 years 17.5% £30,000 £2,000 £5,000 5% 33%

Taxation Calculation The capital cost for plant and machinery receives a 25% reducing balance. Maintenance and running costs receive 100% allowance. Year 1 with gantry calculation: Capital Maintenance

£35,250 × 25% × 33% £881 × 33%

= =

£ 2,908 291 ——– 3,199 ——–

Year 2 with gantry calculation: Capital Maintenance

£35,250 less 25% × 25% × 33% £881 × 33%

= =

£ 2,181 291 ——– 2,472 ——–

The methodology applies for the rest of the 25 years as summarised overleaf. The client initially considered that the gantry would pay for itself due to savings in maintenance and cleaning cost. However: with gantry investment without gantry investment Page 20



£36,510 present value £26,447 present value The Surveyors’ Construction Handbook




–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Financing

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Operation

TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE

30,000

1

Capital

0

Year

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

750

–

Annual

–

1,750

–

–

250

–

–

1,750

–

–

250

–

–

1,750

–

–

250

–

–

1,750

–

–

250

–

–

–

Intermittent

Maintenance

Costs

COMPARATIVE COMPONENT LIFE CYCLE COSTING

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Occupacy

(2,000)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Disposal/ residual value

(1,250)

2,500

750

750

1,000

750

750

2,500

750

750

1,000

750

750

2,500

750

750

1,000

750

750

2,500

750

750

1,000

750

750

30,000

TOTAL

131

438

131

131

175

131

131

438

131

131

175

131

131

438

131

131

175

131

131

438

131

131

175

131

131

5,250

VAT 17.5%

(1,119)

2,938

881

881

1,175

881

881

2,938

881

881

1,175

881

881

2,938

881

881

1,175

881

881

2,938

881

881

1,175

881

881

35,250

TOTAL inc VAT

311

973

296

298

397

303

307

991

320

330

440

360

383

1,092

454

509

679

679

808

1,660

1,211

1,518

2,024

2,472

3,199

0

Less tax allowance

(1,430)

1,965

585

583

778

578

574

1,947

561

551

735

521

498

1,846

427

372

496

202

73

1,278

(330)

(637)

(849)

(1,591)

(2,318)

35,250

NET TOTAL

0.295

0.310

0.326

0.342

0.359

0.377

0.396

0.416

0.436

0.458

0.481

0.505

0.530

0.557

0.585

0.614

0.645

0.677

0.711

0.746

0.784

0.823

0.864

0.907

0.952

1.000

Present value of £1 @ 5%

CLIENT: PROJECT TITLE: Retail Development/Shopping Mall JOB NO: OPTION: Cleaning ‘with’ gantry – curtain walling to new facace

36,541

(422)

609

191

199

279

218

227

809

245

253

354

263

264

1,028

250

229

320

137

52

953

(258)

(524)

(733)

(1,443)

(2,207)

35,250

PRESENT VALUE

36,541

36,963

36,354

36,163

35,964

35,685

35,467

35,239

34,431

34,186

33,933

33,580

33,316

33,052

32,024

31,775

31,546

31,226

31,089

31,037

30,084

30,343

30,866

31,600

33,043

35,250

CUMULATIVE PRESENT VALUE

PART 2, SECTION 2

Page 21

Page 22


The life cycle costing is based on an agreed investment life of 25 years.

It is assumed that VAT will remain at around 17.5% and the client is the ‘end user’ under VAT rules.

3

4

There are disposal cost advantages with this option.

Details of the maintenance requirements and cost estimates can be provided upon request.

2

5

The capital cost includes allowances for preliminaries and associated builders work.

1

FORECASTER’S ASSUMPTIONS


Discount rate:

9

(1 + 11%) ————— (1 + 7%) – 1 × 100% = 5% discount rate.

(ii) Inflation rate – 7% average over 25 years;

(i) Interest rate – 11% average over 25 years;

Taxation allowances are subject to negotiation and agreement.

total

Maintenance and running costs with 100% allowance – ie 1st year

Capital cost as plant and machinery with 100% tax allowance – i.e. 1st year

8

7

6

(continuation of table on page 21)

