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Construction Handbook

Construction Handbook

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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

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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 1 1 2 4 4 8 11 13 14 1 1 1 1 1 1 1 5 10 14 15 1 1 1 1 1 1 1 1 1 1 2 1 1 1 2 3 3 5 6 8 1 1

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

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

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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

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

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

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

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

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 1 1 1 3 13 14 16 20 1 1 1

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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 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 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

Section 4.4: Valuations for Interim Certificates

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
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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
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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 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

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

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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

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

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The Surveyors’ Construction Handbook

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

A2

A3

A4

A5

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. 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
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B2

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. ‘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.

C2

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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

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

G

1.1.1.2

I

1.1.1.3

I

1.1.1.4

I

1.1.1.5

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(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. 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)).

G

1.1.1.7

1

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

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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. 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:

G

1.1.2.2

• • • • •

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)

I

1.1.2.3

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);

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(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. 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. 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

G

1.1.4.2

G

1.1.4.3

1

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

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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.

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FIGURE TO INDICATE THE ACTIVITIES IN THE P ROCUREMENT PROCESS
Pre-Design Phase Pre-Construction Phase Construction Post-Construction

Client’s Role

Develop business case for project (3.1.1.9) Appoint adviser (3.1.1.6) Define client’s responsibilities (3.1.1.7) Project Brief (3.1.1.12) Appointment of PM (if appropriate) (3.1.4.7) Appointment of design and cost consultants (3.1.4.8) Procurement strategy* (3.1.1.13) Value management (3.1.4.16)

Procurement strategy (3.1.1.13) Design overview* (3.1.4.12) Cost Control overview* (3.1.4.13) Whole-life Costs (3.1.4.15) Value Engineering (3.1.4.17) Time control overview* (3.1.4.14) Quality control overview* (3.1.4.18) Appointment of constructors (3.1.4.9) Confirming the business case (3.1.1.9)

Design overview (3.1.4.12) Cost control overview (3.1.4.13) Time control overview (3.1.4.14) Quality control overview (3.1.4.18) Change control overview (3.1.4.19)

Commissioning (3.1.1.17) Occupation and takeover (3.1.1.18)

Procurement Strategy

Procurement strategy development (3.1.2)

Implementation

Resources (Client) (3.1.4.3–5) Organisational structure (3.1.4.6) Contractual arrangements* (3.1.4.10) Systems and controls* (3.1.4.11) Implementation policy (3.1.4.2)

Contractual arrangements (3.1.4.10) Systems and controls (3.1.4.11)

Systems and controls (3.1.4.11)

* ()

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);
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(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).

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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.

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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.

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(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 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,
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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.

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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.

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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.

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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. 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.

1.2.1.2

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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

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

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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 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.

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

1.2.3.3

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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. 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. 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. 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.

1.2.4.2

1.2.4.4

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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. 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.

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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. 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.

1.2.6.2

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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. 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. 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
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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

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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. 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. 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.

1.2.7.5

1.2.7.6

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

1.2.8.2

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1.2.9 Presenting a Design Solution to a Value Engineering Workshop
1.2.9.1 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.

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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

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‘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 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.

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

1.2.11.2

1.2.11.3

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

1.2.12.2

1.2.12.3

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1.2.13 Feedback from Post-Occupancy Evaluation
1.2.13.1 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.

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Appendix A: Health Centre Value Tree

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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

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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 Air handling plant Chiller plant Ductwork and diffusers 10% 5% 25%

Savings on capital cost:

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.

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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

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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

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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.

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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.

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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.

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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.

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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 Stage B: Feasibility Quantity Surveyor Prepare feasibility studies and determine the budget Consider with client and design team alternative strategies and prepare cost plan Carry out cost checks and update cost plan if necessary

Stage C: Outline Proposals

Stage D: Scheme Design

Stage E: Detail Design Stage F: Production Information Carry out cost checks Stage H: Tender Action
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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). 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
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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:

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(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):

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(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
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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. 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.
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(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.
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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.

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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.

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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

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• 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. 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;
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• 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.
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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.

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2.1.5.6

CONTROLLING CHANGES TO THE COST PLAN The principles have been described in G 2.1.4.7. INFLATION Any changes in inflation forecasts should be reported.

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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). 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:
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• 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.

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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.

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Appendix A: Sources of cost information
A1 OBJECTIVE To ensure that all costs used are up to date and accurate. A2 A2.1 SOURCES Elemental cost analysis • in-house cost analyses of previous projects; • Building Cost Information Service (BCIS); and • Architects’ Journal. 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. 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;

A2.2

A3

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• • •

• •

• • •

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.

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Appendix B: Format of budget and cost plans
B1 B1.1 OBJECTIVE To communicate clearly the basis of the budget and cost plans to the client, designer and consultants. FORMAT 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. 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. 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. 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.

B2 B2.1

B2.2

B2.3

B2.4

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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

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zzz

REPORT TO CLIENT AND DESIGN TEAM (continued)
TIME Preliminary/Final Programme (weeks) as Budget Cost 0 Client decision to accept budget and proceed Final brief and scheme design approved Alternative 1 0 Alternative 2 0

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 As Budget Cost

2Q

3Q

4Q

5Q

6Q

7Q

8Q

9Q

10Q 11Q 12Q

Balance

Total

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

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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:

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REPORT TO CLIENT AND DESIGN TEAM (continued)
Alternative standards

Alternatives

Cost: extra/saving

Comment

Budget prepared by:

Signature:

____________________________________________

Date: ____________________

Firm:

____________________________________________ ____________________________________________ ____________________________________________ ____________________________________________

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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 Maximum square index No. of storeys m2 (Perimeter on plan Floor to ceiling heights: lowest floor intermediate floors highest floor Floor/roof zone Calculated external wall/floor ratio Density of vertical division Proportion of glazed external wall area m.)

m. m. m. m. %

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

Calculated partition/floor ratio Lifts ____________________________ Stairs: number of flights Number ____________________ Type _______________________________

Structural Ground bearing pressure Floor loadings: kN/m2 Ground water level Ground Intermediate Highest Roof loading: kN/m2 (maximum live) kN/m2 (maximum live) kN/m2 (maximum live) kN/m2 (maximum live)

Environmental Fabric ‘U’ values: Roof Walls (average) Ground floor Air change rates and air temperature (Specify spaces and rates/hour and minimum temperatures) Heating load Hot water load kW kW ( W/m2) W/m2°C W/m2°C W/m2°C

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

Total lighting load Total power load

kW kW

( (

w/m2) w/m2)

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

Other

External Works Site area Road area hectares m2 Car Parking: Number of spaces Area Pedestrian paved area Boundary walls or fencing Other m2 m2 No. m2

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

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REPORT TO AND DESIGN TEAM (continued) REPORT TO CLIENT DESIGN TEAM (continued)
COST PLAN Element Building: ..................................................................................................... Total cost Cost per m2 Element unit quantity Element unit rate

1 2A 2B 2C 2D 2E 2F 2G 2H 2

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

3A Wall finishes 3B Floor finishes 3C Ceiling finishes Internal finishes 4 5A 5B 5C 5D 5E 5F 5G 5H 5I 5J 5K 5L 5M 5N 5O 5 Fittings 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 7 Site works Drainage External services Minor building works External works Preliminaries Total (less contingencies) Contingencies Construction costs

8

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REPORT TO CLIENT DESIGN TEAM (continued) REPORT TO AND DESIGN TEAM (continued)
COST PLAN Elements Building: ..................................................................................................... Specification included in budget/cost plan Alternatives Cost + or –

1

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

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REPORT TO CLIENTDESIGN TEAM (continued) REPORT TO AND DESIGN TEAM (continued)
SPECIFICATION Elements Building: ................................................................................................ 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 5J Gas installations 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

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REPORT TO CLIENTDESIGN TEAM (continued) REPORT TO AND DESIGN TEAM (continued)
COST TARGETS Building: .......................................................... Elements Price base: ............................................ Parameter Rate Target cost 19 ............... Cost per m2

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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 = p — 4í a where p = perimeter length on plan 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 åp) + L 2

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

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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.

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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.

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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

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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

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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)

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

2.2.1.4

(ii)

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

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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
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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
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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.
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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
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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.

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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
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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.
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(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.
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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.

No relief £ Expenditure Tax relief assuming 35% Corporation Tax Net discounted cost after tax relief
1

Where capital allowances are allowed on 50% of capital expenditure £ 1,000 1111

Where capital allowances are allowed on 100% of capital expenditure £ 1,000 222

Relief given on maintenance 100% £ 1,000 350

1,000

1,000

889

778

650

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:

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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 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.

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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.

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(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.
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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)
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PROJECT: Life Cycle Model

SHEET NUMBER: ELEMENT: OPTION 1 Aluminium Glazed Finish Life 40 Years Maintenance Period 4 Years Estimated Cost Present Value 35,000 20,000 – OPTION 2 Hardwood Glazed Vision Panels Finish Life 30 Years Maintenance Period 4 Years Estimated Cost

LCCM5 Internal Doors Unit: 20 m2 OPTION 3 Softwood Finish Life 20 Years Maintenance Period 4 Years Estimated Cost Present Value OPTION 4 Metal Finish Life 30 Years Maintenance Period 4 Years Estimated Cost Present Value

PROJECT LIFE Discount Rate

60 Years 4.00% per annum

Discount Rate

4.00% per annum

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

COSTS Capital Costs Aluminium Glazed Hardwood Glazed Vision Panels Softwood Metal Contingency Total Year 1 Annual Running Costs Aluminium Glazed Hardwood Glazed Vision Panels Softwood Metal Maintenance OPTION 1 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

Present Value

£ 1750.00 m2 £ 1000.00 m2 £ 700.00 m2 £ 850.00 m2 Capital Costs £ £ £ £ 10.89 m2 9.99 m2 5.90 m2 17.99 m2

35,000

20,000 14,000 – 20,000 14,000 17,000 – 14,000 17,000 – 17,000

35,000 218 4,927 200

4,520 118 2,670 360 8,140 8,140 2,670 21,588

Total Annual Running Costs Year Present Cost 4 340 8 340 12 16 20 24 28 32 36 40 44 48 52 56 4 8 12 16 20 24 28 32 36 40 44 6,040 340 340 6,040 340 340 6,040 340 340 6,040 340 340 300 300 6,000 300 300 6,000 300 300 6,000 300 300

13,068

4,927

11,988

4,520

7,080

340 340 6,040 340 340 6,040 340 340 6,040 340 340 6,040 340 340

291 248 3,773 182 155 2,356 113 97 1,472 71 61 919 44 38 300 300 6,000 300 300 6,000 300 300 6,000 300 300 256 219 3,748 160 137 2,341 100 86 1,462 62 53

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PROJECT: Life Cycle Model (continued

SHEET NUMBER: ELEMENT: OPTION 1 Aluminium Glazed Finish Life 40 Years Maintenance Period 4 Years Estimated Cost Present Value OPTION 2 Hardwood Glazed Vision Panels Finish Life 30 Years Maintenance Period 4 Years Estimated Cost

LCCM5 Internal Doors Unit: 20 m2 OPTION 3 Softwood Finish Life 20 Years Maintenance Period 4 Years Estimated Cost Present Value OPTION 4 Metal Finish Life 30 Years Maintenance Period 4 Years Estimated Cost Present Value

PROJECT LIFE Discount Rate

60 Years 4.00% per annum

Discount Rate

4.00% per annum

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

COSTS Maintenance 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 1 OPTION 2 OPTION 3 OPTION 4 Year Present Cost 48 52 56 4 8 12 16 20 24 28 32 36 40 44 6,000 300 300 320 320 3,820 320 320 3,820 320 320 3,820 320 320

Present Value

6,000 300 300

913 39 33 320 320 3,820 320 320 3,820 320 320 3,820 320 320 3,820 320 320 274 234 2,386 171 146 1,490 107 91 931 67 57 581 42 36 300 300 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

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

35,000

7,290 20,000 6,166 14,000 14,000 6,389 2,916 17,000 5,241 14,993 23,132 40,132 15,917 18,586 32,586 44,400 65,988

Total Maintenance/Replacement Costs Total Running Costs Total Net Present Value of Life Cycle Costs

62,560 75,628

17,109 22,037 57,037

47,000 58,988

15,776 20,297 40,297

46,480 53,560

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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.

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Element: Services
PROJECT LIFE Discount Rate 60 Years 4% per annum OPTION 1 Air Conditioning U/Floor Trunking Finish Life 15 Years Maintenance Period 5 Years Estimated Cost 250 m2 150 m2 5% Capital Costs £ 25.00 m2 £ 5.00 m2 4,500,000 Year 5 Equipment 10 Equipment 15 Equipment 20 Equipment 25 Equipment 30 Equipment 35 Equipment 40 Equipment 45 Equipment 50 Equipment 55 7 14 21 28 35 42 49 56 Present Cost 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 4,110 3,378 2,776 2,282 1,876 1,542 1,267 1,041 856 704 578 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 1,696,762 Present Value

Unit: 3,000 m2 OPTION 2 HW Heating & Ring Main Electrics Finish Life 25 Years Maintenance Period 7 Years Estimated Cost Present Value OPTION 3 OPTION 4

Finish Life Maintenance Period Years Estimated Cost Present Value

Finish Life Maintenance Period Years Estimated Cost Present Value

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

COSTS Capital Cost Air Conditioning U/Floor Trunking HW Heating & Ring Main Electric Contingency Total Year 1 Annual Running Costs Air Conditioning U/Floor Trunking HW Heating & Ring Main Electric Total Annual Costs Maintenance OPTION 1 Overhall Overhall Overhall Overhall Overhall Overhall Overhall Overhall Overhall Overhall £ £

750,000

750,000 450,000 37,500 787,500 450,000 22,500 472,500

75,000

1,696,762 15,000 900,000 339,352 339,352

OPTION 2 Genearl repaint/repair Genearl repaint/repair Genearl repaint/repair Genearl repaint/repair Genearl repaint/repair Genearl repaint/repair Genearl repaint/repair OPTION 3 OPTION 4 Replacement OPTION 1

1,520 1,155 878 667 507 385 293 222

Year 15 30 45

Present Cost 600,000 600,000 600,000 300,000 300,000

600,000 600,000 600,000

333,159 184,991 102,719 300,000 300,000 112,535 42,214

OPTION 2 OPTION 3 OPTION 4

25 50

Total Maintenance/Replacement Costs Total Running Costs Total Net Present Value of Life Cycle Cost

1,855,000 6,355,000

641,278 2,338,040 3,125,540

616,000 1,516,000

160,375 499,728 972,228

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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 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 ——– £ 2,181 291 ——– 2,472 ——– 25 years 17.5% £30,000 £2,000 £5,000 5% 33%

Year 2 with gantry calculation: Capital Maintenance £35,250 less 25% × 25% × 33% £881 × 33% = =

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 Part 2, Section 2 (4/99) Effective from 1/6/99

£36,510 present value £26,447 present value
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COMPARATIVE COMPONENT LIFE CYCLE COSTING
CLIENT: PROJECT TITLE: Retail Development/Shopping Mall JOB NO: OPTION: Cleaning ‘with’ gantry – curtain walling to new facace
TOTAL Occupacy Intermittent – – – 250 – – 1,750 – – 250 – – 1,750 – – 250 – – 1,750 – – 250 – – 1,750 – – – – (2,000) – – – – – – – – 750 1,000 750 750 2,500 (1,250) – – 750 – – 2,500 – – 750 131 438 131 131 175 131 131 438 131 – – 750 131 – – 1,000 175 – – 750 131 – – 750 131 881 881 1,175 881 881 2,938 881 881 1,175 881 881 2,938 (1,119) – – 2,500 438 2,938 – – 750 131 881 – – 750 131 881 509 454 1,092 383 360 440 330 320 991 307 303 397 298 296 973 311 – – 1,000 175 1,175 679 – – 750 131 881 679 – – 750 131 881 808 – – 2,500 438 2,938 1,660 1,278 73 202 496 372 427 1,846 498 521 735 551 561 1,947 574 578 778 583 585 1,965 (1,430) – – 750 131 881 1,211 (330) – – 750 131 881 1,518 (637) – – 1,000 175 1,175 2,024 (849) – – 750 131 881 2,472 (1,591) 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.359 0.342 0.326 0.310 0.295 – – 750 131 881 3,199 (2,318) 0.952 – – 30,000 5,250 35,250 0 35,250 1.000 Disposal/ residual value 35,250 (2,207) (1,443) (733) (524) (258) 953 52 137 320 229 250 1,028 264 263 354 253 245 809 227 218 279 199 191 609 (422) 36,541 PRESENT VALUE VAT 17.5% TOTAL inc VAT Less tax allowance NET TOTAL CUMULATIVE PRESENT VALUE 35,250 33,043 31,600 30,866 30,343 30,084 31,037 31,089 31,226 31,546 31,775 32,024 33,052 33,316 33,580 33,933 34,186 34,431 35,239 35,467 35,685 35,964 36,163 36,354 36,963 36,541

Costs Maintenance Annual – 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

Year

Capital

Financing

Operation

Present value of £1 @ 5%

0

30,000

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TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE

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COMPARATIVE COMPONENT LIFE CYCLE COSTING
(continuation of table on page 21)
6 Capital cost as plant and machinery with 100% tax allowance – i.e. 1st year Maintenance and running costs with 100% allowance – ie 1st year total 8 9 (i) Interest rate – 11% average over 25 years; (ii) Inflation rate – 7% average over 25 years; (1 + 11%) ————— (1 + 7%) – 1 × 100% = 5% discount rate. Discount rate: Taxation allowances are subject to negotiation and agreement. 291 ——— 3,199 £ 2,908

PART 2, SECTION 2

FORECASTER’S ASSUMPTIONS 7

1

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

2

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

Part 2, Section 2 (4/99)

3

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

4

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

Effective from 1/6/99

5

There are disposal cost advantages with this option.

The Surveyors’ Construction Handbook

COMPARATIVE COMPONENT LIFE CYCLE COSTING
CLIENT: PROJECT TITLE: Retail Development/Shopping Mall JOB NO: OPTION: Cleaning ‘with’ gantry – curtain walling to new facace
TOTAL Occupacy Intermittent – – – – – – 1,500 – – – – – – – – – – – 1,500 – – – – – 1,500 – – – – – – – – – – – – – 1,500 1,500 1,500 1,500 3,000 1,500 – – 1,500 – – 3,000 – – 1,500 263 525 263 263 263 263 263 263 263 – – 1,500 263 – – 1,500 263 – – 1,500 263 – – 1,500 263 1,763 1,763 1,763 1,763 1,763 3,525 1,763 1,763 1,763 1,763 1,763 3,525 1,763 – – 6,500 1,138 7,638 – – 1,500 263 1,763 – – 1,500 263 1,763 582 582 2,521 582 582 582 582 582 1,163 582 582 582 582 582 1,163 582 – – 1,500 263 1,763 582 – – 1,500 263 1,763 582 – – 1,500 263 1,763 582 – – 3,000 263 3,525 1,163 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 2,362 1,181 – – 1,500 263 1,763 582 1,181 – – 1,500 263 1,763 582 1,181 – – 1,500 263 1,763 582 1,181 – – 1,500 263 1,763 582 1,181 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.359 0.342 0.326 0.310 0.295 – – 1,500 263 1,763 582 1,181 0.952 – – 5,000 875 5,875 0 5,875 1.000 Disposal/ residual value 5.875 1,124 1,071 1,020 971 925 1,763 839 799 761 725 690 2,849 626 596 568 541 515 981 467 445 424 404 384 732 349 26,444 PRESENT VALUE VAT 17.5% TOTAL inc VAT Less tax allowance NET TOTAL CUMULATIVE PRESENT VALUE 5,875 6,999 8,070 9,090 10,061 10,986 12,749 13,587 14,386 15,147 15,872 16,562 19,411 20,037 20,634 21,202 21,742 22,257 23,239 23,706 24,151 24,575 24,978 25,363 26,095 26,444

Costs Maintenance Annual – 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

Year

Capital

Financing

Operation

Present value of £1 @ 5%

0

5,000

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

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COMPARATIVE COMPONENT LIFE CYCLE COSTING
(continuation of table on page 23)
6 7 8 9 (i) Interest rate – 11% average over 25 years; (ii) Inflation rate – 7% average over 25 years; (1 + 11%) ————— (1 + 7%) – 1 × 100% = 5% discount rate. Discount rate: 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

PART 2, SECTION 2

FORECASTER’S ASSUMPTIONS

1

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

2

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

Part 2, Section 2 (4/99)

3

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

4

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

Effective from 1/6/99

5

There are disposal cost advantages with this option.

The Surveyors’ Construction Handbook

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 = £3,761

£9,013 × 0.41726*

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)

The Surveyors’ Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

Page 25

KEY

1 = Inspect/Consider
T = Test until replacement
Cumulative 1 0 0 0 0 0 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost

Page 26
< = Inspect and Remedy < = until Replacement / = Decorate / = Inspect & 1 = Renewal/Replacement
02/12/98 COMPONENT Timber Timber Concrete/Brick Timber Timber Concrete Tiles Lead UPVC Facing Brick

PLANNED MAINTENANCE PROGRAMME EXAMPLE

Date Printed

CODE

ELEMENT

SUB-ELEMENT

PART 2, SECTION 2

1.1

STRUCTURE

1.1.1. Roofs

1.1.2. Floors

< < < < < < < < < < < < < < < < < < < < < < < < < < / < < < / < < < < < < < < < < < < / < < < < < < < < < < < < < T < T
T T

< < < < < < < < < < < / < < < / 1 < < < < < < < < < < < < < < < < < < 1 < T < T
T T

< < < < < < < < < < < / < < < / < < 1 < 1 < < < < < < < < < < < < < < < < < < < < < < < < < < 1 < < 1 < < T < T
T

< < < < < < < < < < < / < < < / < 1 / < < < 1 < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < 1 1 < 1 < T < T
T

< < < < < < < < < < < < < < < / < < < < < < < < < / < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < T < T
T

< < < < < < < < < < < < < < < < < < 1 1

STRUCTURE

1.1.3. Openings

1.2

STAIRS

1.2.1. Stairs

1.2.2. Handrails etc

2.1

ROOF

2.1.1. Roof Tiles etc

< < < < < < < < < < < < < < < 1 < < < < < < < < 1 < < < < < < 1 < < < < < < < < <

<

< < < < < < < < < < < < < < <

< <

< <

< 1

< <

0 0 0 0 0 0

2.1.2. Flashings

2.1.3. Gutters etc

Part 2, Section 2 (4/99)
< < Timber/Glass < < / < < < / 1 < < < < < < < < < < < < < < < 1 < < / 1 / < < < < < < < < < < < < < < < < < < 1 < < < < < < < / < < < < < < < / < < < < < < < < < / < < < < 1 < < / 1 < < < 1 < < < < < < < < < < < < < < < < < < < < < < < < < 1 1 1 1 1 1 < T < T
T Timber/Metal

2.2

EXTERNAL WALLS

2.2.1. Walls

2.2.2. Rendering

2.2.3. Ventilation

EXT FABRIC

2.3

WINDOWS

2.3.1. Window Op

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2.3.2. Pointing

2.3.3. Painting

2.3.4. Ironmongery

2.4

EXTERNAL DOORS

2.4.1. Door Operation

< <

< <

< <

< <

< <

< <

2.4.2. Pointing

2.4.3. Painting Brick/pboard Ceramic Plasterboard Timber/Vinyl Timber Timber Units/Worktops Wcs, baths, whbs Stainless steel Water pipes etc Insulation Pipes & Fittns

Effective from 1/6/99
< < < < < < < < < < < < < < < < < < < < < < < < 1 1 < < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < 1 1 < < < < < < < < < < < < < < < < < <
T

2.4.4. Ironmongery

3.1

INTERNAL WALLS

3.1.1. Walls & Open’s

3.1.2. Wall Tiling

3.2

CEILINGS

3.2.1. Ceilings

INT FABRIC

3.3

FLOORS

3.3.1. Flooring

3.3.2. Skirtings

3.4

DOORS

3.4.1. Door Operation

3.4.2. Ironmongery

FITTS FURN

4.1

FITTINGS & FURNISH

4.1.1. Kitchen Units

4.1.2. Grab rails etc

5.1

SANITARY APPLIANCES

5.1.1. Sanitary ware

5.2

SERVICES EQUIPMENT

5.2.1. Kitchen sinks

5.3

WATER SUPPLY

5.3.1. Water storage

5.3.2.

SERVICES

5.3.3.

5.4.1.

INTERNAL DRAINAGE

5.4.2.1. Pipes & Fittns

5.4.2.

DISPOSAL INST

5.4.1.1.

5.5

HEAT SOURCE

5.5.1. Radiators/fires

T

1 1 1 < < < < < < < < < < < < < < < < < < 1 1

0 0 0

5.6

HEAT SYSTEM

5.6.1. Boilers/equipment

The Surveyors’ Construction Handbook
< < < <

5.7

VENTILATION

5.7.1. Fans etc

KEY

1 = Inspect/Consider
T = Test until replacement
Cumulative 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost 0 0 0 0 0

PLANNED MAINTENANCE PROGRAMME EXAMPLE (Continued)
1 = Renewal/Replacement
02/12/98 COMPONENT

< = Inspect and Remedy < = until Replacement / = Decorate

/ = Inspect &

Date Printed

CODE

ELEMENT

SUB-ELEMENT

5.8 Close Light T T T T T T

ELECTRICAL INST

5.8.1. Power and lighting

< < < 1 0 < < < < < < < 1 1 < 1 1 0 < < < / / < < < < < < < < < / < < < < < < / / < < < < < < 1 1 1 < 1 1 < 1 1 < 1 1 < < 1 < < 1 1

<

1

<

<

1

5.8.2. Switchgear

5.8.3. External Lighting

5.9

GAS INSTALLATION

5.9.1. Equipment & supply

SERVICES

5.10

LIFT INSTALLATION

5.11

PROTECTIVE INST

5.11.1. TV system etc

The Surveyors’ Construction Handbook
< < < < < < < < 1 < < < < < < < 1 < < < < < T < < < / < < < <
£

5.11.2. Smoke detectors

< < T < < / / < < < < < < < / / < / < < < < / < / < < < 1 < 1 < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < < < < < < < 1 < T < T

<

<

1

<

<

<

<

1 1 < < < <
T 1

<

<

<

<

1 1 < < < <
T 1

0 0 0 0 0 0 0 0 0 0 0

5.1.2

COMMUNICATION

5.12.1. Door entry

5.12.2 Telephones

6.1.1

LANDSCAPING

6.1.1.1. Roads, footpaths

6.1.1.2. Grass/planting

< < < / < / / < < < <

< <

< <

< <

< <

< <

< <

6.1.2

EXT WORKS

BOUNDARIES & ENCLOSURES

6.1.2.1. Fences and gates

6.1.2.2. Walls etc

6.1.2.3. Clothes poles

6.2

DRAINAGE

6.2.1. Pipes & fittings

6.2.2. Manholes etc

6.3

EXTERNAL SERVICES

6.3.1. Ducts & cables

6.4

OUTBUILDINGS

6.4.1. Binstores/platts

Part 2, Section 2 (4/99)

COST IN ,000’s of

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Effective from 1/6/99

PART 2, SECTION 2

Page 27

Page 28
02/12/98 COMPONENT Timber Timber ) Concrete/Brick ) Timber Timber Concrete Tiles Lead UPVC Facing Brick inc inc Timber/Glass 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 100 inc inc inc inc inc inc inc inc inc 210 inc inc inc inc inc inc inc inc inc Timber/Metal 5 60 inc inc inc inc inc inc inc inc inc 60 inc inc inc inc inc inc inc inc inc Brick/pboard Ceramic Plasterboard Timber/Vinyl Timber Timber Units/Worktops inc inc inc 50 50 290 20 20 20 inc inc 275 10 10 10 60 60 60 60 60 inc 10 inc 20 50 inc 83 inc 83 inc 60 10 5 5 5 450 5 5 125 inc inc 60 inc 20 5 100 5 5 5 5 200 5 100 5 5 5 125 inc inc 60 inc 650 5
1500

PLANNED MAINTENANCE PROGRAMME (COSTED) Date Printed EXAMPLE
Years 1 50 100 25 140 140 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 2380 20 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 20 20 20 20 20 20 220 20 20 20 20 20 inc inc 10 10 100 inc 400 inc 5 inc inc 5 5 5 inc 5 5 5 5 100 5 5 60 10 inc 20 50 inc 5 5 5 5 inc inc inc inc inc inc inc 20 20 20 20 20 20 20 75 75 75 75 75 75 75 75 75 75 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 220 20 inc inc 25 25 25 25 25 100 100 100 100 100 600 0 150 0 4,555 990 1,000 120 0 0 2,390 290 100 5 5 60 5 5 5 5 100 5 5 60 inc inc inc inc inc inc inc inc 60 10 275 20 290 inc 83 83 83 83 83 83 83 83 1200 inc inc inc inc inc inc inc inc 480 60 60 60 60 60 60 60 60 800 10 10 10 10 10 10 10 10 200 5 5 5 5 inc inc inc inc 160 125 inc inc 60 inc 20 40 5 5 5 5 5 200 100 5 5 5 5 5 inc 5 5 5 5 125 inc inc 60 inc 20 5 100 5 5 5 5 5 5 5 450 inc inc inc inc inc inc inc inc 160 250 125 inc 60 inc 650 40 40 40 40 40 40 40 40 750 5 200
1500

Cumulative 3 50 50 50 50 50 300 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost

CODE

ELEMENT

SUB-ELEMENT

2

1.1

Structure

1.1.1. Roofs

PART 2, SECTION 2

1.1.2. Floors )

STRUCTURE

1.1.3. Openings )

1.2

Stairs

1.2.1. Stairs

1.2.2. Handrails etc

2.1

Roof

2.1.1. Roof Tiles etc

2.1.2. Flashings

2.1.3. Gutters etc

2.2

External walls

2.2.1. Walls

Part 2, Section 2 (4/99)
10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 2100 100 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 100 100 100 100 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 inc inc inc inc inc inc inc inc 210 5 5 5 5 5 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 inc inc inc inc inc inc inc inc inc inc inc inc inc inc 480 inc inc inc inc 60 60 60 60 60 60 60 60 60 800 60 60 60 60 60 60 60 60 60 800 10 10 10 10 10 10 10 10 10 200 10 10 10 10 10 10 10 10 10 200 Wcs, baths, whbs Stainless steel 125 inc inc 60 inc 20 5 5 5 5 5 5 5 5 5 5 5 5 5 5 inc inc inc inc inc inc inc inc inc 160 inc inc inc inc 40 40 40 40 40 40 40 40 40 750 40 40 40 40 40 40 40 40 40 750

2.2.2. Rendering

2.2.3. Ventilation

2.3

Windows

2.3.1. Window Op

EXT FABRIC

2.3.2. Pointing

2.3.3. Painting

1,000 420 545 145 540 120 60 550 120 780 0 3,607 960 4,020 870 1,040 485 875 125 0 360 0 1,380 3,330 735 3,400

2.3.4. Ironmongery

2.4

External doors

2.4.1 Door Operation

2.4.2. Pointing

2.4.3. Painting

2.4.4. Ironmongery

Effective from 1/6/99

3.1

Internal walls

3.1.1. Walls & Open’s

3.1.2. Wall Tiling

3.2

Ceilings

3.2.1. Ceilings

INT FABRIC

3.3

Floors

3.3.1. Flooring

3.3.2. Skirtings

3.4

Doors

3.4.1. Door Operation

3.4.2. Ironmongery

4.1

Fittings & Furnish

4.1.1. Kitchen Units

FITTS FURN

4.1.2. Grab rails etc

5.1

Sanitary Appliances

5.1.1. Sanitary ware

5.2

Services Equipment

5.2.1. Kitchen sinks

5.3

Water Supply

5.3.1. Water storage

5.3.2. Water pipes etc

5.3.3. Insulation

SERVICES

5.4.1

Internal drainage

5.4.2.1. Pipes & Fittns

5.4.2

Disposal inst

5.4.1.1. Pipes & Fittns

5.5

Heat source

5.1.1. Radiators/fires

5.6

Heat system

5.6.1. Boilers/equipment

5.7

Ventilation

5.7.1. Fans etc

The Surveyors’ Construction Handbook

5.8

Electrical inst

5.8.1. Power and lighting

PLANNED MAINTENANCE PROGRAMME (COSTED) (Continued) Date Printed 02/12/98 EXAMPLE
Years 1 inc Close Light 25 25 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 10 10 100 10 10 150 25 150 25 150 75 25 25 25 25 25 inc 100 inc 100 inc inc 200 150 0 525 690 0 100 240 0 2,400 3,650 10,200 50 40 100 inc 25 50 40 100 inc 25 50 40 50 750 500 inc 400 500 300 1,270 1,000 0 525 750 57,902 (Yrs 1–30) 21241 Yrs 1–30) inc inc inc inc inc 0 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost Cumulative COMPONENT

CODE

ELEMENT

SUB-ELEMENT

5.8.2. Switchgear

5.8.3. External Lighting

5.9

Gas installation

5.9.1. Equipment & supply

5.10

Lift installation

SERVICES n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 50 50 50 50 50 50 50 50 50 50 50 50 50 50 500 50 50 50 50 50 50 50 50 50 50 50 50 50 50 500 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 750 10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000 10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000 50 40 100 inc 25 50 £ PRESENT VALUE (at discount rate of 6%) Repeat Years Current Cost per yr Present Value 50 50 25 25 inc inc 100 100 40 40 40 200 40 50 50 50

5.11

Protective inst

5.11.1. TV system etc

5.11.2. Smoke detectors

5.1.2

Communication

5.12.1. Door entry

The Surveyors’ Construction Handbook
518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460 489 461 1014 410 1082 852 344 325 715 2272 273 600 243 229 3761 204 192 423 171 2704 308 144 136 298 337 114 251 101 96 2692 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 (Yrs 31–60) 518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460 £57902 £115804 (Current cost) 85 80 177 71 188 148 60 57 124 395 48 105 42 40 655 36 33 74 30 471 54 25 24 52 59 20 44 18 17 469 £3701 £24942 (Present Value)

5.12.2. Telephones

6.1.1

Landscaping

6.1.1.1. Roads, footpaths

6.1.1.2. Grass/planting

6.1.2

Boundaries & Enclosures 6.1.2.1. Fences and gates

6.1.2.2. Walls etc

EXT WORKS

6.1.2.3. Clothes poles

6.2

Drainage

6.2.1. Pipes & fittings

6.2.2. Manholes etc

6.3

External services

6.3.1. Ducts & cables

6.4

Outbuildings

6.4.1. Binstores/platts

Part 2, Section 2 (4/99)

TOTAL COST PER YEAR

Effective from 1/6/99

PART 2, SECTION 2

Page 29

PART 2, SECTION 2

2.2.5.5

CENTRALISATION OF OFFICES STUDY (a) Brief This example is kindly provided by Gerald Hall. The client wished to investigate a centralisation (of offices) strategy as a means to improve business efficiency in an increasingly competitive market. The offices were originally spread out over three main sites. Three options were identified:

• do nothing, although this would require repair and refurbishment of the existing offices; • centralise at location A and construct additional new offices; • centralise at location B and construct additional new offices;
(b) Capital Costs These were calculated using traditional cost estimating and included cyclical capital costs. The distinction between cyclical capital costs and cyclical maintenance costs is often vague, those costs in excess of £10,000 are included in the capital cost element under the assumption they would be part of the capital cost programme. Relocation costs (labour and plant required to transport office equipment, stores, machinery, compound materials and stationery items) are included under Year 0 on the assumption they would be complete within 12 months and a contingency for new furniture included. (c) Revenue Costs • fuel: the energy manager provided existing costs which were used as the basis for the new proposal; • water costs were excluded (the client was a water company); • maintenance costs under £10,000; • rates were not provided by the client by the deadline and are therefore excluded; • cleaning costs are based on existing cleaning costs and judgement; • security costs are based on existing security costs and judgement; • operation costs for this client included waste removal, water coolers, sanitary hire, mail collections, fire prevention, telephones, hygiene, insurances. Again this was based on existing client data plus judgement. Even with constant staff numbers these costs reduce with centralisation; • staffing costs were excluded as they would remain constant. (d) Capital Income Options 2 and 3 will free up existing space for sale and rent which are included as a deduction against expenditure. (e) Discount Rates In accordance with the client guidelines the investment horizon is 40 years and the discount rate 8%.
Page 30 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook

PART 2, SECTION 2

(f) Tax Implications Tax allowances have been excluded on the basis that this study is a minor part of the overall company business and assumptions are not appropriate. However it is worth noting that:

• Value Added Tax on all capital costs would affect the financial benefits of options 2 and 3 which require considerable capital expenditure; • Capital Allowances would help support options 2 and 3.
(g) Renewal and Refurbishment Costs General building refurbishment has been allowed in ten-year cycles; electrical and mechanical plant replaced after 20 years with a refurbishment after ten years or mid-life; felt roofs replaced after 20 years; profiled metal decking, windows and doors after 30 years. All costs are calculated using traditional cost estimating and included as present costs. (h) Cost Comparison The detailed calculation is summarised over for option 2 which is the most cost effective over 40 years.
Year 0 Expenditure £ £203,000 £1,164,900 £1,262,100 Year 40 Net Present Value £ £1,960,950 £1,607,896 £1,843,068

Option 1 Option 2 Option 3

(i) Sensitivity Analysis An analysis of different discount rates and time frame confirm option 2 as the most favourable.
Discount Rates 6% 6% 6% 8% 8% 8% 10% 10% 10% Life Cycle 0 20 40 0 20 40 0 20 40 Option 1 £ 287,900 1,859,000 2,444,420 287,900 1,614,000 1,960,950 287,900 1,423,000 1,632,562 Option 2 £ 1,164,900 1,593,000 1,762,522 1,164,900 1,515,000 1,607,896 1,164,900 1,451,000 1,506,721 Option 3 £ 1,262,100 1,826,100 2,047,091 1,262,100 1,721,100 1,843,068 1,262,100 1,638,100 1,709,146

The Surveyors’ Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

Page 31

Page 32
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Total Value £000 0 0 0 0 0 0 190 0 0 0 0 0 0 0 0 0 300 0 0 0 0 0 0 0 0 0 393 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 190 0 0 0 0 0 0 0 0 0 300 0 0 0 0 0 0 0 0 0 393 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 310 0 0 310 2,369 16 9 2,393 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 0 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -8 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 0 -8 0 -8 0 -8 0 -8 0 -8 0 -8 -7.5 0 -8 -308 -55 -363 0 -8 -8 -8 0 0 1.4 0 12 0 1.7 7.1 5.2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 0 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 5.2 0 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 7.1 5.2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 0 1.7 7.1 5.2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 0 1.7 7.1 5.2 0 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 1.4 0 12 0 1.7 7.1 5.2 0 57 0 492 0 70 291 213 0 1,123 0 0.1 0.09 0.09 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 4 4 3 3 3 3 2 2 2 41 2 2 2 1 1 1 1 1 1 15 1608 0.5 0.46 0.43 10 97 9 8 7 7 6 6 5 5 5 69 0.4 0.37 0.34 0.32 0.29 0.27 0.25 0.23 0.21 0.2 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 12 11

CLIENT JOB TITLE JOB NO DATE

WATER COMPANY LIMITED CENTRALISATION OF AREA OFFICE STUDY 3985 29th MARCH 1996

PART 2, SECTION 2

YEAR (SEPT 1996)

0

1

2

3

4

5

6

£’000

Capital Costs

Building Works 1176

0

0

0

0

0

0

Relocation Costs

15.5

0

0

0

0

0

0

Furniture

8.5

0

0

0

0

0

0

Value 1200

0

0

0

0

0

0

Part 2, Section 2 (4/99)

Capital Income

Annual Rental

-7.5

-7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5

Land Sale

-55

0

0

0

0

0

0

Value -62.5

-7.5

-8

-8

-8

-8

-8

Revenue Costs

Fuel

1.4

1.4

1.4

1.4

1.4

1.4

1.4

Water

0

0

0

0

0

0

0

Maintenance

12

12

12

12

12

12

12

Effective from 1/6/99

Rates

0

0

0

0

0

0

0

Cleaning

1.7

1.7

1.7

1.7

1.7

1.7

1.7

Security

7.1

7.1

7.1

7.1

7.1

7.1

7.1

Operation Costs

5.2

5.2

5.2

5.2

5.2

5.2

5.2

Staff Costs

0

0

0

0

0

0

0

Value

27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4

Net Cash Flow

1164.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 209.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 319.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 412.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 329.9

Present Value of £1 @ 8%

1 0.93 0.86 0.79 0.74 0.68 0.63 0.58 0.54

NET PRESENT VALUE

1165

18

17

16

15

14

13

The Surveyors’ Construction Handbook

EXPENDITURE

NVP£=1,607,896

PART 2, SECTION 2

2.2.5.6

TOTAL BUILDING OPTION: DEMOLISH AND REBUILD VERSUS REFURBISHMENT (a) Brief The life cycle cost appraisal is to evaluate the life cycle cost effects of the following options:

• demolish existing building and rebuild to the client’s specific requirements incorporating ‘all-air’ air conditioning systems; • refurbish the existing building to meet, as far as practicable, the client’s requirements, re-using existing systems wherever possible.
The appraisal is to include all taxation implications for comparative purposes. VAT is to be included as the client is VAT-exempt. The following costs are to be excluded: – costs associated with the purchase of land; – financing charges associated with the redevelopment; – costs associated with the removal and temporary re-housing of staff during the construction period; – occupancy costs; – residual values of land or buildings. (b) Discount Rate The building is in owner-occupation and the client’s accountants have advised the use of a long-term government stock interest rate of 7%. The client has been advised that an inflation rate of 3% is a reasonable assessment. The discount rate calculation is as follows [(1.07) – 1] —— × 100 = 3.88% [(1.03) – 1] The client has agreed that the discount rate can be rounded to 4%. (c) Building Life It has been agreed with the client to use a 20-year life cycle. (d) Description of Existing Building Late 1950s office block of multi-storey framed construction with curtain wall cladding to front and rear. Solid party walls to both sides. Single-storey concrete basement. (e) Description of Existing Engineering Services Gas-fired low pressure hot water boiler situated in basement serving perimeter convector system with warm air ventilation to central parts of the building. Fluorescent luminaires to all office areas and tungsten fittings to circulation.
The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 33

PART 2, SECTION 2

(f) Condition of the Existing Building The building is structurally sound with few defects; however, it is in a poor state of decorative repair. (g) Basic Requirements of the Redevelopment Gross internal area Ratio of net to gross internal area Number of occupants Ratio of occupants to net internal floor area External wall area (excluding party walls) 1500 m2 70% 110 9.7 m2 700 m2

The adjacent buildings will continue to remain in use as offices during and after the development. The structural engineers have advised that no work is required to party walls, other than temporary shoring. (h) Summary Net Present Value £k OPTION A demolish existing building and rebuild to the client’s specific requirements, incorporating ‘all air’ air conditioning systems; OPTION B refurbish the existing building to meet as far as practicable, the client’s requirements, re-using systems wherever possible. % difference (A extra on B)

3889

2177 ——— 79% ———

The net present value is a key factor in the option appraisal. However other less tangible benefits and disadvantages of each option should be carefully considered in relation to the business objectives. It is also recommended that a sensitivity analysis be carried out, for instance to look at different discount rates and time frames. The calculation of the above is detailed below.

Page 34

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors’ Construction Handbook

LIFE CYCLE COST SUMMARY
3 £k 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 £k £k £k £k £k £k £k £k £k £k £1 £k £k £k £k £k 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 £k 104

OPTION A Year

0

1

2

Costs -

£k

£k

£k

Capital

2154

-

Financing

-

-

The Surveyors’ Construction Handbook
27 131 23 154 78 76 .8890 68 72 77 76 74 72 71 103 .8548 .8219 .7903 .7599 .7307 .7026 .6756 84 94 96 97 99 101 153 105 .6496 68 70 67 61 57 55 53 74 52 55 124 .6246 77 154 161 157 154 154 154 227 152 179 23 24 23 23 23 23 34 23 27 23 154 48 106 .6006 64 131 137 134 131 131 131 193 134 152 131 131 23 154 48 106 .5775 61 153 27 180 56 124 .5553 69 6 3 62 3 21 22 27 27 27 27 27 27 27 27 27 27 27 27 27 3 134 23 157 49 108 .5339 58 27 131 23 154 48 106 .5134 54 27 131 23 154 48 106 .4936 52 27 131 23 154 48 106 .4746 50 27 86 217 40 257 80 177 .4564 81 -

Operation

-

104

104

Maintenance:

annual

-

27

27

intermittent

-

-

Occupancy

-

-

Disposal/residual value

-

-

Total

2154

131

131

VAT 17½%

377

23

23

Total (inc VAT)

2531

154

154

Part 2, Section 2 (4/99)

Less Tax allowance

0

102

88

NET TOTAL

2531

52

66

Present value of £1 at 4%

1

.9615

.9246

Present value

2531

50

61

Effective from 1/6/99

TOTAL NET PRESENT VALUE £3889k

PART 2, SECTION 2

Page 35

Page 36
3 £k 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 £k £k £k £k £k £k £k £k £k £k £1 £k £k £k £k £k £k 89 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 15 104 18 122 59 63 .8890 56 58 71 62 59 58 56 .8548 .8219 .7903 .7599 .7307 .7026 .6756 80 68 86 78 78 79 80 118 54 56 48 44 43 42 57 41 85 .6496 55 122 142 126 122 122 122 175 126 147 46 101 .6246 63 18 21 19 18 18 18 26 19 22 18 122 38 84 .6006 50 104 121 107 104 104 104 149 107 125 104 104 18 122 38 84 .5775 49 136 24 160 50 110 .5553 61 17 3 45 3 21 32 15 15 15 15 15 15 15 15 15 15 15 15 15 3 107 19 126 39 87 .5339 46 15 104 18 122 38 84 .5134 43 15 104 18 122 38 84 .4936 41 15 69 104 18 122 38 84 .4746 40 173 30 203 63 140 .4564 64 15 -

LIFE CYCLE COST SUMMARY

PART 2, SECTION 2

OPTION B Year

0

1

2

Costs

£k

£k

£k

Capital

904

-

Financing

-

-

Operation

-

89

89

Part 2, Section 2 (4/99)

Maintenance:

annual

-

15

15

intermittent

-

-

Occupancy

-

-

Disposal/residual value

-

-

Total

904

104

104

Effective from 1/6/99

VAT 17.5%

158

18

18

Total (inc VAT)

1062

122

122

Less Tax allowance

0

75

66

NET TOTAL

1062

47

56

Present value of £1 at 4%

1

.9615

.9246

Present value

1062

45

52

The Surveyors’ Construction Handbook

TOTAL NET PRESENT VALUE £2177k

PART 2, SECTION 2

CAPITAL
OPTION A GFA: 1500 m2 Elemental Cost Plan Demolition Substructure Superstructure External walls Internal walls Internal finishings Fittings/fixtures Sanitary appliances Public Health services Mechanical services Electrical services Lift installation External work Drainage Total cost £k 70.0 42.0 315.0 490.0 14.5 84.0 2.0 9.5 21.0 252.0 147.0 77.0 21.0 8.5 £/m2GFA £ 47.0 28.0 210.0 327.0 10.0 56.0 1.0 6.0 14.0 168.0 98.0 51.0 14.0 6.0 Total cost £k 14.0 – 17.5 101.0 54.0 105.0 – 9.5 21.0 94.5 126.0 91.0 7.0 3.0 OPTION B £/m2GFA £ 9.0 – 12.0 67.0 36.0 70.0 – 6.0 14.0 63.0 84.0 60.0 5.0 2.0

Sub-total Preliminaries (% of sub-total) Contingencies (% of sub-total) Total construction cost Professional fees( % of construction cost) Total capital costs to life cycle cost summary

1553.5 232.0

1036.0 15%

643.5 96.5

429.0 15%

46.5

3%

19.5

3%

1833.0 321.0

1222.0 17.5%

759.5 144.5

506.0 19%

2154.0

904.0

The Surveyors’ Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

Page 37

PART 2, SECTION 2

OPERATION
OPTION A £ per annum Energy see next page Cleaning OPTION A Budget allowance £7.00 per m2 10500 13617 OPTION B £ per annum 9964

OPTION B Budget allowance £9.00 per m2 NB: existing building materials more labour intensive for cleaning Rates (including water rates) OPTION A Budget allowance £50.00 per m2 OPTION B Budget allowance £42.00 per m2 NB: air conditioned building attracts higher rates Insurance Building fabric replacement OPTION A Budget allowance 0.2% of building cost (£2154) OPTION B OPTION B Budget allowance 0.2% of building cost (£904) Total operation costs Total £k to life cycle cost summary 103425 104 1808 75000 13500

63000

4308

88272 89

Page 38

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors’ Construction Handbook

ENERGY
OPTION A Building usage Diversity Unit energy cost (p/kwh) kwh* (f) (d) (e) (c) (d) (e) £ per annum (g) f × c/100 m2 w/m2 m2 w/m2 kwh* (f) Area Energy rate Area Energy rate OPTION B

SYSTEM

(hrs per annum) (a) (b)

The Surveyors’ Construction Handbook (%) £ per annum (g) f × c/100 2000 50 1.076** 1500 160 240,000 2582 1500 190 285,000 3067 2200 2200 2200 Total energy costs to operation costs summary 60 5.50 1500 58*** 100 5.50 1500 10 33,000 114,840 80 5.50 1500 20 52,800 2904 1815 6316 13617 1500 1500 1500 20 10 20 52,800 33,000 3 9,600 2904 1815 2178 9964 *NB: formula for kwh = area (d) × energy rate (e) × unit energy cost (c) × building usage (a) × diversity (b) 1000 ** Gas Board rate per therm 30p 1 therm = 27.8 kwh rate per kwh = 35.2/27.8 = 1.076 *** Assume cooling load 120 watts/m2 Conversion rate electricity to cooling 2.5:1 Therefore w/m2 for cooling 120/2.5 = 48 + 10 (other mechanical plant) = 58

Gas

Heating – Option A

Electricity

Lighting

Small Power

Part 2, Section 2 (4/99)

Power for mechanical services

Effective from 1/6/99

PART 2, SECTION 2

Page 39

PART 2, SECTION 2

ANNUAL MAINTENANCE
OPTION A £/m2 General building maintenance Engineering services maintenance Lifts – service agreement 4.00 12.00* 1.50 £ per annum 6000 18000 2250 £/m2 4.00 4.00 1.50 OPTION B £ per annum 6000 6000 2250

Total annual maintenance costs

£26,250

£14,250

Total £k to life cycle cost summary

£27k

£15k

* NB: full air conditioning maintenance for Option A

Page 40

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors’ Construction Handbook

INTERMITTENT MAINTENANCE
2 £k – – – – 0.5 – – – – 0.5 – – – – 0.5 – – – – – – – – – – – – – – – – – – – – – £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 £k 10 0.5

OPTION A

Year

0

1

Costs

£k

£k

Roof renewal

External decoration (fire escapes only)

Internal finishings: – – – – 5.5 – – – – 5.5 – – – – 5.5 – – – – 3.0 – – – – 3.0 21 – – – 3.0 – – – – – – 14 5.5

carpets

The Surveyors’ Construction Handbook
– – – – – – – 6 3 – – – 62 3 21 – – – 6 3 – – – 62 3.0 21 – – – – – – – – – – – – – – – – – – – – – – 14 – – – – – 15.5 21.5 22 – – – – – – – 42 – – – – – – – – 3.0 3 – – – – – – – – – – – – – – – 42 14 – 86 86 2 £k – – – – 11 – – – – 11 – – – – – – – – – – £k £k £k £k £k £k £k £k £k £k – – 3 4 5 6 7 8 9 10 11 12 13 £k – – 14 £k – – 15 £k – 11 16 £k – – 17 £k – – 18 £k – – 19 £k – – 20 £k 10 11 – – – – 5.5 – – – – – – – 3.0 – – – – 5.5 3.0 – 21 – – – – – – 5.5 3.0 – – – – – – – 14 5.5 – – – – – – – 17 3.0 – – 16.5 3.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – 14 14 – 44.5 45 – – – 3.0 3 – – – 21 21 – – – – – – – – – – – – 15.5 32 32 – – – 3.0 3 – – – – – – – – – – – – – – – 14 14 – 68.5 69

paintwork, etc.

Engineering services:

mechanical (equipment)

electrical (luminaires)

lifts (major overhaul)

Totals

Total £k to life cycle cost summary

OPTION B

Year

0

1

Part 2, Section 2 (4/99)

Costs

£k

£k

Roof renewal

External decoration (facades, etc.)

Internal finishings:

carpets

paintwork, etc.

Engineering services:

mechanical (equipment)

electrical (luminaires)

Effective from 1/6/99

lifts (major overhaul)

Totals

PART 2, SECTION 2

Total £k to life cycle cost summary

Page 41

PART 2, SECTION 2

TAX
VAT CHARGEABLE VALUE £k OPTION A Capital costs Fees Capital costs Fees 1833 321 759.5 144.5 VAT RATE % 17½ 17½ 17½ 17½ OPTION A £k 320.8 56.2 132.9 25.3 OPTION B £k

OPTION B

Total VAT to capital costs Total £k to life cycle cost summary
VAT is chargeable directly on all running costs items and appears on the summary. Corporation Tax The client currently pays corporation tax at the rate of 31%. This percentage has been assumed for all calculations. Tax allowance - running costs 100% tax deductible based upon total inclusive of VAT*, e.g. running cost VAT Total Tax allowance @ 31%

377

158.2

377

158

£100 £17.50 £117.50 £36.43

Tax allowance - capital costs Certain capital items are classified as plant and machinery (see appendix E) and are tax deductible at a rate of 25% per annum on reducing balance, e.g. capital item £10,000 First year tax allowance 10,000 × 25% × 31% Second year tax allowance 7,500 × 25% × 31% Tax allowances can only be allowed one year in arrears. *NB. This is only applicable when the client is an end user and exempt from VAT. If, in the course of his business, the client can claim back VAT he cannot claim tax relief on this portion of his costs.

Page 42

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors’ Construction Handbook

TAX ALLOWANCE
2 £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

0

1

£k

£k

OPTION A

Capital allowances

Total allowances see next page

The Surveyors’ Construction Handbook
131 98 73 55 41 31 23 17 13 10 – – – – – – – – – 154 285 252 227 216 198 185 177 171 240 167 179 154 154 154 154 161 157 154 154 154 227 157 179 154 154 150 180 157 157 154 154 154 154 154 154 257 257 88 78 70 67 61 57 55 53 74 52 55 48 48 56 49 48 48 48 80 90 68 51 38 29 21 16 12 9 7 – – – – – – – – – 122 212 66 59 54 56 48 44 43 190 173 180 155 143 138 122 122 142 126 122 122 122 134 42 175 184 57 126 133 41 147 147 46 122 122 38 122 122 38 160 160 50 126 126 39 122 122 38 122 122 38 122 122 38 203 203 63

£696k (inc VAT) @ 25% p.a.

reducing balance

174

Running cost allowances

From LCC summary (inc VAT)

154

Total

328

Apply current tax rate 31%

Total £k to LCC summary

102

OPTION B

Capital allowances

Part 2, Section 2 (4/99)

Total allowances see next page

£482.1k (inc VAT) @ 25% p.a.

reducing balance

121

Running cost allowances

From LCC summary (inc VAT)

122

Total Apply current tax rate 31%

243

Effective from 1/6/99

Total £k to LCC summary

75

PART 2, SECTION 2

Page 43

PART 2, SECTION 2

CAPITAL ALLOWANCE

Proposed capital allowance for taxation purposes Subject to negotiation and agreement with the Inland Revenue on evidence of eventual costs Total cost £k 70 42 315 490 14.5 84 2.0 9.5 21 252 147 77 21 8.5 1553.5 233 46.5 1833 321 377 OPTION A % tax allowable £k – – – – – – 20 100 – 100 60 100 – – 27.5 27.5 27.5 27.5 27.5 Tax allowable £k – – – – – – 0.4 9.5 – 252.0 88.2 77.0 – – 427.1 64.1 12.8 88.3 103.7 696 Total cost £k 14 – 17.5 101 54 105 – 9.5 21 94.5 126 91 7 3 634.5 96.5 19.5 759.5 144.5 158 OPTION B % tax allowable £k – – 30 – 30 – – 100 – 100 60 100 – – 45.4 45.4 45.4 45.4 45.4 Tax Remarks allowable £k – – 5.3 – 16.2 – – 9.5 – 94.5 75.6 91.0 – – 292.1 43.8 8.9 65.6 71.7 482.1 Option A – Fees only

GFA: 1500 m2 Elemental cost plan Demolition Substructure Superstructure External walls Internal walls Internal finishings Fittings/fixtures Sanitary appliances Public Health services Mechanical services Electrical services Lift installation External work Drainage Sub-total Preliminaries (% of sub-total) Contingencies (% of sub-total) Total construction cost Professional fees (% of construction cost) VAT Total tax-allowable capital costs to previous page

BWIC allowable on refurbishment BWIC allowable on refurbishment

Office lighting and associated switchgear not allowable

Taken on proportion of construction costs

Page 44

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors’ Construction Handbook

PART 2, SECTION 2

2.2.5.7

A SELECTION FROM PARRY’S VALUATION AND INVESTMENT TABLES (for full tables rewference is made to Parry’s Valuation and Investment Tables, A W Davidson (1989), (111th Edition) (Estates Gazette)
YEARS’ PURCHASE
RATE PER CENT

No Income Tax
Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 60 2 0.9804 1.9416 2.8839 3.8077 4.7135 5.6014 6.4720 7.3255 8.1622 8.9826 9.7868 10.5753 11.3484 12.1062 12.8493 13.5777 14.2919 14.9920 15.6785 16.3514 17.0112 17.6580 18.2922 18.9139 19.5235 20.1210 20.7069 21.2813 21.8444 22.3965 22.9377 23.4683 23.9886 24.4986 24.9986 25.4888 25.9695 26.4406 26.9026 27.3555 27.7995 28.2348 28.6616 29.0800 29.4902 29.8923 30.2866 30.6731 31.0521 31.4236 34.7609 3 0.9709 1.9135 2.8286 3.7171 4.5797 5.4172 6.2303 7.0197 7.7861 8.5302 9.2526 9.9540 10.6350 11.2961 11.9379 12.5611 13.1661 13.7535 14.3238 14.8775 15.4150 15.9369 16.4436 16.9355 17.4131 17.8768 18.3270 18.7641 19.1885 19.6004 20.0004 20.3888 20.7658 21.1318 21.4872 21.8323 22.1672 22.4925 22.8082 23.1148 23.4124 23.7014 23.9819 24.2543 24.5187 24.7754 25.0247 25.2667 25.5017 25.7298 27.6756

Single Rate
6 0.9434 1.8334 2.6730 3.4651 4.2124 4.9173 5.5824 6.2098 6.8017 7.3601 7.8869 8.3838 8.8527 9.2950 9.7122 10.1059 10.4773 10.8276 11.1581 11.4699 11.7641 12.0416 12.3034 12.5504 12.7834 13.0032 13.2105 13.4062 13.5907 13.7648 13.9291 14.0840 14.2302 14.3681 14.4982 14.6210 14.7368 14.8460 14.9491 15.0463 15.1380 15.2245 15.3062 15.3832 15.4558 15.5244 15.5890 15.6500 15.7076 15.7619 16.1614 7 0.9346 1.8080 2.6243 3.3872 4.1002 4.7665 5.3893 5.9713 6.5152 7.0236 7.4987 7.9427 8.3577 8.7455 9.1079 9.4466 9.7632 10.0591 10.3356 10.5940 10.8355 11.0612 11.2722 11.4693 11.6536 11.8258 11.9867 12.1371 12.2777 12.4090 12.5318 12.6466 12.7538 12.8540 12.9477 13.0352 13.1170 13.1935 13.2649 13.3317 13.3941 13.4524 13.5070 13.5579 13.6055 13.6500 13.6916 13.7305 13.7668 13.8007 14.0392 8 0.9259 1.7833 2.5771 3.3121 3.9927 4.6229 5.2064 5.7466 6.2469 6.7101 7.1390 7.5361 7.9038 8.2442 8.5595 8.8514 9.1216 9.3719 9.6036 9.8181 10.0168 10.2007 10.3711 10.5288 10.6748 10.8100 10.9352 11.0511 11.1584 11.2578 11.3498 11.4350 11.5139 11.5869 11.6546 11.7172 11.7752 11.8289 11.8786 11.9246 11.9672 12.0067 12.0432 12.0771 12.1084 12.1374 12.1643 12.1891 12.2122 12.2335 12.3766

4 0.9615 1.8861 2.7751 3.6299 4.4518 5.2421 6.0021 6.7327 7.4353 8.1109 8.7605 9.3851 9.9856 10.5631 11.1184 11.6523 12.1657 12.6593 13.1339 13.5903 14.0292 14.4511 14.8568 15.2470 15.6221 15.9828 16.3296 16.6631 16.9837 17.2920 17.5885 17.8736 18.1476 18.4112 18.6646 18.9083 19.1426 19.3679 19.5845 19.7928 19.9931 20.1856 20.3708 20.5488 20.7200 20.8847 21.0429 21.1951 21.3415 21.4822 22.6235

5 0.9524 1.8594 2.7232 3.5460 4.3295 5.0757 5.7864 6.4632 7.1078 7.7217 8.3064 8.8633 9.3936 9.8986 10.3797 10.8378 11.2741 11.6896 12.0853 12.4622 12.8212 13.1630 13.4886 13.7986 14.0939 14.3752 14.6430 14.8981 15.1411 15.3725 15.5928 15.8027 16.0025 16.1929 16.3742 16.5469 16.7113 16.8679 17.0170 17.1591 17.2944 17.4232 17.5459 17.6628 17.7741 17.8801 17.9810 18.0772 18.1687 18.2559 18.9293

The Surveyors’ Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

Page 45

PART 2, SECTION 2

No Income Tax
Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 60 2 .9803922 .9611688 .9423223 .9238454 .9057308 .8879714 .8705602 .8534904 .8367553 .8203483 .8042630 .7884932 .7730325 .7578750 .7430147 .7284458 .7141626 .7001594 .6864308 .6729713 .6597758 .6468390 .6341559 .6217215 6095309 .5975793 .5858620 .5743746 .5631123 .5520709 .5412460 .5306333 .5202287 .5100282 .5000276 .4902232 .4806109 .4711872 .4619482 .4528904 .4440102 .4353041 .4267688 .4184007 .4101968 .4021537 .3942684 .3865376 .3789584 .3715279 .3047823 3 .9708738 .9425959 .9151417 .8884870 .8626088 .8374843 .8130915 .7894092 .7664167 .7440939 .7224213 .7013799 .6809513 .6611178 .6418619 .6231669 .6050164 .5873946 .5702860 .5536758 .5375493 .5218925 .5066917 .4919337 .4776056 .4636947 .4501891 .4370768 .4243464 .4119868 .3999871 .3883370 .3770262 .3660449 .3553834 .3450324 .3349829 .3252262 .3157535 .3065568 .2976280 .2889592 .2805429 .2723718 .2644386 .2567365 .2492588 .2419988 .2349503 .2281071 .1697331

PRESENT VALUE OF £1
RATE PER CENT 4 .9615385 .9245562 .8889964 .8548042 .8219271 .7903145 .7599178 .7306902 .7025867 .6755642 .6495809 .6245970 .6005741 .5774751 .5552645 .5339082 .5133732 .4936281 .4746424 .4563869 .4388336 .4219554 .4057263 .3901215 .3751168 .3606892 .3468166 .3334775 .3206514 .3083187 .2964603 .2850579 .2740942 .2635521 .2534155 .2436687 .2342968 .2252854 .2166206 .2082890 .2002779 .1925749 .1851682 .1780463 .1711984 .1646139 .1582826 .1521948 .1463411 .1407126 .0950604 5 .9523810 .9070295 .8638376 .8227025 .7835262 .7462154 .7106813 .6768394 .6446089 .6139133 .5846793 .5568374 .5303214 .5050680 .4810171 .4581115 .4362967 .41552-7 .3957340 .3768895 .3589424 .3418499 .3255713 .3100679 .2953028 .2812407 .2678483 .2550936 .2429463 .2313774 .2203595 .2098662 .1998725 .1903548 .1812903 .1726574 .1644356 .1566054 .1491480 .1420457 .1352816 .1288396 .1227044 .1168613 .1112965 .1059967 .1009492 .0961421 .0915639 .0872037 .0535355 6 .9433962 .8899964 .8396193 .7920937 .7472582 .7049605 .6650571 .6274124 .5918985 .5583948 .5267875 .4969694 .4688390 .4423010 .4172651 .3936463 .3713644 .3503438 .3305130 .3118047 .2941554 .2775051 .2617973 .2469785 .2329986 .2198100 .2073680 .1956301 .1845567 .1741101 .1642548 .1549574 .1461862 .1379115 .1301052 .1227408 .1157932 .1092389 .1030555 .0972222 .0917190 .0865274 .0816296 .0770091 .0726501 .0685378 .0646583 .0609984 .0575457 .0542884 .0303143 7 .9345794 .8734387 .8162979 .7628952 .7129862 .6663422 .6227497 .5820091 .5439337 .5083493 .4750928 .4440120 .4149644 .3878172 .3624460 .3387346 .3165744 .2958639 .2765083 .2584190 .2415131 .2257132 .2109469 .1971466 .1842492 .1721955 .1609304 .1504022 .1405628 .1313671 .1227730 .1147411 .1072347 .1002193 .0936629 .0875355 .0818088 .0764569 .0714550 .0667804 .0624116 .0583286 .0545127 .0509464 .0476135 .0444986 .0415875 .0388668 .0363241 .0339478 .0172573 8 .9259259 .8573388 .7938322 .7350299 .6805832 .6301696 .5834904 .5402689 .5002490 .4631935 .4288829 .3971138 .3676979 .3404610 .3152417 .2918905 .2702690 .2502490 .2317121 .2145482 .1986557 .1839405 .1703153 .1576993 .1460179 .1352018 .1251868 .1159137 .1073275 .0993773 .0920160 .0852000 .0788889 .0730453 .0676345 .0626246 .0579857 .0536905 .0497134 .0460309 .0426212 .0394641 .0365408 .0338341 .0313279 .0290073 .0268586 .0248691 .0230269 .0213212 .0098759

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PART 2, SECTION 2

No Income Tax
Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 60

ANNUAL SINKING FUND FOR THE REDEMPTION OF £1 CAPITAL INVESTED
RATE PER CENT 2 1.0000000 .4950495 .3267547 .2426238 .1921584 .1585258 .1345120 .1165098 .1025154 .0913265 .0821779 .0745596 .0681184 .0622020 .0578255 .0536501 .0499698 .0467021 .0437818 .0411567 .0387848 .0366314 .0346681 .0328711 .0312204 .0296992 .0282931 .0269897 .0257784 .0246499 .0235963 .0226106 .0216865 .0208187 .0200022 .0192329 .0185068 .0178206 .0171711 .0165557 .0159719 .0154173 .0148899 .0143879 .0139096 .0134534 .0130179 .0126018 .0122040 .0118232 .0087680 3 1.0000000 .4926108 .3235304 .2390270 .1883546 .1545975 .1305064 .1124564 .0984339 .0872305 .0780774 .0704621 .0640295 .0585263 .0537666 .0496108 .0459525 .0427087 .0398139 .0372157 .0348718 .0327474 .0308139 .0290474 .0274279 .0259383 .0245642 .0232932 .0221147 .0210193 .0199989 .0190466 .0181561 .0173220 .0165393 .0158038 .0151116 .0144593 .0138439 .0132824 .0127124 .0121917 .0116981 .0112298 .0107852 .0103625 .0099605 .0095778 .0092131 .0088655 .0061330 4 1.0000000 .4901961 .3203485 .2354900 .1846271 .1507619 .1266096 .1085278 .0944930 .0832909 .0741490 .0665522 .0601437 .0546690 .0499411 .0458200 .0421985 .0389933 .0361386 .0335818 .0312801 .0291988 .0273091 .0255868 .0240120 .0225674 .0212385 .0200130 .0188799 .0178301 .0168554 .0159486 .0151036 .0143148 .0135773 .0128869 .0122396 .0116319 .0110608 .0105235 .0100174 .0095402 .0090899 .0086645 .0082625 .0078820 .0075219 .0071806 .0068571 .0065502 .0042018 5 1.0000000 .4878049 .3172086 .2320118 .1809748 .1470175 .1228198 .1047218 .0906901 .0795046 .0703889 .0628254 .0564558 .0510240 .0463423 .0422699 .0386991 .0355462 .0327450 .0302426 .0279961 .0259705 .0241368 .0224709 .0209525 .0195643 .0182919 .0171225 .0160455 .0150514 .0141321 .0132804 .0124900 .0117554 .0110717 .0104345 .0098398 .0092842 .0087646 .0082782 .0078223 .0073947 .0069933 .0066163 .0062617 .0059282 .0056142 .0053184 .0050396 .0047767 .0028282 6 1.0000000 .4854369 .3141098 .2285915 .1773964 .1433626 .1191350 .1010359 .0870222 .0758680 .0667929 .0592770 .0529601 .0475849 .0429628 .0389521 .0354448 .0323565 .0296209 .0271846 .0250045 .0230456 .0212785 .0196790 .0182267 .0169043 .0156972 .0145926 .0135796 .0126489 .0117922 .0110023 .0102729 .0095984 .0089739 .0083948 .0078574 .0073581 .0068938 .0064615 .0060589 .0056834 .0053331 .0050061 .0047005 .0044149 .0041477 .0038977 .0036636 .0034443 7 1.0000000 .4830918 .3110517 .2252281 .1738907 .1397958 .1155532 .0974678 .0834865 .0723775 .0633569 .0559020 .0496508 .0443449 .0397946 .0358576 .0324252 .0294126 .0267530 .0243929 .0222890 .0204058 .0187139 .0171890 .0158105 .0145610 .0134257 .0123919 .0114487 .0105864 .0097969 .0090729 .0084081 .0077967 .0072340 .0067153 .0062368 .0057951 .0053868 .0050091 .0046596 .0043359 .0040359 .0037577 .0034996 .0032600 .0030374 .0028307 .0026385 .0024598 8 1.0000000 .4807692 .3080335 .2219208 .1704565 .1363154 .1120724 .0940148 .0800797 .0690295 .0600763 .0526950 .0465218 .0412969 .0368295 .0329769 .0296294 .0267021 .0241276 .0218522 .0198323 .0180321 .0164222 .0149780 .0136788 .0125071 .0114481 .0104889 .0096185 .0088274 .0081073 .0074508 .0068516 .0063041 .0058033 .0053447 .0049244 .0045389 .0041851 .0038602 .0035615 .0032868 .0030341 .0028015 .0025873 .0023899 .0022080 .0020403 .0018856 .0017429

Extracts from Parry’s Valuation and Investment Tables, A W Davidson (1989), (11th Edition) (Estates Gazette) reproduced by permission of the College of Estate Management which owns the copyright.

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PART 2, SECTION 2, APPENDIX A

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Appendix A: Residual Values
A1 At the end of the life of a building, the component/building and the land will have a residual value. There will be one of two situations. Either the building will have reached the end of its life, with no alternative use, or the building will have reached the end of the life for its planned purpose, but does have an alternative use. In either situation the residual value of the building and/or the land may be significant and will need to be carefully assessed as it may have a substantial effect on life cycle costing calculations. Residual values will be of particular significance if the time horizon used for life cycle costing calculations is relatively short. In considering residual values, an allowance should be made for the cost of disposing of plant and equipment and for the demolition of buildings, if appropriate. In assessing demolition costs, allowance should be made for the value of any re-usable materials. Owners also need to be cognisant of taxation issues and whether these affect their property/building decisions. There are strict guidelines for taxation adjustments that arise at disposal. If the plant and machinery is ‘scrapped’ the remaining value is written off and a balancing allowance brought into account. Alternatively if the building (and the plant and machinery contained therein) is sold, the vendor should declare whether allowances have been claimed. An adjustment to their after tax cost will arise depending upon whether the disposal value is greater or less than the written down value remaining on the vendor’s accounts. This area of tax advice is experiencing increased scrutiny from the Inland Revenue and the District Valuer’s Department, as parties to property transactions sometimes select/contract disposal values of tax relievable components with specific tax planning objectives.

A2

A3

A4

A5

A6

A7

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PART 2, SECTION 2, APPENDIX B

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Appendix B: Obsolescence
B1 Building life is influenced by obsolescence. Almost all its forms relate to economic considerations. However, six different forms of obsolescence can be categorised as:

• • • • • •
B2

physical economic functional technological social legal.

Buildings usually end their ‘life’ before the end of their physical life. The most common reasons for buildings becoming obsolete are probably economic and functional considerations. Buildings designed for a specific specialised use, with little or no flexibility for changing their use, are therefore likely to have shorter lives than buildings offering flexibility for the change of function of the building. The table below gives definitions and examples of each form of obsolescence:
Types of obsolescence Definition of type of obsolescence Basis for assessment of building life How long will the building stand up? Examples of factors leading to obsolescence Deterioration of external brick walls affecting their structural stability. Deterioration of suspended concrete floors, containing high alumina cement, in multi-storey buildings, affecting structural stability. Economic Life of the building to when occupation is not considered to be the least cost alternative of meeting a particular objective. How long will the building be economic for the client to own or operate? The value of the land on which the building stands is more than the capitalised full rental value that could be derived from letting the building. The asset would achieve a better rate of return in the possession of another, or in the redevelopment or refurbishment scheme.

B3

Physical

Life of the building to when physical collapse is possible.

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Types of obsolescence

Definition of type of obsolescence

Basis for assessment of building life How long will the building be used for the purpose for which it was built?

Examples of factors leading to obsolescence Cinemas converted into bingo halls, village railway stations converted into private houses.

Functional

Life of the building to when the building ceases to function for the same purpose as that for which it was built. Life of the building until the building is no longer technologically superior to alternatives.

Technological

How long will the building be technologically superior to alternatives?

Prestige office unable to accommodate introduction of high level of computing facilities. Storage warehouse unable to accommodate the introduction of robotics for goods handling.

Social and Legal

The life of a building until the time when human desire or legal requirement dictates replacement for reasons other than economic considerations.

How long will the building meet human desires, (with the exclusion of economic considerations).

Timber football stand replaced (following Bradford Football Club fire disaster). Multi-storey flats in inner city demolished (following social and community problems).

B4

Notwithstanding the difficulty of the task, the surveyor, in consultation with the client, should make an informed assessment of the building life to be used in any particular study. In making that assessment the surveyor will need to take account of a number of factors which may influence the final assessment of building life in any particular case. While the above examples relate to the whole building, obsolescence of elements or components is also relevant, for example major refurbishment of retail buildings at say 15-year intervals to remain attractive.

B5

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PART 2, SECTION 2, APPENDIX C

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Appendix C: Costs And Values
The following checklist provides suggestions for cost and value categories to be considered. This list is not exhaustive and items may need to be added or others disregarded as applicable to any particular project. C1 C1.1 C1.2 C1.3 C1.4 C1.5 C1.6 C1.7 C1.8 C1.9 C1.10 C1.11 C1.12 C1.13 C2 C2.1 C2.2 C2.3 C3 C3.1 C3.2 C3.3 C3.4 C3.5 C3.6 C3.7 C3.8 C3.9 C3.10 C3.11 C4 C4.1 C4.2 C4.3 C4.4 C4.5 C4.6 CAPITAL COSTS Land Fees on acquisition Design team professional fees Demolition and site clearance Construction price for building work Cost of statutory consents Development Land Tax Capital Gains Tax Value Added Tax Furnishings Other capital costs Commissioning expenses Decanting charges FINANCING COSTS Finance for land purchase and during construction Finance during period of intended occupation Loan charges (public sector) OPERATION COSTS Energy Cleaning Rates Insurances Security and Health Staff (related to the building) Management and administration of the building Land charges Energy conservation measures Internal planting Equipment associated with occupier’s occupation ANNUAL MAINTENANCE COSTS, INTERMITTENT MAINTENANCE, REPLACEMENT ALTERATION COSTS Main structure External decorations Internal decorations Finishes, fixtures and fittings Plumbing and sanitary services Heat source
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C4.7 C4.8 C4.9 C4.10 C4.11 C4.12 C4.13 C4.14 C4.15 C5 C5.1 C6 C6.1 C6.2 C6.3

Space heating and air treatment Ventilating systems Electrical installations Gas installations Life and conveyor installation Communications installation Special and protective installations External works Gardening OCCUPANCY COSTS Client’s occupancy costs RESIDUAL VALUES Resale value – building, land and plant and equipment Related costs – demolition and site clearance and disposal of fees and charges Capital Gains Tax and balancing charges

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PART 2, SECTION 2, APPENDIX D

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Appendix D: Glossary of Terms for Taxation
D1 CAPITAL EXPENDITURE Money expended in acquiring long life assets which includes land, buildings, permanent improvements or additions/extensions to existing assets including associated professional fees, furniture and equipment thereto, which are intended for use in the carrying out of business operations. These assets should have a useful life of more than one year. REVENUE EXPENDITURE Expenditure incurred as a trading expense e.g. salaries, consumables, occupancy and regular maintenance costs. TAXATION ‘DEPRECIATION’ ALLOWANCES (FOR TAXATION PURPOSES) This is a collective term for taxation relief afforded to commercial (tax paying) organisations to offset the cost of capital expenditure incurred upon assets used for the purposes of their trade. As explained in 2.2.3 there are various types of taxation allowances and the proportion of initial expenditure which attracts tax relief is often varied by successive Finance Acts. This should be differentiated from the rate of depreciation adopted by accountants/auditors when preparing company management accounts to allow provision for replacement of assets. This is because the depreciation allowance for taxation purposes is fixed by legislation. When an asset is disposed of a review of the allowances received is required and an adjustment may be necessary. D4 INDUSTRIAL BUILDING Industrial buildings or structures which qualify for capital allowances are defined in the statutes CAA 1968 S7 and CAA 1990 S18. These include factories, manufacturing, storage, docks, tunnels and mines. There are specific rules which apply where part of the building is used for a non-qualifying purpose. PLANT AND MACHINERY This type of tax relief was introduced after the second world war to provide an incentive to industry to replace equipment used in industry and commerce. The precise definition of plant and machinery is frequently contested in the courts. To assist clarification examples of items likely to attract taxation relief are illustrated in Appendix E. D6 INITIAL ALLOWANCES/FIRST YEAR ALLOWANCES These were introduced to provide an acceleration to the standard rate of annual tax relief (depreciation allowance) being a proportion of the original capital expenditure.
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D2

D3

D5

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Governments use successive Finance Acts to vary the proportion awarded to increase or reduce this incentive as a method of influencing or stimulating capital investment within the commercial sector of the economy. D7 ANNUAL ‘WRITING DOWN’ ALLOWANCE This is the annual depreciation allowance awarded in respect to ‘qualifying expenditure’ as a proportion of the residual balance of the initial expenditure i.e. original cost less the amounts already calculated and benefiting from tax relief. BALANCING ALLOWANCE Upon disposal of an asset a comparison between its value and the written down amount remaining on the owner’s accounts is required. If the asset is sold for a sum in excess of the vendor’s after tax relief cost, then a ‘profit’ has arisen which is subject to an adjustment to the depreciation allowance (i.e. reduction of tax relief), termed a ‘balancing charge’. Alternatively, if the asset is ‘scrapped’ or disposed of at low value (compared with the residual amount) then an additional tax relief is awarded, termed a ‘balancing allowance’.

D8

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PART 2, SECTION 2, APPENDIX E

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Appendix E: Examples of items of Expenditure Likely to Attract Taxation Allowances
Item Finishes/fixtures/ fittings Plant and equipment 1. 2. 3. 4. Wall finishes where they can be removed from the building, e.g. curtains, curtain track, battens for fixing Floor finishes such as carpets and any floor finishing that can be removed from the building Door mats and matwell frames Suspended ceilings which are airtight and can be used as an extract system or any ceiling which is an integral part of the heating, ventilating or air conditioning system Any movable fixtures and fittings Demountable partitions Curtains, blinds and furnishing Cupboards, lockers, shelves, display counters, chalkboards, dustbins, cloakroom fittings, telephone booths Sanitary fittings (not the pipework) Vanity units Soap dispensers Mirrors Demountable toilet partitions Coat hooks and racks Towel rails and cabinets Toilet roll holders Tanks Boilers and equipment, fuel pumps, water pumps, flue, etc. (not the pipework from the boiler) Boiler bases and foundations Oil storage tanks and foundations Fuel hoppers, ash removal plant Control equipment to the heating system Builder’s work in connection with the heat source Part cost of boiler room Equipment in connection with heating, air conditioning and hot water installation (not the pipework or ducting) Builder’s work in connection with the equipment Plant room Electrical and mechanical control system Solar heating systems Insulation to pipework Dust and fume extraction equipment including ductwork and builder’s work in connection Extract fans and builder’s work Ventilators Instrumentation controls Electrical installation to all plant and equipment (excludes conduit and wiring to power and lighting for the building generally) Light fittings Emergency lighting Switchgear and transformers Control gear and distribution boards Plant rooms Builder’s work in connection with the electrical installation Gas fires, cookers and equipment including flues and builder’s work in connection

5. 6. 7. 8. Plumbing and sanitary services 1. 2. 3. 4. 5. 6. 7. 8. 9. 1. 2. 3. 4. 5. 6. 7. Space heating and air treatment 1. 2. 3. 4. 5. 6. Ventilation systems 1. 2. 3. 4. Electrical installations 1. 2. 3. 4. 5. 6. 7. Gas installations 1.

Heat source

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Item Lift and conveyor installations Communications installations

Plant and equipment 1. 2. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Lift installation complete including builder’s work in connection with lift motors, lift guides and plant room Escalators and hoists are as for lifts Clocks Sound distribution, bells, signals and the like Fire alarms Burglar alarms Telephone installation Builder’s work in connection with communication installations Sprinkler system Dry riser system Hosereel system CO2 system Fire extinguishers Refrigeration equipment Kitchen equipment Laundry equipment Health equipment Laboratory equipment Manufacturing equipment Incinerators and flues Water heaters Hand dryers Window cleaning hoists and equipment including track, motors and ancillary builder’s work Refuse disposal equipment including ancillary builder’s work Lighting conductors and earthing systems Occupational equipment associated with the building user Computer equipment and all ancillary work Crane gantries All builder’s work in connection with items 1 to 20 above Removable fire escapes Shelving Safes and strong rooms Roller shutters Ladders Dock levellers Signs/notice boards Interior planting External signs Traffic signs, crash barriers Drainage where it is specifically required for plant and equipment Cycle racks

Special installations/ protective installations

Special items within a building (the items shown are only given as indicative of the types of item)

1. 2. 3. 4. 5. 6. 7. 8. 1. 2. 3. 4.

External works

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PART 2, SECTION 2, APPENDIX F

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Appendix F: Further Reading
Ferry, D.J.O., Flanagan, R., Life Cycle Costing: A Radical Approach, Construction Industry Research and Information Association (CIRIA Report 122), London, 1991 Flanagan, Roger, Norman, George, Furbur, J. David & Townsend, Geoffrey M., Life Cycle Costing For Construction, Surveyors Publications, London, 1983 Flanagan, Roger, Norman, George Meadows, Justin Robinson, Graham, Life Cycle Costing: Theory and Practice, BSP Professional Books, Oxford, 1989 HM Treasury. Guidance Note No. 35: Life Cycle Costing, Central Unit on Procurement, HM Treasury, London, 1992 Data Sources Bernard Williams Associates, Facilities Economics. Bernard Williams Associates, Building Economics Bureau Ltd, Kent. Tel: 0181 460 1111, 1995. A comprehensive study including hard costs. BMI. Energy Consumption Study, Building Maintenance Information, 12 Great George Street, London, SW1P 3AD, Tel: 0171 222 7000, 1996. Covers typical energy costs for different building types. BMI. Occupancy Cost Planning, Building Maintenance Information, contact details as above, 1992. Includes addresses of numerous trade and professional organisations as possible data sources. BMI. Review of Maintenance and Occupancy Costs, Building Maintenance Information, contact details as above, 1994 British Standard 7543: 1992 Guide to Durability of Buildings and Building Elements, Products and Components, British Standards Institution, London, 1992 Building Research Energy Conservation Support Unit. Energy Efficiency Best Practice Programme. Building Research Energy Conservation Support Unit, Watford, WD2 7JR. Tel: 01923 664 258. Includes numerous good practice case studies, good practice guides and energy consumption guides for different building types including costings. CIB. CIB W80 report 96: Prediction of Service Life of Building Materials and Components CIBSE. CIBSE Guide, Section B18, Owning and Operating Costs. Chartered Institute of Building Services Engineers, London. Gives indicative details of energy consumption, maintenance costs and rough life spans for plant (currently being updated in more detail).

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HAPM Component Life Manual. E & FN Spon. Tel: 0171 204 2481, 1985. Comprehensive life-span assessment for over 500 housing components based on insured life assessments. ISO Guide to Service Life Planning of Buildings (under preparation at the time of writing but it will include a method of estimating the durability of individual building components). Jones Lang Wootton. Office Service Charges Analysis 1995, Jones Lang Wootton, London, 1995. A review of 300 buildings including unit costs. Kirk, Stephen J., Dell’isola, Alphonse J., Life Cycle Costing For Design Professionals, (2nd Edition), McGraw-Hill Inc, New York, 1995. Includes 45 pages of maintenance and replacement data (in dollars) covering all elements. NBA Construction Consultants. Maintenance Cycles and Life Expectancies of Building Components and Elements: a guide to data and sources. NBA Construction Consultants PSA Cost in Use Tables, 3rd Edition, London HMSO 1991. Includes elemental analysis of cleaning, maintenance and repair costs. RICS. Life Expectancies of Building Components. RICS Research Paper Series No 11, 1992. Preliminary results from a survey of Building Surveyors’ views.

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PART 2, SECTION 3

PART TWO: CONSTRUCTION DESIGN & ECONOMICS
SECTION 3: ELEMENTS FOR BUILDINGS
Introduction
The Building Cost Information Service (BCIS) elements were originally produced for use in cost planning, i.e., the development of a design with a preset budget and were published in the BCIS document, Standard Form of Cost Analysis: Principles, Instructions and Definitions. However, since their introduction elements have become widely used for structuring building information in value engineering, specifications, contract drafting and tender evaluation as well as for cost planning/cost analysis. This section discusses some of the uses for elemental information and gives a complete definition for each element. The elements are also referred to in other sections of the handbook.

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2.3.1 Elements
2.3.1.1 An element is a part of a building which fulfils a specific function or functions irrespective of its design, specification or construction, for example, the element ‘external walls’ provides the external vertical envelope to a building, separating the internal and external environment, irrespective of how it may be constructed. Elements relate to the design process. Therefore, budget estimates are normally prepared in elemental form and developing the designs are normally described and costed in this manner.

2.3.1.2

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2.3.2 Elemental Cost Analysis
2.3.2.1 An elemental cost analysis is prepared following the receipt and acceptance of a tender for building work. The tender cost is broken down into the standard BCIS elements (see Appendix A) using the definitions to determine which items should be included in any particular element. The elemental cost analysis can then be used to estimate future projects of a similar type. For further information on the preparation of an elemental cost analysis using the BCIS elements, please refer to the BCIS publication, Standard Form of Cost Analysis: Principles, Instructions and Definitions.
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2.3.2.2

2.3.2.3

2.3.2.4

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2.3.3 Other Uses
The standard elements can be used successfully for other purposes, as detailed in the following subsections. 2.3.3.1 DESIGN AND BUILD In the procurement of design and build projects there has been an increase in the use of elements to structure both employer’s requirements and the contract sum analysis. However, the use of non-standard elements and definitions can be confusing. Standard elements, on the other hand, encourage a structured thought process and produce more coherent employer’s requirements. This helps to avoid some conflicting statements that may arise in contract documents if standard elements are not used. (a) Employer’s Requirements The Joint Contracts Tribunal (JCT) practice note on the Standard Form of Building Contract With Contractor’s Design, CD/1A states that the employer’s requirements may be little more than a description of accommodation required, or may be anything up to full ‘scheme design’ or further, prepared for the employer by his own consultants or other professional advisers: • Any design input from the employer must be embodied in the employer’s requirements as there is no provision for design input from the employer during the course of the contract. • There is no set format for the employer’s requirements, but if anything beyond basic accommodation requirements is being given, particularly where an outline specification is being prepared, setting it out in design elements will be helpful to both the employer and the contractor. • Using the element headings to structure the requirements will act as a checklist for the employer and his representatives in producing any design requirements they may have. It also means that the requirements are presented to the contractor in a form that will assist him in developing his design proposal. • Elements are the most helpful form for structuring specifications to be included in the employer’s requirements. Performance specifications and outline specifications naturally fit into an elemental format. Where a more detailed specification is required it may be more helpful to give performance requirements in elemental form, with the more detailed specification in trade (work sections) form, where necessary.

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(b) Contractor’s Proposals The contractor’s proposals should follow the format of the employer’s requirements. The preparation of the specification for materials and workmanship in elemental form facilitates the development of the specification alongside the design and tendering process. It also highlights any amendments to the employer’s requirements either proposed by the contractor or requested by the client. (c) Contract Sum Analysis Design and build contracts are for a lump sum price, but the standard forms of contract provide for a contract sum analysis for assisting the employer in assessing tenders, for checking interim payments and for valuation of changes in the employer’s requirements. The use of standard elements to format the contract sum analysis makes the foregoing procedures simpler (see Section 2.3.3.1 (e)). (d) Evaluation of Tender Proposals On client-led design projects where tenders are based on a detailed set of employer’s requirements and a highly developed design, the employer should in theory be able to accept the lowest tender. Comparison of the tender with the cost plan element by element helps in assessing the contractor’s compliance with the employer’s design. Where alternative solutions have been put forward for particular elements, the existence of an elemental cost plan and an elemental contract sum analysis prove invaluable in assessing the tender value. Contractor’s proposals on contractor-led design projects should be systematically checked to ensure that they meet the employer’s requirements. The structuring of the requirements, the proposal and the contract sum analysis in consistent elemental form greatly assists in this process. Indeed, it is difficult to imagine any successful detailed technical check of a tender that did not follow a design elemental form. If the contractor’s proposals were not structured in this way, the process would be much more difficult. Contract sum analyses presented in consistent elemental form allow comparison both with the client’s quantity surveyor’s original cost plan and between the competing tenders. This identifies where individual tenders have proposed any elemental solutions with a significantly different cost. (e) Interim Payments The JCT Standard Form of Building Contract With Contractor’s Design 1998 (CD98) provides for the use of one of two methods for interim payments. Alternative A is by stage payments and Alternative B is by periodic payments. If the contract sum analysis has been set out elementally it lends itself to Alternative A, as elements and sub-elements provide easily definable stages.

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With Alternative B - periodic payments - an elemental breakdown of the contract sum analysis makes valuations relatively easy, particularly if different design solutions within a single element are identified separately. For example, a periodic payment for the external walls would be a simple task of proportioning the amount of external wall completed to the total. This overcomes some of the problems that arise in checking interim valuations where the contract sum analysis has been prepared in trade format but no bill of quantities or quantified schedule of rates has been provided. 2.3.3.2 ACTIVITY SCHEDULES The JCT Standard Form of Building Contract 1998 (JCT98) contains an option for the contractor to include an activity schedule for use in interim payments. The activity schedule is defined as ‘the schedule of activities as attached to the Appendix with each activity priced and with the sum of those prices being the contract sum excluding provisional sums, prime cost sums and any contractor’s profit thereon’. If the contractor does include an activity schedule, it must be by agreement with the employer. There is no standard format stipulated for the activity schedule. However, using a BCIS standard list of elements (Appendix A) to provide an activity schedule eliminates any problems with definitions. Furthermore, an elemental breakdown makes valuation for interim payments simple (see Section 2.3.3.1 (e)) and overcomes some of the problems that may arise if activity schedules have been broken down into trades. The use of an activity schedule broken down into BCIS standard elements would also allow an elemental cost analysis to be completed relatively easily and would be particularly useful if projects have been procured without bills of quantities.

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Appendix A: BCIS Standard Elements
(Please also refer to the notes which follow the definitions) 1 SUBSTRUCTURE All work below underside of screed or where no screed exists to underside of lowest floor finish including damp-proof membrane, together with relevant excavations and foundations. 2 2A SUPERSTRUCTURE Frame Loadbearing framework of concrete, steel or timber. Main floor and roof beams, ties and roof trusses of framed buildings. Casing to stanchions and beams for structural or protective purposes. 2B Upper floors Upper floors, balconies and structural screeds, suspended floors over or in basements. 2C Roof 2C1 Roof structure Construction, including eaves and verges, plates and ceiling joists, trusses, gable ends, internal walls and chimneys above plate level, parapet walls and balustrades. 2C2 Roof coverings Roof screeds and finishings. Battening, felt, slating, tiling and the like. Flashings and trims. Insulation. Eaves and verge treatment. 2C3 Roof drainage Gutters where not integral with roof structure, rainwater heads and roof outlets. (Rainwater downpipes to be included in ‘Internal drainage’ (5C1).) 2C4 Roof lights Roof lights, opening gear, frame, kerb and glazing. Pavement lights.

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2D

Stairs 2D1 Stair structure Construction of ramps, stairs and landings other than at floor levels. Ladders. Escape staircases. 2D2 Stair finishes Finishes to treads, risers, landings (other than at floor levels), ramp surfaces, strings and soffits. 2D3 Stair balustrades and handrails Balustrades and handrails to stairs, landings and stairwells.

2E

External walls External enclosing walls including that to basements but excluding items included with ‘Roof structure’ (2C1). Chimneys forming part of external walls up to plate level. Curtain walling, sheeting rails and cladding. Vertical tanking. Insulation. Applied external finishes.

2F

Windows and external doors 2F1 Windows Sashes, frames, linings and trims. Ironmongery and glazing. Shop fronts. Lintels, sills, cavity damp-proof courses and work to reveals of openings. 2F2 External doors Doors, fanlights and sidelights. Frames, linings and trims. Ironmongery and glazing. Lintels, thresholds, cavity damp-proof courses and work to reveals of openings.

2G

Internal walls and partitions Internal walls, partitions and insulation. Chimneys forming part of internal walls up to plate level. Screens, borrowed lights and glazing. Moveable spacedividing partitions. Internal balustrades excluding items included with ‘Stair balustrades and handrails’ (2D3).

2H

Internal doors Doors, fanlights and sidelights. Sliding and folding doors. Hatches. Frames, linings and trims. Ironmongery and glazing. Lintels, thresholds and work to reveals of openings.

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3 3A

INTERNAL FINISHES Wall finishes Preparatory work and finishes to surfaces of walls internally. Picture, dado and similar rails.

3B

Floor finishes Preparatory work, screeds, skirtings and finishes to floor surfaces excluding items included with ‘Stair finishes’ (2D2) and structural screeds included with ‘Upper floors’ (2B)

3C

Ceiling finishes 3C1 Finishes to ceilings Preparatory work and finishes to surfaces of soffits excluding items included with ‘Stair finishes’ (2D2) but including sides and soffits of beams not forming part of a wall surface. Cornices, coves. 3C2 Suspended ceilings Construction and finishes of suspended ceilings.

4 4A

FITTINGS AND FURNISHINGS Fittings and furnishings 4A1 Fittings, fixtures and furniture Fixed and loose fittings and furniture including shelving, cupboards, wardrobes, benches, seating, counters and the like. Blinds, blind boxes, curtain tracks and pelmets. Blackboards, pin-up boards, notice boards, signs, lettering, mirrors and the like. Ironmongery, other than to doors and windows. 4A2 Soft furnishings Curtains, loose carpets or similar soft furnishing materials. 4A3 Works of art Works of art if not included in a finishes element or elsewhere. 4A4 Equipment Non-mechanical and non-electrical equipment related to the function or need of the building (e.g. gymnasia equipment).

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5 5A

SERVICES Sanitary appliances Baths, basins, sinks, etc. WC’s, slop sinks, urinals and the like. Toilet-roll holders, towel rails, etc. Traps, waste fittings, overflows and taps as appropriate.