291 ——— 3,199

£ 2,908

PART 2, SECTION 2



–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Financing

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Operation

TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE

5,000

1

Capital

0

Year

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

–

Annual

–

1,500

–

–

–

–

–

1,500

–

–

–

–

–

–

–

–

–

–

–

1,500

–

–

–

–

–

–

Intermittent

Maintenance

Costs


–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Occupacy

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Disposal/ residual value

1,500

3,000

1,500

1,500

1,500

1,500

1,500

3,000

1,500

1,500

1,500

1,500

1,500

6,500

1,500

1,500

1,500

1,500

1,500

3,000

1,500

1,500

1,500

1,500

1,500

5,000

TOTAL

263

263

263

263

263

263

263

525

263

263

263

263

263

1,138

263

263

263

263

263

263

263

263

263

263

263

875

VAT 17.5%

1,763

3,525

1,763

1,763

1,763

1,763

1,763

3,525

1,763

1,763

1,763

1,763

1,763

7,638

1,763

1,763

1,763

1,763

1,763

3,525

1,763

1,763

1,763

1,763

1,763

5,875

TOTAL inc VAT

582

1,163

582

582

582

582

582

1,163

582

582

582

582

582

2,521

582

582

582

582

582

1,163

582

582

582

582

582

0

Less tax allowance

1,181

2,362

1,181

1,181

1,181

1,181

1,181

2,362

1,181

1,181

1,181

1,181

1,181

5,117

1,181

1,181

1,181

1,181

1,181

2,362

1,181

1,181

1,181

1,181

1,181

5,875

NET TOTAL

0.295

0.310

0.326

0.342

0.359

0.377

0.396

0.416

0.436

0.458

0.481

0.505

0.530

0.557

0.585

0.614

0.645

0.677

0.711

0.746

0.784

0.823

0.864

0.907

0.952

1.000

Present value of £1 @ 5%

CLIENT: PROJECT TITLE: Retail Development/Shopping Mall JOB NO: OPTION: Cleaning ‘with’ gantry – curtain walling to new facace

26,444

349

732

384

404

424

445

467

981

515

541

568

596

626

2,849

690

725

761

799

839

1,763

925

971

1,020

1,071

1,124

5.875

PRESENT VALUE

26,444

26,095

25,363

24,978

24,575

24,151

23,706

23,239

22,257

21,742

21,202

20,634

20,037

19,411

16,562

15,872

15,147

14,386

13,587

12,749

10,986

10,061

9,090

8,070

6,999

5,875

CUMULATIVE PRESENT VALUE

Page 24


The life cycle costing is based on an agreed investment life of 25 years.

It is assumed that VAT will remain at around 17.5% and the client is the ‘end user’ under VAT rules.

3

4

There are disposal cost advantages with this option.

Details of the maintenance requirements and cost estimates can be provided upon request.

2

5

The capital cost includes allowances for opening lights now required, without capital allowances.

1

FORECASTER’S ASSUMPTIONS


Discount rate:

9

(1 + 11%) ————— (1 + 7%) – 1 × 100% = 5% discount rate.

(ii) Inflation rate – 7% average over 25 years;

(i) Interest rate – 11% average over 25 years;

Taxation allowances are subject to negotiation and agreement.

Maintenance and running costs with 100% allowance.

Capital cost as plant and machinery with 100% tax allowance – NIL

8

7

6

(continuation of table on page 23)

PART 2, SECTION 2



PART 2, SECTION 2

2.2.5.4

HOUSING SINKING FUND (BASED UPON COSTED PLANNED MAINTENANCE) (a) Background This example is kindly provided by Ian Sloan of Armour Construction Consultants. Housing Associations and Co-operatives in Scotland generally request that their investment/sinking fund requirements are prepared in accordance with the Scottish Federation of Housing Associations’ (SFHA) ‘Planned Maintenance and Repairs (Revised), Guidance Booklet No 3’ published in January 1997. There are various ways of presenting the data. One method widely accepted is shown below, on two spreadsheets, a Planned Maintenance Programme, and a ‘costed’ Planned Maintenance Programme which establishes in this case the present value of future costs. The spreadsheets can be ‘fine tuned’ to meet specific client requirements. In due course they can be adapted to allow historical information to be fed into the programme, which then allows actual costs and maintenance periods incurred to form the basis of the life cycle costs, thereby providing a more accurate projection. (b) Brief The client needed to establish the capital to be invested for a new build housing project to cover all maintenance and repairs for the next 60 years. The discount rate is 6%. An example of the calculation shown overleaf is: Year 15, total maintenance and repair expenditure at current prices

£9,013 × 0.41726*

= £9,013 = £3,761

i.e. £3,761 would have to be invested now for 15 years at 6% compound interest in order to meet the costs in Year 15 of £9,013. In summary £24,942 would have to be invested now at 6% to cover all maintenance and repairs for the next 60 years. The data could also be presented as an annual sinking fund e.g. the amount to be invested for each of 15 years at 6% compound interest in order to meet the costs in Year 15 of £9,013 is: £9,013 × 0.04296**

= £387

* from valuation tables at 2.2.5.7 (present value of £1) ** from valuation tables at 2.2.5.7 (annual sinking fund)




Page 25

Page 26



SERVICES

FITTS FURN

INT FABRIC

EXT FABRIC

STRUCTURE

DISPOSAL INST

HEAT SOURCE

HEAT SYSTEM

VENTILATION

5.5

5.6

5.7

WATER SUPPLY

5.3

5.4.2.