5B

Services equipment Kitchen, laundry, hospital and dental equipment and other specialist mechanical and electrical equipment related to the function of the building.

5C

Disposal installations 5C1 Internal drainage Waste pipes to ‘Sanitary appliances’ (5A) and ‘Services equipment’ (5B). Soil, anti-syphonage and ventilation pipes. Rainwater downpipes. Floor channels and gratings and drains in ground within buildings up to external face of external walls. 5C2 Refuse disposal Refuse ducts, waste disposal (grinding) units, chutes and bins. Local incinerators and flues thereto. Paper shredders and incinerators.

5D

Water installations 5D1 Water – mains supply Incoming water main from external face of external wall at point of entry into building including valves, water meters, rising main to (but excluding) storage tanks and main taps. Insulation. 5D2 Cold water services Storage tanks, pumps, pressure boosters, distribution pipework to sanitary appliances and to services equipment. Valves and taps not included with ‘Sanitary appliances’ (5A) and/or ‘Services equipment’ (5B). Insulation. 5D3 Hot water services Hot water and/or mixed water services. Storage cylinders, pumps, calorifiers, instantaneous water heaters, distribution pipework to sanitary appliances and services equipment. Valves and taps not included with ‘Sanitary appliances’ (5A) and/or ‘Services equipment’ (5B). Insulation. 5D4 Steam and condensate Steam distribution and condensate return pipework to and from services equipment within the building including all valves, fittings, etc. Insulation.

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5E

Heat source Boilers, mounting, firing equipment, pressurising equipment, instrumentation and control, ID and FD fans, gantries, flues and chimneys, fuel conveyors and calorifiers. Cold and treated water supplies and tanks, fuel oil and/or gas supplies, storage tanks, etc., pipework, (water or steam mains) pumps, valves and other equipment. Insulation.

5F

Space heating and air treatment 5F1 Water and/or steam (heating only) Heat emission units (radiators, pipe coils, etc.) valves and fittings, instrumentation and control and distribution pipework from ‘Heat source’ (5E). 5F2 Ducted warm air (heating only) Ductwork, grilles, fans, filters, etc., instrumentation and control. 5F3 Electricity (heating only) Cable heating systems, off-peak heating system, including storage radiators. 5F4 Local heating (heating only) Fireplaces (except flues), radiant heaters, small electrical or gas appliances, etc. 5F5 Other heating systems (heating only) 5F6 Heating with ventilation (air treated locally) Distribution pipework ducting, grilles, heat emission units including heating calorifiers, except those which are part of ‘Heat source’ (5E) instrumentation and control. 5F7 Heating with ventilation (air treated centrally) All works as detailed under 5F6 for system where air treated centrally. 5F8 Heating with cooling (air treated locally) All work as detailed under 5F6 including chilled water systems and/or cold or treated water feeds. The whole of the costs of the cooling plant and distribution pipework to local cooling units shall be shown separately. 5F9 Heating with cooling (air treated centrally) All work detailed under 5F8 for system where air treated centrally.

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5G

Ventilating systems Mechanical ventilating system not incorporating heating or cooling installations including dust and fume extraction and fresh air injection, unit extract fans, rotating ventilators and instrumentation and controls.

5H

Electrical installations 5H1 Electric source and mains All work from external face of building up to and including local distribution boards including main switchgear, main and sub-main cables, control gear, power factor correction equipment, stand-by equipment, earthing, etc. 5H2 Electric power supplies All wiring, cables, conduits, switches from local distribution boards, etc., to and including outlet points for individual installations. 5H3 Electric lighting All wiring, cables, conduits, switches, etc. from local distribution boards and fittings to and including outlet points. 5H4 Electric lighting fittings Lighting fittings including fixing.

5I

Gas installations Town and natural gas services from meter or from point of entry where there is no individual meter: distribution pipework to appliances and equipment.

5J

Lift and conveyor installations 5J1 Lifts and hoists The complete installation including gantries, trolleys, blocks, hooks and ropes, downshop leads, pendant controls and electrical work from and including isolator. 5J2 Escalators As detailed under 5J1. 5J3 Conveyors As detailed under 5J1.

5K

Protective installations 5K1 Sprinkler installations The complete sprinkler, installation and CO 2 extinguishing system. Including tanks, control mechanism, etc.

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5K2 Fire-fighting installations Hose reels, hand extinguishers, asbestos blankets, water and sand buckets, foam inlets, dry risers (and wet risers where only serving firefighting equipment). 5K3 Lightning protection The complete lightning protection installation from finials conductor tapes, to and including earthing. 5L Communication installation Warning installations (fire and theft) Burglar and security alarms Fire alarms Visual and audio installations Door signals Timed signals Call signals Clocks Telephones Public address Radio Television Pneumatic message systems 5M Special installations All other mechanical and/or electrical installations (separately identifiable) which have not been included elsewhere, e.g. chemical gases; medical gases; vacuum cleaning; window cleaning equipment and cradles; compressed air; treated water; refrigerated stores. 5N Builder’s work in connection with services Builder’s work in connection with mechanical and electrical services. 5O Builder’s profit and attendance on services Builder’s profit and attendance in connection with mechanical and electrical services.

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6 6A

EXTERNAL WORKS Site works 6A1 Site preparations Clearance and demolitions. Preparatory earth works to form new contours. 6A2 Surface treatments Roads and associated footways Vehicle parks Paths and paved areas Playing fields Playgrounds Games courts Retaining walls Land drainage Landscape work 6A3 Site enclosure and division Gates and entrances. Fencing, walling and hedges. 6A4 Fittings and furniture Notice boards, flag poles, seats, signs.

6B

Drainage Surface water drainage. Foul drainage. Sewage treatment.

6C

External services 6C1 Water mains Main from existing supply up to external face of building. 6C2 Fire mains Main from existing supply up to external face of building; fire hydrants. 6C3 Heating mains Main from existing supply or heat source up to external face of building. 6C4 Gas mains Main from existing supply up to external face of building. 6C5 Electric mains Main from existing supply up to external face of building. 6C6 Site lighting Distribution, fittings and equipment.

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6C7 Other mains and services Mains relating to other service installations (each shown separately). 6C8 Builder’s work in connection with external services Builder’s work in connection with external mechanical and electrical services: e.g. pits, trenches, ducts, etc. 6C9 Builder’s profit and attendance on external mechanical and electrical services. 6D Minor building work 6D1 Ancillary buildings Separate minor buildings such as sub-stations, bicycle stores, horticultural buildings and the like, inclusive of local engineering services. 6D2 Alterations to existing buildings Alterations and minor additions, shoring, repair and maintenance to existing buildings. 7 PRELIMINARIES Priced items in preliminaries bill and summary but excluding contractors’ price adjustments. This is not classed as an element but is included for allocation of costs. 8 EMPLOYERS CONTINGENCIES This is not classed as an element but is included for allocation of costs.

Notes
1 Substructure (a) Where lowest floor construction does not otherwise provide a platform, the flooring surface shall be included with this element (e.g. if joisted floor, floor boarding would be included here). (b) Stanchions and columns (with relevant castings) shall be included with ‘Frame’ (2A). (c) External enclosing walls to basements shall be included with ‘External walls’ (2E). Frame (a) Structural walls which form an integral part of the loadbearing framework shall be included either with ‘External walls’ (2E) or ‘Internal walls and partitions’ (2G) as appropriate. (b) Beams which form an integral part of a floor or roof which cannot be segregated therefrom shall be included in the appropriate element.

2A

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(c) In unframed buildings roof beams and trusses and floor beams shall be included with ‘Upper floors’ (2B) or ‘Roof structure’ (2C1) as appropriate. (d) If the ‘Stair structure’ (2D1) has had to be included in this element it should be noted. 2B Upper floors (a) Where floor construction does not otherwise provide a platform the flooring surface shall be included with this element (e.g. if joisted floor, floor boardings would be included here). (b) Beams which form an integral part of a floor slab shall be included with this element. (c) If the ‘Stair structure’ (2D1) has had to be included in this element it should be noted. Roof structure (a) Trusses which form part of a whole building framework shall be included in ‘Frame’ (2A). (b) Beams which form an integral part of a roof shall be included with this element. (c) Roof housings (e.g. lift motor and plant rooms) shall be broken down into the appropriate constituent elements. Stair structure (a) The cost of external escape staircases shall be shown separately. (b) If the stair structure has had to be included in the elements ‘Frame’ (2A) or ‘Upper floors’ (2B) this should be stated. External walls (a) If walls are self-finished on internal face, this shall be stated. Wall finishes (a) Surfaces which are self-finished (e.g. self-finished partitions, fair-faced work) shall be included in the appropriate element. (b) Insulation which is a wall finishing shall be included here. Floor finishes (a) Where the floor construction does not otherwise provide a platform the flooring surface will be included either in ‘Substructure’ (1A) or ‘Upper floors’ (2B) as appropriate. Access floors. Ceiling finishes (a) Where ceilings principally provide a source of heat, artificial lighting or ventilation, they shall be included with the appropriate ‘Services’ element. Fittings, fixtures and furniture (a) Ironmongery to ‘Windows and external doors’ and ‘Internal doors’ should be included in (2F) and (2H) respectively.

2C1

2D1

2E

3A

3B

3C

4A1

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4A3

Works of art (a) Where items in this element have a significant effect on other elements a note should be included in the appropriate element. Services equipment (a) Local incinerators shall be included with ‘Refuse disposal’ (5C2). Internal drainage (a) Rainwater gutters are included in ‘Roof drainage’ (2C3). Cold water services (a) Header tanks, cold water supplies, etc. for heating systems should be included in ‘Heat source’ (5E). Steam and condensate (a) Steam and condensate pipework installed in connection with space heating, or the like, shall be included as appropriate with ‘Heat source’ (5E) or ‘Space heating and air treatment’ (5F). Heat source (a) Chimneys and flues which are an integral part of the structure shall be included with the appropriate structural element. (b) Local heat source shall be included with ‘Local heating’ (5F4). Space heating and air treatment System described as having: (a) ‘Air treated locally’ shall be deemed to include all systems where air treatment (heating or cooling) is performed either in or adjacent to the space to be treated. (b) ‘Air treated centrally’ shall be deemed to include all systems where air treatment (heating or cooling) is performed at a central point and ducted to the space being treated. Space heating and air treatment - Electricity (heating only) (a) Electrically-operated heat emission units other than storage radiators should be included under ‘Local heating’ (5F4). Electric source and mains (a) Installation for electric heating (‘built-in’ systems) shall be included with ‘Space heating and air treatment’ (5F3). Lifts and hoists (a) Special structural work, e.g. lift walls, lift motor rooms, etc., shall be included in the appropriate structural elements. (b) Remaining electrical work shall be included with ‘Electrical power supplies’ (5H2). (c) Each type of lift or hoist shall be stated separately where appropriate.

5B

5C1

5D2

5D4

5E

5F

5F3

5H1

5J1

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5K1

Sprinkler installations (a) Electrical work shall be included with ‘Electrical power supplies’ (5H2). Communication installations (a) Each installation shall be stated separately where appropriate. (b) The cost of the work in connection with electrical supply shall be included with ‘Electrical power supplies’ (5H2). Special installations (a) The cost of each installation shall, where appropriate, be shown separately. (b) Items deemed to be included under ‘Refrigerated stores’ comprises all plant required to provide refrigerated conditions (i.e. cooling towers, compressors, instrumentation and controls, cold room thermal insulation and vapour sealing, cold room doors, etc.) for cold rooms, refrigerated stores and the like other than that required for ‘Space heating and air treatment’ (5F8 and 5F9). Builder’s work in connection with services (a) Builder’s work in connection with each of the services elements shall, where possible, be shown separately. (b) Where tank rooms, housings and the like are included in the gross floor area, their component parts shall be included under the appropriate elements. Where this is not the case the items shall be included here. Builder’s profit and attendance on services (a) The profit and attendance in connection with each of the services elements shall, where possible, be shown separately. Drainage (a) To include all drainage works (other than land drainage included with ‘Surface treatment’ (6A2)) outside the building, to and including disposal point, connection to sewer or to treatment plants. Builder’s work in connection with external services (a) Builder’s work shall be stated separately for each installation where appropriate. Builder’s profit and attendance on external mechanical and electrical services (a) Profit and attendances shall be stated separately for each installation where appropriate.

5L

5M

5N

5O

6B

6C8

6C9

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PART 2, SECTION 4

PART TWO: CONSTRUCTION DESIGN & ECONOMICS
SECTION 4: DESIGN AND BUILD – GUIDANCE FOR EMPLOYERS’ AGENTS
Introduction
This section describes some of the tasks and responsibilities that a surveyor may be asked to undertake when appointed as an employer’s agent on a design and build contract. (Note: The organisation or person commissioning a building is referred to in this section as both the client and the employer. Generally, the term ‘client’ is used in relationship to the employer’s agent and ‘employer’ to denote the relationship to the contractor.) At its most basic, the role of the employer’s agent is to act on behalf of the client in the matters specified in the contract. However, in practice there are a wide range of tasks that a client may ask an employer’s agent to undertake. This section is not about procurement options; it assumes that all optional procurement strategies have been carefully considered by clients and their advisors and that the decision has been made to adopt design and build. With regard to procurement strategies, reference should be made to part 3, section 1 of this handbook (‘Developing an Appropriate Building Procurement Strategy’) which provides extensive guidance on selection of the most appropriate option for the procurement of buildings. ‘Design and build’ describes contracts whereby the contractor assumes responsibility both for completing the design for the works and for carrying out the construction in return for a fixed lump sum. There are a number of ‘standard’ forms of design and build contracts, but where specific reference is made in this section, it is to the current edition of the Joint Contracts Tribunal (JCT) Standard Form of Building Contract With Contractor’s Design 1998 (CD 98). This form of contract makes no provision for a contract administrator (CA) and all matters which would have been certified by the CA are ascribed to either the client or the contractor. It should be noted that the prescribed duties of the employer’s agent are restricted to ‘access to documents on site’ and ‘access to works, workshops, etc.’. Importantly however, the contract also allows the client to delegate his or her responsibilities under the contract and in practice this is usually what happens.
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The services of an employer’s agent can be provided by any one of the construction professionals (determined by the nature of the project) but often it is a chartered surveyor. On more complex projects the role of employer’s agent may sometimes be provided by a team comprising the ‘lead’ consultant, with other consultants advising on matters relative to their respective disciplines. In such circumstances, the function of the lead consultant may not be dissimilar to that of a project manager. In appendix A the services which may be requested from an employer’s agent are set out. However, the scope of the role can vary considerably depending upon the particular circumstances of the commission. It would be unusual for any client to require all the services listed in appendix A but they serve to indicate the extent to which this role can be developed.

G

2.4.1 Background
2.4.1.1 Design and build is not a new concept. Many historic buildings have been procured in this way and the technique has been used for simple industrial shell buildings. However, in recent years the use of design and build has extended to cover a significant number of building projects of all types. It is thought that design and build has become more popular because clients believed that in some circumstances the traditional route failed to deliver their projects on time and to budget. Proponents of design and build claim that it can deliver coordinated planning, reduced professional fees, improved lead-in times, shorter construction programmes and cost savings, as well as providing greater cost certainty for clients through a single point of contact. Responsibility for the development of the design, as well as the construction of a project, is firmly placed with the contractor. This is perceived to clarify any litigation or dispute between the parties to the contract. Proponents of design and build also claim that it can allow tenderers to bring their skills to the design which, through the competitive process, can deliver benefits to the client in terms of buildability. Furthermore, tenderers can take account of current availability of labour, materials and plant in their design and pricing considerations.

2.4.1.2

2.4.1.3

2.4.1.4

2.4.1.5

I

2.4.2 Contract documentation
2.4.2.1 The JCT Standard Form of Building Contract With Contractor’s Design was first introduced in response to demand for a form of contract which allowed the contractor to carry out a complete contract (including design development) for a lump sum.
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2.4.2.2

Throughout its life the JCT Standard Form of Building Contract With Contractor’s Design has been subject to many amendments to account for changes in the law, regulations affecting building development and increasing expectations and involvement of clients. In England and Wales the contract documents under this form are: • the employer’s requirements; • the contractor’s proposals; • the contract sum analysis; and • the articles and conditions set out in the form including optional supplementary provisions and appendices.

2.4.2.3

G

2.4.3 Additional services
2.4.3.1 The list in appendix A is intentionally comprehensive and involves some duties which may be beyond a surveyor’s normal skills. Great care should be exercised by the employer’s agent in advising on which duties to incorporate within the commissioning contract. An inability to deliver a service could expose the employer’s agent to claims for negligence from both the client and the contractor. The employer’s agent will normally be involved from the outset and will be instrumental in producing the contract documentation, including the employer’s requirements based on the brief developed with the client. Thereafter, the agent can arrange or assist with the selection of tenderers and arrange the formal tendering process. Subsequently he or she can review the contractor’s proposals (including the developed design and the contract sum analysis) to ensure that all aspects of the employer’s requirements have been met with particular reference to quality, time and cost issues. Where the employer’s agent has been delegated the authority by the client, he or she is responsible for ensuring that the project is carried out in accordance with the conditions of contract, employer’s requirements, contractor’s proposals and contract sum analysis. The role will usually include monitoring the construction process to ensure best practice, controlling expenditure and overseeing contractor compliance with all current regulations. Typically, it will also involve the administration of the project in terms of design and cost by sanctioning all design issues and by instructing any changes. The employer’s agent will be responsible for checking the contractor’s valuations and confirming interim and final payment amounts to the client in accordance with the contract conditions. If a day-to-day inspection is required this should be carried out by a clerk of works, resident engineer or quality control inspector and should be the subject of a separate agreement outside the employer’s agent commission.

2.4.3.2

2.4.3.3

2.4.3.4

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2.4.3.5

The role of employer’s agent is not just one of monitoring the contractor’s performance; good practice requires an active approach to ensure that the contractor undertakes all of his or her responsibilities under the contract. However, the employer’s agent should not hinder or prevent the contractor from fulfilling his or her duties. The employer’s agent should advise the employer on those roles that are within his or her competency, which attract a duty of care similar to that under traditional procurement methods and advise the employer on the appointment of any other consultants required to fulfil any additional roles. It has been held that an employer’s agent was responsible for failure to comment on high risk design elements of the contractor’s proposals and an ongoing failure to approve the contractor’s design development proposals. It would be an unusual project arrangement if these essential tasks were not delegated by the client to the employer’s agent. On the other hand, the duty to approve the contractor’s design development and drawing should be included expressly or by implication in the contract between the client and the employer’s agent. Design and build is fundamentally about the allocation of risk and responsibility. Therefore, it is strongly recommended that the agent’s contractual responsibilities as delegated by the client, together with any additional duties the agent has agreed to undertake on behalf of the client, are clearly defined and recorded, and that the client understands the position.

2.4.3.6

2.4.3.7

2.4.3.8

G

2.4.4 Employer’s requirements and contractor’s proposals (including contract sum analysis)
2.4.4.1 The contractor’s proposals and the employer’s requirements taken together set out the scope of the works, so it is important that the proposals are examined in detail and that they match the requirements. Any areas of conflict should be resolved since the contract assumes they are compatible when it is signed. If the employer’s requirements and the contractor’s proposals are long and/or complicated, concern about the possibility of a conflict between the two documents may well remain, even after thorough checks have been carried out. In this case it may be worth consdering inserting an additional clause as to how conflicts between the two are to be resolved. The appointed employer’s agent has an obligation to guide the client, provide technical and professional advice and draft the employer’s requirements in order to protect the client and to ensure the project is completed. The employer’s requirements can be by way of performance specification, or on a prescriptive basis where a great deal of design may have been produced initially.

2.4.4.2

2.4.4.3

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The employer’s agent and the employer should agree between them the standard of performance and the requirements of the building. The employer’s agent should offer guidance on the effect that this might have on the contractor’s flexibility in design and construction. Some clients may require a detailed level of specification. However, if the employer’s requirements become unnecessarily prescriptive as to the contractor’s basic construction methods, the contractor may lose sight of the client’s real requirements. The requirements should always be sufficiently detailed to ensure the client obtains the building he or she needs. Therefore, great care should be exercised by the employer’s agent in advising the client on the appropriate level of detail to be provided in the employer’s requirements and that requested in the contractor’s proposal. The employer’s agent should try to encourage the client to concentrate on the purpose, performance and desired end requirements of the project and to avoid involvement in the construction method. It is, however, most important that the client’s input is sufficiently detailed to enable the production of clear and concise ‘employer’s requirements’ to achieve the client’s objectives. The requirements should also be comprehensive enough to avoid amendments during the construction process as these can be very costly. All relevant parts of the client’s brief should be given in the employer’s requirements. Additional requirements arising from meetings during the tender process should be incorporated into the requirements by amendment. There should be no misunderstanding as to what comprises the employer’s requirements. Similarly, any amendments to the contractor’s proposals after they have been submitted should be incorporated. Any ambiguity between these two documents could give rise to conflict at a later date. Contractors are only responsible for that which they design or specify; in turn employers or their consultants are responsible for all that they design and/or specify, unless there has been a pre-agreed limitation to the contract. Thus, in order for the employer to maximise the benefit from design and build, the extent of any designing and specifying by prescription in the employer’s requirements should be limited to those elements in which the employer requires such control. The Building Cost Information Service (BCIS) publication, Elements for Design and Build offers guidance to employer’s agents on the use of building elements for structuring the employer’s requirements and the contractor’s proposals/contract sum analysis. Elements for Design and Build is considered to be important supplementary reading. The list of elements, and their definition, is also given in section 2.3 of this handbook.

2.4.4.5

2.4.4.6

2.4.4.7

2.4.4.8

2.4.4.9

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Note should also be made of the Code of Procedure for Selective Tendering for Design and Build published by the National Joint Consultative Committee for Building (NJCC) in 1995 and as amended from time to time. Appendix B is a checklist of matters which surveyors are advised to consider when compiling employer’s requirements and checking contractor’s proposals. The list covers the major matters and the elements that relate to buildings in general. It cannot be exhaustive when applied to any particular buildings. Any chartered surveyors acting as employer’s agents are advised to make themselves aware of all matters which are relevant to the client and the client’s business so as to ensure that the employer’s requirements/contractor’s proposal reflects the client’s needs.

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2.4.5 Design and build variants
2.4.5.1 The forms of design and build contract allow for the production of variation to the conventional design and build contract, for example:

• • • • • •
2.4.5.2

package deal; turnkey; develop and construct; two-stage tender; joint venture/negotiated; and design build fund and operate.

PACKAGE DEAL AND TURNKEY Package deal and turnkey are both expressions used to describe traditional design and build, but with the absolute minimum of client involvement in the design development (or the building operations). A turnkey contract additionally requires that the building is fully fitted out to enable immediate operation by the end user.

2.4.5.3

DEVELOP AND CONSTRUCT Develop and construct is the name given to the ‘variant’ where the client, as part of the employer’s requirements, imposes a design and/or specification developed to a greater degree than most (for example, listing specific manufacturers’ products). The contractor is obliged to adopt this data and should reflect this developed design information in the contractor’s proposals. A fully developed preliminary design may negate many of the advantages associated with conventional design and build. However, the client may be happy to forego these advantages and to impose his or her own particular design or specification in return for other benefits perceived to derive from a design and build procurement strategy.

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TWO-STAGE TENDER Two-stage tender requests seek to obtain proposals from a number of tenderers from which one is selected. That tenderer then works up the preferred submission in greater detail.

2.4.5.5

JOINT VENTURE/NEGOTIATED Joint venture/negotiated projects arise when a client is approached by a contractor or developer with a proposal which broadly aligns with the client’s needs. Many successful projects have been carried out using this route with considerable benefit to the client. Clearly, the earlier the employer’s agent can be introduced the better, since his or her involvement should help limit any abortive design.

2.4.5.6

DESIGN BUILD FUND AND OPERATE Design build fund and operate (DBFO) contracts have been created as a result of the private finance initiative. Although this form of procurement has been listed as a design and build variant it should be remembered that the end user never actually owns the building (unless otherwise provided). CD 98 is not therefore appropriate as part of the primary agreement, although it could feature in a subcontract. In most instances, the client will appoint a shadow design team to ensure that user’s requirements are properly established and communicated to the bidders. The shadow team checks the offers received to ensure that the user’s requirements have been addressed and continues to monitor design and development with the preferred bidder. Thereafter the shadow team ensures that the building incorporates the specified user requirements. Irrespective of the design and build variant employed, the service of the employer’s agent does not alter radically and can still be developed from the items of service listed in appendix A.

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2.4.6 Novation
2.4.6.1 Novation can be employed on any of the design and build variants and involves the transfer of the client’s contract with his or her designer (or designers) to the successful contractor, this arrangement having been included in the tender documents. The contractor assumes the responsibility for the payment of fees and associated value added tax (VAT), and receives the benefit of continuity of design. Often when novation is implemented, it is not applied to the quantity surveyor who remains with the client acting as the employer’s agent during the design development and construction phase. Novation is not defined in CD 98, although it is widely practised.

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2.4.6.2

Where designers are novated it is important for clients to understand that their designers’ allegiance transfers from the client to the contractor. This transfer of allegiance should be properly explained to the client prior to a decision to implement novation. It is also important that the employer’s agent advises on selecting appropriate designers and contractors and that the transfer of roles occurs and is maintained.

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Appendix A: Potential services associated with the role of employer’s agent
The services to be provided should follow the NJCC’s Code of Procedure for Selective Tendering for Design and Build (1995). Reference should also be made to the BCIS publication Elements for Design and Build which provides guidance on how to structure documents for design and build contracts. The scope of services should be fully agreed between the employer’s agent and the client at the outset of the commission and all interested parties should be informed as to the extent of delegated authority. A1 INITIAL DESIGN INPUT

• Advising on the need for specialist appointments where necessary including appointments under CDM (Regulations) 1994 (also competency and resource check). • Agreeing with the client the scope of the employer’s requirements (including the need for preliminary design, if any) and ensuring that these are ‘signed off’. • Examining land transfer documents to clarify boundary positions including an assessment of the likely impact of existing easements (including rights of light, rights of way, restrictive covenants, etc.). • Initiating measured survey with levels. • Preparing or procuring preliminary design for the development. • Establishing with the client the programme to suit funding availability. • Assessing suitability and cost effectiveness of general and structural design. • Reviewing scheme under Town and Country Planning Acts including consultations with local planning authority leading to initial outline town planning application. (Note: submission of formal full town and country planning application is normally at a later stage (see A2) and sometimes this application is by the contractor.) • On projects involving the refurbishment of existing buildings the provision of design, cost assessment and submission of formal town and country planning applications. • Investigating/establishing location of existing services to site with local and statutory authorities. • Initiating and reviewing subsoil reports. • Consulting as appropriate with relevant agencies, for example, English Nature and English Heritage. • Advising on the implementation of the Construction Act and any other relevant legislation.

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A2

PRE-CONTRACT

• Advising on the need for further specialist appointments where necessary. • Preparing cost estimate/structured cost plan. • Advising on need for risk analysis to include market research to underpin financial viability. • Advising on any possible archaeological implications for the site. • Reviewing subsoil reports and commenting on foundation design and contamination considerations. • Assessing environmental impact and advising generally on environmental issues. • Conducting local public investigations as related to town planning, including consultation with building occupiers prior to submitting a full town and country planning application. • Arranging drawings and performance specification for mechanical and electrical services. • Arranging design/cost audit at appropriate work stages if appropriate. • Advising on the need for provision of Party Wall Act or Access to Neighbouring Land Act Agreements. • Developing project brief with client and reflecting same in the employer’s requirements. • Establishing with client the format of the contract sum analysis. • Assisting with completion of formal applications in connection with approvals relating to funding, necessary consents and other requirements. • Advising level of contingencies and preparing appropriate daywork clause. • Advising on tendering options including single- or two-stage tendering, develop and construct or joint venture. • Advising on optional clauses in standard forms of contract, in particular CD 98 supplementary provisions which provide both parties with time and cost certainty. • Advising on dispute resolution. • In consultation with client finalising the employer’s requirements document and arranging for this to be formally ‘signed off’ by the client. • Where applicable, advising (after interview if required) on the selection of suitable tenderers including their capacity, resources, financial and tax exemption status. • Reviewing and reporting on tenders received for the project including comparison with cost plan and comment on programme proposed by each. • Advising on all aspects of future maintenance of the completed development. • Advising on services installation and future maintenance to these services including checking and commenting upon working drawings produced by tenderers.
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• Advising on energy ratings, for example, National Housing Energy Rating and Standard Assessment Procedure. • Ensuring access audit is executed (to meet the requirements of the Disability Discrimination Act). • Auditing contractor’s proposals (including design and detailed drawings) to ensure compliance with employer’s requirements, town and country planning, building regulations and any further criteria imposed upon the project by external organisations. • Preparing cash flow forecasts. • Advising on necessity for and wording of performance bonds and, where applicable, parent company guarantees. • In conjunction with the client’s broker reviewing contractor’s and client’s insurances (including professional indemnity insurance of designers). • Preparing and agreeing a schedule of rates for valuation or negotiation purposes. • Advising both client and tenderer on any agreed amendments to the employer’s requirements following receipt of contractor’s proposals and other relevant inputs. • Providing information to client in connection with post-tender documentation for lender/funder. • Agreeing with contractor cash flow based on stage or periodic payments. • Arranging for all necessary collateral warranties to be prepared and completed by contractor, subcontractors and consultants. • Arranging for the appointment of a clerk of works. • Advising on assignment and subcontracting (including design). • Advising on novation of designers’ contracts, if appropriate. • Preparing contract documentation, agreeing documentation with both parties and arranging execution. • Visiting the site with the contractor and agreeing by schedule and photographic records the existing condition of any buildings to be retained, also, roads, footpaths, trees, shrubs and other similar items liable to be damaged. • Attending site with contractor and assisting in arranging closure of roads and footpaths.
A3 CONTRACT DURATION

• Issuing letters of intent where appropriate. • Distributing contract documents in accordance with the contract. • Approving/monitoring/commenting, as appropriate, on contractor’s design development. • Visiting the construction site. (The number of site visits depends on the stage of construction (or as agreed with client) and may be weekly during initial stages until all superstructure is erected and complete.) • Ensuring that there are regular properly conducted site meetings with a chairman operating to a prescribed agenda and formal minutes.
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• • • • •

• • •

• • • • • • • • •

• • • • • •
Page 4 Part 2, Section 4 Appendix A (09/03)

Attending all site meetings. Generally monitoring the works in terms of quality and progress. Assessing compliance with contract conditions by contractor. Assessing compliance of service installations. Regularly reporting to client, in a format agreed with the client, matters of interest, for example, quality, progress against programme, site organisation and labour employed. Also, defects and weather stoppages, etc. Monitoring spend rate against cash flow forecasts including earned value analysis. Ensuring that there is no adjustment to the contract sum other than as provided in the contract. Issuing instructions on behalf of the client to instigate changes to the design quality or quantity of the works or on any other matter as required by the contract. Measuring for and agreeing with contractor any variations resulting from changes to the employer’s requirements during construction as well as the expenditure of any provisional sums. Agreeing valuation of fluctuations in the cost of labour, plant and materials. Addressing requests from contractors for payment for off-site material. Receiving requests, assessing, preparing, granting and issuing any notice of extension of time. Negotiating and agreeing any loss and expense claims submitted in writing by the contractor. Checking contractor’s valuations for stage or periodic payments and notifying the client. Preparing and issuing financial statements as may be required by the client. Ensuring that appropriate VAT is levied in accordance with current legislation. Ensuring compliance with all reserved matters contained within Town and Country Planning Certificate. Ensuring that adoption procedure is put in hand at appropriate stage and following through to achieve adoption prior to handover and to include for drainage installation. Issuing, where applicable, non-completion certificate and advising on the implications of imposition as well as the amount of liquidated and ascertained damages which may be deducted by the client from any payment certified. Ensuring that all required tests are carried out by the contractor and documented proof provided prior to practical completion. Issuing certificate of practical completion. Checking contractor’s final account and issuing final statements. Issuing all other final statements relating to the final accounts that may be required by the client. Preparing snagging lists. Arranging and attending pre-handover inspections.
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• Ensuring that all snagging items are rectified before inviting client to receive handover. • Ensuring the provision of ‘as built’ information compiled in manual form and supplied to the client at completion of construction process – user’s manual and/or computer disk. • Ensuring that all service installations are completed in accordance with original approved design, attending final commissioning and procuring test certificates. • Arranging and attending handover sessions.
A4 POST-CONTRACT

• Receiving health and safety file from planning supervisor and delivering to client. • On partial possession and/or sectional completion, agreeing value thereof. • Ensuring compliance with any insurance requirements. • Advising on values for building insurance purposes. • Reviewing means of escape as built and ensuring procurement of fire certificate by the contractor. • Issuing notices of practical completion on client satisfaction or beneficial occupation, if appropriate. • Obtaining final clearance certificates from local authority in connection with compliance with building regulations. • Preparing post-contract schedules of defects after occupation and arranging for rectification by contractor and on completion notifying client. • Issuing notices on making good defects at end of defects liability period, examining the rectified works and certifying completion of making good defects, where applicable.
A5 GENERAL ADDITIONAL SERVICES

• Dealing with essential items of defect that arise during maintenance periods. • Resolving any issues concerning latent defects. • Advising on alternative means of remedying defects. • Advising on insolvency of any party involved with the contract. • Advising on obtaining statutory approvals such as registration for food preparation. • Advising on provision of post-handover service relating to ongoing maintenance. • Preparing capital allowances and revenue schedules. • Advising on special design requirements, for example, Feng Shui, if applicable. • Advising on contingency planning and business recovery for select buildings, for example, terrorist insurance, bomb threats and construction of communication rooms.
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PART 2, S ECTION 4, A PPENDIX B

Appendix B: Employer’s Requirement/Contractor’s Proposal Checklist
B1 CONTRACT DOCUMENTATION The contract documentation will include: • the employer’s requirements • the contractor’s proposal • the contract sum analysis • the article conditions, optional supplementary provisions and appendices set out in the form of contract. The employer’s requirements can be a brief statement of the client’s accommodation requirements, an outline design or a fully worked up design. The contractor’s proposals should be in sufficient detail to allow the client to judge between the tenders on design as well as price. The required level of detail will vary from client to client and contract to contract but it is suggested that information on this checklist would be the minimum requirement. Where little design work has been carried out before tenders and proposals are invited, a performance specification would be normally required. However, where a great deal of design work has taken place a prescriptive specification would be needed. B2 CHECKLIST (Note that this list is not intended to be exhaustive in total or in any section) B2.1 General Information • Project title • Employer • Employer’s agent • List of drawings and other information accompanying documents • Location, including a narrative on the proposed use/user of the building. An indication of the employer’s business and overall objectives (to provide a feel for the eventual product) • Access to site • Site boundary defined • Form of contract • Permissible modification to standard form of contract • Details of appendices to the conditions of contract • Form of contract sum analysis Building and Accommodation Outline Outline description of the building Accommodation schedule • schedule of net usable areas (including definition of occupancy) • schedule of occupancy numbers and duration of occupancy • circulation requirements
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Basis of design Conceptual design statement and drawings • site layout • plans • elevations • sections • relevant working details • site works and landscaping layouts • sketch perspectives • structural design • services design Design standards • legislation or standards • details of standards which apply (for example codes of practice) • statement of workmanship • tolerances • CDM regulations Aesthetics • specific aesthetic needs (other than planning requirements) Integration of components • relationship with each other • methods of dealing with interfaces • method of dealing with services installations. For example, level of concealment of services and architectural treatments to exposed surfaces B2.3 Form of Detailed Specification (Note: The detailed employer’s requirements can be drafted in performance specification terms, or in prescriptive terms (contractor delivery) by including detailed specification and drawings, or a combination of performance and prescriptive specification.) The scope of work (see Section B2.4) assumes an employer’s requirement drafted in performance specification terms and the contractor’s proposals should convert these performance specifications into clearly defined design proposals. The specifications and design checklist (see Section B2.5) can be used in preparing employer’s requirements or a specification for a contractor’s proposal. A performance specification should be checked to ascertain that it is feasible to design a structure with the requirements given and that there is no conflict between performance and other prescriptive requirements given.

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B2.4

Scope of Work (Performance Requirements) Performance specification may relate to the whole building or include elements or both. The following are some matter which may be addressed. Image/description of key areas • drawings • sketches • statements Flexibility • flexibility of accommodation • flexibility of design Energy • energy conservation and heat measures • insulation values • Building research establishment environmental assessment method (BREEAM) certification rating • plant room layouts Loading requirements Details of dead and imposed loadings Facilities for disabled • provision statement to comply with building regulations and current disability legislation • specific needs of disabled Building configuration • written statement and/or drawing • relationship of accommodation • size of accommodation • purpose • layout • dimensional constraints including clear heights under slabs and beams • natural lighting - lux levels and method of measurement • natural ventilation • column grid arrangement including projections from walls, etc. • clear ceilings/soffit heights • tolerances • vehicle access door heights and widths • toilet/bathroom/locker room requirements • kitchen/catering requirements • restaurant/vending requirements • plant room configuration • noise breakout between rooms

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• storage space, cleaners, cupboards, maintenance facilities • access for cleaning and maintenance • security Means of escape Plantrooms External works • car parking • leisure facilities • environmental considerations • visual effects • waste disposal • emergency vehicle access • water features • loading bays • existing site features and treatments • function buildings within externals • site survey B2.5 Specifications and Design Specification of performance, or the form of construction, kind and quality may be given in elemental or other format. The standard elements are listed below. (Please see Section 2.3 of this handbook or the BCIS publication, Standard Form of Cost Analysis for definition of elements.) 1 Substructure 2 Superstructure 2A Frame 2B Upper floors 2C Roof 2C1 Roof structure 2C2 Roof coverings 2C3 Roof drainage 2C4 Roof lights 2D Stairs 2D1 Stair structure 2D2 Stair finishes 2D3 Stair balustrades and handrails 2E External walls 2F Windows and external doors 2F1 Windows 2F2 External Doors 2G Internal walls and partitions 2G1 WC cubicles 2H Internal doors 3 Internal finishes

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3A Wall finishes 3B Floor finishes 3C Ceiling finishes 3C1 Finishes to ceilings 3C2 Suspended ceilings 4 Fittings and furnishings 4A Fittings and furnishings 4A1 Fittings, fixtures and furniture 4A2 Soft furnishings 4A3 Works of art 4A4 Equipment 5 Services 5A Sanitary appliances 5B Services equipment 5C Disposal installations 5C1 Internal drainage 5C2 Refuse disposal 5D Water installations 5D1 Water mains supply 5D2 Cold water service 5D3 Hot water service 5D4 Steam and condensate 5E Heat source 5F Space heating and air treatment 5F1 Water and/or steam (heating only) 5F2 Ducted warm air (heating only) 5F3 Electricity (heating only) 5F4 Local heating (heating only) 5F5 Other heating systems (heating only) 5F6 Heating with ventilation (air heated locally) 5F7 Heating with ventilation (air heated centrally) 5F8 Heating with cooling (air heated locally) 5F9 Heating with cooling (air heated centrally) 5G Ventilating systems 5H Electrical installations 5H1 Electric source and mains 5H2 Electric power supplies 5H3 Electric lighting 5H4 Electric lighting fittings 5I Gas installation 5J Lift and conveyor installations 5J1 Lifts and hoists 5J2 Escalators 5J3 Conveyors 5K Protective installations 5K1 Sprinkler installation 5K2 Fire-fighting installations

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5K3 Lightning protection 5L Communication installations 5M Special installations Details of each installation 5N Builder’s work in connection with services 5O Builder’s profit and attendance on services 6 External works 6A Site works 6A1 Site preparation 6A2 Surface treatment 6A3 Site enclosure and division 6A4 Fittings and furniture 6B Drainage 6C External Services 6C1 Water mains 6C2 Fire mains 6C3 Heating mains 6C4 Gas mains 6C5 Electric mains 6C6 Site lighting 6C7 Other mains and services 6C8 Builder’s work in conjunction with external services 6C9 Builder’s profit and attendance on external mechanical and electrical services 6D Minor building work 6D1 Ancillary buildings 6D2 Alterations to existing buildings B2.6 Particular Requirements Additional Responsibilities The employer’s requirements should state who is responsible for all matters that affect the construction of the building including such matters as: Site investigations • soil survey • ground conditions • topographical surveys • existing services • hazardous waste • archaeological features Development controls or other controls • planning permission (including reserved matters) • building regulations • Water Authority • Licensing Authority (liqour) • Licensing Authority (entertainments) • fire officer requirements

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• • • • • • •

factory inspector environmental health officer employer’s building insurers (if appropriate) Traffic Planning Authority utilities National Rivers Authority Any other authority or statutory undertaker which has jurisdiction with regard to the works

Establish responsibility for fees payable in connection with above Other legislation or provisions Adjoining premises • rights of access to adjoining premises Trespass, nuisance • contractor to acquire rights as required and absolve the employer of responsibility Use and maintenance of existing: • roads • sewers • services If the responsibility for any of these matters is to be with the contractor the client should include disclaimers in any information which is provided to the contractor. Information requirements The employer’s requirements should give details of all records, drawings, etc., required to be handed over on completion including: • record drawings • maintenance manuals • CAD data disks • design calculations • staff training requirements • warranties and guarantees Exclusions Give details of items not to be designed and/or constructed by the contractor and the requirements and responsibilities for integrating these into the works Future developments Provide details of any provisions required for future developments

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PART 2, SECTION 5

PART TWO: CONSTRUCTION DESIGN AND ECONOMICS
SECTION 5: THE CHARTERED SURVEYOR AS LEAD CONSULTANT
Introduction
Over recent years many property and construction professionals have diversified into areas outside their core discipline. Some have become barristers; many have become planning supervisors; but the most common and obvious diversification has been to take on the role of lead consultant or project manager. In the past, this role has largely been the domain of the architect. However, in recent years many clients have increasingly used the services of the chartered surveyor to carry out these duties. For those embarking on this route care must be taken to ensure that the additional duties required by the role of lead consultant are fully understood and considered when undertaking the project, together with the associated professional liabilities. This section highlights some of the issues which the chartered surveyor should consider before undertaking this role. It also identifies some of the benefits for both clients and projects when appointing a chartered surveyor as lead consultant. A schedule of the additional duties that are likely to be required in excess of the main professional duties defined in appointment documents (such as those for building and quantity surveying) is included at the end of the section.

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2.5.1 Definitions: The Difference between a Project Manager and Lead Consultant
2.5.1.1 The role of project manager is to directly manage and coordinate all other consultants involved with a project on behalf of the client. Ultimately the delivery of the project is the direct responsibility of the project manager. On some projects consultants are appointed by the project manager as subconsultants, or are managed and paid by the project manager (although the client directly appoints them). This arrangement is most beneficial to clients who, through desire or inexperience, do not wish to have a pro-active involvement with the project.

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Figure 1: Project Structure using a Project Manager

Client

Project Manager

Managing & coordination

Arch.

Eng.

QS

Plann. Sup.

etc..

2.5.1.2

The position of lead consultant is more of a coordinating role, ensuring that other parties in the design, procurement and construction process of a project provide the right input at the right time, and to take an overall view to ensure coordination of all aspects of the project. However, the management of the other consultants is ultimately down to the client and, therefore, is better suited to more informed clients who may have their own in-house project managers undertaking an overall management role.
Figure 2: Project Structure using a Lead Consultant

Client

Client’s Representative

Advising & coordination

Lead Consultant

Arch.

Eng.

QS

Plann. Sup.

etc..

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2.5.2 Benefits of Appointing a Chartered Surveyor as Lead Consultant
2.5.2.1 In many circumstances a chartered surveyor can provide a greater breadth of knowledge and understanding of the complete process of a construction project. By utilising this awareness, the chartered surveyor can provide added value to the management of a construction project. Chartered building surveyors are not only involved in design, but also in the peripheral activities such as wayleaves, right to light, party wall and boundary disputes. Chartered quantity surveyors have an inherent knowledge of the complete design package through their cost control role, and often clients will appreciate this financial control being extended to a project liaison function.

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2.5.2.2

As well as simply the design of the buildings, many other skills are required to provide a functional space for a client and the chartered surveyor is often more conversant with these additional activities. The chartered surveyor is frequently called upon in matters associated with land purchase, valuation, condition survey, development potential and building cost. This front-end advice provides the opportunity to advise clients and add value before the appointment of the architect, or in parallel with the concept designs. This early involvement opens the door of opportunity for the chartered surveyor to take up the reins as lead consultant. Other benefits to a client can be derived where the ‘project’ requires a distinct specialism and the design process is only part of a more specialised activity, for example farms management.

2.5.2.3

2.5.2.4

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2.5.3 Issues to Consider before Undertaking the Role
2.5.3.1 Before taking on the role of lead consultant, careful consideration must be taken to ensure that there is sufficient competency to undertake the additional duties involved in the role. This level of competency will impact directly on professional liability insurance policies and ‘competency’ under the Construction (Design and Management) (CDM) Regulations. Fees for these additional activities must be at the discretion of the provider. They should take into account the level of additional time and resources required in excess of the core professional services provided. It may be that some of the lead consultant duties overlap with existing duties and that economies may be obtained. However, the converse may equally apply and it is essential that the chartered surveyor thoroughly reviews the actual additional duties required before providing fee quotations. With the constant changes in the way that buildings are procured and designed, the chartered surveyor is in a prime position for providing real added value to the process. For those individuals or practices who do not wish to undertake the more encompassing role of project manager, but feel that they can make a positive contribution by directing a particular project, then the role of lead consultant fits the bill. However, care must be taken to ensure that the necessary additional skills exist to be certain that the increased responsibility can be taken on comfortably and to the ultimate benefit to the client.

2.5.3.2

2.5.3.3

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2.5.4 Schedule of Lead Consultant Duties
2.5.4.1 The schedule of duties of a lead consultant is not exhaustive. The Royal Institution of Chartered Surveyors provides a range of publications which describe in more detail individual professional services such as quantity and

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building surveying and it is recommended that, wherever possible, the surveyor refers to these when confirming the scope of service to be provided as lead consultant. 2.5.4.2 PURPOSE During a construction project many issues can arise on which the client may require professional advice from his or her consultants. The lead consultant’s role is to provide the client with comprehensive professional support to ensure that the client’s requirements are met with regard to legislation, standards, cost and programme. The client nominates a lead consultant for each capital project undertaken. The lead consultant, who may or may not be an active design member of the project team, will liaise with the client representative and will be responsible for the following activities. 2.5.4.3 GENERALLY (a) Establish the client’s brief and ensure that it is agreed with the client and communicated to all designers. Monitor the service provided by all consultants to ensure that they are carrying out their duties to the standard required at each work stage. Submit all reports, plans and proposals to the client with the request for approval to proceed to the next work stage. Deal with all queries and solve problems as they arise. Seek advice from the client where necessary, but be aware that professional responsibility for the proper management of all aspects of the project lies solely with the lead consultant and project team members. Ensure that all drawn and specification material is forwarded to all other consultants in accordance with the previously agreed project team programme. Review, coordinate and confirm design drawings of all project team members. Regularly review the design with the client and designers and formally minute any agreed amendments. Inform the client of the impact of these amendments on time, cost and design.

(b)

(c)

(d)

(e)

2.5.4.4

STAGES A AND B: INCEPTION, FEASABILITY AND BRIEFING AB/1 Establish the scope of the project and ensure that all other members of the project team have the same understanding. AB/2 Advise on the need for site investigations. AB/3 Investigate planning constraints.

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AB/4 Direct the activities of any supporting consultants such that the option appraisal/feasibility study is fully investigated. Collate and prepare a report for submission to the client. Attend presentation meetings as required. AB/5 Assist the client with the preparation of detailed briefing documents with special input on technical, legal, statutory, financial and programming requirements. AB/6 Advise on procurement methods. AB/7 Advise the client with regard to the general application of the CDM Regulations and comply with Regulation 13(1). AB/8 Agree fee with the client. AB/9 Obtain further instructions from the client. 2.5.4.5 STAGE C: OUTLINE PROPOSALS C1 Arrange dates and venues. Chair and minute all regular design team meetings (at least monthly up to tender stage). Arrange to circulate a list of specific duties of each consultant to establish roles and responsibilities. Discuss and agree a detailed design and general construction programme with all members of the design team. Arrange dates and venues with the architect and client representative for brief development and presentation meetings. Arrange for surveys, investigations and consultations with statutory bodies. Ensure compliance with Regulation 13(2) of the CDM Regulations and liaise with the planning supervisor. Compile and submit Stage C report to the client. Request approval to proceed to Stage D.

C2

C3

C4

C5

C6 C7 2.5.4.6

STAGE D: SCHEME DESIGN D1 Arrange for any site investigations and consultations which are still necessary. Review progress, brief and the client’s decisions. With the project team’s assistance prepare and agree a detailed design programme of work and flow of information.

D2

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D3

Prepare the initial health and safety plan (if acting as the planning supervisor). Ensure compliance with Regulation 13(2) of the CDM Regulations and liaise with the planning supervisor. Clarify items of fixed furniture and equipment required by the client. Compile the Stage D report from work undertaken and coordinated by all project team members. With the architect, undertake a formal presentation (or presentations) to the client. Request approval to proceed to Stage E.

D4

D5 D6

D7

D8 2.5.4.7

STAGE E: DETAILED DESIGN E1 E2 E3 Review the outcome of planning submission. Consider the need for pre-ordering of materials or equipment. Compile and submit the Stage E report to the client which, in addition to the usual reports and cost plans, should comprise: • furniture and layout drawings; • sample boards and recommendations for selection of materials and finishes; • reports from advising authorities; • phasing and site management drawing showing the effects of disruption on the operation of the establishment; and • schedule of areas showing the direct relation to the areas in the brief. Ensure compliance with Regulation 13(2) of the CDM Regulations and liaise with the planning supervisor. Advise on the form of contract. Request approval to proceed to Stage F.

E4

E5 E6 2.5.4.8

STAGE F: PRODUCTION OF INFORMATION F1 Ensure appropriate applications for approval under other applicable statutory requirements (including negotiating waivers or relaxations). Ensure appropriate applications for approval under the building regulations or other applicable statutory requirements (including negotiating waivers or relaxations).

F2

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F3

Discuss any aspects of the design, construction methods or site management that could be of concern under health and safety legislation. Update the health and safety plan. Ensure that a list of tenderers from approved register of contractors is obtained. Contact each contractor giving outline details of the scheme and request that they confirm their interest in submitting a bona fide tender. Confirm all requirements from the planning authority, fire officer, crime prevention officer and highway authority will be incorporated in the contract documents. Report to the client at monthly intervals on progress and cost plan checks.

F4

F5

F6

2.5.4.9

STAGE G: BILLS OF QUANTITIES G1 Discuss with the client and project team suitable amendments to standard contract preliminary clauses, the completion of the appendix to the contract, performance bonds, changes to standard contract conditions, methods of appointing subcontractors and suppliers and insurance liabilities. Ensure that planning and building regulation approval has been achieved. Obtain pre-tender estimate from quantity surveyors. Inform the client of readiness. On instructions to proceed to tender, instruct the quantity surveyor (if appointed) to issue tender documents. Follow all the client’s standard procedures for this activity.

G2 G3

G4

2.5.4.10 STAGE H: TENDER ACTION H1 Ensure that all arrangements for temporary works and client site preparation have been undertaken. Liaise with the property manager/client for all temporary site management and services issues. Be available to assist tenderers in the clarification or correction of data within the tender documents. Carry out tender appraisal in conjunction with other consultants and submit a formal tender report to the client recommending (or otherwise) the acceptance of a single tender. If necessary, undertake redesign, and/or negotiation with tenderer(s) and client, on reductions in tendered contract sum to meet the client’s budget.

H2

H3

H4

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2.5.4.11 STAGE J: PROJECT PLANNING J1 Prepare the building contract and arrange for it to be forwarded to the client or his or her solicitor, and signed by the contractor. Notify the client’s insurers. Arrange a pre-contract meeting with the contractor, subcontractors, consultants, clerk of works, client and head of establishment. Advise on arrangements for access to the site and deal with queries and concerns on works. Ensure that all temporary and enabling works are complete.

J2 J3

J4

2.5.4.12 STAGE K: OPERATIONS ON SITE K1 Ensure that the contract is administered in accordance with its terms. Ensure that cost control of the project is maintained. Visit the site as appropriate to inspect the progress and quality of work. Liaise and coordinate the work of all design consultants during the postcontract period ensuring solutions are found to issues that may arise and that the schedules for issue of later design information are met. Hold regular meetings on site with the head of establishment, client and clerk of works to appraise them of progress and to establish and resolve any concerns that may be arising. Attend regular site meetings with the contractor, other consultants and clerk of works. Give a short general report at appropriate intervals during the course of the contract on progress, site relationships, quality of workmanship and any other pertinent matter. Monitor contractor’s health and safety plan and records. Ensure that certificates are issued for interim payments on the RIBA standard form to the client. Produce short financial reports on a cumulative basis (cash flow predictions are required to be attached to each valuation certificate). Produce a detailed financial report showing the value of all actual and expected variations to be issued at three monthly intervals throughout the construction process. Ensure that all the client’s handover procedures have been followed before accepting the building from the contractor. Notify the client’s insurers that work is complete and arrange for release of bonds.

K2 K3

K4

K5

K6

K7

K8

K9

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2.5.4.13 STAGE L: COMPLETION L1 Check making good of all outstanding patent defects. Resolve any issues relating to emergency latent defects over the defects period. On completion of all making good, agreed with the head of establishment in writing, issue certificate of making good defects. Ensure that the terms of the contract, in relation to completion of the works, are administered. Continue to produce a financial report at three monthly intervals. Ensure that the quantity surveyor completes the final account to an auditable standard. Send to the client with the request for approval to issue final certificate. Ensure that the issue of final certificate is made and that all consultants complete construction certificate. Complete quality assurance questionnaire on performance of the client, contractor and other consultants. Resolve any issues relating to emergency latent defects after the patent defects period. Resolve contractual claims and provide any necessary reports to the client. Ensure that the health and safety file is completed and handed to the client.

L2

L3 L4

L5

L6

L7

L8

L9

L10 Ensure that all fire safety certificates, building control certificates, licenses, etc. are obtained and handed to the client. L11 Review the project from start to finish and report findings to the client, complete with observations on successes and failures. Ensure that all parties involved are sent a copy of the report.

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PART TWO: CONSTRUCTION DESIGN & ECONOMICS
SECTION 6: DEFINING SUSTAINABLE CONSTRUCTION
Introduction
The term ‘sustainable’ was first used in the construction industry when it was applied to sources of timber. At that time timber was declared to come from ‘sustainable sources’. Today, timber from ‘sustainable sources’ has been replaced with the expression ‘well managed’ or even ‘managed’ sources implying that there is a difference between being sustainable and being well managed. But what is this difference? The definition of sustainability that seems to have achieved almost universal acceptance is that put forward by the World Commission on Environment and Development in 1987, often referred to as the Brundtland definition: ‘Humanity has the ability to make development sustainable – to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs.’ This definition appears quite clear in its meaning: we are charged with the responsibility of ensuring that our activities do not damage the legacy which we are passing on to our successors. Development can be taken in any context, from the economic development of a nation to the construction of a simple building. It confers upon us the responsibility to consider the impact of our activity now and the legacy that we are leaving behind us. This can be regarded as the principal of ‘common inheritance’ or, alternatively, ‘intergenerational equity’. The time frame element is therefore the difference between something which is well managed and something which is sustainable. A source of supply for timber may be well managed, but may only be so for 20, 30, 40 or 50 years. Something which is sustainable has, theoretically, an infinite timescale and therefore has inter-generational equity (where the term equity can mean a resource stock, capital stock or a stock of technologies). In the construction industry a resource stock can either be land, the availability of raw materials or the buildings from which the raw materials have been constructed. Unless purely organic materials, which are capable of self-regeneration, are used, then in-organic materials are used such as stone, clay and minerals which are deposits available in finite quantities and cannot be regenerated.

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The mineral resources that are used are therefore not sustainable in themselves, and in order to demonstrate a sustainable, or at least a ‘more’ sustainable construction industry it is the industry’s responsibility, under the definition, to ensure that the buildings being constructed from the finite raw material resources are capable of inter-generation usage. To summarize, the construction industry cannot be considered to be sustainable in terms of resource usage because raw materials, which are only available in finite quantities, are being extracted and processed into building products for incorporation into a building where the building itself is only designed for a finite life. For the industry to be seen to act in a sustainable manner it needs to provide a building stock that demonstrates appropriate investment of these raw materials such that the swap is an equitable one. To ensure that this takes place, the industry has a responsibility to consider the design, detailing and construction methods as well as the cost in use to show that a valuable legacy has been left to future generations.

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2.6.1 Technology Swaps
Sustainability can be demonstrated, and the consumption of finite raw materials justified, if a technology is produced that is a substitute for the original raw material resource once this is exhausted. The best demonstration of this, and probably the first major challenge that will face humankind, is the exhaustion of fossil fuels. Today, development, economic and political stability depend entirely upon the availability of oil as a fuel and a raw materials source. Although estimates of available economic oil reserves continually extend, and we are likely to enjoy the benefits of it for at least another 100 years or so, it is universally agreed that human activity will have to change and the reliance upon oil will have to decline as the availability diminishes and it becomes more costly to extract. The development of an alternative renewable, sustainable, pollution-free energy source is therefore vital to the sustainability of human development. Oil provides a very good example of non-sustainability in practice. However, if the revenues generated from the use of oil were diverted to the research and development of alternative, sustainable energy sources, this would be an example of sustainability in practice in the form of a technology swap. In this instance, the result of using one resource has been the production of an alternative technology which is a direct substitute for the resource that has been exhausted. The definition of sustainability has therefore been satisfied in that the activities of one generation in achieving their goals has not prevented future generations from achieving their goals. The inter-generational equity principal is therefore a mechanism by which the total available resource to future generations is maintained at a constant level.

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This resource, which is available for their use, can either be in the form of raw materials, capital wealth or alternative technologies. The important factor is that the overall equity stock must not be diminished.

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2.6.2 How Can the Environment and Sustainability be Valued?
At present the only method that has been developed for assessing the impact of human activities has been to put a financial value on everything. In the fullness of time it is to be hoped that we will devise different methods of quantifying value. An example of a technology advance resulting in huge potential environmental damage is the CFC gases that have been identified as being largely responsible for the depletion of the ozone layer. But how do we value the environmental damage and possibly attempt to justify it in terms that are economically acceptable? It has been suggested that the only way that ozone layer depletion could be argued and justified as economically acceptable is if there was a way of reinstating it at an acceptable cost. In other words, a technology advance has been made for economic gain but at an environmental cost. This environmental cost cannot be quantified in economic terms because no cost yardstick has been devised for attributing economic value to our environmental stock. This could, however, be quantified if there was a technology to replace the ozone layer which would itself carry the missing cost element within the equation. This leads to the conclusion that acts which damage the environment do carry a penalty for future generations and therefore to ignore them is a risk. This risk may not necessarily be a risk for the present generation, but one that is being imposed on future generations. Under a philosophy of sustainability it is the responsibility of the present generation to hand on to the next generation the same total stock as it itself inherited so as to ensure the same overall balance of advantages for future development as originally inherited. Providing that each generation adheres to these principals, the element of timescale judgement is removed as each successive generation looks after the next. Under these criteria, knowledge and technical advances will still be made and future generations will still be at least as well off as the present generations; but the likely loser will be the industrialized economy which will have to alter the way in which the indicators of economic development are measured. At present, industrialized nations generally consider economic development to mean an increase in Gross National Product (GNP) per capita. However, GNP assumes all matters relating to the environment have zero value. If economic values are attributed to environmental functions in relation to economic development, the national economic balance sheets would take on a considerably different complexion.

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2.6.3 How Does This Affect the Construction Industry?
2.6.3.1 MATERIALS Most construction materials are a finite resource and will eventually be exhausted. Many already are. Local British sources of Portland stone, which has been used as a cladding material for many years, have been exhausted or the quarries closed and it now has to be obtained from the Continent. Certain colours of terrazzo marble, once popular in the 1960s, are no longer available as entire mountains in Italy have been levelled. The use of terrazzo has now been superseded by the increased use in solid marble and granite although it will only be a matter of time before these sources are similarly exhausted. Even organic materials are not immune. Brazilian Rio Rosewood, which was very popular for making high-quality furniture in the 1960s, is now so endangered that it appears on the Control in Trade of Endangered Species (CITES) list as being illegal for fear of extinction. Mahogany is also on the fringes of being listed and it is widely reported that there are no longer any legal sources for the supply of the true Swietenia mahogany. An example closer to home is the UK’s reliance upon imported timber having used up its own supply. The history of timber production in the UK is an interesting one which has seen the rapid depletion of forests from approximately 90 per cent forest coverage at the time the Romans arrived to a low point of less than 5 per cent of land coverage at the early part of this century. Timber was first imported after the Great Fire of London and in 1668 it became necessary for Acts of Parliament to be passed to create forest reserves like the New Forest in Hampshire to try to arrest the situation. World War I saw timber in short supply again and resulted in the birth of the Forestry Commission as a Government Agency in 1919. World War II resulted in timber shortages again and the emergency created the major post-war plantation of quick-growing conifers. Humankind has a history of failing to adequately consider the impact that its activities are having on the resource base and examples are easy to find. 2.6.3.2 BENCH MARKING ENVIRONMENTAL IMPACTS In order to be able to assess the effect that we are having upon the environment as a result of our activities a scientifically rigorous and consistent method of analysis and bench marking is required. Such a method would have to attribute units of measurement to each environmental impact and in turn to relate these back to a datum to render the results meaningful on a human scale. The Building Research Establishment (BRE) has undertaken more work than most in this area. It has developed Envest, an environmental estimating software tool which attributes Ecopoints to environmental impacts, with 100 Ecopoints being equivalent to the environmental impact of the average UK citizen. Using a variety of comparison models and mathematical techniques Ecopoint values have been attributed to building materials and systems, and it

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is now possible, via the software package, to calculate the total Ecopoints score for building types, building operations, refurbishment and custom use. From this data one form of construction can be analysed against another. It is also possible to quantify the decision-making process using environmental criteria, not only by building type and the method of construction that should be used but also the decision whether to build new or to refurbish. Environmental Impacts In undertaking the assessment of environmental impacts and attributing Ecopoints values to various activities and products, the following must be considered carefully: • climate change; • fossil fuel depletion; • ozone depletion; • human toxicity to air and water; • waste disposal; • water extraction; • acid deposition; • eutrophication (or over enrichment of water courses); • ecotoxicity; • low-level ozone creation (summer smog); and • mineral extraction. All these factors have been considered, quantified, compared and weighted in relation to the impact associated with a typical UK citizen and are shown in table 1.
Table 1: Environmental Impact of UK Citizens Issue % weighting Characterized impact associated with a typical UK citizen 12300 kg CO2 eq. (100yr) 4.09 tonnes oil eq. 0.286 kg CFC11 eq. 90.7 kg toxicity 7.19 tonnes 418000 litres 58.9 kg SO2 eq. 8.01 kg PO4 eq 178000 m3 toxicity 32.2 kg ethene eq. 5.04 tonnes 0.0275 kg toxicity

Climate change Fossil fuel depletion Ozone depletion Human toxicity to air Waste disposal Water extraction Acid deposition Eutrophication Ecotoxicity Photochemical ozone creation Mineral extraction Human toxicity to water

37.8 12.0 8.2 7.0 6.1 5.4 5.1 4.3 4.3 3.8 3.5 2.6

% may not add up to 100% due to rounding

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So for example, to calculate the Ecopoints for 1 tonne of mineral extraction: Characterized impact = 1 tonne mineral extraction Characterized impact for 1 typical UK citizen = 5.04 tonnes mineral extraction Normalized impact = 1 divided by 5.04 = 0.198 Weighting = 3.5% Ecopoints = 0.198 multipled by 3.5 = 0.693 Ecopoints 2.6.3.3 EMBODIED ENERGY As materials can be extracted in any part of the world and either processed into building components locally or transported as raw materials, it is virtually impossible to examine all of the possible environmental impacts that the various activities are likely to have because the variables are just so great. Perhaps the only constant method there may be in the winning and working of materials, their transportation and processing into building components up to the point when they are assembled into completed buildings is the energy requirements of the various processes. The actual monetary value of energy can also be different from country to country, therefore it is not possible to use monetary value of energy as a unit of measure. However, the unit of energy input itself can be used. As energy is required to be consumed at every stage of the production process, from extraction of the raw material to its incorporation into a construction, and eventually to demolition and possible reprocessing, the sum total of these energy inputs can be termed as the embodied energy of that product. It should therefore be scientifically possible to establish a method of calculating the quantity of embodied energy that is required to make a building component, be it a cubic metre of concrete, a single brick, a square metre of glass or a sheet of plasterboard. Appendix A shows a comparison of embodied energy values for some common materials. From this it can be appreciated just how energy intensive some processes are and therefore how relatively good and bad some components are. If materials have to be imported or are chosen to be imported on the grounds of economic cost these will, by definition, carry a larger embodied energy by virtue of the cost of global transportation. Conversely, economies may be derived by local energy consumption and waste disposal which can also be incorporated into the equation. Embodied energy impacts associated with materials have also been assessed quantitively by the BRE using Envest (see 2.6.3.2) which can also take account of the building form and fabric typical replacement intervals and other data held by the Centre for Sustainable Construction. The results generated are quoted in Ecopoints per m² of element and factors such as replacement intervals can also be factored in as part of a full cost and use study. A fundamental difference in environmental terms between refurbishment and redevelopment is the saving of embodied environmental impact and energy if refurbishment is undertaken in preference to demolition and redevelopment.
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2.6.3.4

LEGISLATIVE CHANGES Armed with bench-marking data it would be possible for systems of regulation to be built into the existing regulations. With the increasing emphasis on energy conservation within the building regulations (which currently concentrate on energy consumed in use) it would be a simple extension of these regulations to lay down embodied energy maxima per square metre for various building types. A major criticism that could be levelled at such a system is that it would starve the construction industry of design flexibility. However, this could be overcome by introducing a scale of energy taxation. This would enable those that wish to exceed the design criteria of the regulations to do so, but they would have to pay for the privilege. Conversely, those who produce buildings and achieve significant savings beneath the bench mark could receive aid in the form of grants as recognition for their efforts and ingenuity.

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2.6.4 Green Building Materials
Timber is undoubtedly the material most favoured by green designers. As well as having a relatively low embodied energy content, it absorbs and stores carbon from CO2 when growing, and is strong, insulating and easy to work. Ideally, timber should be sourced in the UK but the supply is severely limited. When sourcing imported timbers designers should ensure that the material originates from a suitable source. The Forest Stewardship Council and the Timber Trades Federation both supply lists of suppliers of timber from good UK sources (see Appendix B). Some species of timber are better than others at resisting rot and decay. In particular, Western Red Cedar and Douglas Fir, which are again being considered as a viable alternative to PVC-u or aluminium. Note: specifiers should exercise care with regards to the source of timber as all is not always as it seems. Masonry construction can be considered green, especially if lime mortars are specified, because this enables the bricks to be used again in the future. Brick manufacturers are now keen to promote their products which use low energy kilns. Another form of construction finding favour is a solid block or concrete wall with insulation and render externally. Dense concrete blocks are preferred to lightweight aerated blocks which use more energy in production. Pulverized fuel ash blocks contain over 50 per cent fuel ash which is a waste product from power stations. It is also now possible to obtain plaster and plasterboard made from waste gypsum which is a by-product from fuel gas de-sulphurization.

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Insulation boards made from polyurethane, extruded polystyrene and phenolic foams have given way to mineral wool, glass fibre, expanded polystyrene, and in some cases foam glass or cork. Recycled cellulose fibre (newspaper print) is now being specified more for loft insulation and wall insulation in timber frame construction. One such product is known as ‘warm cell’ and is available from Excel Industries (see Appendix B). These are just a few examples of alternative material resources now available. It is of course interesting to consider that as these materials gain popularity and become specified as a matter of course, this will cause problems in sourcing adequate quantities to satisfy demands. There is a logic to the use of recycled materials (where the embodied energy can be utilized again) as being perhaps the greenest contribution to be made. Second-hand bricks, timber, roofing materials and assorted ironwork are already available, unfortunately at premium prices.

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2.6.5 Whole Building Sustainability
The matters discussed above help us to use resources and raw materials wisely and to produce better buildings in terms of energy consumed in construction and use. However, this in itself is not sustainable construction, although it is certainly a vital component in the process. Sustainable construction would only be achieved when the finished product can demonstrate usefulness and serviceability on an inter-generation basis, rather than being constructed for a single use and then rendered redundant when there is no longer a requirement for the original purpose. An example of such practice is the current trend for the conversion of redundant 1960s office buildings into residential accommodation, as well as warehouses and barns, which have for many years been seen as suitable residential conversion opportunities. The uses to which these buildings are now being put were never originally envisaged at the time of their planning, design and construction, but suitable alternative uses have been found. One of the key issues in building sustainability is to ensure that what is originally constructed from the resources becomes a similar resource for the future generations. In order to achieve this, attention must be turned to wise material usage and reduction of waste as well as to producing a building of the highest possible quality and with maximum adaptability. The building created must continue to serve future generations well for whatever purpose they wish to put it to, with the minimum of additional cost in terms of energy and raw material resource input in order to convert and use it for their own purposes. There are many buildings of over 200 years of age that have found suitable alternative purposes beyond that for which they were originally designed. It is therefore possible to establish with a reasonable degree of certainty what the vital component parts are in ensuring the success of a building for say a 200, or even a 300 year design life.

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The methods of funding and, in particular, the timescale over which a building is considered a viable proposition would need to be reviewed and an alternative method of valuing the asset would need to be established. This would reflect not just the economic value, but also the environmental resource value invested in the construction, and the social impact and benefits that the construction is likely to have for future generations. The planning process could be slightly extended such that alternative uses are identified and documented and form an integral part of the planning process. This would require the procurers and designers of the building to demonstrate how it could be used for identified alternative purposes and to ensure that the design, as proposed, is sufficiently flexible for the alternative uses to be achieved with minimal additional input. The other components to ensure that a building is suitable for inter-generation use is to get the detailing, product selection and construction quality right such that the building does not wear out before the inter-generation uses can be realised. Whilst some technologies have changed very significantly the base skills have not and nor have the materials. It may be necessary for us to re-learn some old skills in order to produce buildings of a long life expectancy but it is now necessary for us to change from being a disposal society to a considerate and conserving one.

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2.6.6 The Government Line
In May 1999 the Department of Environment, Transport and the Regions (DETR) published A Better Quality of Life – A Strategy for Sustainable Development for the United Kingdom. This document endeavoured to set out a framework and priorities for achieving sustainable development which included: • more investment in people and equipment for a competitive economy; • achieving higher growth whilst reducing pollution and reuse of resources; • sharing the benefits of growth more widely and more fairly; • improving towns and cities and protecting the quality of the countryside; and • contributing to sustainable development internationally. The Government also felt that the construction industry can contribute to achieving the sustainable development aims by:

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• being more profitable and more competitive; • delivering buildings and structures that provide greater satisfaction, well-being and value to customers and users; • respecting and treating its stakeholders more fairly; • enhancing and better protecting the natural environment; and • minimizing its impact on the consumption of energy (especially carbon-based energy) and natural resources. In April 2000 the DETR published Building a Better Quality of Life – A Strategy for More Sustainable Construction. (It should be noted that the inclusion of the word ‘more’ is now associated with a sustainable development strategy which perhaps indicates a slight rethink of absolutes.) This document shows that the Government now feels that the main themes for action in achieving ‘more’ sustainable construction can best be served by adopting the following action points: • reuse existing built assets – meeting functional requirements may not require new buildings and refurbishment and renovation may work better; • design for minimum waste – specify materials with care, think about using recycled materials, design out waste at all phases in the construction and occupation process and involve the supply chain; • aim for lean construction – aim for continuous improvement, waste elimination, customer focus, value for money, high quality management of the projects and supply chain and good communication; • minimize energy in construction – be aware of embodied energies and transportation of construction projects. Adopt ‘green’ travel policies; • minimize energy in use – consider more energy efficient solutions and energy production from renewable sources; • do not pollute – understand environmental impacts; • preserve and enhance bio-diversity – look for opportunities throughout the construction process to provide and protect habitats; • conserve water resources – design for increased water efficiency in building services and within the built environment; • respect people and their local environment – be responsive to the community and consider your workforce; and • set targets – measure and compare your performance with others and set targets for continuous improvement.
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I

2.6.7 What Might the Future Hold
If sustainability is going to be the way forward in the next millennium many existing conceptions of development have to be reviewed and overhauled. The way the environment and resources are valued, and how they are used, have to be re-examined and justified against a policy of sustainability. The materials and resources that are used in construction activities and the buildings that are created will require fresh justification against sustainability objectives. This will require an overhaul of the planning process and regulatory frameworks within which the construction industry operates, requiring funders, building users, material technologists, material manufacturers and suppliers to re-examine and justify their methods. The sourcing of the materials and the methods employed in conversion and production of building products must be the first priority in making progress towards sustainable constructions. The way in which raw materials are extracted and processed at source can have the most direct impact upon the environment and must be closely examined as well as the actual material manufacturers themselves. The second area for examination would have to be the philosophy behind procuring buildings and meeting user requirements, the method by which buildings are funded, the method of valuation and justification, together with the demands for greater longevity and flexibility. Thirdly, the professions responsible for the design and construction of buildings to meet the requirements of funders and users must respond to the challenge of sustainability in order to deliver the required product. This would require new demands and disciplines in relation to the construction form and the standard of construction itself. New materials and techniques would need to be developed and adapted into sustainable construction. The professionals would have to put new demands upon the material producers in the production of more sustainable materials, but above all they must build for longevity and flexibility with minimum re-investment by way of adaptation and maintenance if the goals and targets are to be met. Finally, the contribution that those actually constructing the building have to make would need to be considered. The sustainable building should be a piece of procession engineering, simply constructed but to the very highest of quality standards with good detailing and nothing left to chance. The finished product would have to be a monument to sustainable construction and inter-generational equity making the optimum use of the energy and materials invested. In other words the principles of sustainability must be fully embraced by every participant from the supplier of the raw material, through the material manufacturing process, the procurement and design functions right up to the occupation of the completed building where the responsibility passes to the occupiers, the facilities managers and the future owners, occupiers and managers of the building to each play their part in making the most of what we have.

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Appendix A: Embodied Energy Content of Building Material

Lightweight blocks 625

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694 833 1222 1806 9300 15000 63000 195000 5000 10000 15000

Concrete

Timber

Lightweight concrete

Bricks

Material

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Plaster

Plastic

Glass

Steel

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Aluminium

0

kWh/m3

PART 2, S ECTION 6, A PPENDIX A

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Source: The Architects Handbook 8 June 1995

PART 2, SECTION 6, APPENDIX B

Appendix B: Useful Addresses
Timber Trade Federation Clareville House 22/27 Oxenden Street London SW1Y 4EL Centre for Sustainable Construction Building Research Establishment Garston Watford WD2 7JR Department of Transport, Local Government and Regions (formerly Department of Environment, Transport and Regions) Sustainable Construction Team Eland House Bressenden Place London SW1E 5DU The Forest Stewardship Council Unit D Station Building Llanidloes Powys SY18 6EB Excel Industries 13 Rassau Industrial Estate Ebbw Vale Monmouthshire NP3 5SD Construction Resources 16 Great Guildford Street London SE1 0HS The Building Centre 26 Store Street London WC1 The Environment Information Service PO Box 197 Cawston Norwich NR10 4BH

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PART THREE: CONSTRUCTION PLANNING AND PROCUREMENT
SECTION 1: DEVELOPING AN APPROPRIATE BUILDING PROCUREMENT STRATEGY
Introduction
This section is intended to provide both clients and their advisers with procedures which will assist them in the selection of an appropriate procurement strategy for a building project. The strategy developed for the purpose of project procurement should result from an objective assessment of client needs and project characteristics, since it is considered that there will be no single procurement strategy suitable for all projects and all clients. Choice of an inappropriate strategy can, however, result in a failure to meet client objectives, disappointment and potential litigation. The selection process should, therefore, provide a best-fit solution based on good judgement and which is acceptable in terms of the identified criteria and the acceptable distribution of risk. The selection of an appropriate procurement strategy is identified as a key decision in terms of achieving client objectives. Conversely, an inappropriate choice can be a key factor in performance failure, resulting in cost and time overruns and poor building performance. This section looks at the client’s role (3.1.1), the development of procurement strategies (3.1.2), the selection of the most appropriate procurement route (3.1.3), and the implementation process (3.1.4). 3.1.1 informs clients as to their involvement as it relates to key stages in the process. It also stresses the importance of appropriate professional advice. In 3.1.2–3, the key issues are addressed together with the characteristics of a variety of procurement strategies: the aim is to match client needs, the particular project’s criteria and the chosen strategy. The implementation of strategies is considered in 3.1.4 where reference is also made to standard contracts for the designer, consultant or constructor appointment. Appendix A outlines procurement options.
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EFFECT OF CLIENT TYPE ON SATISFACTION CRITERIA The type of client will affect the criteria which must be met if the client is to be satisfied with the project. 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 advantage. They may be predominantly concerned with speed rather than performance. 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. Attempts to categorise clients in various ways may be helpful in the early stages of developing procurement strategy. However, each client is unique and will be more or less experienced in the process of building procurement depending on company size and stage of development. It is important to consider those factors which will affect client satisfaction as well as the level of knowledge and experience of the client in the process of building procurement. These factors should have a major influence on procurement strategy and whether the client should take an active role in the procurement process. This Section addresses these issues and provides, through the form of a checklist, a process to aid selection. SCOPE The section and the processes included should be used as a prompt and a focus for the issues to be addressed during the development of procurement strategy. It is not intended that the section will be used as a substitute for judgement.

3.1.1 The Client’s Role
(It is recommended that this be read in conjunction with Part 1, Section 1) G G 3.1.1.1 3.1.1.1 INTRODUCTION This subsection explains the client’s responsibilities through the life of a project. Although it is written for building projects, much of the advice is applicable to other types of project. In carrying out their role, clients, depending on their knowledge and expertise, will need help from their

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consultants, project managers and other advisers, whose roles are also explained in this section. It is advisable, wherever possible, that clients obtain advice from an objective and independent adviser who will then not be involved as a consultant on the project. This subsection aims to assist both current and future clients in setting policy and formulating strategy. It outlines their task and explains how it should be carried out. It has been written with the lay client in mind, but will also assist experienced clients and their advisers. The success of any project will depend on 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 an adviser to assist them. Where projects are of a large or complex nature it may be advisable to consider the appointment of a project manager, who will manage the whole project on behalf of the client. G 3.1.1.2 A building project represents a discrete piece of work with clear start and finish dates, providing specified benefits at accepted cost. It is unlike any other manufactured product because it has:

• • • •
G 3.1.1.3

a unique demand – the client’s specific need for accommodation (but future adaptability and possible disposal must not be ignored); a unique location – the site available for the building; unique constraints – the cost and time parameters for the project; and a unique end product – the finished building.

It has three other particular characteristics:

• • •

the final product, although itself unique, is built up of many standard parts assembled in accordance with a series of standard rules and practices; its construction involves major expenditure over a comparatively short period of time; and the construction of a new building requires a large team of individuals and firms with particular expertise to work together to complete the project satisfactorily. This team will normally only be formed for this unique project and then be disassembled. It is unlikely that the same team will work together again, and if it does, the project is likely to be different. Each project is, therefore, a prototype and involves a learning curve. Project testing is rare.

G

3.1.1.4

(a) Effective management is vital in any construction project. The client’s prime role is to define the project and to establish a structure for the management of the project to make sure that it works. (b) A crucial part of any effective management structure is effective communication. To perform effectively all parties should have timely access to all information relevant to their tasks and the project’s objectives and status.

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(c) The client can have substantial influence on the design of the project in respect of both functional efficiency and of overall appearance, and, therefore, has to take particular care to: • develop a business case for the project identifying primary needs and analysing costs and benefits • understand fully the purpose of the building; ensure that the requirements of the users are accommodated; and communicate those requirements to the designers; • appoint architects and engineers with the proven ability of 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. (d) This subsection sets out the role and responsibilities of the client through all stages of the project. (e) The diagram on the next page indicates the primary activities in the procurement process and when activities are 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 clients can expect to be supported and advised by their advisers or (if appointed) the project manager.

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Pre-construction phase Procurement strategy (3.1.1.13) Design overview* (3.1.4.12) Cost control overview* (3.1.4.13) Whole-life costs (3.1.4.15) Value engineering (3.1.4.17) Time control overview* (3.1.4.14) Quality control overview* (3.1.4.18) Appointment of constructors (3.1.4.9) Confirming the business case (3.1.1.9) Design overview (3.1.4.12) Cost control overview (3.1.4.13) Time control overview (3.1.4.14) Quality control overview (3.1.4.18) Change control overview (3.1.4.19) Commissioning (3.1.1.17) Occupation and takeover (3.1.1.18) Construction Post-construction

3.1.1.5

PRIMARY ACTIVITIES IN THE PROCUREMENT PROCESS

Pre-design phase

The Surveyors’ Construction Handbook Contractual arrangements (3.1.4.10) Systems and controls (3.1.4.11) Systems and controls (3.1.4.11) Diagram to indicate the activities in the Procurement Process

Client’s role

Appoint adviser (3.1.1.6) Develop the business case for the project* (3.1.1.9) Define client’s responsibilities (3.1.1.7) Project definition (3.1.1.10) Project briefing (3.1.1.12) Appointment of PM (if appropriate) (3.1.4.7) Appointment of design and cost consultants (3.1.4.8) Procurement strategy* (3.1.1.13) Value management (3.1.4.16)

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Procurement strategy

Procurement strategy development (3.1.2)

Implementation

Resources (3.1.4.3–5) (Client) Organisational structure (3.1.4.6) Contractual arrangements* (3.1.4.10) Systems and controls* (3.1.4.11) Implementation policy (3.1.4.2)

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Indicates the activity will continue into the next phase

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( ) Indicates the subsection of this document referring to the activity

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3.1.1.6

INDEPENDENT CLIENT ADVICE (a) 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. (b) 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 expertise retained should be retained solely for this purpose. This function may encompass:

• • • • •

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)

(c) The decision as to which procurement strategy to select should be based upon information from the client and information about the project. (d) A best practice guide is available to assist in this process1. (e) Possible sources for independent client advice include a suitably qualified and experienced construction professional such as a chartered surveyor. G 3.1.1.7 CLIENT’S RESPONSIBILITIES (a) The client should set policy and outline strategy including: • setting and prioritising the project objectives; • clarifying client attitude to project risk; • establishing procurement strategy; • arbitrating between conflicting demands; and • evaluating the completed project against the objectives.

1

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

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(b) The client also has a threefold management function: • to provide financial resources and land for the project; • to manage the client input; to co-ordinate functional and administrative needs; to make decisions when needed; to resolve conflicts; to act as the formal point of contract for the project; and • to supply the technical expertise, to assess, procure, monitor and control the external resources need to implement the project (throughout the procurement process). (c) In particular the client should be satisfied, as far as possible, that: • the project brief is clearly defined as far as possible and linked back to the client’s business case for the project; • the project brief is comprehensive and clear and has the full support of the users; • any constraints demanded by the project funder(s) are known and their impact understood; • the critical assumptions made in preparing the initial estimates and programmes are valid, realistic and achievable; • advisers have developed cost estimates which are comprehensive and include all capital and resources costs; • allowances made in the feasibility and viability assessments to cover possible risks are sufficient (contingency allowance); • an adequate risk analysis has been completed; • 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; • plans are in place for adequate project management including systems for cost, time and change control, and that health and safety has been adequately addressed; • land will be purchased and available for the commencement of the work. (d) The client should also co-ordinate and resolve conflicts between all interested sections of the client organisation including: • user groups – who will work in the building; • specialist groups – responsible for technical systems within the building, e.g. communications, computers; • facilities management – who will manage the completed building including maintenance and security; • finance and accounts – who will plan and control expenditure and pay bills as they arise; • legal advisers – who will advise on and monitor the client’s formal relationships with outside parties.

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(e) 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: • scheduling the key decisions to be made; • identifying the decision makers and their required procedures; • ascertaining the time required for making decisions; • establishing a formal programme for decisions; • pre-warning decision makers of forthcoming submissions – making sure ‘items are on the agenda’; • preparing on time fully detailed submissions and/or presentations in full compliance with procedural requirements; • following up submissions throughout the decision making process; and • promptly communicating decisions made to the parties affected by them. G 3.1.1.8 KEY CLIENT ACTIVITIES Notwithstanding overall responsibility for the whole of the project, the client will have an active personal involvement in the key activities explained in the following subsections. G 3.1.1.9 DEVELOPING THE BUSINESS CASE FOR THE PROJECT (a) The client’s purpose in initiating a building project may be driven by the need for the project as a functional unit or long-term investment. (b) The client will need to review project feasibility in terms of time and cost against benefits which will stem from the proposed project. In doing so he/she will have to consider the returns expected, the value (in use) of the projected asset against projected land costs, construction costs, cost of fees, fitting out and commissioning costs, operating and maintenance costs and the opportunity cost of money. (c) The importance of each of these issues will be relative to the objectives of the client and to the extent to which the client is able to cope with risk. (d) Further influences in the case of a development project may include likely annual rental, period between rent reviews, and growth of rental value. In terms of the project development, total development time and taxation issues may also be influential on the decision process. (e) It is important that the client seeks advice in terms of investment appraisal of the planned project and that any appraisal considers ‘what if’ questions to ensure that the impact of changes of key components in the appraisal are clearly understood. A chartered surveyor will be able to assist the client in these matters.

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3.1.1.10

PROJECT DEFINITION The importance of a clear project definition 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 from the advisers or design team in the preparation of the definition. The project definition is a comprehensive statement of the client’s objectives and parameters for the project based on close consultation between the client and users covering:

• • • • •
G 3.1.1.11

project description; function of building; equipment and special services/requirements; target programme; and site.

ESTABLISHING PRIMARY OBJECTIVES (a) In establishing the primary objectives for the project it is necessary to prioritise these objectives to ensure that when developing a procurement strategy appropriate emphasis is given to the most important objectives. (b) Since there can be a tension between the long-term objectives set for the project in the business plan and the short-term objectives set for the project by the project team, the identification of priorities is very important. (c) One way to achieve this is to consider ‘what if’ scenarios to establish the importance of key factors: • what if the project does not meet its functional requirements? • what if the project is delivered late? • what if the cost of the project exceeds the budget? (d) By carrying out an analysis in this way relative importance can be given to each aspect by weighting that aspect against a total.
For example: Function Completion Cost % 50 20 30 100 Each of these can be subdivided to produce clarity, e.g. cost can be divided into capital and running costs, time into speed or reliability of delivery date and function into layout, environmental quality and specification.

(e) 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 definition is not readily available, it is better to issue it in an incomplete form and progressively update it. G 3.1.1.12 BRIEFING (a) Once the project definition has been completed the briefing process will be carried out. This is when the design team and cost consultants are able to flesh out
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the project prior to extensive design work. The process commences with concept design building upon project definition and progresses through to a project brief which should encompass the client’s aesthetic, spatial and service requirements. (b) While it may be difficult for inexperienced construction clients to visualise the descriptions outlined during the briefing process it is worth spending time seeking consensus on its content to avoid waste in the later design process. (c) The Construction Industry Board (1997) have produced an excellent guide called Briefing the Team which summarises the processes involved.1 (d) Following the development of the brief for the project the design process will commence (see 3.1.4 – Implementation). G 3.1.1.13 DEVELOPMENT OF PROCUREMENT STRATEGY The client is responsible for selecting the procurement strategy most suited to the project and deciding how it is to be administered. The client may need to take consultant advice on which strategy is most appropriate considering the prioritised objectives and attitude to risk. This is a three-stage process which may be key to project success:

• • •

selecting the strategy; implementing the strategy; and planning the administration of the contracts underpinning the implementation of the strategy.

The processes of procurement strategy selection and implementation are dealt with in 3.1.3 and 3.1.4. G 3.1.1.14 (a) Strategies may include: • traditional – design by consultants completed before lump sum tenders are obtained; • design and build – detailed design and construction by the contractor for lump sum; design and construction may overlap. Where a concept design is produced by the consultants before the contractor is appointed, the strategy is called develop and construct; • management contract – design by consultants; management contractor appointed early and work package contracts let progressively in the contractor’s name; design and construction overlap; • design and manage – outline design by the consultants; as ‘management contract’ but detailed design by the management contractor; design and construction overlap; and • construction management – design by consultants; construction manager appointed early to produce and manage trade package contracts made directly with the client; design and construction overlap.
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3.1.1.15

(a) The extent of collaboration possible between those who design the project and those responsible for delivery will vary with the strategy adopted. (b) Selection strategies may include selection by competition for price; on the basis of the quality of the bid as well as price alone; or by negotiation. In some cases a high level of collaboration is possible enabling those responsible for delivery to adopt a ‘Partnering’ approach to project delivery. (c) Partnering is not so much a contract strategy as a way by which the project team can be drawn together for their mutual benefit. Partnering is usually most advantageous where the client has a range of projects to procure but can be adopted for single projects. (d) The principles associated with Partnering are based on inclusiveness and depend upon a trust being established within the team. There is also a focus on achieving the best outcome for the client as well as a satisfactory outcome for each participant. The primary principles include developing mutual objectives, simple approaches to dealing with disputes and a focus on continuous improvement which can be measured. (e) This approach represents a change in the culture traditionally adopted by the UK construction industry which has previously been based on price-bid approaches and will need to be carefully managed. However, evidence is beginning to emerge of real all-round benefits being achieved particularly by regular and experienced construction clients. (f) The Construction Industry Board have published a most useful guide to partnering1. (g) The number and style of contract documents will depend on the contract strategy selected.

G

3.1.1.16

(a) Where direct consultant appointments are made each will be subject to a separate form of contract, but where a design and build strategy is selected, designers may be appointed by the contractor. In the case of construction management, the client will be required to enter into many individual trade contracts. (b) Contract implementation can be complex and may encompass the additional appointment of consultant advisers or the novation of designers from the client to the contractor. In addition, forms of warranty and collateral contracts may be involved. The consultant advisers can assist the client in the selection of appropriate contracts and the documentation associated with them.

1

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

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(c) The responsibility for contract administration will depend upon the procurement strategy selected, and may fall upon the design team, the project manager, a contract administrator, or the client him/herself. The client should seek advice to ensure that the administration process is appropriately planned and delegated. (d) Guidance on the appointment of consultants and contractors is included in 3.1.4 (Implementation). G 3.1.1.17 COMMISSIONING (a) Once the building work is complete the systems which will support comfort must be commissioned to ensure they are working effectively and reliably. (b) In relatively simple buildings the client can insist that this is a function which the contractor must perform. Where buildings have sophisticated systems controlling the internal environment or facilitating staff movement or safety, commissioning can be established as an independent activity carried out by specialists. (c) However commissioning is facilitated, it must be achieved before any building can function effectively. G 3.1.1.18 OCCUPATION AND TAKE-OVER (a) The client is responsible for addressing the issues of occupation, staffing and subsequent operation and maintenance of the building. This activity is separate from the design and construction process, although it will affect it, and will have its own time, resource and cost implications which should be incorporated into the overall project plan. (b) For large projects, the client may wish to arrange for the nomination of a member of the department to act as occupation manager to manage this activity or may appoint a facilities manager. Occupation plans should be established during the design stages of the project and should cover: • the operation of the building on a regular on-going basis; • the hand-over and acceptance of the building from the contractor(s); • the progressive final fitting-out (if any) and physical occupation of the building with minimum disruption to the client’s operations.

3.1.2 Procurement Strategy
G 3.1.2.1 Designing and constructing a new building is rarely straightforward. It is subject to a series of risks and uncertainties and involves a number of organisations especially assembled for the project. The way in which the client and the various designers, contractors and suppliers work together as a team is determined by the procurement strategy and forms of contract entered
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into between the project participants and the client. The procurement strategy should be consistent with the objectives of the project and should enable the risks to be controlled to achieve a successful outcome. G 3.1.2.2 Procurement strategy is the outcome of a series of decisions which are made during the early stages of a project. It is one of the most important decisions facing the client. The chosen strategy influences the allocation of risk, the design strategy and the method of employment of consultants and contractors. Risks are also allocated by means of the associated contracts. Procurement strategy has a major impact on the timescale and ultimate cost of the project. Generally, clients can choose from several different strategies. A successful strategy is one which leads to a completed building which meets the client’s objectives. The preferred aim is for contributing parties to work together for a quality result rather than competing against each other. Where the development of design does not maintain the pace anticipated, or the programme is otherwise affected by unexpected occurrences, the selected strategy must be reviewed. It is most important that the strategy is reconsidered at key times in the progress of the project such as when planning approval is given, before contract strategy is decided and before construction contracts are let. DEFINITION OF TERMS Different procurement strategies provide different ways of allocating risk and responsibility to the organisation contributing to the project. They can either integrate the design and construction processes or segregate them. Approaches to the selection of processes enabling collaboration are referred to in 3.1.4 (Implementation). The main types of procurement strategy are summarised below (they are covered in more detail in Appendix A).

G

3.1.2.3

G

3.1.2.4

G

3.1.2.5

• •

traditional: design by consultants is completed before contractors tender for, then carry out, construction; construction management: design by the client’s consultants and construction overlap. A fee-earning construction manager defines and manages the work packages. All contracts are between the client and the trade contractors. The final cost of the project may only be accurately forecast when all packages have been let; management contracting: design by the client’s consultant and construction overlap. A management contractor is appointed early to let elements of work progressively by trade or package contracts (called ‘works packages’). The contracts are between the management contractor and the works contractors. As with construction management, the final cost can only be accurately forecast when the last package has been let;
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design and manage: similar to the management contract, with the contractor also being responsible either for detailed design or for managing the detailed design process; and design and build: detailed design and construction are both undertaken by a single contractor is return for a lump sum price. Where a concept design is prepared before the contractor is appointed, the strategy is called develop and construct.

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3.1.2.6

On some projects it may be necessary to use more than one strategy to meet the project’s objectives. For example, a traditional approach may be used for completing the building structurally with main services installed. This is known as a shell and core contract. A separate strategy, for example, construction management, may be used to fit out the building with ceilings, raised floors, carpets, partitions and electrical fittings. The use of two strategies allows the client more time to finalise the user’s detailed requirements, without delaying the start of construction. When the choice of procurement strategy has been made, the resultant contract strategy and forms of contract should be chosen (i.e. the terms and conditions of the contract). To avoid the need for fresh legal drafting each time, various standard forms of contract are available, both for the appointment of consultants and contractors. Construction professionals re usually experienced in understanding these contracts and can advise on the implications of their adoption. The range of contracts available is referred to in 3.1.4 (Implementation). PROJECT OBJECTIVES (a) Construction (and refurbishment) projects are often complex with potential for cost and time overruns or the finished building performing less well than planned. To minimise such risks the client should select the procurement strategy which matches the objectives of the project. These must be clearly established and prioritised before any design or other work begins (see 3.1.1.10–11 – Project Definition, Establishing Primary Objectives). (b) The client must decide the relative importance of the three main types of criteria – time, cost and performance: • time: earlier completion can be achieved if construction is started before design is finished. The greater the overlap between the two, the less time will be required to complete the project; • cost: with the exception of simple ‘standard’ buildings and certain ‘design and build’ strategies, a final construction contract sum cannot be established until the design is complete. Any overlap between design and construction means that construction starts before the cost is fixed. This increases the importance of accurate cost forecasting and the risk to the client; and

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3.1.2.8

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• performance (design): the quality and performance characteristics required from the completed building determine both the project time and cost. Some strategies reduce the client’s ability to control and make changes to the detailed building specification after the contracts have been let.
(c) Performance includes the function of the building, its quality and appearance and other factors such as durability, cost in use and flexibility. The relative importance of each objective must be given careful consideration because decisions throughout the project will be based on balances between the other objectives (see Figure 1). In any project these three criteria will be interdependent and decisions affecting one will affect one or both of the other criteria. The appropriate procurement strategy will recognise this interrelationship and reflect the client’s objectives and the characteristics of the project. It is uncommon for a project simply to emphasise one criterion alone and most projects would emphasise time and cost, time and performance or cost and performance. The project strategies most commonly adopted reflect this characteristic. The strategy should also reflect the client’s technical ability and resources and the amount of control over the process which he/she wishes to exert directly or through the project manager (if appointed).