SERVICES EQUIPMENT

5.2

INTERNAL DRAINAGE

SANITARY APPLIANCES

5.1

5.4.1.

FITTINGS & FURNISH

DOORS

3.4

4.1

FLOORS

CEILINGS

3.2

3.3

INTERNAL WALLS

WINDOWS

2.3

3.1

EXTERNAL WALLS

2.2

EXTERNAL DOORS

ROOF

2.1

2.4

STAIRS

STRUCTURE

1.1

1.2

ELEMENT

CODE

4

5

5.7.1. Fans etc

5.6.1. Boilers/equipment

5.5.1. Radiators/fires

5.4.1.1.

Pipes & Fittns

Insulation

5.3.3.

5.4.2.1. Pipes & Fittns

Water pipes etc

Stainless steel

Wcs, baths, whbs

Units/Worktops

5.3.2.

5.3.1. Water storage

5.2.1. Kitchen sinks

5.1.1. Sanitary ware

4.1.2. Grab rails etc

4.1.1. Kitchen Units

3.4.2. Ironmongery

Timber

Timber

3.3.2. Skirtings

3.4.1. Door Operation

Timber/Vinyl

3.3.1. Flooring

Plasterboard

Ceramic

3.1.2. Wall Tiling

3.2.1. Ceilings

Brick/pboard

Timber/Metal

3.1.1. Walls & Open’s

2.4.4. Ironmongery

2.4.3. Painting

2.4.2. Pointing

2.4.1. Door Operation

2.3.4. Ironmongery

2.3.3. Painting

2.3.2. Pointing

2.3.1. Window Op

<

Surveyors' Construction Handbook

Professional Surveyors and Real Property Descriptions: Composition, Construction, and Comprehension

Concrete construction engineering handbook

Spon's Construction Resource Handbook

Construction Waterproofing Handbook

Building construction handbook

Building Construction Handbook

Building Construction Handbook

Concrete construction engineering handbook

Building design and construction handbook

Building design and construction handbook

Building Construction Handbook, Fifth Edition

Spon's African Construction Cost Handbook

Estimating for Builders and Surveyors

Building Design and Construction Handbook, 6th Edition

Gypsum Construction Handbook, Centennial Edition 2000

Building Design and Construction Handbook, 6th Edition

Handbook of Thermal Analysis of Construction Materials

Handbook of Thermal Analysis of Construction Materials

Spon's Middle East Construction Cost Handbook

Mind's Construction

Construction Ethics

Concrete Construction

Compiler Construction

Compiler Construction

Landscape Construction

Compiler Construction

Brick and Block Construction: Masonry Construction Manual

Guide to Highway Law for Architects, Engineers, Surveyors and Contractors

Construction Mathematics

Construction Mathematics

Surveyors' Construction Handbook

Professional Surveyors and Real Property Descriptions: Composition, Construction, and Comprehension

Concrete construction engineering handbook

Spon's Construction Resource Handbook

Construction Waterproofing Handbook

Building construction handbook

Building Construction Handbook

Building Construction Handbook

Concrete construction engineering handbook

Building design and construction handbook

Building design and construction handbook

Building Construction Handbook, Fifth Edition

Spon's African Construction Cost Handbook

Estimating for Builders and Surveyors

Building Design and Construction Handbook, 6th Edition

Gypsum Construction Handbook, Centennial Edition 2000

Building Design and Construction Handbook, 6th Edition

Handbook of Thermal Analysis of Construction Materials

Handbook of Thermal Analysis of Construction Materials

Spon's Middle East Construction Cost Handbook

Mind's Construction

Construction Ethics

Concrete Construction

Compiler Construction

Compiler Construction

Landscape Construction

Compiler Construction

Brick and Block Construction: Masonry Construction Manual

Guide to Highway Law for Architects, Engineers, Surveyors and Contractors

Construction Mathematics

Construction Mathematics

Recommend Documents