FIGURE 1 THE RELATIONSHIP BE TWEEN P RIMARY CRITERIA

Time aspects (speed to completion, programme certainty)

As the emphasis on one or two of these criteria increases the other(s) will be affected

Cost Issues (level of price, certainty of price)

Performance Issues (quality, functionality, design)

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3.1.2.9

RISK AND RESPONSIBILITY (a) There is a finite amount of risk and responsibility associated with any project and this should be an influencing factor on the selection of the procurement strategy. The uncertainties of time, cost and performance are the three main risks that are present in every project. Risks are usually considered as uncertain future events, which may have significant effects, e.g. extra cost, delay or damage to the performance of the finished project. Having set the priorities for the project’s objectives, the client should consider the effect of those objectives not being met and the resulting risks to which he/she could be exposed. Although the project is subject to a wide variety of risks, it is important to note that only a few have a major effect. This is a powerful argument for concentrating attention during cost estimating and management decision-making on the few largest sources of uncertainty and risk and for developing strategies for managing out risk and for setting up contracts in such a way that the allocation of the major risks is clear. (b) The risks which are considered to have potentially the greatest impact on construction projects include: • a project which will not function in accordance with the client’s needs; • a project which is of inadequate quality; • a project which is completed later than required deadlines; and • a project which costs more than the client’s budget or ability to pay. In each case, the strategy can be to transfer the whole risk to another through the medium of contract. This is possible but will attract high price premiums or will expose the transferee to risks which they may not be able to ‘own’ or insure and therefore the party transferring the risk will remain exposed. Risk may alternatively be retained in part by the client, or reduced by adequate pre-design or pre-price investigation. (c) As has been already suggested, an adequate brief will reduce risk and ensure functionality and quality standards. Equally, adequacy of programme will reduce the risk of overrun and adequacy of cost estimates should ensure a resultant cost which is within budget. Both construction time and construction cost estimates depend upon sufficient design development, which itself will depend upon an adequate brief and parallel investigation of ground conditions and the particular requirements of statutory controls. In ensuring that the brief is adequate, and that design is appropriately developed, the client can successfully reduce some risk in a way that will not result in high price premiums. (d) Ideally, risk and responsibility should go together, so that the party responsible for performing a task is accountable. Each risk should be allocated

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to the party with the greatest ability to own the risk and to manage its effects. If, for example, the client considers it critical that the price for the building is fixed before construction commences, the risk of meeting that objective could be passed to contractors, making them contractually responsible for completion to an agreed design and specification for a lump sum price. G 3.1.2.10 PASSING ON RISK (a) Responsibility for risk and the ability to control a project interact. The more the client chooses to allocate risk to other parties, the less control the client has over the way in which the project is executed. In the example above, if the contractor has to meet the agreed specification within the budget and time, the client has little influence over the way in which these objectives are met. In practice, risk allocation is determined by the chosen strategy and allocated by means of contracts between the client and those responsible for managing, designing or constructing the project. The way in which risk and responsibility are allocated by different contract strategies is indicated below and shown in Appendix A. (b) In all cases where risks are transferred in contractual terms, it is necessary to ensure the ability of the transferee to own the risk. In the case of design failure, for example, this is usually passed to the design team including the architect and engineering consultants. Because of the nature of their professions they should have insurances of sufficient capacity to meet the maximum possible cost of correcting the design failure. The client should ensure that such insurances are in place, adequate and paid for; where a project manager or consultant adviser has been appointed, this is a role that may be performed by him/her. (c) Some design work may be carried out by subcontractors who may or may not continue to pay design liability insurance premiums and usually will have limited liability status. Liability for their design work is commonly passed by warranties but these are less secure. Equally, where time risks are passed to contractors their attempts to transfer them to small subcontractors may fail where the capacity to own or accept the risk is limited. In situations such as these it may be possible to pass risks contractually but the lack of security associated with the transfer may result in the risk being borne by the party attempting to pass it. It is difficult to allocate blame in team situations. The client should be aware of this weakness in terms of risk allocation. (d) While the transfer of risk provides an incentive for the receiving party to minimise its impact, the client should avoid transferring risks when the receiving party has no control over them or no capacity to absorb them. Generally, the more the risk of cost and time slippage is allocated to other
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parties, the higher the tendered cost. In pricing the project, tenderers may over-estimate the size of the risk or add a high safety margin to an accurate estimate and thereby increase the project’s costs unnecessarily. G 3.1.2.11 RISK AND PROCUREMENT STRATEGY (a) Risks are inherent in the data used by the client in the preparation of the brief, they are inherent in the characteristics of the project, and they are inherent in the procurement strategy which is selected. The identification of primary risks and an analysis of the client’s ability to be a risk taker, or need to be risk averse, should affect procurement strategy. With this information in mind steps should be taken:

• •

to inform the client of the extent of the risks involved; and to prepare a strategy for managing risk.

Since the latter will have a cost the client should also be advised of the expense of managing risk. (b) Appendix A refers to the characteristics of each procurement strategy and indicates the levels of risk associated with time, cost and performance in each case on the assumption that the procurement strategy is properly utilised and in no way abused. (Thus, for example, in relation to the traditional system it has been assumed that design completion is achieved before measurement and documentation is carried out.) These primary risks are summarised (by simple examples in Figure 2) by procurement method in the categories time, cost and performance. Where design is by the client’s consultant, design risk is placed by the appointment agreement. Where design is by the contractor, design risk is placed by the building contract agreement. Where lump sum price is fixed by the contract the responsibility rests with the contractor. Where a contract sets standards of specification, meeting these standards is the contractor’s responsibility (risk). Thus by contractual agreement primary risks can be distributed between client, designer and constructor. It is impossible to dispose of all risk inherent in construction projects and some will inevitably remain with the client. For example, the risks listed here tend to be client risks and although they may be of varying likelihood they should be understood.

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FIGURE 2 S U M M A R I S I N G T H E P R I M A RY R I S K S , B Y E X A M P L E
Time Traditional Fixed but extension of time possible due to client and designer initiated changes Cost Fixed but subject to change where design changes are made, where inflation occurs or where contractor is alleged to have grounds for contractual claims As traditional Performance Designed by client’s consultant. Quality set by contract documents

Design and Build Contractor

As traditional

Design by contractor but with varying levels of input by client – quality set in same way As traditional

Separate management function

Time not fixed by contract

Cost not fixed before commencement

(c) This short list segregates residual risk by procurement method. The extent to which risk remains with the client can be established by a detailed analysis of contractual agreements.

Traditional – building suitability – risk of contractor insolvency – risk of delay by consultant or the causes allowed by contract Design and Build – building suitability – design functionality and usability – design insurance if contractor moves away from this type of business, goes out of business or fails to pay premium Management Contracting/Construction Management – as traditional procurement plus: risk of cost overrun risk of time overrun

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3.1.2.12

SUMMARY (RISK) Risk can be reduced, retained, transferred or distributed. To transfer risk successfully the risk taker should have the capacity to take the full extent of the risk or the risk placer will have failed. Where there are so many relatively small firms, as in the UK construction industry, this can be problematic because many contracts place risks with risk takers without sufficient capacity. They may be limited liability companies or may be unable or unwilling to insure.

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Thus, for example, attempting to enforce large scale liquidated damages for late completion on a small-sized domestic subcontractor may fail for lack of financial capacity within the small company. Procurement strategy should therefore reflect the ability to place risk, and where possible risk should be managed out. G 3.1.2.13 PROCUREMENT STRATEGY AND THE PROJECT CYCLE The development of procurement strategy follows the stages in the life of a project. Initially, a preliminary strategy is determined. It is based on a broad definition of objectives and is an essential step in establishing the way forward for the project. It encourages the client to consider strategy early. The preliminary procurement strategy is usually developed with help from the client’s adviser and possibly other consultants. Procurement strategy development has three components:

• • •

analysis – assessing and setting the priorities of the project objectives and requirements; choice – considering possible options, evaluating them and selecting the most appropriate; and implementation – putting the chosen strategy into effect.

During strategy preparation, it may be necessary to seek specialist advice from other consultants, for example, in relation to expected costs for the project. The adviser should advise the client on this. Specialist advice should be sought when developing the strategy for novel or especially difficult projects. Until construction contracts are let, the client, with help from his adviser, must systematically ensure that the strategy is on course to meet the project’s established objectives. This is important because objectives sometimes change. G 3.1.2.14 IMPORTANT CONSIDERATIONS The factors listed below should be considered in analysing project objectives, requirements and their relative priorities (each is then considered in detail) and may have an effect on the choice of procurement strategy:

• • • • • • • •
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factors outside the control of the project team; client resources; project characteristics; ability to make changes; risk management; cost issues; timing; and quality and performance.
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Inevitably, some of these requirements will be in conflict and priorities need to be decided. The choice of strategy should ensure that control is maintained over those factors which are of most importance to the client. The way in which this choice can be made is covered below and in 3.1.4. (a) Factors outside the control of the project team Consideration should be given to economic, technological, social, political and legal factors which influence the client and the project team or are likely to do so during the lifetime of the project. These may include forecast and actual:

• • • •

interest rates; inflation; changes in output of construction industry affecting tender price levels and the availability of skilled labour; and legislation, particularly legislation affecting the design and construction of projects. In many cases the client will have responsibility for legal compliance, particularly in relation to health and safety matters and should seek the advice of his/her advisers (including the design team) on such issues as a matter of importance.

(b) Client resources The client’s knowledge and experience of the company’s organisation and the environment in which it operates are vital in assessing the appropriate procurement strategy. Project objectives are influenced by the nature and culture of the company, external influences and the expectations of individuals affected by the project. The extent to which the client is prepared to take a full and active role is a major consideration. (c) Project characteristics The size, complexity and location of the project should be carefully considered and particular attention given to projects with novel elements. For example, if the building is especially large or complex there may be a bigger risk of cost or time overrun. Novel projects present special risks. The novelty potential factor means that estimates of time, cost and performance are all subject to greater error with an increased probability of one or more of the project’s objectives failing. (d) Ability to make changes It is preferable to identify the total needs of the project during the early stages but this is not always possible. Rapidly changing technology often means late changes. Changes in the scope of the project very often result in increased costs, especially if they arise during construction. Changes introduced after the design is well advanced or construction has commenced often have a disproportionate effect on the project, in terms of cost, delay and disruption, compared with the change itself. The design process goes through a progressive
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series of ‘freezes’ as it develops but the client should set a final design freeze date after which no significant changes to requirements or design are allowed. Some procurement strategies such as construction management are better than others at handling the introduction of changes later in the project without having to pay some form of specific premium. (e) Cost issues Price certainty – influences the project timing and the procurement strategy which should be used. Generally, design should be complete if price certainty is required before construction commences. Cost of changes – if cost certainty is to be maintained during the course of construction changes should be avoided. Changes often have cost and time implications on the project well in excess of the change itself. It is therefore important for the client to fix a date after which no significant changes should be introduced. (f) Timing The programme of the project is influenced by many of the above factors. A particularly large and/or complex project is likely to require more time for design, specification and construction than would be required for a simple small building. It is of vital importance to allow for adequate design time in terms of the total project. If design is required to be complete before construction commences (where perhaps cost certainty is required) this is particularly the case. In the process of the appointment of the design team assurances should be obtained about resource levels and the ability to meet key dates or programmes. It is not usual to impose contractual dates upon designers, although their progress is probably the key to the overall completion date. Decisions to progress with a project may be influenced by the gaining of planning approval, by the successful operation of compulsory purchase order, by land purchase or by some other non-specific but critical factor (such as obtaining funding approval). Depending on whether these factors occur earlier or later, they may be an influence upon the planned or desired time available for design. Procurement strategies such as management contracting, construction management, and design and build provide an overlap between the design and construction stages, so construction can start earlier than sequential strategies and offer the potential for earlier completion. It may be necessary to review planned procurement strategy in the light of design progress at the point where restraints to constructions are removed, bearing in mind the stage of design and the consequence in terms of risk.
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F IGURE 3 CON STRUCT ION T IME S
The following times are based upon historical data and are only a guide. Projects of relatively simple design may be constructed more quickly and more complex designs may take longer. New purpose built cost (£millions) 30 25 20 15 10 5 New purpose built cost (£millions) 30 25 20 15 10 5 Retail facilities weeks 90 80 75 70 65 55 Office facilities weeks 120 110 100 90 85 70 New speculative cost (£millions) 30 25 20 15 10 5 New speculative cost (£millions) 30 25 20 15 10 5 Retail facilities weeks 100 95 90 85 80 70 Office facilities weeks 135 130 120 110 100 85

(g) Construction times Total construction time is a consequence of design. Insufficient time allowance can result in apparent delay when in fact the targets were unachievable. Design is a time-consuming process and often will take as long as construction itself (sometimes longer). More complex structures will take longer given the same cost or size, and may require more resources. Although it is possible to work on site for extensive hours or to increase resources, it is not always possible to achieve directly resulting productivity. The law of diminishing returns will have an influence because of the limited space and the nature of traditional construction methods (such as concreting and bricklaying). Indications of construction times are shown in Figure 3. These are only a general guide and should not be relied on without careful review. The data on which these are based was available only for commercial and industrial projects. This data was used to confirm, enhance and update that published by NEDO (1988), Faster Building for Commerce and the construction costs have been updated by index to the year 2002. If possible (as in the case of
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management contracting and construction management) those who will be involved in the construction process should also be involved in the planning process, as they are more likely to be aware of the logistical consequences of particular designs. Other projects are likely, in most cases, to be more complex and may therefore take longer. (h) Design times There is no reliable data available to indicate the time to be allowed for design. As a general rule it will take between two thirds of construction time to one and a half times construction time to design a building. The impact that this will have on the overall programme will depend upon the choice of procurement strategy and whether any overlap of design and construction is allowed. (i) Performance The required performance of the project measured both in terms of its response to the needs of the client and the quality of individual elements must be clearly identified. If performance is over-specified, a premium will be paid for exceeding actual requirements, thereby affecting the cost objective. Over-specification will also lead to time overruns. Conversely, failure to recognise the true performance objective leads to an unsatisfactory product. If quality and performance are particularly important the client will probably want to keep direct control over the development of the design. This can be achieved by employing the design team directly. G 3.1.2.15 PROCUREMENT OPTIONS When all the factors influencing the project have been identified and the project requirements analysed, the final strategy for the project must be developed. It is likely that there will be more than one way to achieve the requirements of the project. It is important to consider carefully each option, as each will address the various influencing factors to a different extent. In developing strategies, a potential danger is that only the most obvious course of action may be considered – this is not necessarily the best in the longer term. G 3.1.2.16 Common strategies differ from each other in relation to:

• • • •

the financial risk that the client is exposed to; the degree of control that the client has over the design and construction processes; the information required at the time construction contracts are let; the extent of involvement of the contractor in the design stage when the contractor may be able to influence the ‘buildability’ of the project;
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• •
G 3.1.2.17

the organisational arrangements which distribute responsibility and accountability; and the sequential nature of the process.

In Appendix A each of the most commonly used procurement strategies is described and is also illustrated by diagram. Each diagram has a consistent format to indicate:

• • • •

the contractual relationships (showing administrative responsibility in most cases); the advantages and disadvantages; the sequential nature of the process; and the dominant risks categorised broadly (as high, medium or low).

3.1.3 Selection of Most Appropriate Procurement Strategy
G 3.1.3.1 The ultimate responsibility for selection of appropriate procurement strategy will rest with the client, based upon advice from the project team and principal adviser. The selected strategy should be:

• •

suitable in the light of the client’s needs, the project type and the client’s exposure to risk; and feasible in the light of the client’s expertise, internal management structure, resource and funding facility.

Professional judgement is a reliable way of selecting an appropriate procurement strategy although some procurement strategies can be inappropriately adopted because of individual preference. A procurement selection checklist is provided here to assist the client and advisers in the identification of an appropriate strategy. G 3.1.3.2 PROCUREMENT SELECTION CHECKLIST This process has been designed to establish a range of information about client needs and about the particular project being considered, and to develop this information in parallel with the characteristics of procurement strategies and associated risk. It is intended to inform judgement, not to replace judgement. The relative importance of time, cost and performance (design) forms a key criterion in the selection mechanism as does inherent risk and its apportionment.

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3.1.3.3

METHOD Checklists 1, 2 and 3 should be carefully completed in consultation with the client. The resultant information should then be transferred to Checklist 4 which will enable the information to be analysed and evaluated. The analysis can then be compared with the characteristics of each procurement method, and the associated risk so that an informed decision can finally be made.

CHECKLIST 1: TIME The following should be considered: 1.1 Is completion needed by a specific date? 1.2 Is completion needed in the shortest possible time? 1.3 Is the client prepared to pay more for earlier completion? 2. Does the answer to question 1.1 suggest a faster than ‘normal’ total project time in the judgement of the adviser? 3. How long is it in months from the date of completion of this protocol until the desired ‘move in’ date? 4. Define the reason for the identified completion or ‘move in’ date: 4.1 end of lease 4.2 sale of premises 4.3 new business opportunities 4.4 unsuitability of present premises 4.5 company restructuring 4.6 other. 5.1 Is the need for completion by a specific date or within a specific time more important than certainty of construction cost before work starts? 5.2 Is the need for completion by a specific date or within a specific time more important than spending an extended time on design? 6. What is the approximate value, in sterling, to the client of the building or facility in terms of contribution, rental or cost savings per month? 7. If the building is completed later than the specified or desired time will the client: 7.1 stay in existing premises? 7.2 find temporary accommodation? 7.3 close down? 7.4 don’t know.

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Upon the completion of this part, the following information should have been established and should be transferred to Checklist 4: 1(a) specified completion time; 1(b) reason for completion time; 1(c) whether required completion time is relatively fast; 1(d) whether time is seen as the predominant client need; 1(e) the potential financial implication of earlier or later completion; and 1(f) what action the client may take if the dates are not achieved. CHECKLIST 2: DESIGN/PERFORMANCE 1. Has the client clear ideas about building functionality and its desired design? 2. Does the site (if selected) pose any particular problems for the designer in respect of: 2.1 shape or topography? 2.2 access? 2.3 storage space? 3. Does the building type suggest relative design complexity? 4. Does the building type suggest emphasis upon functionality? 5. Does the building type suggest highly complex mechanical, electrical or engineering installations? 6. Is it anticipated that extensive changes to design may be required during the construction phase? 7. Does the client wish to particularly emphasise low running costs? 8. Does the client wish to particularly emphasise low maintenance costs? 9. Does the client wish to particularly emphasise product quality at a higher potential cost? Upon the completion of this part of the process, the following information should have been established and should be transferred to Checklist 4: 2(a) whether the client has clear ideas about his/her needs; 2(b) whether the site poses complex design problems; 2(c) whether the building design is complex; 2(d) whether functionality is particularly important; and 2(e) whether the client has a long-term view about the cost of the building.

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CHECKLIST 3: COST 1. What is the client’s maximum budget? 2. Can the budget be allocated as below? 2.1 land purchase and fees 2.2 construction, including fees 2.3 fittings and plant 2.4 contingencies 2.5 other (define). 3. Will the client need to have a fixed contract price for the construction element of his budget or will a reasonably accurate budget be adequate? Upon the completion of this part of the process, the following information should have been established and should be transferred to Checklist 4: 3(a) total maximum spending capacity; 3(b) total construction spending capacity; and 3(c) need for pre-construction cost certainty. CHECKLIST 4: ANALYSIS

As an overview, is the project feasible in terms of time and viable in terms of cost on the basis of the information in 1a, 2a, 2b, 2c, 3a, 3b, 3c? If yes, proceed. If no, advise client and seek other solutions. Is the reason given as to why it should be completed by the specified date vital to the project’s success in terms of client needs, or can slippage be coped with if cost is considered? See 1b, 1d, 2a, 2b, 2c, 3c. If vital, the project has to be carefully planned from a reasonably advanced design. Design and construction should be planned. Where design is completed, the completion date can be contractually fixed. Where design cannot be completed, fast-track systems can achieve relative speed by overlapping design and construction.

If relative speed is required can the client accept less cost certainty? See 1c, 3c. If yes, this may mean that fast-track approaches may be suitable. If no, a method of achieving cost certainty relatively quickly may be through negotiation. • Does the information provided indicate that the project is complex in terms of design or in terms of site-related problems? See 2b, 2c, 2d. If so, adequate time should be allowed for a design process to occur which will provide the client with an acceptable design solution.

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Some fast-track solutions will enable the design process to be extended into the construction phase where pre-construction time is not available. This will reduce cost certainty. Is the need to ensure that the project can be built within a budget a priority? See 3c. In this event, design should be complete before construction is commenced or a sufficiently large contingency should be allowed. The latter will not give cost certainty and may result in a less balanced project in financial terms.

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3.1.3.4

CHECKLIST SUMMARY Having established whether the project is both feasible and viable, the importance of time, cost and design has now been reviewed. There is always an interrelationship between these three primary criteria and procurement systems selected should reflect this. Projects can probably be broadly categorised into those which will be design-led and those which will be production-led. Design-led projects usually reflect the characteristics of procurement systems where the client appoints his/her own design team; whereas production-led projects enable the constructor to take on some or all of the design function. Design-led projects have the greater capacity for cost and time overrun, whereas the potential capacity for design shortcomings may rest with production-led systems. System selection should consider whether the project is design or production-led but should also consider the client’s need to manage and/or distribute risk.

3.1.4 Implementation
G 3.1.4.1 Having selected a procurement strategy for a project, the strategy should be successfully implemented. The client should implement the strategy but may do this with the advice of consultants or a project manager. In many cases they will carry out most or all of the necessary functions in achieving implementation and the client’s role will be to formally approve their actions. Notwithstanding the role of consultants or a project manager, the client should ensure that he/she puts in place the necessary resources, organisational structure, contractual arrangements, systems and controls necessary for a successful project outcome.

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3.1.4.2

IMPLEMENTATION POLICY Implementation of procurement strategy is a key role for the team and warrants sufficient thought and review. The policy developed to ensure appropriate implementation should be clearly communicated to all the key players. By ensuring that implementation policy is maintained, the client has a greater chance of obtaining the right project at the right time at the right cost with the minimum of conflict.

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3.1.4.3

FINANCIAL RESOURCES (a) In this section, the funding function has been assumed to be a matter for the client. It is a vital function and by the time the procurement strategy is set, sufficient funding should be available at appropriate times in the pre-construction and construction process. (b) Funding requirements are usually a consequence of contractual agreements, whether they be agreements to purchase land, to design or to construct. It is possible to take account of each contractual agreement and to plan expenditure in the form of a cash flow. Useful advice in this context can be provided by the project manager or the project cost consultant. Both of these team members should be in place at an appropriate time to ensure that funding arrangements are appropriate.

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3.1.4.4

HUMAN RESOURCES In terms of client organisation, the client should be prepared to allocate appropriate in-house personnel to the project or should be prepared to appoint consultants for this purpose. In most cases, consultants are appointed to design and cost a project, but a client will have his/her own staff member who will provide liaison and a focus for decisions. Where this is not possible the appointment of a project manager is desirable. Only one individual should have the authority to instruct those carrying out the design or construction on behalf of the client.

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3.1.4.5

PHYSICAL RESOURCES (a) Where physical resources such as land, plant and machinery have to be provided by the client, it is self-evident that the client should ensure their availability in a suitable form at the right time. Where alternative accommodation is required, or where specific arrangements for decanting are necessary, this is a matter for the client and/or the client’s organisation although these are matters which can be handled by a project manager. (b) Design and construction resources must also be appropriately selected and in place at the right time. (c) The criteria for the selection of the design team are outlined below and are based upon the factors of capability, competence, staff and cost, with value for money, rather than cost being the major influence in selection.

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(d) The criteria for the selection of contractors are referred to below and are broadly the same, but this tends to be a much more complex process and the criteria are dependent upon the procurement strategy selected. The basis for selection of constructors can be price competition, based upon a fixed design and specification or can, in the case of design and build options, be based upon competition for design solutions too. Selection can also be by negotiation with one or two constructors, or can be based upon a two-stage process. Suitable documentation for the selection process must be prepared and the client should seek the advice of consultants or the project manager who may also be required to manage the process. (e) A number of Codes of Procedure for the selection process are available and are referred to in sections 3.1.4.8 and 3.1.4.9. G 3.1.4.6 ORGANISATIONAL STRUCTURE (a) The client has a dual management role, part of which is to manage the client input; to co-ordinate functional and administrative needs; to resolve conflicts; as well as to act as the formal point of contact for the project. (b) This will require the creation of an organisational structure for the life of the project to enable communication to occur and to facilitate effective decision-making. (c) The organisational structure created may be headed by a key member of the client organisation or may be headed by an imported project manager. Whichever choice is made, the designated member must have sole authority to communicate decisions to the project design and/or construction team. Where more than one individual is empowered to instruct, or to require changes, extreme confusion can take place. (d) Building users, specialists, facilities managers, maintenance staff, finance and accounts personnel, legal advisers and security personnel can all have input to the project through the created organisational structure by invitation, or right, and, as appropriate, can meet with designers or constructors to ensure effective communication; but decisions are reserved to the in-house executive or the project manager. G 3.1.4.7 APPOINTMENT OF A PROJECT MANAGER (WHERE APPROPRIATE) (a) Due to the complexity of modern building 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 and cost 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 appointments to be made on a consultancy basis. In this case, selection
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should be based upon resources, reputation and price, and duties should be clearly identified. (b) It should be emphasised that the role of the project manager should be to act as part of the client organisation. (c) The client’s role upon the appointment of a project manager should include: • explaining the project objectives and their priorities, defining the project and outlining parameters associated with time, cost, performance and risk; • defining the criteria for control and management of the project; • managing the project manager’s performance of delegated responsibilities; • monitoring the implementation by the project manager of control and management systems; • ensuring that the project manager receives decisions on time; • assisting the project manager in the resolution of problems; • receiving and reviewing detailed reports on the project from the project manager; • establishing with the project manager a common approach to major issues which arise; and • maintaining with the project manager at all times an overview of the project status in relation to the established objectives. (d) The client’s relationship with a project manager will be crucial to the success of the project and will require careful development and nurturing within the following guidelines: • the client, though taking the project manager’s advice should lead, not follow; • no matter how much responsibility is delegated to the project manager, the client will retain ultimate authority and therefore must have adequate knowledge and information about the project to be able to exercise the authority properly; • the client should agree with the project manager the precise extent of any delegated authority together with those decisions reserved for the client; • where a project manager has been appointed the client should not formally communicate directly with consultants and contractors employed on the project – such communications will always be routed through the project manager, although the contracts will be direct with the client; • no matter what may be said in private, the client should publicly support the project manager and avoid any actions which could undermine that manager’s authority over the consultants and contractors.

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G

3.1.4.8

APPOINTMENT OF CONSULTANTS (a) The process of selecting and appointing the design team and the cost consultant is carried out by the client but he/she may seek the advice of his/her adviser. The terms and conditions of these appointments are governed by the procurement strategy adopted for the project. (The client is also required under the Construction (Design and Management) Regulations 1994 to appoint a competent planning supervisor to ensure that the design team have met their responsibilities under these regulations and to advise the client and the constructors how they can comply.) (b) The following alternatives exist in selecting the design team: • single appointment – either of a multi-discipline firm which can itself provide the full range of architectural and engineering design services required, or of a lead consultant, normally the architect on building projects, who will subcontract design of other disciplines to independent professional firms and be responsible for their work and its co-ordination; or • separate appointments – for each of the design disciplines required, one firm being appointed design team leader with the responsibility for co-ordinating the work carried out by the others. The former has the benefit of administrative simplicity and of single source responsibility for design. The latter offers the chance of selecting the best firm in each discipline but makes communication more difficult. The final selection will depend on the particular features of the project. (c) The selection of the design team and the cost consultant (and other consultants as appropriate) will require the client to make a balanced judgement on the following factors: • capability – the experience of the firm in projects of similar size and function and the availability within the firm of sufficient uncommitted resources for it to meet the demands of the project; the demands of the project programme may be particularly important; • competence – the performance of the firm on past projects, to be ascertained by detailed, confidential references from past clients; efficient performance by design consultants cannot be taken for granted; • staff – the personal capability and experience of the key staff whom the firm proposes to employ on the project; and • the cost – quoted by the firm, unless large differences exist between offers from competing firms this should not be critical. (d) Value for money, not lowest price, should be the aim in the selection of design team members.

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(e) Guidelines for the value assessment of competitive tenders in the procurement of professional services are available1. (f) Fees payable to professional consultants may be expressed in one of the following ways: • as a percentage of the construction cost of the project; • as a lump sum; • on a time charge basis; or • a permutation of all three. (g) Percentage fees based on the out-turn construction cost are not generally recommended as they increase when cost overruns occur. (h) Lump sum fees may be the most satisfactory form of remuneration provided only that the scope, value and timescale of the project can be established with reasonable accuracy before the appointments are made and that the services to be provided by the consultants can be accurately defined. Where lump sum fees are to be paid, the client will need to establish systems for monitoring the consultants’ performance to ensure that they provide the full, specified service and do not skimp their services to save money. (i) Where time charge fees are to be paid, the final amount of fees payable is not fixed and there is a substantial risk that this amount may exceed initial estimates. G 3.1.4.9 APPOINTMENT OF CONSTRUCTORS (a) The client is responsible under the Construction (Design and Management) Regulations 1994 to be reasonably satisfied that the constructors appointed are competent and have adequate resources. (b) The timing of the need to appoint constructors (whether contractors or trade contractors) will be dependent upon the procurement strategy which is selected, but the client will have a formal role in this process. The client’s role will include selecting those constructors with whom he will negotiate or who will be invited to tender. In the case of the latter, it will be the client who formally selects the constructor(s) to carry out the work and then contracts with this company. (c) Assistance with the selection, documentation for tender and advice in relation to contract issues can be obtained by the client from professional advisers and particularly the principal adviser. There are a number of codes of procedure to assist in this process, of particular assistance is the Code of Practice for the Selection of Main Contractors2 which has been approved by the National Audit Office. In broad terms, the factors which affect the
Construction Industry Board, Selecting Consultants for the Team: balancing quality and price, Thomas Telford Publishing, London, 1996. 2 Construction Industry Board, Code of Practice for the Selection of Main Contractors, Thomas Telford Publishing, London, 1997.
1

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selection of design and cost consultants shown above (capability, competence, staffing and cost) will affect the choice of constructors, but the documents on which selection is made (particularly for cost) can be extensive and very complex. (d) European Union legislation has an effect on the procurement of public works and the supply of services in the public sector. Usually this relates to projects over about ¤5 million and requires appropriate tender advertising and selection. Clients from the public sector must be aware of the existence of and the procedures demanded by such regulations. (e) As with the selection of design and cost consultants, value for money, rather than lowest price should be the aim in the selection of constructors. Where clients regularly build, there may be a case for considering a special arrangement with a construction firm as indicated in 3.1.1.15. G 3.1.4.10 CONTRACTUAL ARRANGEMENTS (a) Having selected an appropriate procurement strategy and methods of consultant and constructor selection, this strategy should be implemented by a range of contractual arrangements. Many of these arrangements will be based upon standard forms of agreement in common use in the construction industry. The distribution of major project risks results from the wording of the contract selected. Most clients will need specialist advice on contract selection. This is outside the remit of this handbook. G 3.1.4.11 SYSTEMS AND CONTROLS (a) Once resources, organisational and contractual arrangements are in place, the client should see that systems are put in place to ensure that the procurement process can be implemented in fact. (b) These systems should include: • financial systems to ensure that payments are made in accordance with contract agreements; • decision systems to ensure that decisions made are communicated at the appropriate time and with appropriate authority; • design change systems to implement and monitor change as it becomes necessary; and • cost and time monitoring systems to inform the client of the current position at any point in time. This may mean delegating elements of the process to the project manager (if appointed) or ensuring that existing company systems are specifically adapted.

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(c) Controls are also important to ensure that cost is controlled within budget, pace is controlled within programme, quality is controlled within standards set, and systems are properly employed. (d) Cost control can be achieved by ensuring appropriate pre-construction cost planning and an adequate system of regular cost reporting. These services can be provided by the cost consultant. (e) Pace can be monitored against a programme or time plan and can be controlled by the imposition of contract completion dates. Programming can be provided by a project manager or developed with the advice of the principal adviser. (f) Quality can be controlled through the provision of a sound contractual specification. It may be appropriate to appoint a clerk of works to inspect the works during progress and to ensure that work is satisfactory and matches the specification. (g) Controlling the client systems to ensure that they are appropriately applied and not abused is a matter for the client’s management team – perhaps this is the key management input from the client. G 3.1.4.12 DESIGN OVERVIEW (a) While responsibility for achieving a successful design solution to the client’s requirements lies chiefly with the designer, the responsibility rests with the client both for ensuring that his/her needs are met and for the impact of such development on the local environment. The blame for a poor building is likely to be ascribed to the client as well as to the designer. Equally, a well-designed building reflects credit on those who commissioned it as well as on the designers who conceived it. (b) Design is an important factor in ensuring good working conditions for staff and convenience for members of the public who need to visit the building. A well-designed building is a good investment. Good design can contribute to economy and efficiency – by efficient layout and economical use of space, by energy efficiency (in heating, insulation, mechanical services, etc.) by low maintenance costs, and by ensuring flexibility to meet changing requirements. (c) No one person has all the design skills for any but the very simplest project and therefore the collaboration of many designers will be necessary. This is particularly the case in specialist buildings or buildings which have sophisticated mechanical and/or electrical installations. (d) The formulation of an accurate design brief and the development of design in strict accordance with that brief are key processes for the client (or the project manager) to oversee. In practical terms, the client will require:

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• close collaboration between users and the design team in the development of the design; • formal checking that the developed design meets, but does not exceed, the requirements of the design brief; and • formal presentation of developed designs to the users and formal sign-off by the client.
(e) It will also prove valuable for the client to indicate clearly his/her intentions in respect of the programme and for the design team to respond in terms of their strategy for meeting this programme. Methods for updating progress should also be sought by the client. (f) As the majority of users, and indeed the client, are likely to find the reading and interpretation of design drawings a difficult task, it is important to ensure that the design team present their proposals in a form that can be readily understood. (Computer aided design [CAD] may enable three dimensional presentation.) The setting of the design and not just the design in isolation should be taken into account. The client should feel able to say ‘no’ and ‘try again’ and to expect alternatives within the fee. G 3.1.4.13 COST CONTROL OVERVIEW (It is recommended that this be read in conjunction with Part 1, Section 1.) (a) It is essential that the client understands the difference between: • estimating – giving an informed opinion at a particular time of what the final cost of the project is likely to be; and • cost control – managing the consequences of the design and construction processes so as to achieve value for money and ensure that the final cost does not exceed the budget. Estimates cannot be expected to be proved accurate unless they are based upon reliable data and cost control is exercised. (b) The techniques used to produce estimates vary according to the type and level of data available when they are prepared. The general level of estimating accuracy improves as the design of a project develops. Notwithstanding this progressive improvement in accuracy, provided that cost control is being exercised, the general level of accuracy of early estimates can be stated with sufficient precision for them to be valid parameters for decision making and for the management of the project. (c) For estimates to be effective, the client should require that all estimates are supported by: • a risk analysis – an assessment of the potential risks, their probability and the associated time and cost consequences if they should occur; and • a sensitivity analysis – a statement of the comparative effects on the total estimate of changes to principal data and assumptions on which the estimate is based.
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(d) The amount included in estimates to cover the uncertain cost of risks based on the analyses described above is known as the contingency. It is important that contingencies are sufficient to cover risks and are not eroded to facilitate any lack of cost control. (e) A primary concern may be the cost of running and maintaining the building. The term ‘cost-in-use’ is used to describe how these costs can be estimated, enabling the client to take these matters into account when considering total project costs and building design. In some cases higher initial costs will result in lower running or maintenance costs during the life of the building. (f) The earlier cost control procedures are instituted, the more effective they will be. By way of simplistic illustration: • cost varies with (but not in direct proportion to) size: once the size of a building is fixed, so is the general level of cost; • the selection of the most economical design for basic elements such as foundations, structural frame, external cladding and roofing, is of far greater cost significance than the types of finishings; and • the overall cost of mechanical and electrical systems and the effectiveness of the cost control procedures which can be applied to them is largely governed by early decisions as to the type of system selected. (g) The methods used for cost control differ radically between the pre-construction and construction stages of a project. Cost control during the former depends partly on formulating an appropriate procurement strategy but more on controlling the design process within that strategy; during the latter it is a function of effective management and avoidance of change after commitment. (h) Pre-construction cost control, in simple terms, comprises: • preparing a cost plan – an allocation of the control budget into cost centres which match readily identifiable elements of expenditure, with allowances for contingencies, reserves for changes in market prices and the like; and • cost checking each element as it is designed against its allowance in the cost plan. If the cost of an element as designed exceeds its allowance in the cost plan, the excess can only be corrected by: • redesigning the element to reduce its cost; or • transferring money into that element from contingencies or from another element yet to be designed.

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If neither is done, the control budget will be exceeded. (i) Successful cost control during the construction stage depends on: • ensuring that all design work is completed and fully co-ordinated before any commitment to construct is made (this applies in a progressive way when design and construction overlap); • administering the contract efficiently and promptly in strict accordance with its terms and conditions; and • minimising changes to the design, for any reason, after construction has started. (j) Regular cost reports can be produced throughout the construction stage from which potential overspending can be identified before it occurs with the intent that corrective action should be possible. The client should, however, recognise that such corrective action is not always beneficial, since: • cost savings can be made only by reductions in standards or by omissions of part of the work remaining to be finalised, that is largely in the visible finishings and fittings, with the resultant possibility that the requirements of the brief will not be met; and • late cost savings are inefficient as any amount saved will be reduced or may be negated by the costs of disruption inherent in making the changes needed to generate the savings. (k) All estimates and cost control procedures should take account of inflation, i.e. the increase in construction cost from the date when the estimate is prepared to the date when the work will be carried out. It is essential for effective cost control that: • allowances should be made for inflation in all estimates and that the assumptions on which such allowances were calculated be stated; • these allowances for inflation should be clearly identified within the estimates and not be allowed to be used to correct other overspending; • the assumptions on which inflation allowances are calculated be reviewed as each new estimate is prepared and the allowances corrected in accordance with such reviews; and • a clear policy and method for drawing down inflation reserves be established and observed. (l) The client should distinguish between inflation and the effect on construction prices of market conditions at the time of tender. In simple terms, contractors adjust their tender prices by reducing or increasing their target profit margins in accordance with their need to obtain new work. It is unwise to base early estimates on an assumption of favourable market conditions at the time of tender as the construction industry is subject to wide, comparatively swift, changes in workload in accordance with economic conditions. (m) Things will go wrong on the project. The unexpected will happen. Such unforeseen happenings are covered in the cost control system by the
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contingency. The client should develop a policy for management of contingency funds to ensure that, at all times in the project, the remaining contingencies match the remaining risks. The client may also establish and control a client reserve, not disclosed to the consultants or the contractors, to cover late changes in user requirements and unforeseeable third party events. G 3.1.4.14 TIME CONTROL OVERVIEW (a) The overall programme of activities which will constitute the project should be developed at a very early stage in the procurement cycle. This programme will form the time framework within which the designers and the constructors should complete their activities, and within which other key stages, such as land purchase, funding and planning permission should be completed. (b) The programme of activities should be feasible and realistic. Insufficient design time will have an effect upon client risk as will insufficient time allowed for construction. (c) The client should be aware of those tasks which are vital to completion on time and those tasks where some flexibility may be available. Time for the approval processes should be included as specific activities in the time plan for the project. These are invariably vital as the need to obtain approval is likely to be a prerequisite to further work on the project proceeding. (d) The process of time control is in many ways analogous to that of cost control. Thus a time control system can embrace: • time budget – the overall project duration as fixed either by specific constraints or by the selected procurement strategy; the period which, once fixed, becomes a key parameter for management of the project; • time plan – the division of total time into inter-linked time allowances for readily identifiable activities with definable start and finish points; the overall project programme; and • time checking – monitoring closely actual time spent on each activity against the allowance in the time plan; reporting divergence as soon as it is observed. (e) If the time taken for an activity exceeds its time allowance there are essentially only two forms of corrective action available: • the re-sequencing of later activities, which may involve abandoning low priority restraints and/or phased transitions from earlier activities to later activities logically following them; or • shortening the time allowance for future activities by increasing the resources to be made available for them.

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If neither is done, the overall time budget will be exceeded and the project will finish late. (f) The client should recognise that time control is as important during the design stages of the project as the construction stage. Designers should work to a series of deadlines at which different elements of the design should be agreed (i.e. frozen) if costs and the overall programme are to be kept under control. (g) The client should consider developing (with the help of the project manager if appointed) a time contingency (reserve), with strict procedures for allocating the reserve to specific events. This concept is essential on projects which are subject to external time constraints, for example, where a building has to be available for occupation before the lease on another building expires. (h) The client should take account at all times of fundamental relationships between time, quality and cost: • any extension of the overall timescale for a project always generates additional costs to either constructor or client; every project contains time-related costs whether these are openly stated or not. Who carries such additional costs depends on the detailed contractual arrangements between the parties; it is likely that some of them will be borne by the client; and • making up lost time by re-sequencing later activities may be achievable but often only at the risk of compromising quality or cost control. G 3.1.4.15 WHOLE-LIFE COSTS (a) In addition to considering project cost purely in terms of initial capital costs the client may wish to consider costs over the projected life of the building. Such considerations may review higher initial costs against lower running costs or longer life to replacement or maintenance. This may be of particular impact where shorter-life inherent assets, such as mechanical or electrical equipment, or where planned maintenance or energy consumption, are being considered. (b) The techniques associated with whole-life costing are often complex and predictive. The project manager or project cost consultant will be able to advise the client of the availability of their application in each case. G 3.1.4.16 VALUE MANAGEMENT (a) Value management is usually reserved for relatively complex projects where value for money is important and concerned with defining what ‘value’ means to the client in meeting a particular need. In general, any project seeks to satisfy the differing requirements of several parties. Value management provides a structured framework for the examination and discussion of these requirements to reach a consensus before the project brief is finalised. It is
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used to ensure that the need for and scope of any construction is thoroughly analysed before any further commitment to proceed is made. The aim is to establish a clear statement of a project’s objectives matched to their relative values. (b) Value management is usually carried out at the concept and feasibility stages of a project. The aim is to ensure that: • a project is commissioned in response to a careful analysis of balance of needs; • a wide range of options and alternatives to meet that need is considered; and • the project objectives are made explicit and are commonly understood by all parties. (c) The client may wish to appoint a professional adviser experienced in these techniques and who will provide support in writing the objectives and subsequent brief. G 3.1.4.17 VALUE ENGINEERING (a) This occurs later in the development of the project and is concerned with how value is achieved rather than what the relative values are as defined in the project brief and objectives. (b) Value engineering studies are pre-planned, formal reviews of the design philosophy and the detailed solutions at one or more stages of the design development. They are sometimes carried out by firms or individuals not connected with or employed on the project and are short exercises intended to review the detailed design solutions against the objectives and to establish whether they can be achieved in a more cost effective manner. G 3.1.4.18 QUALITY CONTROL OVERVIEW (a) The final quality of the project is governed, progressively, by: • the project brief – a clear statement of the standards of quality required; great care is needed to ensure that this standard is unambiguous, such phrases as ‘the highest quality attainable within the control budget’ should be avoided; • the original design – the adequacy of the components selected for the building; the interface between related components and systems; the integration of mechanical and electrical systems into the overall design; the completeness of design before construction starts; • specification – the conversion of the quality standard demanded by the project brief into precise requirements for both the supply and the installation of materials, components and systems; the setting out of criteria against which the standard of the finished work will be judged, e.g. by reference to standards, codes of practice or the like;

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• quality control – setting up control mechanisms to apply to the execution of the work on site; the detailed, on-going supervision by the contractor; the programmes for testing; the procedures for rectifying any defective work; and • inspection – the independent inspection and verification of the contractor’s work by the design team; procedures for witnessing tests, for commissioning plant and systems, for pre-completion inspection for defects lists and defect rectification and for final hand over.
(b) The client may choose to appoint a clerk of works whose function is to act as an inspector of work done to ensure quality, but who should recognise that inspection and verification is the last line of defence. The key to quality control on site is to specify clearly, and to monitor closely, the quality control activities carried out by the contractor while work is being done. (c) Many construction companies and firms of consultants within the building industry have adopted, or are in the process of adopting, formal quality assurance systems for their own work or services in accordance with ISO 9000 or equivalent standard. G 3.1.4.19 CHANGE CONTROL OVERVIEW (a) Clients should aim to make no changes once a particular design feature has been decided because these are one of the more significant causes of cost and time overruns in construction projects. The avoidance of change should be a prime objective of the project strategy. If changes are unavoidable, they should be dealt with as described in the paragraphs below. (b) Client changes (as distinct from design development) are changes which are made either by: • the design team, with the approval of the client, to a design feature which, it has been decided, should be frozen, or ‘improved’, or altered to overcome design errors and inconsistencies; or • the client after the design brief has been agreed. The most significant of these are changes to the scope of the works. (c) Client changes can be relatively minor, such as adding a few extra power points, or can have major cost implications, such as the addition of an extra storey. (d) The cost of client changes depends on when they are made: • before the construction contract has been let, the cost can be contained to that of the changed feature itself, and perhaps some relatively small resource cost; and • after the construction contract has been let, the cost will be disproportionate to the value of the change, it can disrupt the contractor’s work and invariably gives rise to a higher cost than if the change had been included in the contract as let. Many minor changes
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can have a cumulative and serious effect. Disruption claims caused by a large number of small changes are common. (e) Some client changes are unavoidable. Examples of such changes are: • compliance with changes in legislation; • requirements of the health and safety or fire prevention authorities; • those required by unforeseen ground conditions; and • previously unforeseen users’ requirements. (f) The contingency in the project budget should be sufficient to take account of the likelihood of such changes based on risk assessments. (g) Changes proposed prior to construction may either be unavoidable or optional. If they are unavoidable, the client, if satisfied that they are, should authorise a transfer from the contingency in the budget to cover them. If they are optional they should be approved if it can be demonstrated that they offer good value for money (or a saving) and that there are sufficient funds available to pay for them. (h) Changes proposed after the construction contract has been let can have major time and cost implications and should be avoided if at all possible. If they are not essential they should be deferred until the project is complete and then reviewed to see if they are necessary and economically justified. (i) The need for changes should be minimised by: • ensuring, with the assistance of an experienced project team and designers, that the project brief is as comprehensive as possible and the users have ‘signed it off’; • taking into account any proposed new legislation; • having early discussions with outside authorities so as to anticipate their requirements; • undertaking adequate site investigation or condition surveys1 if existing buildings are to be renovated; • ensuring that designs are fully developed and co-ordinated before construction contracts are committed; and • imposing discipline on users to finalise and sign off their requirements in strict accordance with the project programme. (j) When changes do occur, the client should call for: • the reasons for the change; • the source of the change; • the full cost and time consequence of the change; • proposals for avoiding or mitigating time overrun; and • source of funding of any cost overrun, e.g. contingencies, client cost reserves, compensating savings elsewhere.
1

Stock Condition Surveys, RICS Guidance Note, RICS Books, Coventry, 1997.

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Appendix A: Procurement Options
A1 TRADITIONAL (SEQUENTIAL) (a) Under a traditional procurement strategy, design should be completed before tenders are invited and before the main construction contract is let. As a result, and assuming no changes are introduced, construction costs can be determined with reasonable certainty before construction starts and a completion date can be fixed. In most cases the price is established on the basis of tender documentation, often including a bill of quantities which describes the extent of work to be done. (b) The contractor assumes responsibility and financial risks for the building works as described whilst the client takes the responsibility and risk for design team performance. Therefore, if the contractor’s works are delayed by the failure of the design team to meet their obligations, the contractor may claim against the client for additional costs and/or time to complete the project. In turn, the client could possibly seek to recover these costs from the design team members responsible, if negligence can be proven. (c) Clients are able to influence the development of the design to meet their requirements because they have direct contractual relationships with the design team. When construction begins, they usually have a single contractual relationship with a main contractor and are therefore able to influence (but not control) the construction process through a single point of contact. (d) The strategy is unfortunately open to a level of abuse if any attempt is made to let the work before the design is complete. Such action may result in many post-contract changes which could delay the progress of the works and increase the costs. Where a traditional strategy is chosen because of its particular advantages, the temptation to let the work begin before the design is complete should be strongly resisted. (e) It is possible to have an accelerated traditional procurement strategy where some design overlaps construction. This can be achieved by letting a separate, advance works contract, for example, by allowing ground works (site clearance, piling and foundations) to proceed to construction whilst the design for the rest of the building is completed, and the construction tendered separately. This reduces the total time to complete the project at the risk of losing certainty of cost before construction starts. More importantly, a substantial risk is created in that the contractor who builds the superstructure will take no responsibility for the foundation works carried out by another contractor. (f) Another alternative is to let the work by a two-stage process or by negotiation thus reducing the pre-construction time involved and enabling the contractor to have some (limited) involvement in the design and planning stage.
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FIGURE A1 PROCUREMENT ARRANGE MENT – TRADITIONAL
CONTRACTUAL RELATIONSHIP

CLIENT

CONSULTANTS (fee contracts)

MAIN CONTRACTOR (standard lump sum contract) SUPPLIERS (various contracts) SUBCONTRACTORS (standard lump sum)

ARCHITECT (fee contract)

administrative responsibility on behalf of the client

ADVANTAGES competitive fairness satisfactory public accountability procedures well known changes reasonably easily arranged and valued SEQUENCE brief design

DISADVANTAGES slow to start on site (no parallel working) open to abuse where design incomplete (resulting in less certainty) contractor not involved in design or planning (no buildability) adversarial potential

competition

construction

Risk Low cost risk due to lump sum contract Medium time risk due to fixed contract date (but contractor has right to claim extensions) Low quality/design risk where the majority of the work is designed by insured consultants working directly for the client

(g) The organisational structure of a traditional strategy is shown in Figure A1. Standard forms of contract are available. (h) The main advantages of a traditional contract strategy are: • competitive fairness; • design-led, facilitating high level of quality in design; • reasonable price certainty at contract award based upon market forces; • the strategy is satisfactory in terms of public accountability; • the procedure is well known; and • changes are reasonably easy to arrange and value.

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(i) The main disadvantages are: • the strategy is open to abuse, resulting in less certainty; • the overall programme may be longer than for other strategies as there is no parallel working; • no ‘buildability’ input by contractor; and • the strategy often results in adversarial relationships developing. A2 MEASUREMENT CONTRACTS Measurement contracts are used when the work required cannot be accurately measured for the tender bill of quantities. The contract sum is only established with certainty on completion of construction, when re-measurement of the quantities of work actually carried out takes place and is then valued on an agreed basis. Measurement contracts are sometimes referred to as re-measurement contracts and are based upon the prices tendered by the contractor. The most effective use of a measurement contract is where the work has been substantially designed but final detail has not been completed. Here, a tender based on drawings and a bill of approximate quantities will be satisfactory. Measurement contracts allow a client to shorten the overall programme for design, tendering and construction but usually with the result of some lack of price certainty at contract stage because the approximate quantities reflect the lack of information on exactly what is to be built at tender stage. The scope of the work, the approximate price and a programme should be clear at contract stage. Measurement contracts provide more risk than lump sum contracts for the client but probably with programme advantages. They are typically used with civil engineering works where there can be significant uncertainty about ground conditions. (b) The organisational structure of a measurement contract strategy is shown in Figure A2. Standard forms of contract are available for this strategy. (c) The main advantages of the measurement contract strategy include: • pre-construction time-saving potential; • competitive prices; • average public accountability; • the procedure is well known; • the strategy enables changes to be made easily; and • there is some parallel working possible. (d) The main disadvantages of the strategy are: • the strategy offers poor certainty of price; • there is no contractor involvement in the planning or design stage; and • there is a potential for adversarial relationships to develop.

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FIGURE A2 PROCUREMENT ARRANGE MENT – ME ASUREME NT
CONTRACTUAL ARRANGEMENT

CLIENT

CONSULTANTS (fee contracts)

MAIN CONTRACTOR (standard measurement contract) SUPPLIERS (various contracts) SUBCONTRACTORS (standard contracts)

ARCHITECT

administrative responsibility on behalf of the client ADVANTAGES pre-construction time saving potential competitive prices average public accountability procedures well known easy to arrange changes some parallel working DISADVANTAGES low certainty of price potential no contractor involvement in planning or design potentially adversarial

SEQUENCE design competition Risk Variable cost risk as the final figure will be uncertain until the design and often construction is complete Medium time risk as the extent of work will vary and contractors can claim extensions to the period for construction Medium quality/design risk in the sense that design may not be complete at the outset construction

brief

A3

CONSTRUCTION MANAGEMENT (a) Under a construction management strategy, the client does not allocate risk and responsibility to a single main contractor. Instead, the client employs the design team and a construction manager is engaged as a fee-earning professional to programme and co-ordinate the design and construction activities and to improve the buildability of the design. Construction work is carried out by trade contractors through direct contracts with the client for distinct trade or work packages. The construction manager supervises the construction management process and co-ordinates the design team on behalf of the client. The construction manager, who has no contractual links with the

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design team or the trade contractors, provides professional construction management expertise without assuming financial risk, and is liable only for negligence by failing to perform the role with reasonable skill and care, unless some greater liability is incorporated into the contract. (b) On appointment, the construction manager will take over any preliminary schedule and costing information already prepared and draw up a detailed programme of pre-construction activities. Key dates are normally inserted at which client decisions will be required. In adopting the construction management system, the client will be closely involved in each stage of design and construction. The client should have administrative or project management staff with the time and ability to assess the recommendations of the construction manager and take the necessary action. The client needs to maintain a strong presence through a project management team that is technically and commercially astute. This strategy is not, therefore, suitable for the inexpert or inexperienced client. (c) With this contract strategy, design and construction can overlap. As this speeds up the project, construction management is known as a ‘fast track’ strategy. Although the time for completion can be reduced, price certainty is not achieved until the design and construction have advanced to the extent that all the construction work (trade) packages have been let. Also, design development of later packages can affect construction work already completed. The construction manager should therefore have a good track record in cost forecasting and cost management. A package is made up of work for which one of the trade contractors is responsible, e.g. foundations, concrete, electrical installation or decorating. These packages are tendered individually, for a lump sum price, usually on the basis of drawings and specification. (d) The Latham Review1 recognised that construction management has been used predominantly for large and/or complex projects, but suggested that there is no intrinsic reason for this. Indeed, it is particularly recommended for projects where there is a high degree of design innovation, where the client wants ‘hands on’ involvement. (e) The organisational structure of a construction management strategy is shown in Figure A3. (f) The main advantages of a construction management strategy are: • the strategy offers time-saving potential for overall project time due to the overlapping of procedures; • buildability potential is inherent; • the breakdown of traditional adversarial barriers; • parallel working is an inherent feature; • clarity of roles, risks, and relationships for all participants;

1

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

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FIGURE A3 PROCUREMENT ARR ANGEMENT – CON STRUC TION MAN AGEM EN T
CONTRACTUAL ARRANGEMENT

CLIENT Fee contracts

CONSULTANTS including Lump sum contracts CONSTRUCTION MANAGER

WORK or TRADE CONTRACTORS

ADVANTAGES time saving potential for overall project time trade packages let competitively buildability potential breaks down traditional adversarial barriers parallel working inherent clarity of roles, risks and relationships for all participants late changes easily accommodated

DISADVANTAGES no cost certainty at outset needs informed client, able to take an active part needs a good quality brief relies on a good quality team needs time and information control

SEQUENCE

brief

design construction

Risk Medium cost risk since the actual cost is unknown until the last package is let Medium time risk since no one organisation carries the risk for timed completion Low quality/design risk because there is a close link between client, designers and constructors

• changes in design can be accommodated later than some other strategies, without paying a premium, provided the relevant trade packages have not been let and earlier awarded packages are not too adversely affected; and • the client has direct contracts with trade contractors and pays them directly. (There is some evidence that this results in lower prices because of improved cash flow certainty.)

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(g) The disadvantages are: • price certainty is not achieved until the last trade packages have been let; • an informed, proactive client is required in order to operate such a strategy; • the client must provide a good quality brief; • the strategy relies upon the client having a good quality team; and • time and information control is required. A4 MANAGEMENT CONTRACTING (a) With this contract strategy, a management contractor is engaged by the client to manage the building process and is paid a fee. The management contractor is responsible for all the construction works and has direct contractual links with all the works contractors. The management contractor therefore bears the responsibility for the construction works without actually carrying out any of that work. The management contractor may provide some of the common services on site, such as office accommodation, tower cranes, hoists and security, which are shared by the works contractors. The client employs the design team and therefore bears the risk of the design team delaying construction for reasons other than negligence. (b) Management contracting is a ‘fast track’ strategy. All design work will not be complete before the first works contractors start work although the design necessary for those packages must be complete. As design is completed subsequent packages of work are tendered and let. Cost certainty is thus not achieved until all works contractors have been appointed. A high level of cost management is therefore required. (c) With the agreement of the client, the management contractor selects works contractors by competitive tender to undertake sections of the construction work. The client reimburses the cost of these work packages to the management contractor who, in turn, pays the works contractors. The management contractor co-ordinates the release of information from the design team to the works contractors. (d) Where the management construction team is not of the highest quality, or where this fee is inadequate, the management contractor can be less than proactive and the system can become a reactive ‘postbox’ approach. It is therefore vital to select the management contractor carefully and to ensure that the fee is appropriate bearing in mind market conditions. Similarly, resistance to works contractors’ claims can be affected by the same circumstances. (e) The organisational structure of a management contract is shown in Figure A4. (f) The main advantages of a management contracting strategy are: • time-saving potential for overall project time; • buildability potential;
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FIGURE A4 PROCUREMENT ARR ANGEMEN T – MA NAGEMENT C ON TRAC TING
CONTRACTUAL ARRANGEMENT

CLIENT

MAIN CONTRACTOR (standard fee contract) CONSULTANTS (fee contracts)

WORKS CONTRACTORS (standard lump sum contracts)

ADVANTAGES time saving potential for overall project time buildability potential breaks down traditional adversarial barriers parallel working inherent late changes easily accommodated work packages let competitively

DISADVANTAGES need for good quality brief poor certainty of price relies on a good quality team may become no more than a ‘postbox’ system in certain circumstances removes resistance to works contractors’ claims

SEQUENCE

brief

design construction

Risk Medium cost risk since the actual cost is unknown until the last package is let Medium time risk since total construction time is a consequence of package selection Low quality/design risk because there is a close link between client, designers and constructors

• breaks down traditional adversarial barriers; • parallel working is inherent; • changes can be accommodated provided packages affected have not been let and there is little or no impact on those already let; and • works packages are let competitively.
(g) The disadvantages are: • need for a good quality brief; • poor certainty of price is offered;
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• relies on a good quality team; • it may become no more than a ‘postbox’ system in certain circumstances; and • removes resistance to works contractors’ claims.
A5 DESIGN AND MANAGE (a) A design and manage strategy is similar to management contracting. Under a design and manage contract, the contractor is paid a fee to manage and assume responsibility, not only for the works contractors, but also for the design team. (b) The main advantages of a design and manage strategy are: • early completion is possible because of overlapping activities; • the client deals with one firm only; • it can be applied to a complex building; and • the contractor assumes the risk and responsibility for the integration of the design with construction. (c) The disadvantages are: • price certainty is not achieved until the last work package has been let; • the client loses direct control over the design quality; and • the client has no direct contractual relationship with the works contractors or the design team and it is therefore difficult for the client to recover costs if they fail to meet their obligations. A6 DESIGN AND BUILD (a) Under a design and build strategy, a single contractor assumes the risk and responsibility for designing and building the project, in return for a fixed-price lump sum. (b) A variant, known as ‘develop and construct’, describes the strategy when the client appoints designers to prepare the concept design before the contractor assumes responsibility for completing the detailed design and constructing the works. Often this strategy is associated with a process where the contractor takes over the client’s designer (architect) contract in a form of ‘contract switch’ or novation. The designer is then employed for the rest of the contract by the contractor who is usually responsible for all of the design including that done prior to the switch. (c) Design and build is a fast-track strategy. Construction can start before all the detailed design is completed, but at the contractor’s risk. (d) As explained in 3.1.1, by transferring risk to the contractor, the client loses some control over the project. Any client requirement which is not directly specified in the tender documents will constitute a change or variation to the contract. Changes are usually more expensive to introduce after the contract has been let, compared with other types of strategy.
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(e) It is very important, therefore, that the brief and performance/quality specifications for important requirements in the project are fully and unambiguously defined before entering into this type of contract. If requirements are not specific, the client should provide contractors with a performance specification at tender stage. (f) The contractor develops the design from the specification submitting detailed proposals to the client to establish that they are in accordance with the requirements of the specification. Clients are, therefore, in a strong position to ensure that their interpretation of the specification takes preference over the contractor’s. (g) Specification is a dangerous area for inexperienced clients: over-specification can cut out useful specialist experience; under-specification can be exploited. (h) The client will often employ a design team to carry out some preliminary design and prepare the project brief and other tender documents. Sometimes the successful contractor will assume responsibility for this design team and use them to produce the detailed design. If a design and build strategy is identified as a possibility at an early stage, then the basis of the appointment of the design team should reflect this possibility. If it does not, the client may have to pay a termination fee to the design team. The client may wish to retain the independent services of a cost consultant throughout the contract for early cost advice involvement in the bidding process and cost reporting during construction. (i) Consideration may need to be given to the inclusion of a special clause in design, or design and build, type contracts to ensure that the responsibility for design performance is properly shared. Such a clause should identify specific obligations that are absolute, that do not require the designer to be an expert in the client’s business and, as a consequence, are reasonably insurable. (j) Current forms of contract for design and build vary their treatment of design liability. (k) To be effective, the client’s requirements will need to be stated clearly and accurately and delivered on time. (l) The imposition on contractors of fitness for purpose in design is usually expressly excluded in standard forms of contract and it is a matter of judgement for clients and their professional advisers, even though tenderers in recessionary markets are likely to agree to undertake such risks. (m) Non-availability of insurance to cover a higher than normal risk should be weighed against the financial ability of contractors to meet design default claims. It will normally be preferable and represent better value for
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money to impose a lesser, yet insurable, liability, which will be the subject of an insurance payout in the event of a design fault, rather than an insurance fitness for purpose requirement on a contractor of limited financial assets. Most importantly the client should ensure that adequate design liability insurance is in place and maintained for the period of liability. (n) Increasingly, collateral warranties are being used to place additional responsibility on designers or subcontractors. In addition, the client may take out insurance to cover post-construction liability, but this will be at a cost. This is a matter for specialist advice. (o) A range of options is available as illustrated in Figure A5. These range from a package deal or turnkey where the client has little involvement in the design development or building procurement process (effectively, a complete hands off approach), to develop and construct where the client appoints designers to develop the brief to a level of sophistication which will leave the design and build contractor to develop detail or specialist design elements.

FIGURE A5 P ROCUREMENT ARRANGEMENT – DESIGN AND BUILD

Some options available, showing proportional involvement in the design proces by client and contractor between package deal, and develop and construct.

Turnkey Package deal Design and build (competitive) Design and build (negotiated) Develop and construct

The range of options enables the procurement arrangement to be used for a wide range of client types, and for clients to be involved to a greater or lesser extent.

Client involvement Contractor involvement

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(p) The project organisation structure for design and build is shown in Figure A6. Contractors may use their own firms’ resources for undertaking the design (in-house design and build), or may more usually subcontract these to one or more professional firms whilst retaining control. (q) The main advantages of a design and build strategy are: • the client has only to deal with one firm; • inherent buildability is achievable;

FIGU RE A6 PROC UREMENT ARRA NGEMEN T – D ESIGN A ND BU ILD
CONTRACTUAL ARRANGEMENT

CLIENT

DESIGN AND BUILD CONTRACTOR (standard lump sum contract) SUPPLIERS (various contracts)

SUBCONTRACTORS (standard lump sum contracts)

ADVANTAGES single point contact and responsibility inherent buildability early firm price possible reduced total project time

DISADVANTAGES client needs to contract before design is complete no design overview unless consultants appointed difficult for clients to prepare adequate brief bids difficult to compare design liability limited by standard contract client driven changes can be expensive

SEQUENCE

brief

competition

design construction

Risk Low cost risk since most contracts will be let on a lump sum basis Low time risk since the contractor will usually fix the time and be committed to it High design/quality risk where the contractor controls design there are risks related to both design suitability and to the capacity of the design-build firm to own such risks

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• price certainty can be obtained before construction starts provided that the client’s requirements are adequately specified and changes are not introduced; and • reduced total project time due to early completion is possible because of overlapping activities.
(r) The disadvantages are: • the client is required to contract before the detailed designs are completed; • there is no design overview unless separate consultants are appointed by the client for this purpose; • difficulties can be experienced by clients in preparing an adequate brief; • bids are difficult to compare since each design, programme and cost will vary; • design liability is limited by the standard contract; and • client changes to project scope can be expensive.

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PART 3, SECTION 2

PART THREE: CONSTRUCTION PLANNING AND PROCUREMENT
SECTION 2: BUILDING SERVICES PROCUREMENT
3.2 Introduction
The guidance in this section is intended to improve the way in which the procurement of building services is handled by all building professionals active in this field. It is aimed at clients, project managers, quantity surveyors and commercial managers who are involved in the procurement of building services. It is intended to provide guidance to clients on the production of clear appointment criteria and the benefits that will manifest through the whole procurement process. It is also intended for use by project managers advising on the procurement strategy for both consultant services and construction work, and for quantity surveyors/commercial managers involved in the selection of a procurement route, production of tender documentation and the management of the tender process. The value of building services can represent anything up to 50 per cent of a project’s total cost (see table 1) and a considerable proportion of the construction risk. It is therefore important that guidance is given to all professionals who provide advice in this field. It is hoped that this guide will lead to a more consistent approach throughout the construction industry.
Table 1: Elemental Breakdown as a Percentage of Total Construction Cost Group element Highly-serviced factories Air conditioned offices 8 44 11 2 35 100 General hospitals

1. Substructure 2. Superstructure 3. Finishes 4. Fittings 5. Services Total
Data source: BCIS

19 62 4 – 15 100

6 33 8 4 49 100

This guide should be read in conjunction with ‘The Procurement Guide’ (see Section 3.1). ‘The Procurement Guide’ provides both clients and their advisers with a code of procedure to assist them in the selection of an appropriate procurement strategy for a building project.
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The fundamental difference between these sections is that this section examines in greater detail the key aspects of building services procurement. Consideration should be given to the guidance provided here, as it will have an influence on the selection of the principal procurement strategy. It is common for clients and their advisers to put enormous effort into developing overall procurement solutions and the role of the principal contractor within these solutions and yet, very often, they do not take an active role in procurement further down the contractual chain. This may be historic in that principal contractors would traditionally be held responsible for procurement of sub-contractors. However, this approach cannot always ensure that the client’s requirements in terms of cost, quality and time are always as high on the principal contractor’s agenda as they are on the clients. This often leads to inappropriate procurement methods manifesting in poor quality, claim-ridden projects. The report of the Construction Task Force, entitled ‘Rethinking Construction’,1 calls for radical changes to the process through which the construction industry delivers its projects. Supply-chain partnering is one such change, and one that is increasingly more evident within industry today. With this move towards partnering, and more specifically partnering through the supply chain, it will be incumbent on both clients and their advisers to take a more pro-active approach in the procurement of every element of a building, and not just the principal contractor. It is not the intention within the framework of this guide to cover every procurement option, and therefore the guide is written with the most commonly used procurement strategies in mind. This guide is intended to provide a framework to supplement the reader’s own skill and judgement when advising and implementing the procurement of building services, rather than definitive guidance for any one of the many routes available. HISTORICAL DEVELOPMENT Cost and procurement advice for building services has historically been provided by building services consulting engineers and the provision still exists within the Association of Consulting Engineers (ACE) standard conditions of engagement to provide such a service. However, with the increased complexity and cost sensitivity of this element, the role is now more commonly placed in the hands of a specialist quantity surveyor. Without a technical background quantity surveyors have struggled to provide such cost and procurement advice. This, together with the demand from clients for a more pro-active approach to cost and value management at every stage of a project, has led to an increase in the demand for specialists. It is now generally accepted throughout the industry that building services cost and procurement advice requires input and guidance from technically trained specialist quantity surveyors. With many more specialist quantity surveyors practising in this field, guidance on good practice is essential if consistent standards are to be
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maintained. Good practice in procurement necessitates a consistent and logical approach, irrespective of the procurement route. It is hoped that by following this guide clients and their advisers will be better placed to avoid the many pitfalls that have historically been associated with building services, and in doing so obtain greater value for money.

G

3.2.1 Appointing the Building Services Designer
3.2.1.1 INTRODUCTION Most construction projects contain building services. In order to incorporate these services successfully, design advice is required. The process of designing the building services elements within a construction project is complex, with detailed design often being undertaken by specialist manufacturers and/or installers. This process usually begins with the appointment of a building services engineer or a building services designer/contractor. The question surrounding this appointment is, ‘who is best placed to provide design advice and at what stage should it be sought?’ Before answering this question the meaning of the word ‘design’ needs to be explored. 3.2.1.2 THE MEANING OF DESIGN Once the client’s brief on a construction project is clearly established the process of design proceeds. This includes the calculation of loads for heating, cooling, ventilation power, and so on; sizing and selecting pipes, ducts and plant and equipment; and consideration of spatial, architectural and structural requirements. It is unusual for a single party to do all the design work and, therefore, it is important to know who is responsible for what within the various elements and stages of design. Design is the exercise of providing a solution to a particular problem or requirement, or set of problems or requirements. In practice it means different things to different people. A common denominator would be a useful guide. A good word to represent that common denominator and the essence of design is ‘choice’. Choice is exercised as to the way in which a problem is to be solved or requirements are to be met. Design is a series of choices and decisions, both in terms of who is required to make the choices and decisions and accepting responsibility for them. As a starting point for investigating where design liability rests asking the question, ‘who made the choice?’ is a good one.2 3.2.1.3 THE IDENTITY OF THE BUILDING SERVICES DESIGNER The building services designer is a member of the client’s design team (which also includes the architect, structural engineer and other specialist designers). The designer can be: (i) An independent design-only consulting engineer engaged by the client;

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(ii) A general contractor or building services contractor who either engages a consulting engineer or employs an in-house design engineer; or (iii) A hybrid of (i) and (ii) above, with each being responsible for their respective elements or stages of design. The decision on which option to use should be based on important factors such as: • clarity and certainty of the client’s brief; • size, complexity or specialist nature of the project; • time available to deliver the project; • required standard of the product; and • financial constraints. 3.2.1.4 ALLOCATION OF DESIGN RESPONSIBILITIES The concept of single-point responsibility makes it easier to establish where liability lies. However, the best engineering expertise for different parts of a design may not rest, in practice, with a single party. Unless a client works solely with a design and build contractor from the outset, it is almost inevitable that design responsibility will be split between the client’s design-only consultant and the building services contractor(s). If conflict at later stages of the project is to be avoided, great care must be taken to clearly describe the allocation of different parts of design to different parties in the building contract. The Building Services Research Information Association’s (BSRIA) technical note TN21/97, Allocation of Design Responsibilities for Building Engineering Services provides practical guidance on the issues involved in the assignment of design responsibility to the various parties to a contract. The use of a table clearly stating the design activity and the assignment of that activity to the party with contractual responsibility is likely to be the most efficient way of avoiding conflict. Table 2 is an example of how the pro formas for allocating responsibility produced by BSRIA in their technical note can be configured. In this example only one sub-system is considered and other consultants are included. In practice, it would be necessary to create a single table for each sub-system of the complete building services installation, as design responsibility may vary from sub-system to sub-system. Using a table in this way is infinitely flexible and should be configured on a project-by-project basis to suit the particular demands of a particular project.

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Table 2: Allocation of Design Responsibilites Allocation of design responsibilities This example is based on the contractor being appointed as part of the design team Project manager Building services engineer Structural consultant Contractor Other (stated) Comments

Area type: Main building Service: Chilled water installation

Activity

Employer

The Surveyors’ Construction Handbook ✔ ✔ ✔ ✔ ✔ ✔ Prepared in conjunction with the contractor Brief to be issued by project manager ✔ ✔ ✔ ✔ ✔ ✔ ✔ Architect ✔

1.0

Surveys:

1.1

– Existing system

1.2

– System wide

2.0

Feasibility report

3.0

Confirmation of client brief

4.0

Design:

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4.1

– Sketch drawings

4.2

– Schematics

4.3

– Installation drawings

4.4

– Specification

4.5

– Builders work information

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4.6

– Manufacturers’ drawings

4.7

– Record drawings

5.0

Plant selection:

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5.1

– Specify plant performance

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Page 6 Allocation of design responsibilities This example is based on the contractor being appointed as part of the design team Project manager Building services engineer ✔ QS ✔ ✔ QS To be done in conjunction with the QS Structural consultant Contractor Other (stated) Comments ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

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Area type: Main building Service: Chilled water installation

Activity

Employer

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5.2

– Propose procurement route

5.3

– Agree plant manufacturers

5.4

– Pre-tender plant (if required)

6.0

O&M manuals:

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6.1

– Format

6.2

– Production

6.3

– Sign off

7.0

Spatial coordination:

7.1

– Coordinate all services and routes

7.2

– Review installation proposals and amend schematics

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7.3

– Re-select plant accordingly, including any revised calculations

Table 2: Continued Allocation of design responsibilities This example is based on the contractor being appointed as part of the design team Project manager Building services engineer ✔ Structural consultant Contractor Other (stated) Comments

Area type: Main building Service: Chilled water installation

The Surveyors’ Construction Handbook ✔ ✔ ✔ QS ✔ ✔

Activity

Employer

8.0

Monitor the specialist design for compliance with the design intent

9.0

Test and commission the works:

9.1

– Commissioning specification

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9.2

– Carry out testing, commissioning and provide certification

9.3

– Accept/witness commissioning

10.0

Cost advice and monitoring

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11.0

Design team coordinator/contract administrator

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12.0

Lead designer

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The tables should be compiled at the outset of a project by the employer or his or her project manager and should be included as a contract document. In practice, the completion of the tables in terms of timing will be dependent on the procurement route chosen. For example, a pre-designed single stage competitive tender would require the tables to be created as a basis for appointing the building services engineer, as undoubtedly the level of design responsibility will affect his or her fee. The tables should then be included as part of the tender documents and included as a contract document in both the employer’s contract with the principal contractor and its contract with the building services engineer. Alternatively, under a ‘partnering’ situation the tables could be compiled jointly between the parties, with responsibility being allocated to the person within the team best suited to manage the risk. Again, the completed tables should be included as a contract document in all contracts between the employer and his or her design team, which would include the principal contractor. 3.2.1.5 APPOINTMENT OF AN INDEPENDENT DESIGN-ONLY ENGINEER The first allocation of design responsibilities usually concerns the appointment by the client of an independent design-only consulting engineer. The ACE conditions of engagement, produced by the Association of Consulting Engineers, are widely used to make this appointment. The 1981 conditions have been replaced by the 1995 conditions (2nd edition, 1988). However, the 1981 conditions are still in use on some projects and therefore need to be considered here. (a) 1981 ACE conditions of engagement The 1981 conditions include agreement 4A which offers a choice of the following forms: (i) full duties; (ii) abridged duties; or (iii) performance duties. All three forms require the consultant (building services engineer) to exercise all reasonable skill, care and diligence in the discharge of his or her duties. The consultant does not warrant that his or her design will be fit for the intended purpose. The responsibilities of the consultant under full duties and performance duties are easier to understand than abridged duties. The responsibilities under abridged duties rest between the relative extremes of full duties and performance duties.

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One very important difference between full duties and abridged duties is that the latter do not require the building services engineer to produce coordination drawings. His or her duties under abridge duties are intended to harmonize with those of the architect up to a certain point and this would require some element of design coordination by the building services engineer. However, the extent of this is unlikely to be clear. Abridged duties have been the source of argument and dispute between building services contractors and design-only consultants for many years. Therefore, when it comes to engaging a design-only consultant, it is very important that the extent to which the consultant will produce coordination documentation is clear, particularly to the building services contractor who will rely on the information. This is especially important where abridged duties are used. Although the consultant is not required to produce coordination drawings (as defined in the 1981 ACE conditions) under abridged duties, he or she will almost certainly coordinate design to some extent in conjunction with the other members of the design team. BSRIA technical note TN21/97 provides practical guidance on deliverables. (b) 1995 ACE conditions of engagement The 1995 conditions comprise a range of forms, one of which is called agreement B(2). The forms are not formatted into full, abridged and performance duties. Agreement B(2) divides the duties into normal services and additional services. The 1995 conditions include the following guidance, ‘In connection with the duties of building services engineers it should be noted that agreements A(2) and B(2) list as normal services a level of services which corresponds roughly to the abridged duties in the 1981 agreements 4A(ii) and 4B(ii). It is open to the client and building services engineer to agree an equivalent of full duties by importing some of the additional services into the normal services. Similarly, an equivalent of performance duties may be agreed by listing in A19 those services which are not to be included as normal services.’ It is important to note that coordination drawings are not part of normal services. From this point of view, normal services are significantly less than full duties under the 1981 conditions. If the client or the project manager want the designer to produce coordination drawings under the 1995 conditions, they must request the inclusion of these drawings. Under normal services, the designer is required to prepare ‘detailed design drawings’ from which, ‘it should be possible to produce coordination drawings and installation drawings without a major re-routing of those services’. In practice, the meaning of the words ‘major re-routing’ should be discussed with the designer so that the implications of what they might mean could be risk assessed at an early stage and clearly communicated through the contract documentation. Additional services is a list of services from which the client must choose and add on to the normal services.
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The main differences between the 1981 and 1995 ACE conditions of engagement are outlined in table 3.
Table 3: Main Differences Between Appointments in the 1981 and 1995 ACE Conditions of Engagement 1981 ACE Conditions Performance duties As agreements A(2) and B(2) Least detailed design services Abridged duties No requirement to produce coordination drawings Less detailed design duties (How is coordination of design to be achieved?) Full duties Includes coordination drawings Most detailed design duties 1995 ACE Conditions List in A19 what is to be excluded from normal duties to equate to performance duties Normal duties Roughly equivalent (Coordination to be addressed separately)

Additional services List of additional services to be agreed with the consulting engineer Should facilitate coordination drawing ‘without major re-routing’

Independent of who the designer is and how the appointment is made, it is equally important to appoint him or her at the same time as appointing the architect and the structural engineer. This is because the architectural and structural design will impact on the building services design and vice versa. Bringing the building services designer into a project at a later stage will mean that the building services design is less advanced than the main structural and architectural elements leading to possible conflicts as the design process catches up. It will also mean that at a time when the client needs an accurate estimate of the project cost, the engineering services element will be less detailed. 3.2.1.6 SUMMARY • The designer is the party who is required to make the choice. Complete design expertise rarely lies with a single party. • If allocation of design responsibility between the parties is not clearly described in tender documentation, this can lead to disputes. • The use of abridged duties from the 1981 ACE conditions agreement 4A or their current equivalent needs very careful consideration. When engaging a design-only building services engineer under abridged duties, it is very important to have a clear definition of deliverables expected from him or her. • It is important to appoint the building services engineer at the same time as the architect and the structural engineer.

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Having established where the responsibility for design can lie, the next part of this section deals more specifically with the coordination of design, its potential impact on a project and the importance of recognizing appropriate procurement strategies to deal with this impact.

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3.2.2 Design Coordination
3.2.2.1 INTRODUCTION This section deals with design coordination. It is important to recognize the distinction between ‘design coordination’ and ‘coordination of the installation’. Whilst coordination of the installation (which is concerned with the planning and sequencing of the works on site) is extremely important, it is generally considered to be the principal contractor’s responsibility and is therefore not covered here. 3.2.2.2 THE IMPORTANCE OF DESIGN COORDINATION Disputes involving design coordination and installation responsibilities are a major cause of conflict in the building services industry and, as such, are one of the main reasons for delay and disruption on construction projects. The roles of the various parties, and the extent of their design responsibilities, may appear to be fairly straightforward for many elements of a building. However, this is rarely the case when procuring buildings where the building services element is of significant value and complexity. Failure in the coordination of the building services design can create problems with the building services installation and may have a serious impact on the following areas. (a) Installation time Design coordination problems, which are not recognized during the drawing process, may only become evident when the installation of the works is being carried out. For example, if the ductwork was found to clash with a structural element of the building, time may be needed for a design solution to be found and implemented. The solution may require: • preparation of revised calculations; • preparation of a drawing/sketch; • approval by others of the re-design; • re-ordering of materials; • re-installation of the ductwork; and • re-programming.

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(b) Installation cost Remedying a design coordination problem often involves working out of sequence and can give rise to additional costs, including those arising out of: • engineering time; • drawing time – if the works are done out of sequence; • incidental items such as retaining the scaffolding in place for a longer period; and • the costs associated with a variation to the works which may additionally involve loss of productivity and prolongation costs. (c) Effect on other trades The time needed to resolve the design coordination problem might cause a critical delay to other trades or activities. For example, a ductwork problem may prevent the ceiling installation from being completed to programme. (d) Cooperation between the parties Invariably, coordination problems arise as a result of incomplete design or poorly-defined design duties which result in gaps in the design. In this situation it is unlikely that any party will accept liability for the problem since the consequences, and their associated costs, are unclear. This can give rise to parties defending their positions, inevitably leading to conflict and delay. Furthermore, even when duties and responsibilities are defined in the contract, misunderstanding can still arise if reliance is placed on custom and practice rather than liabilities under the contract. (e) Standard of workmanship When a building services contractor experiences a problem due to lack of design coordination, the solution can necessitate a compromise of the quality of the installation. 3.2.2.3 OBJECTIVE OF DESIGN COORDINATION The process of design coordination should have a clear goal: to ensure that the many different elements of construction fit together effectively to provide a workable and economic solution. It must be recognized that design coordination is an inherent part of the overall design process and, as such, whoever is responsible for design should ensure it is undertaken. Design coordination should be an objective and measurable process that is transparent to all concerned.

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This may appear to be self-evident. However, the functions of design and design coordination are not always clearly defined, or there could, effectively, be two stages associated with it for the reasons outlined in 3.2.1. This may leave the contractor with a substantial amount of design coordination to complete after the building services design engineer has fulfilled his or her design obligation. On projects containing a significant amount of building services, design coordination takes on particular importance because of the large number of trades involved, the complexity of their work and the likelihood that these trades may have different design responsibilities. For example, there could be a number of specialists responsible for the design of their own systems. Therefore, a fully coordinated design would not be achieved until these designs are complete. In these circumstances it is beneficial to select the relevant specialists early in the procurement process to enable them to commence their designs and advance the completion of a fully coordinated design. Therefore, when drafting appointment and contract documents, a number of key issues need to be addressed. These are: • The documents should contain a clear and unambiguous definition of design coordination and define the coordination responsibilities of the various parties; • The production of documents associated with coordination should be clearly allocated to the various parties to the contract. The contract should also specify the type and number of documents/drawings, the level of detail, the number of copies and the scale to be used; • Coordination of design should be included as a key activity in the planning stage of the project and should be a measurable activity with achievable milestones on the programme(s); and • Recognition should be given to the impact which specialists have on design coordination and the importance of appointing early enough in the procurement process. 3.2.2.4 RESPONSIBILITY FOR DESIGN COORDINATION It is essential, before contracts are entered into, to establish responsibility for coordination of design. This could be scheduled into a simple table with tick boxes indicating the various parties’ responsibilities, the results of which would be transferred into the contract (see table 2). Whatever method is used the contract should address the duties of the parties as follows. (a) Terms of appointment for the designer Special care must be taken to understand the terms of appointment of the designer. It should be clear if the designer is responsible for producing
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Figure 1: Design Coordination

coordination drawings during the design and construction stage of the project (see 3.2.1). Whatever form of agreement is used, design responsibilities should be clear and unambiguous. An express definition of the quality and quantity of information to be provided by the designer should be included. (b) Building services contractor’s contract It should be clear if the building services contractor has a duty to coordinate its work and/or the work of others into the overall design. Also, it should be clear if the building services contractor is the lead coordinator. Ambiguity can lead to a dispute. The contract should state whether the building services contractor has any design responsibility (see 3.2.1). If the building services engineer has design coordination liability and he or she intends to delegate to the building services contractor(s), the following factors need to be clear: (c) Delegation under the contract The designer needs to be sure that the terms of appointment allow this or that the client is in agreement with them. (d) Tender/contract documentation Documents need to be clear on the extent of coordination to be undertaken by the building services contractor and sufficient time must be allowed in the programme to perform the task.

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(e) Ability Checks should be made to ensure that the building services contractor has sufficient experience and resources to undertake coordination duties. A method statement should also be obtained, detailing how the building services contractor will undertake the process of design coordination. (f) Computer Aided Design (CAD) Where the scheme is designed on a CAD system, the building services contractor should have a compatible system. (g) Programme There should be sufficient time within the overall programme of the works for the building services contractor to properly undertake coordination of the design. (h) Establishment of the lead coordination contractor Where possible, a lead coordination contractor should be appointed. It is unwise to have a fragmented contractual arrangement with several contractors undertaking design coordination work, none of whom are liable for the overall design coordination. 3.2.2.5 PROCESS FOR IMPLEMENTING DESIGN COORDINATION Once the responsibilities of the parties involved in the project are identified, a process should be established to ensure that design coordination is being carried out. An example of good practice is detailed below: (i) The client appoints a member of the project team as ‘design coordinator’. The design coordinator’s duty is to manage the design coordination process. Ideally this should be a project team member who has no design responsibility in order to avoid a potential conflict of interest. This appointment should be made as early as is practical in the design process. (ii) The design coordinator must establish a clear understanding of each party’s responsibility for coordinating the design and should ensure that they have the capability to perform their obligations. (iii) The design coordinator is responsible for the programme and method of implementation of design coordination. This should be prepared with the input of all parties to ensure that it is in harmony with the overall construction programme.
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(iv) The design coordinator should review the coordination process on a regular basis to ensure compliance. Reports should be issued to the client and, if necessary, the contract administrator should issue instructions to overcome any problems. 3.2.2.6 SPECIFIC PROBLEMS RELATING TO BUILDING SERVICES INSTALLATIONS The following examples are typical problems that can give rise to coordination difficulties. (a) Selection of plant and equipment Where the building services engineer is responsible for the selection of plant and equipment, a provisional selection of certain equipment is often made. This is in order to plan layouts and to provide information on space requirements/loadings to the architect/structural engineer. The provisional selection of plant is also necessary for information in preparation of cost advice. In tendering for the works, the building services contractor may propose an alternative manufacturer for equipment to that chosen by the building services engineer. The reasons for this can be varied, but usually it is because the building services contractor receives more favourable commercial terms from certain suppliers than others. The client may be in favour of this alternative if the selected equipment achieves cost savings and/or improved delivery times without the quality of equipment being reduced. Questions often arise over design liability for the proposed equipment ‘meeting the design requirements’. Does it lie with the building services contractor who proposes it or the building services engineer who approves it? The answer in law appears to be that the person on whom the client relies to make the decision must ultimately be responsible (see 3.2.1). Changes in size, shape and manufacturer may not only lead to coordination problems. It can also result in problems with functionality if the equipment does not meet the specification. On a practical level it is often better for the building services engineer to undertake a re-evaluation of the design to ensure that the equipment complies both in terms of specification parameters and coordination of the services. However, this work is often not included as a duty in the terms of appointment for the building services engineer or in the building services contractor’s contract. Under the 1981 and 1995 ACE conditions of engagement, the building services engineer is not responsible for re-evaluation, unless it is agreed as an additional service. Therefore, the building services engineer should be paid an additional fee to undertake this work. In the event that the building services engineer does not undertake the re-evaluation process, because either it is not in the terms of appointment or the client is not willing to pay additional fees, the building services contractor
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should be responsible for the design and coordination associated with the change. The client should be advised that the disadvantage with this option is that there is no independent check that the equipment complies with the specification. If the building services contractor suddenly takes on this design responsibility it must be reflected in its terms of contract. The associated changes to warranty agreements must also be made. However, the cost of these changes may prohibit the proposed change of equipment. (b) Appointment of specialist installers Depending on the type of project, a large element of the building services works may consist of many specialist installations. Examples of such installations include medical gases, lifts, BMS, refrigeration and sprinklers. It is usual for the specialist companies to provide design information and this information must be incorporated into the works to ensure a properly coordinated design is achieved. One of the problems with this, however, is that the amount of coordination required may vary substantially from specialist to specialist. Ideally, where the specialist company’s input is significant to the project, they should be appointed at a stage which avoids assumptions being made regarding the specialist’s requirements. Such assumptions can often turn out to be incorrect. If a specialist cannot be appointed at an early stage, allowance should be made within the programme for the specialist to develop its design, and for this to be coordinated with the overall design. (c) Variations/changes to the works Variations and changes to the works can have a significant impact on the design coordination depending on their scope and timing. Such alterations should be carefully considered. 3.2.2.7 LEGAL POSITION The legal position with regard to design coordination cannot be considered in any depth within this section. However, the law related to coordination is considered briefly below. (a) Express terms of the contract The appointment of the building services engineer should clearly establish whether there is a responsibility for design coordination. It is recommended that the appointment of the building services engineer should be under the appropriate ACE form of agreement. Many of the standard forms of building contract deal adequately with materials and workmanship requirements but fail to address, in sufficient
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detail, design coordination issues. It is essential that when a building services contractor is not specifically responsible for design (as, for example, in design and build contracts), express terms are included to cover design coordination duties and responsibilities. (b) Implied terms of the contract Where the contract is silent on an issue, terms may be implied by the courts, common law, statute or by custom, irrespective of the parties’ intentions. The application of implied terms is limited and uncertain. Therefore it is important to insert clear express terms in contracts. Where a building services contractor has no express design liability, the courts are still likely to imply an obligation on to the building services contractor to warn the client of any problems known to it. (c) Tort There is much less likelihood of an action in tort for coordination problems than there is for more general design errors. This is because latent defects do not generally originate from coordination problems. Most coordination disputes arise during the course of the works and are dealt with under the contract. The disputes usually relate to payment for additional work rather than damages for defective work. Therefore, the application of tort is limited but should not be ignored. In fact, the law of tort can increase the liability of the building services contractor in terms of its duties, the number of parties it is liable to and the length of time it has a liability for. (d) Criminal implications Negligent work and breach of statutory duty are normally considered as torts. However, they can also have criminal penalties, particularly where injury is caused to others. For example, the CDM (Construction (Design & Management)) regulations 1994 do not differentiate between building services engineers and building services contractors who undertake any design duties, even if only restricted to design coordination. Consequently, a clear understanding of liability for design is essential for those taking on coordination work. 3.2.2.8 SUMMARY • Recognize the importance of design coordination within the procurement strategy. • Documentation responsibilities. should clearly identify design coordination

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• Ensure there is a clear process and adequate time for design coordination. • Appoint specialists early where design input is key to coordination. Having established an appropriate procurement strategy and terms of appointment, the appointment of the building services contractor in the correct manner is crucial to the success of a project. Section 3.2.3 deals with appointing a building services contractor and examines the common approaches and the pitfalls.

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3.2.3 Appointing a Building Services Contractor
3.2.3.1 INTRODUCTION There are many criteria to be considered in the appointment of a building services contractor, and different clients will put different emphasis on each criterion. The lowest tenderer may not always provide the client with the best value for money and there may be more important priorities to consider than simply the initial build cost. The client may prefer to appoint a building services contractor who can: • build to the quality and standard required; • provide the resources to condense the contract programme; • take the lead in design coordination; • provide a design service; or • provide a lower whole-life cost. The prioritization of the criteria to suit the client’s overall objectives ultimately influences how the appointment of the building services contractor is conducted. 3.2.3.2 TIMING OF THE APPOINTMENT The timing of the appointment of the building services contractor depends on the selected procurement strategy and/or the cost effectiveness of introducing the building services contractor to the design process at an early stage. It also depends on the size and complexity of the project. The more complex the project, the longer the lead-in period prior to instruction will need to be. The earlier the building services contractor is appointed, the greater the influence it can have on: • design; • coordination;

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• plant and equipment selection and procurement; • buildability; • programming; • value engineering; • commissioning advice; • safety – in terms of maintenance and accessibility; • the cost plan; and • maintenance – post completion. These influences should however be balanced with the disadvantages of early appointment: • limited price competition; • limited pool of building services contractors able to develop and finalize the design; and • difficulty comparing tenders effectively. There are several key considerations relative to appointment at the various stages of design. These are as follows. (a) Inception and feasibility stage The building services contractor should only be appointed at this very early stage if one or more of the following criteria is satisfied: • the project is predominantly building services; • very early design or design coordination input is required due to the complexity of the project; • the building services contractor’s work is of a very specialist nature; or • advice on the programme is required due to long lead-in times for equipment. (b) Outline and scheme design stage Appointment at this stage usually leads to a lump sum or a guaranteed maximum price. The appointment would generally take place at outline and scheme design stage when the building services contractor would be required to develop the initial design into a full design. At this stage an outline design, together with an accompanying preliminary outline specification, may have been produced by the client’s appointed building services engineer.
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Alternatively, the building services contractor’s expertise can be utilized by appointing it, for a fee, to work alongside the client’s design consultants in a ‘concurrent engineering approach’. In this approach the building services engineer and the building services contractor work alongside each other to produce the design and coordinated working drawings. For example, the building services engineer could produce performance criteria and schematics which are worked up into fully detailed working drawings with any survey work and the coordination being done by the contractor. In this example, one level of drawings is deleted from the process and the responsibility of design coordination rests with the contractor. (c) Full design stage Appointment at this stage of the project usually follows a lead-in period allowing design to be virtually completed by the client’s building services engineer prior to appointment. It generally leads to a lump sum tender being sought based on the client’s consultant’s design drawings and comprehensive specification. The building services contractor is appointed at this stage if it has little or no design input. Some contractor design may still be required at this stage for specialist systems. In addition to these key considerations there are various minor advantages and disadvantages. However, some clients may consider these to be of importance. Tables 3 and 4 summarize these advantages and disadvantages. 3.2.3.3 PROCUREMENT OPTIONS This section reviews how the building services contractor’s appointment fits within the various project procurement strategies. A comprehensive review of the overall project procurement options can be found in section 3.1 (‘The Procurement Guide’). The timing and contractual basis of the building services contractor’s appointment largely depends on the overall project procurement route. The client’s and team’s view on the benefits of the various appointments discussed earlier will also influence this. The building services contractor is generally appointed under a domestic sub-contract or package arrangement under a principal contractor. The project team should try to ensure that the terms of the appointment are no more onerous than those of the main contract. The appointment of the building services contractor under the main contract procurement routes is considered below. (a) Traditional procurement: where the building design is complete before the principal contractor is appointed The most commonly used procurement route is the traditional route of complete design prior to tender with either bill of quantities or pricing schedules tendered
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Table 4: Advantages of Appointment at Design Stage

Design stage

Inception and feasibility stage

Outline and scheme design stage

Full design stage

Advantage
The client would have complete access to the building services contractor’s specialist knowledge. The overall project programme could be shortened due to the time saving in the pre-tender period. Simplification of the tender documentation. Early appointment generates a good understanding of the client’s objectives and an accurate brief. The client will benefit from the building services contractor’s expertise in the selection of the most competitive equipment and systems. A variety of solutions may be provided allowing the client and his or her project team to assess the best solution for the project. A shorter tendering period compared to the traditional route. Bills of quantities (BQs) or detailed pricing schedules can be readily produced by the quantity surveyor with the inherent advantage of tender cost comparisons, cost control and use in the valuation of variations. The advantage is limited however as the BQs may not reflect the way the contractor prices the work involving additional work for the contractor. Also, and very obviously, unless the design is fully coordinated a BQ reflecting the final design cannot be produced. The measurement process will also provide a check against the adequacy of the design information. The quality control of the installation can be monitored by the consultant against the original design. Optimum competition, provided the design is practically complete and the bills are correctly described and accurately measured. Tender period shorter together with reduced tendering costs and risk for the building services contractor. ✔ ✔

✔ ✔

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Table 5: Disadvantages of Appointment at Design Stage

Design stage

Inception and feasibility stage

Outline and scheme design stage

Full design stage

Disadvantage
Limited number of building services contractors with the required design expertise to develop and finalize the design. Clear tender proposals are not always possible due to variations in the tender design proposals. Extensive tender preparation time and costs for the building services contractor. The client and the client’s design team have less control over final design The client may be forced to make compromises between price and quality depending on how comprehensive the initial enquiry document was. The building services contractor will tend to view the capital cost as the priority rather than the quality and through life costs of the building. The pre-contract stage will tend to be longer due to the time taken to produce the design and the tender documentation. The cost of the building services consultant’s fee may be more than the contractor’s cost for developing the design. No use made of the contractor’s expertise in terms of buildability, programming, costing, equipment and building services contractor selections during the pre-contract stage. Incorrect allocation of coordination responsibilities may lead to cost escalation. Delay in appointment may affect the coordination of the services and delay builders work details. Late tendered cost information may cause budget problems. Limited use made of the contractor’s expertise in terms of buildability programming, equipment and building services contractor selections, and so on during design process. ✔ ✔

✔ ✔ ✔ ✔ ✔ ✔ ✔

✔ ✔ ✔ ✔

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on a lump sum basis through a main contractor. However, appointing a building services contractor can be achieved in a number of ways: (i) The principal contractor selects the building services contractor This traditional domestic sub-contracting arrangement is usually most appropriate when the project is small or the building services elements are not complex, and the building services contractor is not required to have any design input. However, the principal contractor’s choice is usually price led and this method can lead to ‘Dutch auctioning’ by the principal contractor. The employer has little control over the building services contractor’s appointment. This does not necessarily result in an inappropriate appointment, particularly if the main contractor follows appointment procedures similar to those set down in the Code of Practice for the Selection of Sub-Contractors.3 (ii) Naming a number of alternative building services sub-contractors This arrangement avoids some of the problems associated with domestic sub-contracting. It provides some competition with a degree of control maintained by the employer. It also reduces the overall cost of tendering by restricting the number of building services tenderers. However, the criterion used by the principal contractor to appraise tenders is likely to be price. This method has the disadvantage of higher costs when compared to traditional domestic arrangements. It also prevents the principal contractor from working with sub-contractors with whom it has a good relationship or partnering arrangements that may reduce conflict. This method would be used where the employer wishes to maintain an element of control. (iii) Naming a single building services sub-contractor as sub-contractor in the main contract This method allows the employer to appraise building services tenders and select a building services contractor using his of her own criteria. To achieve this the building services sub-contract will either be negotiated or tendered by the employer. This is done prior to letting the main contract and inserting a name into the main contract. Alternatively, it can be done after letting the main contract, in which case, a prime-cost sum is inserted into the main contract. (iv) Nomination This arrangement allows even greater control by the employer and usually provides a degree of comfort to the building services contractor. However, part of the burden of risk is shifted to the employer. It is extremely rare to see this method in use today. It would only be utilized if the employer is the most appropriate person to shift risk too. (v) Two-stage selective tendering If early appointment is required, where for example the building services contractor is required to assist the building services engineer with design and coordination, a two-stage selective tendering method is appropriate.
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At stage one a schedule of rates and preliminary costs is agreed. These are then used at stage two to build up the contract sum. However, problems occur when a sum at stage two cannot be agreed. This method usually results in a higher contract sum than other methods. The building services contractor is then required to enter into a domestic sub-contract with the principal contractor. To summarize, the choice depends on the amount of control the employer wishes to maintain, balanced with the cost. The employer’s choice usually depends on the amount of input and the size of the building services contract. Personal preference for a particular building services contractor may also be a factor. If the building services element is very large, it may be more appropriate to appoint the building services contractor as the principal contractor where it has the necessary management skills to undertake this role. If the employer wants to retain control over the tendering process and selects the building services contractor, a number of options should be considered in relation to the number of sub-contracts required and the timing of the appointment, in relation to the principal contractor’s appointment. (i) Number of sub-contracts: tender mechanical and electrical works as separate sub-contracts In order to tender the mechanical and electrical sub-contracts (or even sub-divisions of these) the contract must be of sufficient size to negate the efficiencies that would be gained by having a single sub-contract. (ii) Timing in relation to the principal contractor appointment Pre-tender the building services sub-contract(s) This allows selection to be made prior to the appointment of the principal contractor. It is particularly useful when the building services contractor is required to take on design liabilities and its early input is required. Tender the building services packages after the principal/main contract This allows the principal contractor to comment and, if necessary, object to the design team’s proposed tender list prior to the works being tendered. However, the principal contractor must be prepared to enter into a domestic sub-contract arrangement with the successful building services tenderer. A prime-cost sum could be included in the contract documents for the building services installer at tender stage to provide the principal contractor with the opportunity to price its overheads and profit and preliminaries. This method allows the principal contractor to be appointed ahead of the building services element. It is particularly useful to allow time for the building services engineer to complete work on the building services design prior to tendering where this is not as advanced as the main works design.

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However, the delay in appointment may adversely affect the coordination of the services and delay builders work details. Also, there is the possibility of a less competitive overall cost as the principal contractor is incorporating the works after being awarded the building contract rather than it forming part of its tendering strategy. (b) Design and build When the principal contractor is under a design and build contract it is more usual, particularly on larger contracts, for the principal contractor to select its own building services contractor. This is because a higher degree of cooperation and integration is required between them. Joint ventures are often used where the building services element is significant. However, named building services contractors can be used if the employer has a particular preference. When the main contract is traditional and the building services element is to be designed by the building services contractor, the criteria in section 3.2.3.3(a) should be applied. It is recommended that the employer maintains an element of control over the building services element where complex or prestigious building services design is involved. If the building services contractor is to design, a performance specification, and possibly outline drawings, will be produced by the building services engineer. The building services tenderer is then required to complete the design. The pricing document produced by the quantity surveyor is very important in this situation. The quantity surveyor must have an understanding of the final design in order to provide appropriate headings within the pricing document. This will enable a meaningful analysis of the tender return to be achieved. The tenderers under consideration would be required to submit a quantified schedule of rates to allow post-contract cost management. This should be done prior to the contract being awarded to them. Performance specification or design and build may involve novation of the design team to the chosen building services contractor. (c) Management contracting or construction management route This route involves the building services being subdivided into works packages. This could consist of two packages, i.e. mechanical and electrical, or it could be further subdivided into pipework, ductwork, plant, plumbing, and so on. It is usually only beneficial to package the work when the project is large and complex and/or dependent on current market forces. If this method is chosen it is vital that the coordinating contractor has the requisite experience in coordinating the various trades involved and fully understands the project. The design coordination responsibilities discussed earlier in 3.2.2 take on even greater significance with an increasing number of interfaces. There are three main reasons for introducing packages into a construction project:
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(i) It allows the management contractor/construction manager to retain greater control of the project. When one package contractor becomes too dominant on any project the site management can lose its hold on the project; (ii) By tendering the project in packages additional competition may be introduced dependent on market conditions; and (iii) It allows design development to proceed in parallel with construction. To balance these points the following issues should be considered: • Does the project easily divide itself into the separate work package? If not, additional interfaces are being introduced which must be balanced with any potential loss of control. • Could cost savings be obtained by reducing the number of work packages? Fewer packages result in lower cost due to less tendering, better communications and lower preliminary costs for the project. • If the number of packages any one contractor is allowed to win is limited then competition on the final packages may be limited as the number of competent tenderers is reduced as the tendering progresses. • Design coordination responsibilities become more difficult to control as the number of individual interfaces increases. • If risk is not evenly distributed between packages this may lead to difficulties in obtaining tenders for some packages. 3.2.3.4 SUMMARY OF PROCUREMENT ROUTES When deciding on the appropriate procurement route the most important point to remember is that the more prestigious and complex the project, the greater the cooperation required between the design team and the building services contractor. Under these circumstances there is a greater need for the client to control the appointment of the building services contractor. Each of the possible procurement routes must be objectively considered in conjunction with the project as a whole. Every route has its own distinct advantages and disadvantages and its inherent risks which have to be related to the client’s objectives and the project characteristics. Partnering or new strategies such as ‘supply-chain management’ and ‘concurrent engineering’ which lead to closer relationships between the various construction parties can also benefit the project by reducing, or eliminating, the amount of confrontation and allowing the parties to concentrate their efforts on the needs of the project instead. The selection of the principal contractor on complex projects should also be considered carefully to ensure that it provides the necessary building services
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Figure 2: Appointing a Contractor: Impact of Procurement on Design Responsbilities

experience and input to ensure that the installations are properly controlled, coordinated and programmed. 3.2.3.5 TENDERING The main objective of any tendering process is quite simply ‘to employ a contractor’. However, this is not the only objective. If it were, the client would only have to invite the first contractor professing to have the required skills to start work as and when it was convenient to proceed. The aims of the tendering procedure can therefore be summarized as follows: • to assess the skills of the contractor; • to translate to the contractor through the tender documentation all the project information, including the client’s objectives, required to form the contract; and • to obtain a competitive quote. The selection of building services contractors for interview, tender or negotiation is often made by committee. The ability of the quantity surveyor to have a positive input into this process so that an appropriate selection is made is very important. It is also important to ensure that the contractors considered at an early stage are financially sound; are of appropriate size and status; have the work capacity to undertake the project; and are sufficiently committed to offer a competitive price. (a) Short listing building services contractors The following options can be considered when drawing up the short list of tenderers:
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(i) Client preference An experienced client may have stated preferences for building services contractors of whom they have knowledge or who have performed well on previous comparable projects. The client may also have preferences for approaches such as partnering. (ii) Project team recommendations Recommendations can be based on the past experience of building services contractor’s performance on similar projects. The design team evaluation of approved contractor application forms can be used to assess references from other design teams. (iii) Open advertising arrangements Advertisements in the European Journal or similar recognized publications can be arranged. (b) Interviewing Once a tender list has been drawn up, formal interviews should be undertaken with the proposed potential tenderers. Interviewing can be costly and time consuming for both the building services contractor and the design team. Therefore, the length of interviews and the number of contractors interviewed should be related to the size and complexity of the project. It is important to understand the capabilities of the particular building services contractor and whether there is a bias towards any one specialism, i.e. mechanical or electrical. On larger contracts, where coordination with other trades is a major priority, letting all the services to one contractor may prove to be an advantage. Small contracts may allow subdivision of particular trades, but their integration into the overall services installation can lead to difficulties in the later stages of a contract, particularly commissioning and the incorporation of life safety testing and linking with final commissioning of mechanical plant. (c) Pre-qualifying In some cases it may be desirable to investigate the companies under consideration prior to including them on the project tender list. This is a common activity in organizations that keep preferred or selected lists of contracting companies for regular construction activities. However, it is also increasingly frequent for large and/or complex projects. Companies who qualify in this way may then be invited to tender for the works. (d) Selection criteria In all cases the following list represents the minimum information that should be collected about prospective tenderers:
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• quality of work; • previous experience; • size of company (a company’s turnover should be scrutinized in relation to the proposed contract value and programme); • insurance cover; • health and safety experience/record; • previous record of performance – preferably supported with a client recommendation; • financial stability; • size of previous projects and the outcomes; • CVs of the key personnel; • company location; • necessary specialist skills – e.g. planning, commissioning; and • what trades the building services contractor has in-house and which will be sublet. (e) Preliminary enquiry Once a preliminary list has been collated, the individual tenderers should be issued with a scope of work and project programme. They should then be asked if they are willing to tender. This should establish the current workload, who is likely to carry out the work and the likely enthusiasm of the qualified tenderers. It is wise to have a pre-tender meeting with the selected tenderers at this stage. This gives the whole team a final chance to assess the building services contractors prior to the tender documents being sent out. (f ) Length of tender list The number of building services contractors finally asked to submit a tender should relate to the type of project, the complexity of the project and the contractors’ responsibilities under the proposed contract. Guidance on selecting a building services contractor can be found in the Code of Practice for the Selection of Sub-Contractors. Generally, the more complex the contract, the fewer tenderers are required. The complexity does not cover just the construction work but also any design and/or design coordination responsibilities which are devolved to the building services contractor.
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(g) Tender period Regardless of the procurement route chosen, an appropriate tender period must be allowed so that the building services contractor can return a fully considered tender. The tender period will mainly be dependent on three factors: (i) the procurement route; (ii) the complexity of the project; and (iii) the size of the project. Tender periods can range between three weeks for a design-only contract to ten weeks for a design and build project. Building services contracts should have a tender period of four to eight weeks, depending on the parameters mentioned above. If the design and build route is chosen, an appropriate design period should be allowed for within the project programme to minimize potential site problems. 3.2.3.6 AVOIDING THE PITFALLS (a) Control of the appointment The control of the building services contractor’s appointment can be retained by the design team or it can be passed on to the principal contractor. At what stage the principal contractor takes control of the appointment should be carefully considered by the design team and may depend on a number of factors (see section 3.2.3.3). The amount of influence the design team has on the selection of the building services contractor will increase the longer the project team retains control of the tendering process. As long as the appointment is controlled by the design team it is also vital that this is managed by a professional who understands the commercial and contractual process. This would normally be undertaken by a quantity surveyor. Once the principal contractor takes control of the process, it is important to have a single point of contact within the design team through which the information flow to the building services contractor can be monitored. The control of the building services contractor’s appointment is a key role in the procurement strategy and one that must balance technical services knowledge with commercial and contractual acumen. (b) Tender documentation The tender documentation should be clear, comprehensive and unambiguous. This enables the building services contractor to fully understand the obligations under the contract and to price for these within its tender.

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Tender documentation which does not fulfil these criteria can lead to confusion and to a proliferation of claims once the contract is awarded. Section 3.2.4 explores tender documentation more fully. (c) Coordination brief A coordination brief, including a definition of terms from the project team to the building services contractor, must be included in the building services contractor’s contract. An example of a method of identifying and allocating design and coordination responsibilities is illustrated in table 2 (see section 3.2.1.4). This type of table should be included as part of the contract documents and professional appointments. The design team must plan the interface of the building services contractor with the other building trades, starting at the initial design stage. The earlier the building services contractor is introduced into the design process, the more likely it is that problems related to coordination of services and the physical limitations of the structure can be avoided. It is far cheaper to resolve these problems during the design period than run the risk of escalating variations and claims for delay and disruption. In addition, if the building services contractor is appointed early, it can advise on services loadings, space planning, alternative schemes, coordination, interface with the building trades, programming and value engineering (for guidance on early appointment see section 3.2.3.2). (d) Duties and responsibilities The building services contractor’s responsibility for design, coordination, commissioning, drawing requirements, etc. should be clearly defined in order to avoid disputes occurring later in the contract. The production of working drawings should not be confused with completing the design (see 3.2.2). It is also important that an appropriate response is obtained from the building services contractor to ensure that it fully understands its role and responsibilities. The use of detailed method statements and a signed-off coordination brief at tender stage on a service-by-service basis can often avoid many problems. Those managing the project require an understanding of coordination. They need to know which elements of which particular services are critical to the other building trades. In more complex installations, where the use of building management systems form a major element of the services, it should be understood at the outset as to how the building services contractor is intending to install/commission and demonstrate its work.
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The commissioning of the building services installation should only be undertaken when all the other trades are complete, with the exception of the final finishing trades. A contract that is late will rarely have an adequate commissioning period. Therefore, the design team should insist that the programmed commissioning period is maintained and that commissioning does not start until the site is ready. Failure to do so will often result in abortive costs or lead to a dissatisfied client when the building provides an unsatisfactory environment. (e) Track record The track record of the building services contractor should be closely scrutinized and an understanding gained of the type of contracts undertaken in the past. In order to assess this it is useful to liaise with design teams with whom the building services contractor has worked on similar projects in order to assess its capability to undertake the work. It is extremely important to ensure that the building services contractors being considered for selection are of a size, and have the expertise, to undertake the project. Mismatching of contractors will lead to uncompetitive bidding or a complete lack of interest. (f ) Design role It is often advantageous to pass specialist design responsibility over to the building services contractor. An example of such an area would be life safety systems (sprinklers, fire alarms, etc.). There are often services where difficulties arise with the interface between the building services engineer’s design and the building services contractor’s design and where liaison with third parties may have an influence on the final design. (g) Programming The lead-in period for the building services contractor must be sufficient to allow adequate time for the design, working drawing production and procurement of specialist plant. Far too often this period becomes compressed and results in an increase in coordination mistakes or design errors because there has been insufficient time to check the drawings properly. In addition, the pressure placed on a building services contractor to commence work on site too early creates the risk of cost escalation through potential abortive work on site or an inability to adequately pre-plan work areas. It is naive to cover up design delays and force the building services contractor to try to achieve impossible end dates. Such behaviour can result in an adversarial situation and a ‘raised claims’ consciousness from an early point in the contract. Good management of the project requires good programming techniques. This is vital for successful services installations.
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3.2.3.7

SUMMARY • Assess the principal contractor’s ability to manage the building services installation. • Ensure selection is made in a methodical way and that the building services contractor is of an appropriate size and ability in relation to the project requirements. • Only allow appropriate number of building services contractors to tender. • All tenderers should confirm their willingness to tender. • The chosen procurement route should reflect the complexity of the project. • Determine at a very early stage the timing of the contractor appointment to suit the client’s procurement objectives. • Decide at an early stage who will control the appointment of the building services contractor. • Ensure adequate consideration is given to the scope of the building services contractor’s appointment, including the design and coordination role. The importance of design responsibility, size, complexity and the degree of control required by the design team should be recognized. • Consider the elements of risk and consider who is best suited to take these (using recognized risk-management techniques). It may be desirable to keep the decision-making process with the design team.

G

3.2.4 Tender Documents
3.2.4.1 INTRODUCTION The aim of this section is to identify the problems associated with the production of tender documents for the procurement of building services and to develop potential solutions. When inadequate tender documents are produced it is evident that the tender submissions will be of an equivalent, poor standard. As a result, the tender returns are likely to be heavily quantified technically, commercially and contractually. Poor tender documentation will also give rise to inconsistencies between individual tender returns which makes initial comparison of the bids on a like-for-like basis virtually impossible. The ability to retain control over post-tender variations will also be lost if the provision for such control is not adequately covered in the tender process and defined within the contract.

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This section provides a practical approach to document production. It can be adapted to whichever procurement route is chosen. For more information on the various procurement routes available, please see section 3.1 (‘The Procurement Guide’). Due to the various forms of procurement available and the wide range of situations, it is not possible to refer to specific circumstances here. This is intended to be a general introduction. 3.2.4.2 OBJECTIVES OF THE TENDER DOCUMENTATION The aims of the tender documentation can be summarized as follows: • obtain a competitive quote; • define the conditions under which the contract will be administered; • set out the required programme; • define the scope and standard of work; • set out the procedures for making payments to the contractors and valuing variations, i.e. post-contract cost management procedures; • establish the degree of proof required for any claims made and the required procedures; • identify the roles and responsibilities of the building services contractor in terms of design and design coordination; • identify the risks under the contract and the works which the building services contractor is expected to include within the tender; and • inform the building services contractor if a clerk of works will be employed and what his or her duties will be. It is important to understand that it is not only the ability of the building services contractor that requires assessment, it is also the principal contractor’s ability to coordinate and manage the building services installation. On all large projects it is advisable that the principal contractor employs an individual (or organization) to be directly responsible for the management of the building services contractor(s). This person should have the authority to make decisions and influence the overall management of the project rather than be informed of the management’s decision. This individual is the ‘linchpin’ of the construction process as far as the building services installation is concerned and perhaps the project as a whole. The building services contractor cannot be considered as simply another trade contractor because they interface with almost every other trade on a project. For this reason the appointment of the building services contractor takes on added importance. The ability to resolve interface problems and to successfully
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coordinate the building services works with other trades is central to achieving a trouble-free contract. The design team’s responsibilities must be clearly identified within the tender documents. If the project is fully designed, the building services contractor may have no design responsibility. However, detailed design is generally still required. This switch in design lead usually occurs with specialist sub-packages such as the BMS, fire alarms, and so on which require further design input. The other extreme occurs when only a performance specification is produced by the client-appointed building services engineer and the building services contractor is responsible for the design. As the building services packages can provide the main arena for confrontation throughout the project’s life, it is important that the tenders are analyzed in a professional manner. Once all technical queries are satisfactorily resolved by the design team, the quantity surveyor is the most suited team member to undertake a complete commercial appraisal of the submitted tenders and provide a clear recommendation to the client as to the successful tenderer. The pros and cons of this approach are discussed in section 3.2.4.5. 3.2.4.3 TENDER DOCUMENT FORMAT The contents of every contract varies depending on the procurement route chosen. However, the principal headings generally remain the same: • Preliminaries The preliminaries section of the tender documents contain similar information to that of the principal contractor in a traditional procurement strategy. This allows the contractor an opportunity to price items such as contract insurance, employer’s requirements, contractual issues and the contractor’s own general items, i.e. hutting, site staff, on-site equipment that cannot be allocated to a specific item, and so on. • Preambles Preambles deal primarily with workmanship, materials, special attendances required and any assumptions made while taking off the quantities, and so on. If bills of quantities are not being produced this section may be incorporated into the specification. • Specification The specification produced by the design engineer relates directly to the tender pricing document. • Scope The scope should not only cover the construction work but also design and who carries the responsibility. • Drawings Always list out the drawings the contract is based on.

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• Conditions of contract The type of contract, for example JCT 98, incorporating any required amendments. Where the sub-contract conditions are to be negotiated between the principal contractor and sub-contractor these can have a significant effect on price. This is difficult for the employer to control. • Precedence of documents Somewhere within the tender documents the hierarchy of the documents should be stated. This will help relieve some contractual conflict. • Warranties The wording of the preferred warranty should be provided within the contract documents. If a standard wording is to be used, this should be stated, e.g. COWA/F, COWA/P&T, MCWA/F or MCWA/P&T. A design warranty may be required between the client and the sub-contractor. COWA/F, P&T = Collateral warranty for funder, purchaser and tenant MCWA/F, P&T = Main contractors collateral warranty/funder, purchaser and tenant • Bond/parent company guarantee (PCG) The preferred wording of any bonds/PCGs should be contained within the contract documents. • Form of tender The form of tender. • PI insurance requirements PI insurance is only required if design responsibility lies with the building services contractor. With packages such as lifts, product liability insurance may be acceptable. • Programme The overall project programme should be included within the tender documents to provide the building services contractor with an idea of how its works will be integrated with the other trades. Along with the programme a key date schedule should be included. The tenderer should be asked to produce an outline programme to be submitted with the tender. • Attendances If the building services contractor is to provide any attendances on other trades this should be quantified and described within the tender documents. Likewise, it should be checked that any attendances required by the building services contractors from other trades are detailed in the appropriate documentation.

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3.2.4.4

PRICING DOCUMENTS (a) Pricing schedules Historically, the building services contractor has a close relationship with the building services engineer, with the building services engineer producing all the tender documents inclusive of a pricing document. This can still occur and so each consultant’s scope must be analyzed to assess who is to provide the pricing documents. This avoids the risk that two different pricing documents (or worse none) could be contained within the tender documents. It is good practice for the quantity surveyor to get an early draft of the specification and edit out the contradictions between the building services engineer’s specification and the pricing documents/project preliminaries. Once this has happened, a draft pricing document can be produced and agreed with the building services engineer. By discussing the format of the pricing document openly with the building services engineer confidence is generated between the parties that everything will be covered. The pricing schedule splits the specification into various headings under trades or elements. The tenderers should, therefore, submit a fully completed pricing schedule which breaks down their lump sum tender into various headings that should correspond to the sections of the specification. By creating the pricing schedule in this format everyone knows and agrees the scope of work which is included within each heading. The pricing schedule should also contain a statement of the contractors rates used within the tender inclusive of overheads and profit. If this is not clear, a breakdown should be requested. This breakdown must show the build up to the contract price including all tender adjustments. When the analysis of the submitted pricing schedules has identified the tenderers who are likely to be considered further, a fully quantified schedule of rates should be requested from each of the tenderers under consideration. It should be detailed within the pricing document how long the tenderer will have to provide the fully quantified schedule of rates. This will depend on the programme available and is usually two to seven days from a request being made by the quantity surveyor. It is critical that any recommendation takes proper recognition of the tenderers schedule of rates (see section 3.2.4.9). Mechanical contractors usually sub-contract a larger proportion of their works than electrical contractors and therefore more lump sums can be expected within the pricing schedule. If the project is packaged, a fully quantified schedule should be available since the number of sub-contractors will be minimal. The schedule of rates should always add up to the headings in the pricing document in order to avoid doubt at a later date if disputes arise. It is imperative that each contractor being considered achieves parity of tender to enable a clear and unambiguous recommendation to be made to the client. This occurs when all engineering aspects have been verified by the building

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services engineer and the quantity surveyor is satisfied with the pricing and all other commercial aspects of the tender. If, through the negotiations, anything has changed from the tender documents, each tenderer must be made aware of this change to maintain parity of tender. Once all this has occurred, the client can be made aware of the final decision through a combined report from the full design team. If this procedure is not followed there is the potential for post-tender problems regarding supply and performance under the contract. A section dealing with the tenderers overheads and profit and daywork rates is required in the schedule. There are so many different rates that could be used within the building services trades that it is recommended the quantity surveyor asks the contractor to submit the latest trade rates that will be employed on the contract. In situations where there are complex interfaces in existing structures it is beneficial to request a schedule that only identifies quantified material costs, with labour rates and a labour histogram provided separately. This enables post-contract costs to be controlled in an alternative manner while also providing a management tool to monitor on-site resources. An example of a typical pricing document is given in appendix A. (b) Bills of quantities Bills of quantities should only be used when a fully coordinated design and specification has been prepared by the designers and a fixed lump sum cost for the works is required. Bills of quantities are the traditional method of procuring construction work within the UK where time permits. The specific problems associated with the procurement of building services does not exclude the use of bills of quantities, but the following are some of the issues that should be reviewed to ascertain the benefit of producing bills: • The package may only be partially designed to allow the building services contractors to be responsible for the detailed design. In this case bills of quantities should not be considered. • Design development may still be in progress when the bills are started, necessitating variations as soon as the tender process starts. The cost certainty intended by the use of bills is immediately lost when variations start. If the design varies greatly during the contract period the building services contractor could have a case for a re-rate or claim. • The production of bills introduces the need for detailed design coordination between the various consultants and, consequently, the potential for errors and omissions. Assumptions may often be forced on a quantity surveyor producing the bills to a deadline where this is not clear. This would again require variations to be issued. • It should be considered whether the building services contractor actually benefits from the production of bills. A bill description can contain so much detail that the price is developed separately in the contractor’s
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own estimating system. This results in the descriptions being priced in a number of sections then drawn together for the bill. This could well be as time consuming as doing all the measurement. For example, light fittings may be described within the bill as ‘to include for all necessary conduit and cabling for the light fitting’. The building services contractor must measure and price the electrical circuit inclusive of conduit and apportion the cost to each light fitting. • The use of bills results in the risk being retained by the client as far as quantities are concerned. This may result in more competitive prices being obtained as risk is more evenly distributed with the client taking a greater burden or the building services contractor may exploit errors within the document. • As each tenderer has the same document to price the tender analysis should be easier. The tenderers do however have discretion as far as rate build up is concerned. • As discussed in section 3.2.4.4(a), building services contractors and suppliers have traditionally had a closer relationship with the building services engineer than the quantity surveyor. This relationship has developed because the building services engineer may rely on the expertise of the building services contractor or its suppliers to design some individual systems. This can result in areas of the design being described only in terms of its performance, i.e. the building services contractor will need to offer a design solution to meet the performance criteria established in the specification. This is inappropriate information for quantity surveyors to prepare bills of quantities from. To briefly conclude this section, the building services contractor generally has responsibility for detailed design work such as final cable routes, bracket details, and so on which limits the information available for billing. Also, history has dictated that the building services design is not far enough advanced within the procurement timetable to provide the quantity surveyor with sufficient information to produce bills of quantities. A summary of the advantages and disadvantages of bills is given in table 6. 3.2.4.5 PRICING OPTIONS When dealing with pricing options there are two basic possibilities that can occur: (i) Options that are included in the tender This often takes the form of a different finish to an exposed part of the services installation. In the body of the pricing document the diffusers could be priced as powder-coated steel but as an option, the extra over-costs for a stainless steel finish can be provided. (ii) Options that the tenderer may put forward Directions should be given at tender stage as to whether or not contractors options are required. If so, the tenderer can identify these options within
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Table 6: Advantages and Disadvantages of Bills of Quantities Advantages Provides a fixed price lump sum Conformity of tender returns Disadvantages Time consuming The measurement risk is retained by the client Fully coordinated design is required prior to building Specific items of plant may have to be uniquely specified which will reduce competition A design freeze is required which increases the tendering period The tenderer’s design skills are ignored Specialist systems will be either provisional or prime-cost sums, reducing cost certainty. Integration of these systems can be a problem A small skill base exists within the quantity surveying profession for measuring mechanical and electrical services

The design is checked while the measurement is being carried out More even spread of the risk

the document which may take the form of alternative suppliers, reduced programme or variations on the contract clauses. This can be a cheaper supply or where the after-sales support services in an area is better provided for by an alternative supplier. It is for the building services engineer to ascertain if the alternative achieves the specification. Any option must include the full cost of ensuring design compliance. This could be in the form of additional fees or additional coordination costs. Both of these must be catered for in any tender document while still maintaining a like-for-like comparison for tender analysis purposes. The easiest method of obtaining this is by assuring that each tenderer prices what will be called the base option. Each alternative can then be given as an adjustment to the base scheme. Clear direction should be provided within the tender document on how and where options should be priced. 3.2.4.6 HOW TO TACKLE ADDENDUMS The most obvious way to deal with tender addendums is not to have any. However, since design can often progress during the tender period, this is an unlikely occurrence. If addendums are required they can be either sent out during the tender period or provided to the two lowest tenderers to price after tenders have been returned.

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If the design changes occur during the tendering period, addendums to the documents should be sent out to each tenderer. The addendum should state if the tender period is extended and each tenderer must acknowledge receipt of the addendum. If mid-tender interviews have been arranged, the addendum can be handed over and explained at this time. The addendum must still be a precise document, clearly identifying the changes and scope, as it will form part of the contract. Each addendum should be individually referenced, regardless of when they are issued, so an audit trail is apparent. If the quantity surveyor believes that addendums provide non-essential design changes, these should be priced separately. By providing a separate price for non-essential alterations, the client and design team have the option of whether to accept the addendum. 3.2.4.7 TENDER CLARIFICATIONS Tender clarifications can result in additional information being supplied to the building services contractor. Each question from the building services contractor should be sent to the quantity surveyor for distribution to the design team. The response from the relevant consultant should be returned to the quantity surveyor who distributes to the tendering companies. All tenderers should receive all the tender questions so that each is tendering on the same information. A single point for receiving, answering and managing the queries is advisable. As the manager of the tender documentation, the quantity surveyor is best placed to manage queries. On receipt of a query, the name of the organization asking the query should be removed and the question given a reference. Queries can then be forwarded on to the appropriate consultant for comment. The quantity surveyor should read each query and assess if another tenderer has asked it previously. A master record of whom asked what question should be kept in order to provide an audit trail for later reference. 3.2.4.8 ADDITIONAL INFORMATION REQUIRED FROM THE TENDERERS The following information should be provided by all tenderers regardless of their contractual status. This allows proper comparison and demonstrates an understanding of the project and tendered scope: • completed pricing schedule; • quantified schedule of rates; • health and safety information; • programme and agreement to the tender programme; • agreement to all the documents – i.e. warranties, bonds, and so on; • list of main suppliers used – where choice is with the building services contractor;
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• list of any sub-contractors; • acceptance of the conditions of contract – the tenderers, prior to tender return, should forward a full list of any contractual qualifications. This enables the client to take legal advice and minimize the potential delay to the tender period; • details of membership of trade bodies; • corresponding reference numbers of the local standards when offering options of products from a foreign standard; • method statements; • management histogram – this illustrates the resources the building services contractor has allowed for managing the project and should relate to their preliminaries section of the pricing document; • labour histogram – the total labour resources required to complete the project. This shows both the building services contractor’s understanding of the project and provides for a monitor once on site; and • cash flow – the cash flow translates the project programme into the client’s anticipated financial commitment. If this can be agreed with the successful tenderer early on in the project, there is an opportunity to use this as a valuation tool provided the programme is adhered to. An agreed cash flow can be invaluable when the client’s project funds are similarly time related. 3.2.4.9 EVALUATION OF TENDERS To ensure parity of tender, the specification should be priced in its original form, with alternatives given separately. A comparison of the pricing schedules supplied by each tenderer must be completed in conjunction with the tender’s technical information, including all addendums and clarifications. The building services engineer should check each submission to establish the tenderers compliance with the specification while the quantity surveyor should establish their compliance from a commercial viewpoint. Evaluation should not be completed without reference to the building services contractor’s schedules of rates. The quantity surveyor must take a view on the competitiveness (or otherwise) of the submitted schedules as they may not bear comparison with the competitiveness of the tenderers’ lump sum. This is particularly relevant if there are large value provisional sums that will be measured and valued using the schedules. Detailed analysis prior to award is also essential if the schedules are to be bound into the contract as a contract document. During the review process it will probably be necessary to clarify points with the tenderers. This should be done through the quantity surveyor, as before.
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Post-tender interviews are to be encouraged so that the tenderers’ grasp of the project can be established. Once all the information has been gathered it will be necessary to establish a comparable price. The final appointment decision should be made, not solely on price but also considering the tenderers’ understanding of the project and their ability to complete in time and to budget. In this final analysis it is recommended that the tenderers’ procedures for cost control and reporting are also examined. An up-front pro-active attitude on the building services contractor’s part will result in potential problems being identified early providing the design team with an opportunity to find a beneficial resolution. 3.2.4.10 SUMMARY • Make sure there is only one pricing document which directly relates to the specification. • Ensure the pricing schedule covers all the information required such as: • overheads and profit; • an all-in man hour rate; • daywork rates inclusive of percentage uplifts; • a fully quantified schedule of rates; and • opportunity to price for alternatives. • Ensure documentation is clear as to the method for managing tender queries, identifying a single point of responsibility. • A clear procedure for managing addendums should be agreed by the design team. • Careful analysis of the return tenders to obtain a clean unqualified bid on which a clear recommendation can be made.

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Notes
1) Department of Environment, Transport and the Regions (1998). Rethinking Construction. London: DETR. 2) Clinton, M. (1995). Legal Liabilities. (Paper for seminar: ‘The Answer to your Problems – Design & Build’). 3) Construction Industry Board (1999). Code of Practice for the Selection of Sub-Contractors. London: Thomas Telford Publishing.

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PART 3, SECTION 2, APPENDIX A

Appendix A: Typical Example
Preliminary Items
In the following typical example all general and preliminary items would normally be detailed in the main preliminary documentation. The following clauses are suggested in relation to the inclusion of a pricing schedule and can appear either in the main preliminaries or as part of the sub-contract tender documents.

General Items
a) It is a pre-requisite that the following pricing summary is completed in full with every item priced. Failure to do so will invalidate the tender submission. The following descriptions are not necessarily complete. The building services contractor is referred to the tender drawings, specification and accompanying documents for a full scope of work. The building services contractor is to include in its rates for any temporary works considered necessary. The building services contractor is to include in its rates for all necessary fixings, connections, fittings, bolts, etc. unless otherwise stated in this document. The building services contractor is deemed to have included in its tender for all items of materials, plant, equipment and labour whether or not specifically mentioned or shown in order to carry out the necessary works in accordance with good practice and procedures. No extra payments will be considered through the building services contractor/quotes failure in this respect. The building services contractor is to take into account all the requirements of the contract documents and should price accordingly within the relevant section of the tender summary. For details of the scope of works refer to the specification.

b)

c)

d)

e)

f)

g)

h)

Calculations of Preliminaries
j) The contractor shall detail below, or provide a separate document, detailing the build up to all the preliminaries items priced in the pricing document. The calculations shall show weekly rates, areas, periods of time, quotations and all other details.

k)

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Schedule of Rates
a) The contractor shall within 3 days of being requested, submit a fully priced schedule of all items and quantities involved in the make-up of its tender. The sum total of the schedule shall equal the price of the form of tender. All prices included in respect of equipment and building services contractors must be supported by the appropriate quotations. The contractor is to detail its rates and percentages required for the following: Percentage for overheads and profit on building services contractors _____ % Percentage for overheads and profit on plant and equipment if different from a) above _____ % Percentage for overheads and profit on general materials, if different from b) above _____ % All-in man-hour rates inclusive of overheads, and profit £ ___ (Expand to include all trades) Extra over the above rate for any non-productive overtime work £ _____ (Expand to include all trades) d) The percentages and labour rates entered above will be deemed to include for all contractor’s overheads, expenses, establishment costs, administration, off-site services and all items of expenditure related to off-site management and profit. The percentages and labour rates above will be the same as used in the preparation of the tender sum and schedule of rates. The schedule of rates shall be used for the purposes of pricing any future variations and assisting in the calculation of interim valuation payments. If the contractor does not complete any of the above percentages or rates, they will be deemed to be priced at NIL.

b)

c)

e)

f)

g)

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Pricing Schedule
The following is a typical example of a pricing summary for a commercial office development. It is intended to depict the detail required in the pricing summary and will require amendment so as to be project particular.

ELECTRICAL SERVICES INSTALLATION Electrical Incoming
Provide electric incoming supply, switchroom and metering (supplied and installed by utility) 11KV supply cable and switchgear terminating in the 11KV switchgear to the transformer room Lighting and small power installation associated with HV switchroom Include for obtaining design and construction information coordination and necessary meetings associated with the utility provider Utility switchroom, transformer room and generator earthing, supply and install necessary earth rods, cabling and earth bars Low voltage switchboard, supply and install packaged sub-station comprising two main sections as specified Allow for adjusting all protective device settings and carrying out discrimination study Switchboard reference Item

£

p

Item

Item

Item

Item

Item

Item Item

Standby Power
Life safety generator installation incorporating skid mounted heat exchanger installation and fuel system, including all necessary hoisting/craneage Generator flue installation, including acoustic treatment, future tenants generator flue and all necessary silencers

Item

Item

_________

To Collection £

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ELECTRICAL SERVICES INSTALLATION (Continued)
Test generator at full load inclusive of inductive loads at manufacturers works Test and commission generator installation on site complete with resistive and inductive load banks Item

£

p

Item

LV Distribution
Sub-mains power distribution cables Rising bus bar installation Riser A Rising bus bar installation Riser B Rising bus bar installation Riser C Automatic transfer switches to all life safety MCCS and fire fighting controllers and fire service plant Earthing and bonding Item Item Item Item

Item Item

Lighting Installation
Lighting installations, including luminaires, lamps, louvres, final circuit wiring and cable containment system as necessary to the following: Office area lighting Lift lobbies Entrance hall, including dimming Toilets and shower rooms Staircase lighting Lift shaft lighting Plantroom and circulation space External lighting Emergency lighting installation Item Item Item Item Item Item Item Item Item _________

To Collection £

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ELECTRICAL SERVICES INSTALLATION (Continued)
Small power installation Small power distribution Item Item

£

p

Electrical Power for Mechanical
Electrical work associated with mechanical services Item

Protection
Fully automatic addressable analogue fire detection and alarm system Generator room fire protection system Security installation comprising the following: Door entry control system Alarm system Closed circuit television system Lightning protection system Ancillary equipment installations: Fix only free issue warm air hand dryers Fix only free issue hair dryers Disabled persons assistance call system Shaver outlets Item Item Item Item _________ Item Item Item Item Item Item

To Collection £

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ELECTRICAL SERVICES INSTALLATION (Continued)
Electrical heating installations: Lift plantroom installation Utility switchroom Temporary electrical heating installation Item Item Item

£

p

Data Installation
Telecommunications and data communications incoming ducts and cable tray systems Item General: Buildings work drawing Electrical sub-contractor’s design and installation drawings, including any necessary manufacturer’s shop drawings Testing and commissioning the complete electrical installation, including compliance with the commissioning manager’s requirements As installed documents, drawings and O&M manuals in the required format as specified by the document production manager Client instruction and operation training Provision of samples and mock-ups as required Provision of tools and spares Any other items not listed above (the sub-contractor to state) Item

Item

Item

Item Item Item Item Item _________

To Collection £

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MECHANICAL INSTALLATION
LPHW heating installation: Central boiler plant and associated equipment Boiler flue installation LPHW pressurization units LPHW circulation units LPHW pipework installation, fittings, valves, etc. Main entrance overdoor heaters Staircase fan convectors Thermal insulation to LPHW installation Water treatment, dosing and flushing Hot and cold water installations: Allow for all negotiations/liaison, coordination associated with the new supply Water storage tanks Cold water packaged booster set Water supplies for window cleaning Electric showers Hot water heaters Overflow systems Domestic hot and cold water pipework, fittings and valve installation Final connection to sanitaryware Potable water booster pump set Thermal insulation to hot and cold water services Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item

£

p

_______

To Collection £

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MECHANICAL INSTALLATION (Continued)
Hot and cold water installations: Eye wash facilities Water chlorination, dosing and flushing Condenser water system: Cooling towers Filter system Packaged water softener Condenser water circuit, water treatment equipment Chilled water installations: Main A/C condenser water pumps and water make up pumps Cooling tower make up water storage tanks Condenser water system pipework fittings and valves installation Condenser water system installation Chilled water system Centrifugal refrigeration machines Cooling system plate heat exchangers Chilled water circulation pumps Water treatment, flushing and dosing Chilled water system pressurization unit Chilled water system pipework, fittings and valves installation Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item

£

p

__________

To Collection £

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MECHANICAL INSTALLATION (Continued)
Chilled water installations (Continued): Chilled water system insulation Refrigeration leak detection system Water leak detection system Fan coil units: Fan coil units Air conditioning and ventilation: Ductwork installation, including all duct mounted accessories and fittings Ductwork cleaning requirements Independent ductwork cleanliness inspection, etc. External louvres Ductwork thermal insulation Fire and smoke rated ductwork Grilles and diffusers Flexible connections Air handling units fans, etc. Duct mounted heater batteries Humidifiers Acoustic connections/attenuation Louvre connection plenums Duct mounted control items Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item

£

p

_________

To Collection £

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MECHANICAL INSTALLATION (Continued)
Natural gas service: New gas service – allow here for all negotiations, liaison, coordination associated with the new supply Allowance for selection of ‘gas shipper’ as described in the specification Gas distribution pipework, fittings and valves Gas meters Gas detection system Sprinkler installation New fire main allow here for all negotiations, liaison, coordination associated with the new supply Dry riser and falling mains installation Hosereel system Condensate system: Condensate drains from various equipment Building management system and automatic controls central processing unit and field processing units: Control valves, actuators, sensors and detectors Interfaces with other systems and equipment New motor control centres, life safety MCC and control panels Fireman’s ventilation control panel, pressurization panel, sprinkler panel and wiring All control wiring, trunking, conduit, etc. BMS/automatic controls software Item Item Item Item Item Item Item

£

p

Item Item Item Item Item Item

Item Item Item

_________

To Collection £

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MECHANICAL INSTALLATION (Continued)
Building management system and automatic controls central processing unit and field processing units (Continued): Attendance on other trades during commissioning of their systems Attendance during demonstration to fire brigade, client’s maintenance staff, the engineer and building control on separate occasions Setting to work, testing and commissioning including trend logging, etc. Generator oil storage and distribution system: Bulk oil storage tank Fuel oil transfer pumps Pipework, fittings and valves Oil fill station General: Trace heating to pipework system as necessary Item Item Item Item Item Item

£

p

Item Item

Allow for all works/factory tests and demonstrations of plant and equipment as specified Item Preliminary items Allow for mock-ups and samples specified Test and commission the complete mechanical and public health services installation in accordance with the commissioning manager’s requirements Item Item

Item

_________

To Collection £ Mechanical and public health contractor’s design and installation drawings including manufacturers/suppliers shop drawings as necessary Item Builders work drawings Item

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MECHANICAL INSTALLATION (Continued)
General (Continued): As installed documents, drawings and O&M manuals in the required format as specified by the document production manager Client instruction and operation training Provision of tools and spares Any other items not listed above, the sub-contractor to state

£

p

Item Item Item Item __________

To Collection £

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PUBLIC HEALTH INSTALLATION
Rainwater installation Above ground drainage installation (note under-ground drainage may not be part of this sub-contract) Fire fighting lift drainage installation Item

£

p

Item Item _________

To Collection £

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PART 4, SECTION 1

PART FOUR: CONSTRUCTION ADMINISTRATION AND MANAGEMENT
SECTION 1: THE PROBLEMS OF PRACTICAL COMPLETION
Introduction
The law and practices in relation to the completion of building and engineering projects are complex issues that often give rise to conflict. Whilst the title of this section refers to practical completion the subject has been approached at a more generic level. Thus, for example, the concepts of ‘substantial completion’ and ‘taking over’ have been included and commented upon, and standard forms other than JCT variants have been considered. The following related and subsidiary topics are, however, not addressed: • the acceptance of defective work either before or after practical completion; • wider consideration of the matter of adjudication upon practical completion; • the law concerning latent defects and its inter-relationship with contractual defects liability provisions generally; • closer examination of the issues surrounding early completion (although analysis of the general scheme of the subject under JCT forms is included); • the changing law concerning final certificates; • the operation of fluctuation provisions after practical completion; • the significance of practical completion in relation to performance bonds; and • the concept of temporary disconformity in building contracts.

G

4.1.1 What Happens in Practice
There is a considerable number of approaches adopted for the certification of completion in standard forms of contract used in the UK construction industry (see 4.1.2). Similarly, there are a variety of methods by which some of the problems could be dealt with (see 4.1.3). Surprisingly, however, there is an almost universally accepted procedure adopted for both building and civil engineering with regard to the actual practice carried out on site.

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This may be described as follows: (a) Contractor ‘Offering Up’ • The contractor writes to the employer’s representative/contract administrator suggesting that works will be (or are now) ready for handover by a particular date. • This may be accompanied by the contractor’s own list of uncompleted works, especially, for example, where outstanding information, statutory authorities, or employer’s direct works may be preventing completion of a specific element of the contractor’s work. (b) Snagging List • Either in advance of the contractor’s notice mentioned above, or prompted by it, the architect, engineer or contract administrator will prepare a list of defects and outstanding works which will be issued to the contractor. • Often, but not always, this list is prepared during a joint inspection with the contractor. (c) Clearing the Snagging List • The contractor will endeavour to reduce the length of the snag list, but here is where the disputes will start. Many points will be argued by the contractor to be unreasonable quality demands, or work constituting a variation. • The management of this process is often poor, with the architect or engineer producing a new list each time he or she revisits the site. Confusion and distrust is often generated. (d) Certification • Eventually a point will be reached where completion can be certified in the opinion of the architect, engineer or contract administrator. Although not defined as such in the majority of standard forms (see 4.1.2), the most commonly held belief is that this should occur when the employer can enjoy beneficial occupation and use of the building or facility, and that the making good of any remaining works or removal of snags will not unduly impede that occupation. • Such an approach is supported by case law (see 4.1.5). (e) Influences upon Certification • Inevitably, the client often strongly influences the certification process, despite the contract demanding otherwise. The strength of this influence may be dependent upon the demands or otherwise for use or transfer of the building or facility, or the commencement of fit-out works. • The process is also influenced by the relationships which exist between the client, the professional team, and the contractor, and indeed the pressures brought by the contractor, perhaps motivated by substantial levels of liquidated damages.

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4.1.2 Standard Form Approaches
4.1.2.1 JCT 98 ‘PRACTICAL COMPLETION’: (a) JCT 98 does not define practical completion. At clause 1.3 (Interpretation, Definitions, etc.) the following unhelpful entry is made: ‘Practical Completion: see clause 17.1’ Clause 17.1 provides the following ‘When in the opinion of the Architect Practical Completion of the Works is achieved and the Contractor has complied sufficiently with clause 6A.4, and, if relevant, the Contractor has complied with clause 5.9 (Supply of as-built drawings etc. – Performance Specified Work), he shall forthwith issue a certificate to that effect and Practical Completion of the Works shall be deemed for all the purposes of this Contract to have taken place on the day named in such certificate.’ (b) Clause 17.1 is inextricably bound with the provisions relating to defects, shrinkages or other faults appearing within the defects liability period, or frost damage. Clause 17.2 commences: (Clauses 17.2 to 17.5). ‘Any defects, shrinkages or other faults which shall appear within the Defects Liability Period … .’ These provisions therefore support a view that practical completion cannot be certified under JCT 98 unless all known (patent) defects have been resolved. This is because the duty of the contractor to rectify defects during the defects liability period is limited to those defects appearing after practical completion. Thus, a defect which was apparent at practical completion cannot be a defect for the purposes of clause 17.2 and, strictly speaking, the architect cannot require the contractor to make good such items of work. However, this distinction is often ignored by architects and contract administrators. 4.1.2.2 NOMINATED SUB-CONTRACT NSC/C Under clause 35.16 of JCT 98, the architect must issue separate certificates of practical completion for each nominated sub-contractor when, in his or her opinion, the nominated sub-contract works have reached practical completion. Clauses 2.10 and 2.11 of NSC/C state the following: ‘2.10 If the Sub-Contractor notifies the Contractor in writing of the date when in the opinion of the Sub-Contractor the Sub-Contract

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Works will have reached practical completion, the Contractor shall immediately pass to the Architect any such notification together with any observations thereon by the Contractor and the Sub-Contractor has complied sufficiently with clause 5E.5. A copy of any such observations must immediately be sent by the Contractor to the Sub-Contractor. 2.11 Practical Completion of the Sub-Contract Works shall be deemed to have taken place on the day named in the certificate of practical completion of the sub-Contract Works issued by the Architect under clause 35.16 of the Main Contract Conditions or, where clause 18 of the Main Contract Conditions applies, as provided in clause 18.1.11 of the Main Contract Conditions.’ 4.1.2.3A DOMESTIC SUB-CONTRACT 2002 EDITION (a) This form of sub-contract generally maintains the provisions of DOM/1. (b) Clause 2.13 requires the sub-contractor to notify the main contractor of the date on which the sub-contractor considers the domestic sub-contract works have reached practical completion. (c) If the main contractor does not dissent from that date within 14 days of receiving the sub-contractor’s notice, practical completion is deemed to have occurred on the date notified by the sub-contractor. (d) Clause 2.14 requires that if the main contractor does dissent, the date must either be established by agreement or determined by an adjudicator. In the absence of such agreement or determination, the date will be that stated by the main contractor in his/her notification of dissent under clause 2.13 or if earlier or no date is stated in the notification of dissent, on the date of Principal Completion of the Works certified by the architect under clause 17.1 of the main contract. 4.1.2.4 JCT INTERMEDIATE FORM (IFC 98) (a) The Intermediate Form closely follows that described above for JCT 98. (b) Clause 2.9 provides: ‘When in the opinion of the Architect/the Contract Administrator Practical Completion of the Works is achieved and the Contractor has complied sufficiently with clause 5.7.4 he shall forthwith issue a certificate to that effect. Practical Completion of the Works shall be deemed for all the purposes of this Contract to have taken place on the day named in such certificate.’ (c) Clause 2.11 provides for partial possession. The effect is similar to the partial possession provisions of JCT 98 (see 4.1.6.5).
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4.1.2.5

JCT 98: WITH CONTRACTOR’S DESIGN (a) Under this form there is no architect to enable a certificate of practical completion to be issued. Accordingly, the responsibility passes to the employer. (b) Clause 16.1 provides: ‘When the Works have reached Practical Completion and the Contractor has complied with clause 6A.5.1 or has complied sufficiently with clause 6A.5.2, whichever clause is applicable, the Employer shall give the Contractor a written statement to that effect, which statement shall not be unreasonably delayed or withheld, and Practical Completion of the Works shall be deemed for all the purposes of this Contract to have taken place on the day named in such statement.’ (c) Any dispute as to the issuing or withholding of a practical completion certificate must be referred to adjudication for an interim binding decision or to arbitration.

4.1.2.6

JCT MINOR WORKS: MW98 (a) The JCT Minor Works form provides a crisp, clear statement which has the same effect as the provisions for the main JCT forms. (b) Clause 2.4 provides: ‘The Architect/The Contract Administrator shall certify the date when in his opinion the Works have reached practical completion and the Contractor has complied sufficiently with clause 5.9.’ (c) It should be noted, however, that whereas the mechanism for certifying practical completion is the same as JCT 98, the provisions for defects liability differ. (d) It has been held2 that the MW80 form (predecessor to MW98): • does not require a written schedule of defects and, therefore, oral notification is sufficient; • in clause 2.5 the words ‘any defects, excessive shrinkages or other faults which appear within three months of the date of practical completion …’ extend to defects which appear before practical completion; • the words ‘defects, excessive shrinkages, or other faults’ are not qualified by any reference to the ‘works’ and so would, therefore, extend to an existing structure. Note: JCT 98 clause 17.2 refers to ‘shrinkages’, whereas MW98 refers to ‘excessive shrinkages’.

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4.1.2.7

JCT PRIME COST CONTRACT 1998 EDITION The Prime Cost Contract uses the same wording as the Intermediate Form. See 4.1.2.4.

4.1.2.8

JCT MANAGEMENT CONTRACT 1998 EDITION The Management Contract also uses similar wording to the Intermediate Form. See 4.1.2.4.

4.1.2.9

JCT WORKS CONTRACT/2 (a) Under clause 2.14 of the WC/2, the management contractor is required to issue separate certificates of practical completion for each works contract. The management contractor is, however, obliged to obtain the architect’s consent under clause 8.3.4 of the Management Contract, signifying that the relevant works have, in the architect’s opinion, reached practical completion. (b) Therefore, these provisions more closely resemble the nominated sub-contract provisions of the JCT main forms (see 4.1.2.2) than the procedures found in the domestic sub-contract DOM/1.

4.1.2.10A

THE ACA STANDARD FORM OF CONTRACT FOR PROJECT PARTNERING PPC2000 (a) The ACA form of Project Partnering adopts a different approach. (b) Clause 21.1 requires the constructor when it considers that the project has achieved Project Completion to give the client representative not less than five working days notice requesting the client representative to attend, inspect and test as appropriate. (c) Clause 21.2 requires that within two (working) days of completion of such attendance, inspection and testing the client representative shall issue a notice that either: (i) confirmed that the project has achieved Project Completion; (ii) indicates any aspect of the project which is not in accordance with the Partnering Documents after which the constructor will again present the Project in accordance with Clause 21.1. (d) At Clause 21.3 there is provision for Part Project Completion by agreement between the client and constructor using a procedure equivalent to that described in Clauses 21.1 and 21.2. (e) Rectification of defects after Project Completion is provided for in Clause 21.4 which requires the constructor to make good any defects, excessive shrinkages or other faults notified by the client. It is important to note that these defects etc. may have appeared either before project completion or within the Defects Liability Period.

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4.1.2.10B

THE ACA STANDARD FORM OF SPECIALIST CONTRACT FOR PROJECT PARTNERING SPC2000 (a) The provisions of the Standard Form of Specialist Contract SPC2000 are similar to those on PPC2000, although the time frames are a little longer. (b) Clause 21.1 requires the specialist to give the constructor seven working days notice to attend, inspect and test as provided for in the Specialist Working Brief. (c) Clause 21.2 requires that within four working days of completion of the attendance, inspection and testing the constructor and other appropriate Partnering team members should issue a notice either: (i) confirming that the specialist works have achieved Specialist Completion: or (ii) indicating where any aspect of the specialist works is not in accordance with the Specialist Documents. The specialist is required to rectify non-compliance and thereafter present the specialist works in accordance with clause 21.1. (d) Clause 21.3 again provides for Part Specialist Completion of any part of the specialist works using a procedure equivalent to clause 21.1 and 21.2. (e) With regard to defect rectification clause 21.4 requires the specialist to attend site whenever notified by the constructor of any defects, excessive shrinkages or other faults. This defect rectification can include defects arising either before Specialist Completion or during the defects liability period for the specialist works.

4.1.2.11

ICE 7TH EDITION: ‘SUBSTANTIAL COMPLETION’ (a) Though not as fully developed as the ACA form (see 4.1.2.10) it may well be said that the ICE 7th edition provides a framework for completion which reflects better than the JCT forms what actually happens in practice. In this form, the contractor ‘offers up’ the works, and a process is provided for dealing with outstanding works and defects. (b) Clause 48 provides: (1) When the Contractor considers that: (a) the whole of the Works or (b) any Section in respect of which a separate time for completion is provided in the Appendix to the Form of Tender has been substantially completed and has satisfactorily passed any final test that may be prescribed by the Contract he may give notice in writing to that effect to the Engineer or to the Engineer’s

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Representative. Such notice shall be accompanied by an undertaking to finish any outstanding work in accordance with the provisions of clause 49(1). (2) The Engineer shall within 21 days of the date of delivery of such notice either: (a) issue to the Contractor (with a copy to the Employer) a Certificate of Substantial Completion stating the date on which in his opinion the Works were or the section was substantially completed in accordance with the Contract; or (b) give instructions in writing to the Contractor specifying all the work which in the Engineer’s opinion requires to be done by the Contractor before the issue of such certificate. If the Engineer gives such instructions the Contractor shall be entitled to receive a Certificate of Substantial Completion within 21 days of completion to the satisfaction of the Engineer of the work specified in the said instructions. Note: It is the Engineer, not his representative, who is authorized to issue the certificate. (c) Clause 49(1) deals with outstanding work and defects as follows: The undertaking to be given under clause 48(1) may after agreement between the Engineer and the Contractor specify a time or times within which the outstanding work shall be completed. If no such times are specified any outstanding work shall be completed as soon as practicable during the Defects Correction Period. The difficulty of this provision, notwithstanding that it reflects common practice, is that there is often a dispute as to the extent of outstanding works permitted. This will be of considerable importance when large liquidated damages are potentially claimable. The clause gives the engineer a discretion and, as in other forms, his or her decision may be reviewed by an adjudicator or arbitrator. It should also be noted that the ICE 7th edition form caters expressly for the circumstances where the employer uses or occupies the works or part of the works prior to a 48(2) certificate being issued. (d) Clause 48(3) provides: ‘If any substantial part of the Works has been occupied or used by the Employer other than as provided in the Contract the Contractor may request in writing and the Engineer shall issue a Certificate of Substantial Completion in respect thereof. Such certificate shall take effect from the date of delivery of
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the Contractor’s request and upon the issue of such certificate the Contractor shall be deemed to have undertaken to complete any outstanding work in that part of the Works during the Defects Correction Period.’ Note: The ICE Design and Construct Clause 48(3) provisions in respect of operation and maintenance instructions are not present in the 7th edition. 4.1.2.12 ICE 6TH EDITION: In respect of substantial completion, the same as ICE 7th Edition. 4.1.2.13 ICE DESIGN AND CONSTRUCT FORMS (a) These provisions are identically worded to the corresponding clauses of the ICE 7th edition, except that reference to the engineer or engineer’s representative is replaced by the ‘Employer’s Representative’. (b) It is to be noted, however, that there is an express requirement under clause 48(3) for the contractor to provide operation and maintenance instructions prior to the issue of any certificate of substantial completion. 4.1.2.14 ICE MINOR WORKS (a) The ICE Minor Works is unique amongst standard forms in that it defines completion against the readiness of the works to be used by the employer. (b) Clause 4.5 states as follows: (1) Practical completion of the whole of the Works shall occur when the Works reach a state when notwithstanding any defect or outstanding items therein they are fit to be taken into use or possession by the Employer. (2) Similarly practical completion of part of the Works may also occur but only if it is fit for such part to be taken into use or possession independently of the remainder. (3) The Engineer shall upon the Contractor’s request promptly certify in writing the date upon which the Works or any part thereof has reached practical completion or otherwise advise the Contractor in writing of the work necessary to achieve such completion. (c) Clause 4.7 deals with the completion of outstanding works or defects after practical completion has occurred. 4.1.2.15 FCEC ‘BLUE FORM’ OF SUB-CONTRACT The FCEC sub-contract form approaches completion of the sub-contract works quite differently from completion under the building sub-contracts.
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Under this form, the sub-contractor must complete within the period for completion specified in the Third Schedule (clause 6.1). The schedule could provide that such a period is to end prior to substantial completion of the main contract works. However, the sub-contract does not provide an effective means to establish when completion of the sub-contract works has been achieved. Therefore, unless the parties otherwise agree, it is probable that completion of the sub-contract works may not be acknowledged until substantial completion of the main contract works and only then by the implication that the main works have completed. If the sub-contract works are completed prior to main contract works completion, clause 13(1) of the FCEC ‘blue form’ places the sub-contractor with an absolute obligation to maintain the sub-contract works until substantial completion of the main works. 4.1.2.16 THE NEW ENGINEERING CONTRACT (NEC) 2ND EDITION (a) The NEC eschews the system set out in the ICE form which reflects current practice, namely the contractor offering up the works and completion/handover occurring together with clear provisions for dealing with outstanding works and defects. (b) Instead it may be thought that the NEC is in some respects closer to JCT: completion takes place when the project manager decides so. As if completion was not vexed enough already, the NEC gives the project manager three terms to deal with: ‘Completion’, ‘taking over’ and ‘termination’. (c) The NEC provisions are found in the core clauses as follows: • Part 1 – General – Clause 11.2 (identified and defined terms) (13) states: Completion is when the Contractor has • done all the work which the Works Information states he is to do by the Completion Date and • corrected notified Defects which would have prevented the Employer from using the works. • Part 3 – Time – Clause 35 (Take over) states: 35.1 Possession of each part of the Site returns to the Employer when he takes over the part of the works which occupies it. Possession of the whole Site returns to the Employer when the Project Manager certifies termination. 35.2 The Employer need not take over the Works before the Completion Date if it is stated in the Contract Data that he is not willing to do so. Otherwise the Employer takes over the Works not more than two weeks after Completion. 35.3 The Employer may use any part of the Works before Completion has been certified. If he does so, he takes over the part of the Works when he begins to use it except if the use is:
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• for a reason stated in the Works information • to suit the Contractor’s method of working. 35.4 The Project Manager certifies the date upon which the Employer takes over any part of the Works and its extent within one week of the date. 4.1.2.17 GOVERNMENT CONTRACTS – GC/WORKS/1 (1998) (a) GC/Works/1 (1998) provides that the works are to be completed to the satisfaction of the Project Manager, who is required to certify completion. In addition, the Employer may choose to take partial possession of a part of the works. (b) Condition 34(2) (commencement and completion) states the following: ‘34(2) The Contractor shall, at all times, keep the Site tidy and free from debris, litter and rubbish and shall, not later than the Completion of the Works, remove from the Site all Things for incorporation in the Works or any relevant Section which are unused, together with all things not for incorporation. The Contractor shall, by the due date, clear and remove all rubbish and deliver up the Site and the Works in all respects to the satisfaction of the PM. The Contractor shall comply at his own cost with any Instructions relating to the removal of any things and rubbish.’ (c) Requirements for a completion certificate are to be found in clause 39: ‘The PM shall certify the date when the Works, or any Section, or any completed part within the meaning of Condition 37 (Early Possession), are completed in accordance with the Contract. Such completion shall include sufficient compliance by the Contractor with Condition 11(7) (Statutory notices and CDM Regulations). After the end of the last Maintenance Period to expire, he shall issue a certificate when the Contractor has complied with Condition 21 (Defects in Maintenance Periods).’ (d) Clause 37 deals with partial possession before completion: ‘The Employer shall be entitled, before the completion of the Works, to take possession of any part of the Works (in this Condition referred to as a “completed part”) which is certified by the PM as having been completed in accordance with the Contract and is either – (a) a Section; or (b) any other part of the Works in respect of which the parties agree, or the PM has given an instruction, that possession shall be given before the completion of the Works or the relevant Section; and the completed part, on and after the date on which the certificate is given, shall no longer form part
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of the Works for the purposes of Condition 19 (Loss or damage) and 30 (Vesting).’ 4.1.2.18 INSTITUTION OF CHEMICAL ENGINEERS FORMS: ICHEME (a) ‘Red Book’ for lump sum contracts. ‘Green Book’ for reimbursable contracts. (b) The IChemE forms recognize that on large process plant projects or similar, the concepts of completion and taking over have distinctly separate ramifications, from both contractual and safety points of view. These are reflected in the contractual procedures provided in the IChemE forms. The procedures, therefore, are closer to a true contractual definition of completion than can be found in any other standard form. There are three aspects of significance which are considered: • compliance with the specification with the description of works • time finishing tasks according to programme or with reference to financial incentive • transfer of responsibility. (c) Five points in the completion process are thus recognized. • Clause 33.1 (Red Book), clause 32.1 (Green Book) requires the contractor to notify the project manager by means of a construction completion report when he or she is of the opinion that the plant is substantially complete. When the plant has satisfactorily completed tests set out in the specification and the contractor has adequately demonstrated completion in accordance with the specification, the project manager and contractor sign the construction completion report. There may, of course, be a number of these reports related to different elements of the plant. If the project manager is not satisfied he or she may endorse the report accordingly and the contractor must repeat the procedure described in clause 33.1. • Once all the construction completion reports have been signed by the project manager, and where the contract schedule specifies a date for completion of construction, the project manager issues a certificate of completion of construction, under clause 33.4. • The purchaser normally takes over responsibility for the plant just before any raw materials are to be fed into the plant to undergo the designed process change. The IChemE forms, therefore, provide for the carrying out of take-over procedures, including tests, as may be specified within the contract schedules, to follow on from construction completion. As soon as all the procedures have been successfully carried out, the project manager issues a take-over certificate to be signed by the purchaser and delivered to the contractor under clause 34.7. The purchaser is thereafter
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responsible for the care, safety, operation, servicing and maintenance of the plant. • The contract may prescribe performance tests embodied by specific guarantees of the contractor. The IChemE forms provide for acceptance certificates in respect of the satisfactory operation of the plant in accordance with these tests (clauses 35 and 37). • Finally, the IChemE forms lay down procedures for the certification of the correction of defects at the end of the defects liability period where the project manager must issue to the purchaser and contractor a final certificate (clause 38) which provides conclusive evidence that the contractor has completed the works and made good all defects therein.3

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4.1.3 Effects of Practical Completion
The various standard forms differ in their treatment of the transfer of rights and obligations between the parties at completion. The following issues are however common to most forms: (a) liability to pay damages for delay ceases (whether liquidated and pre-ascertained, or unliquidated); (b) possession of the site returns to the employer and the risk of security and damage to the works and third party liability transfers back to the employer (but not damage to the works caused by the contractor during the defects liability period); (c) commencement of the defects liability period; (d) payment to the contractor of one half of the retention fund; and (e) no further instructions may be issued for variation works or the rectification of works other than those appearing during the defects liability period. Dependent upon the form of contract, certain other factors are conditional upon the certificate of completion. For example, under JCT 98: (a) the employer may assign the right to bring proceedings in his or her name (clause 19.1.2); (b) the commencement of the period of the final adjustment of the contract sum (clause 30.6); (c) liability for frost damage is transferred from the contractor to the employer (clauses 17.2, 17.3 and 17.5); and

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(d) the period for final review of extensions of time expires 12 weeks from this date (clause 25.3.3). These factors also impact upon sub-contractors. For example, the sub-contractors’ protection under the main contract all-risks’ policy ends. In addition to mechanisms under the construction contract, the issue of a certificate of completion may have direct impact upon third parties, such as for example, to bring an end to obligations of a surety in respect of a guarantee or performance bond.

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4.1.4 Methods for Dealing with Practical Completion
There are a number of principal methods which might be used to reduce the problems associated with practical completion. The following are seen as the main options available: (a) The Contract Administrator’s Opinion Under this method there is no contractual definition of practical completion, this being left entirely to the architect/engineer or contract administrator’s opinion to certify when practical completion has been achieved. The remedy available to the employer or contractor in the event they consider the certificate has been wrongly issued or withheld is to adjudicate. This option is used in the traditional JCT contract. (b) Contractor’s Initiative The contractor notifies its own completion which becomes contractually binding unless dissented from by the recipient within a set number of days. This is the model used in DOM/1, further developed to deal with the ‘dissent’ of the recipient under a main contractor and sub-contractor relationship. (c) Definition of Standards Inclusion within the contract of a definition of the tests or standards which the contractor will be required to meet in order to achieve practical completion. (d) It is possible that this could be dealt with as a ‘code of practice’ bound within the contract document and expressly referred to in the conditions, in similar fashion to the code of practice for opening up and testing under clause 8.4.4 of JCT 98. (e) The IChemE forms come closest to this option, by prescribing tests and standards to be achieved by the installed plant prior to completion. It is suggested, however, that to define completion similarly for universal application in building or civil engineering projects would be extremely difficult. The primary area of difficulty lies in aspects of subjective evaluation

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such as finishes, and it is doubtful whether this would be lessened by a definition which called for ‘100% fault free works’ (see 4.1.4.2) since there will always be disputes on quality issues. (f) Appendix A offers a number of practical tests for judging the state of completion. 4.1.4.1 READINESS FOR OCCUPATION (a) Many commentators have agreed that practical completion should be defined in the contract as that point when beneficial occupation may be obtained by the employer. The decided cases have tended towards a preference for this approach in any event, and the ICE Minor Works form is an example of appropriate wording. (b) Nonetheless, it is difficult to see how this reduces the incidence of disputes: it is merely shifting the point at which arguments will be made. Employers have argued that this represents a weakening of their position. The building may be capable of being occupied, yet the standards required by the employer may not have been met. (c) As a qualification to this approach, an option is to add a rider to the effect that the rectification of outstanding works and defects are capable of being carried out in such a manner and within such a time that the employer’s beneficial occupation will not be impeded. 4.1.4.2 PERFECT COMPLETION (a) Here completion would not be granted until all outstanding works are completed and defects rectified. (b) This is not a favoured option in the UK, and the Courts have given credence to the view that it is a difficult, if not impossible, yardstick to apply. Nonetheless it is closer to the model applied in other European countries, and an increase in the use of latent defects or ‘build’ insurance (such as the mandatory decennial type liability in France) may bring a move towards ‘fault free’ buildings at completion. 4.1.4.3 TWO-STAGE COMPLETION (a) Various models have been suggested for a two-stage process for the certification of completion. (b) Clearly, the intent is to divide into two the numerous benefits and obligations which fall upon the contractor and employer at completion (see 4.1.3). (c) The first stage may be denoted by the issue of a ‘provisional certificate’ and, by example, may be due when beneficial occupation is achieved or achievable.
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(d) At this point, the employer would re-take possession and insurance risks are transferred. (e) The second stage would be perfect completion of the works. Only at this point would the contractor be released from liability for liquidated and ascertained damages. This would also mark the commencement of the defects liability period. It is thought that the first release of retention would also not occur until this point.

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4.1.5 Definitions
Generally, as can be seen in 4.1.2, the standard forms of contract do not provide definitions of what constitutes practical completion, although the ICE Minor Works form contains a useful development of the term by stating it is contingent upon the works being ‘fit to be taken into use or possession’. (a) Fault Free Completion Various definitions are available from decided cases and the principal textbooks on construction law. Some definitions lean towards perfect, fault free completion: One would normally say that a task was practically completed when it was almost, but not entirely finished; but Practical Completion suggests that is not the intended meaning and what is meant is the completion of all the construction work that has to be done.4 And in the same case: … The defects liability period is provided in order to enable objects not apparent at the date of practical completion to be remedied. If they had been apparent, no such certificate would have been issued.5 (b) Completion for All Practical Purposes The above quotations need to be compared with the opinion expressed by Salmon LJ when the same case had earlier been heard by the Court of Appeal: The obligation on the contractors under clause 21 to complete the works by the date fixed for completion must, in my view, be an obligation to complete the works in the sense in which the words ‘practically completed’ and ‘practical completion’ are used in clause 15 and clause 16 of the contract. I take these words to mean completion for all practical purposes, i.e. for the purpose of allowing the council to take possession of the works and use them as intended. If completion in clause 21 meant completion down to the last detail, however trivial and unimportant, then clause 22 would be a penalty clause and as such unenforceable.6

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(c) The De Minimis Rule This idea of practical completion being permitted despite the existence of minor defects has been expressed elsewhere: I think the word practically … gave the architect a discretion to certify that [the contractor] had fulfilled its obligation under clause 21(1) (of JCT 63) where very minor de minimis work had not been carried out, but that if there were any patent defects in what [the contractor] had done the architect could not have given a certificate of practical completion.7 (d) Impossibility of Perfection The development of this argument has involved contrasting the construction industry with other forms of manufacture: Probably the most important background fact which I should keep in mind is that building construction is not like the manufacture of goods in a factory. The size of the project, site conditions, use of many materials and employment of various types of operatives make it virtually impossible to achieve the same degree of perfection as can a manufacturer. It must be a rare new building in which every screw and every brush of paint is absolutely correct.8 And in the same case, Judge John Newey said: In my opinion there is room for ‘completion’ as distinct from ‘practical completion’. Because a building can seldom if ever be built precisely as required by drawings and specification, the contract realistically refers to ‘practical completion’, and not ‘completion’ but they mean the same. If, contrary to my view, completion is something which occurs only after all defects, shrinkages and other faults have been remedied in accordance with clauses 17.2 and 17.3 and a certificate to that effect has been given under clause 17.4, it would make the liquidated damages provision in clause 24 unworkable and in practice would require the defects liability period to be added to the time initially negotiated by the parties for the carrying out of the works. The construction industry recognizes a difference between the carrying out of new works and ‘snagging’ that is to say dealing with minor defects in them.9 (e) Substantial Performance These arguments applied to practical completion have been used in explaining the doctrine of substantial performance. This doctrine is concerned with establishing when payment will be due of an amount payable under an ‘entire’ contract: In considering whether there was substantial performance I am of the opinion that it is relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price. It would be wrong to say that the Contractor is only entitled to payment if the defects are so trifling as to be covered by the ‘de minimis’ rule.10
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In the same case, the key element for defining a failure to achieve substantial performance was emphasized to be: the general ineffectiveness of (the work) for its primary purpose …11 Substantial performance has been held to have occurred even though the works were in part defective. The defendants were held liable for the sum claimed less a deduction based upon the cost of making good the defects: The question here is whether in a contract for work and labour for a lump sum payable on completion the defendant can repudiate liability under the contract on the ground that the work though ‘finished’ or ‘done’ is in some respects not in accordance with the contract … I think on the facts of this case the work was finished in the ordinary sense, though in part defective …12 It has recently been held by the Court of Appeal in Hong Kong that practical completion should be interpreted in a similar manner to the doctrine of substantial performance. We return to the issue of practical completion which we cannot distinguish from substantial performance.13 The judge reached his conclusion that practical completion had not been achieved in circumstances where, by reason of the failure to modify the sprinkler system, the work contracted for was, in the words of Somervell LJ in Hoenig v. Isaacs, neither ‘finished’ nor ‘done’ in the ordinary sense.14 The direct connection between cases dealing with substantial performance and the definition of practical completion is, however, to be treated cautiously. It may be doubted whether cases concerned with substantial performance are relevant to the determination of practical completion as the term is used in the standard form contracts where the event is not directly related to payment obligation (as in the contract considered by the Hong Kong court) but rather with consequences such as liability for liquidated damages, repossession and the release of retention.15 (f) Substantial Completion Definitions of the term ‘substantial completion’ appearing in the ICE forms have been similar to those applied to practical completion. This term (or equivalent words) used in clause 48(1) of the ICE 7th Edition form ‘… substantially completed …’ now appears consistently throughout the Conditions, inter alia, in clauses 43 and 47. The term is not defined, but the expressed reference to ‘outstanding work’ to be completed within the Defects Correction Period indicates a state plainly falling short of literal completion. Neither is there any definition of ‘outstanding work’. There is no reason to limit it to work that has not been carried out. It may include work which is
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defective, but is to be re-executed or remedied in accordance with the Contract.16 The Concise Oxford Dictionary equates ‘substantial’ with ‘virtual’ which is defined as ‘that is such for practical purposes though not in name or according to strict definition’. It is at least clear on the one hand that the fact that the works are or are capable of being used by the employer does not automatically mean that they are substantially complete (‘any substantial part of the Works which has both been completed … and occupied or used’) and on the other hand that the engineer may not postpone his or her certificate under this clause until the works are absolutely completed and free from all defects. The many reported cases on the question of ‘substantial’ completion in relation to payment under an entire contract, a different legal problem, are of doubtful relevance. Obviously both the nature and extent of the uncompleted work or defects are relevant, and to say that substantial completion allows for minor deficiencies that can be readily remedied and which do not impair the structure as a whole is probably an accurate summary of what is a question of fact in each case.17 4.1.5.1 KEATING’S ANALYSIS Practical Completion is perhaps easier to recognize than to define. No clear answer emerges from the authorities as to the meaning of the term. It is submitted that the following is the correct analysis: (1) The Works can be practically complete notwithstanding that there are latent defects; (2) A Certificate of Practical Completion may not be issued if there are patent defects. The Defects Liability Period is provided in order to enable defects not apparent at the date of Practical Completion to be remedied; (3) Practical Completion means the completion of all the construction work that has to be done; (4) However, the Architect is given a discretion under clause 17.1 to certify Practical Completion where there are very minor items of work left incomplete, on ‘de minimis’ principles.18 4.1.5.2 HUDSON’S APPROACH It is desirable to be clear as to the precise meaning of ‘completion’ in a time obligation. There is surprisingly little English authority on the point, but it is clear that the requirement will be less rigorous than in other contractual contexts. Usually it will mean bona fide completion free of known or patent defects so as to enable the owner to enter into occupation. The words ‘practical’ or ‘substantial’ in the English standard forms probably do no more than indicate that trivial defects not affecting beneficial occupancy will not
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prevent completion (the more so, of course, if the contract provides for a maintenance or defects liability period).19 In the last resort the degree of required completion needed to discharge the contractor’s obligation to complete to time will be a matter of interpretation, but can be expected to differ from other aspects of the contractor’s obligations to complete. In English standard forms of contract employing liquidated damages clauses for delay, this is often expressly described as ‘practical’ or ‘substantial’ completion, but there is no reason to suppose that these expressions mean anything very different from the word ‘completion’ simpliciter when used or implied in the context of completion to time. It is submitted that this will, in the absence of contrary indication, mean when the work reaches a state of readiness for use or occupation by the owner, and free from any known omissions or defects which are not merely trivial.20 4.1.5.3 REMEDYING DEFECTS Another ingredient which it is suggested affects practical completion is the extent of disruption an employer would incur in allowing access to a contractor to remedy defects or complete works outstanding after the issue of a practical completion certificate. Furthermore, an employer must wish to reduce to the very minimum the disruption that is caused by the presence of works going through a snagging list and an architect should not issue a certificate of practical completion until all such work has been completed – unless the employer waives the right to insist upon it being done, and the contractor is willing to continue to work in an occupied building and suitable arrangements have been made for the insurance.21

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4.1.6 Subsidiary Issues
4.1.6.1 FINANCING CHARGES AFTER PRACTICAL COMPLETION (a) A specific question was raised in the Rees & Kirby case22 as to whether financing charges incurred by a contractor upon primary elements of loss and expense would cut off at the certificate of practical completion. (b) The defendant argued that financing charges, which were to be considered as a component part of the loss and expense claimed by the contractor as a result of events occurring during the construction of the works, could not be recoverable after practical completion, since the causative events complained of must, by that stage, have come to an end. (c) This contention was rejected by the Court. As I read the clauses, given that (on the clauses in the form which they take in the contract now before us) successive applications are made at

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reasonable intervals. I can see no reason why the financing charges should not continue to constitute direct loss or expense in which the contractor is involved by reason of, for example, a variation, until the date of the last application made before the last issue of the certificate issued in respect of the primary loss or expense incurred by reason of the relevant variation. At the date of issue of the certificate, the right to receive payment in respect of the primary loss or expense merges in the right to receive payment under the certificate within the time specified in the contract, so that from the date of the certificate the contractor is out of his money by reason either (1) that the contract permits time to elapse between the issue of the certificate and its payment, or (2) that the certificate has not been honoured on the due date. But I can for my part see no good reason for holding that the contractor should cease to be involved in loss or expense in the form of financing charges simply because the date of practical completion has passed. 4.1.6.2 INSTRUCTIONS ISSUED AFTER PRACTICAL COMPLETION (a) Often practical completion is certified in an extremely hurried manner to allow the employer occupation, for example, to commence fit-out works. Where substantial outstanding works remain, this causes considerable difficulty to architects or contract administrators who find they must issue instructions after practical completion, in order to enable the contractor to effectively finish the works. (b) This brings about the absurd situation of contractors’ claims for extension of time after practical completion, or arguments that time is ‘at large’ in order to defeat the imposition of earlier delay damages. (c) The Practice and Management Committee of the RICS published an answer to this question in 199023 as follows: Q Under JCT 80, is the architect empowered to issue instructions, other than for rectifying defects, after the issue of the certificate of practical completion. If the answer is yes, under which clauses of the contract is this power given. The Architect is not so empowered. However, as a matter of convenience, the parties may agree that further work is to be carried out and paid for through the machinery of the contract (Ref.Q/89/136).

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(d) It is considered that whether or not payment is made through the machinery of the contract, the additional work will, in effect, become the subject of a supplemental contract.

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4.1.6.3

CERTIFICATION OF PRACTICAL COMPLETION WHEN WORKS NOT COMPLETE (a) As can be seen in 4.1.3 the issue of a practical completion certificate transfers rights and obligations between parties to a construction contract and furthermore often releases a surety from its obligations in respect of a guarantee or bond. It may also be envisaged that a prospective future owner of a newly-built property may decide to proceed with the purchase upon the issue of a practical completion certificate. (b) It is not uncommon for consultants to be pressured by both client and contractor, albeit for differing reasons, for issue of the completion certificate. However, the owner/occupier could be exposed to considerable financial risk if practical completion is certified when in fact the works are not practically complete (i.e. more than minor ‘de minimis’ works remaining) and by reason of subsequent insolvency, incomplete and defective works remain just so. The consultant might be held liable for such a loss in these circumstances. (c) In one case,24 the Court did not accept the consultant’s defence that because it had qualified its issued completion certificate by a list of ‘reserved matters’, that this issued certificate should not have been taken to be the completion certificate required by the terms of the contract. Even though the employer was alleged to have instructed the consultant to issue an early certificate, the consultant had not properly advised its client of the relevance and importance of its issue including, amongst other things, the effect it would have of depriving the employer of the benefit of the performance bond. (d) In another case25 a consultant was held liable under a collateral warranty to a future owner, for breach of a term to ‘exercise all proper professional skill and care’, as it had purported in a letter to the architect that the mechanical and electrical works were complete, when in fact they were not. The architect subsequently certified practical completion, which induced the purchase of the property. Although the representation to the architect was made upon the employer’s request, the consultant should have declined the request as it was in conflict with the future owner’s interests (i.e. the interests of the beneficiary of the warranty that the consultant had agreed to) and the consultant did not have the future owner’s express written agreement in this regard.

4.1.6.4

OCCUPATION BY EMPLOYER PRIOR TO PRACTICAL COMPLETION (a) A question often raised is whether occupation by the employer will be deemed to constitute practical completion. (b) Certain standard forms of contract contain clauses that expressly state this to be the case. (c) ICE 7th edition, clause 48(3), is an example, although it is qualified by ‘substantial part’:

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If any substantial part of the works has been occupied or used by the Employer other than as provided in the Contract, the Contractor may request in writing and the Engineer shall issue a Certificate of Substantial Completion in respect thereof … (d) The New Engineering Contract (NEC) is also clear on this point, clause 35.3: The Employer may use any part of the works before Completion has been certified. If he does so, he takes over the part of the works when he begins to use it … (e) It has been argued that since some standard forms expressly deal with this subject as above, then those forms of contract which do not include similar express provisions should be interpreted to the effect that no assumption of deemed practical completion may be made upon occupation or use of part or all of the works. In other words, the express requirements of the contract should be considered to be exhaustive of the circumstances whereby practical completion can be established. (f) The JCT forms of contract, including JCT 98, do not expressly provide for ‘automatic’ practical completion upon use or occupation by the employer of a part or whole of the works. On the contrary, clause 23.3.2 of JCT 98 provides for use or occupation in circumstances where practical completion or partial possession will not occur (see 4.1.6.5(a)). (g) A number of cases have looked at this question. In Big Island Contracting v. Skink,26 although the owner’s occupation of the building was not argued as key to the determination of the issues, the Court held that it could not distinguish practical completion from ‘substantial performance’. On the facts of this case, the Court held that practical completion had not been achieved, despite the fact that the defendants had been in occupation of the building. (h) A somewhat different view was held in Hoenig v. Isaacs,27 where Lord Denning said: It is always open to a party to waive a condition which is inserted for his benefit. There, by entering into possession and using the fitted furniture, the employer was held to have waived a condition precedent of entire performance and could no longer rely on it. (i) In English Industrial Estates v. George Wimpey28, the Court held that occupation did not amount to completion. (j) In spite of the employer’s tenant installing and using machinery and storing large quantities of paper in parts of the works, the court of first instance and
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the Court of Appeal found that partial possession had not occurred and held the contractor and his insurers liable for damage caused by a fire occurring during the employer’s occupation. (k) In an Australian case29, the contract allowed the employer to have access before practical completion for the purpose of fitting out the building. The contractor argued that as the liquidated and ascertained damages provision gave no credit for this benefit, it could not be a genuine pre-estimate of loss, and would fail as being an unenforceable penalty. (l) The Court summarily rejected this argument. The contract contemplated staged completion, and any occupation of the premises prior to practical completion for fitting-out was a contractual right and not a ‘benefit’ conferred on the employer by delayed completion. 4.1.6.5 PARTIAL POSSESSION/SECTIONAL COMPLETION Under JCT 98 it may be seen that there are four levels of ‘occupation’ which can be attained by the employer. (a) The first level is use or occupation of the site or a part thereof generally for storage or fit-out. Clause 23.3.2 states: Notwithstanding the provisions of clause 23.3.1 the Employer may, with the consent in writing of the Contractor, use or occupy the site or the Works or part thereof whether for the purposes of storage of his goods or otherwise before the date of issue of the certificate of Practical Completion by the Architect. Before the Contractor shall give his consent to such use or occupation the Contractor or the Employer shall notify the insurers under clause 22A or clause 22B or clause 22C.2 or .4 whichever may be applicable and obtain confirmation that such use or occupation will not prejudice the insurance. Subject to such confirmation the consent of the Contractor shall not be unreasonably delayed or withheld. It can be seen that such a mechanism is consensual and that the insurers also must confirm their consent to the occupation. Clause 23.3.3 provides that any increase in the insurance premiums which results must be added to the contract sum. (b) The second level is partial possession. Again, this must be by the consent of both parties, which the contractor must not unreasonably withhold. Clause 18.1 provides: If at any time or times before the date of issue by the Architect of the certificate of Practical Completion the Employer wishes to take possession of any part or parts of the Works and the consent of the
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Contractor (which consent shall not be unreasonably delayed or withheld) has been obtained, then notwithstanding anything expressed or implied elsewhere in this Contract, the Employer may take possession thereof. The Architect shall thereupon issue to the Contractor on behalf of the Employer a written statement identifying the part or parts of the Works taken into possession and giving the date when the Employer took possession … The effect of partial possession under clause 18 is quite different from use or occupation described under clause 23.3.2 above. With partial possession, practical completion is deemed to have occurred in respect of that part with all the consequences of a practical completion under clause 17 (see 4.1.4). The architect’s written statement is used to compile the value of the part taken into possession, such that retention (clause 30.4.1.2) and liquidated damages (clause 24) will be reduced pro rata to the contract sum. Reference is also made to insurance which must be dealt with in the event of any partial possession (clause 18.1.3). (c) The ‘third level’ is sectional completion. The contract documents may prescribe predetermined sections of the works, with separate dates for completion for each. This again is different from partial possession, since it is not consensual in nature. The contractor is under an obligation to complete the works under each section on or before the dates set down in the contract appendix. Thus, the architect or contract administrator must administer the project having regard to these dates, including allocating separate extensions of time where these apply, and separate practical completion certificates (sectional completion) in respect of each part. The contract will also state the separate amounts of liquidated damages which are to be applied to each section in respect of any separate delays, whether or not the whole of the works is delivered up by the overall date for completion. (d) Finally, there is practical completion. The architect or contract administrator must certify completion of the whole of the works according to clause 17 (see 4.1.2.1).

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Notes
1. Clause 18.1.1 refers to partial possession. 2. William Tomkinson & Sons Ltd v. The Parochial Church Council of St Michael and Others (1990) 8-CLD-08-01. 3. Matthew Hall Ortech Ltd v. Tarmac Roadstone Ltd (1997) 87 BLR 96. 4. City of Westminster v.. J. Jarvis & Sons Ltd (1970) HL, 7 BLR 64. 5. Ibid, at page 75. 6. Ibid, CA [1969] 1 WLR 1448, at page 1458. 7. H W Neville (Sunblest) Ltd v. William Press & Sons Ltd (1982) 20 BLR 78. 8. Emson Eastern Ltd v. EME Developments Ltd (1991) QBD, 55 BLR 114. 9. Ibid, at page 122. 10. Bolton v. Madheva (1972) 1 WLR 1009, at page 1013. 11. Ibid, at page 1015. 12. Hoenig v. Issacs (1952) 2 All ER 176, at page 179. 13. Big Island Contracting (HK) Ltd v. Skink Ltd (1990) CA of Hong Kong, 52 BLR 110. 14. Ibid, at page 115. 15. Commentary by Editor of Building Law Reports, 52 BLR, at page 112. 16. Engineering Law and the ICE Conditions, 4th edition, Max W Abrahamson, at page 160. 17. Keating’s Building Contracts, 6th edition, at page 590. 18. Hudson’s Building and Engineering Contracts, 11th edition, at page 1109. 19. Ibid, at page 1130. 20. Commentary by Editors of Building Law Reports, 52 BLR, at page 111. 21. Rees & Kirby Ltd. v. Swansea City Council (1985) CA 30 BLR. 22. Chartered Quantity Surveyor June 1990 (ref Q/89/136). 23. George Fischer Holding Ltd v. Multi Design Consultants Ltd and Davis Langdon & Everest & others (1998) CILL 1362. 24. Environment Agency v. Hilson Moran [2000] CA (unreported to date). 25. Big Island Contracting (HK) Ltd v. Skink Ltd (1990) CA of Hong Kong, 52 BLR 110. 26. Hoenig v. Issacs (1952) 2 All ER 176. 27. English Industrial Estates Corporation v. George Wimpey & Co Ltd (1973) CA 7 BLR 122. 28. Multiplex Construction Pty Ltd v. Abgarus Pty Ltd (1992) APCLR.

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Appendix A: General Objectives to be Achieved at Practical Completion for Small to Medium-sized Building Projects
The following are a number of practical tests by which it is considered an architect or contract administrator can judge whether or not practical completion has been achieved. A1 A1.1 THE CONTRACT DOCUMENTS The works should have been undertaken as intended by the specification and drawings, etc. COMPLIANCE WITH STATUTORY REQUIREMENTS All relevant statutory requirements should have been complied with, including all appropriate requirements for health, safety, means of escape and the requirements of the statutory supplies, including confirmation that all planning conditions and building control matters have been satisfactorily resolved. Certificates confirming safety of the various installations should be provided. Electrical test certificates and confirmation of compliance with relevant statutory requirements for fire alarm or smoke-detector installations should be available. In addition, test certificates for pressure vessels as well as for hoists (whether they be for equipment or people) should be produced. Where appropriate (e.g. under design and build arrangements) the contractor shall have satisfied all local authority requirements with regard to, for example, refuse collection and postal address confirmation. THE SITE External works should be substantially complete so that the occupier has unfettered access. Normally, all building impediments such as skips and site huts should have been removed from the site, such that no potential safety hazard remains present. (Note: Particular attention should be paid to this when considering sectional completion for any part of the works.) ENTRANCES It is normally expected that the entrance to the premises and access way would be clear and complete, sufficient for the client to operate for all intents and purposes in a normal fashion. STRUCTURE Structural works should be complete and no part of the structure should be unsafe. CLADDING The building should be wind and watertight and the cladding should be properly secured. Under normal circumstances, roofs and claddings would be tested by the elements. If, for some reason this has not taken place, then the specification should include for water testing or, alternatively, an instruction should be given to so test these elements.

A2 A2.1

A2.2

A2.3

A3 A3.1

A4 A4.1

A5 A5.1

A6 A6.1

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A7 A7.1

FINISHES This is the area of works where most reasons for delay in the issue of a certificate of practical completion tend to arise. As suggested above, either a detailed view needs to be taken or potentially a more lenient stance adopted. All the decoration works should be complete. For example, the reception area and staircases should be finished, as should in general terms, the internal areas. However, decorations incomplete to a store room in the depths of the basement would not necessarily be considered as important. External works should be complete, including car-park lining, signage and the like. PLANTING If, in the specification, external planting is included and it is acknowledged that practical completion may take place during a period when undertaking planting may be impractical, then the documentation should state this to enable such works to be undertaken without detriment to the parties. MECHANICAL AND ELECTRICAL SERVICES The origins of all the appropriate commissioning and test certificates should be issued to the architect or contract administrator. For such elements as air conditioning, a definition which allows for balancing to take place following occupation should be considered. MANUALS The requirement for the provision of operating and maintenance manuals and as-installed drawings should be considered closely. Manufacturers’ warranties may well be nullified if mechanical plant is not maintained in accordance with their instructions during the warranty period. Particular attention will be required to be paid to the CDM regulations which call for the ‘Safety File’ to be produced prior to practical completion.

A7.2

A7.3

A7.4

A8 A8.1

A9 A9.1

A10 A10.1

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Appendix B: Table of Cases
1. 2. Big Island v. Skink (1990) Occupation did not mean practical completion. Bolton v. Mahdeva (1972) Substantial performance – it would be wrong to say that the contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule. City of Glasgow District Council v. Excess Insurance Co (Scotland) (1988) Performance bond survives practical completion. Emson Eastern v. EME Developments (1991) A building can seldom be built precisely. No set-off for remedial works after practical completion where main contractor insolvent (JCT(80) pre-amendment 11, July 92) – common law claim. Completion in determination provisions is equal to practical completion. English Industrial Estates v. George Wimpey (1973) Fire is the contractor’s risk after possession if clause 16 of JCT 63 is not observed. Occupation before practical completion without certificate does not amount to partial possession. Hoenig v. Isaacs (1952) Substantial performance was held to have occurred even though the works were in part defective. Jarvis & Sons Ltd v. City of Westminster (1970) What is meant by completion is the completion of all the construction work that has to be done. If (defects) had been apparent (at practical completion) no such certificate would have been issued. London Merchant Securities v. London Borough of Islington (1986) The architect’s certificate was not conclusive (for rating purposes) – substantial completion being a broad question of fact. Multiplex Construction Pty v. Abgarus (1992) Occupation prior to practical completion is a right not a benefit. HW Neville v. William Press (1982) The word ‘practically’ gave the architect a discretion to certify … where very minor de minimis work had not been carried out. Rees & Kirby v. Swansea City Council (1985) Financing charges continue after practical completion. University of Glasgow v. William Whitfield & John Laing (1988) Continuing duty of architect for negligent design after practical completion.

3. 4.

5.

6.

7.

8.

9. 10.

11. 12.

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Appendix C: Further Reading Books
Engineering Law and the ICE Conditions, (4th Edition), Max Abramson, Applied Science Publishers, 1979 Hudson’s Building and Engineering Contracts, (11th Edition), IN Duncan-Wallace, Sweet & Maxwell, 1995 Keatings Building Contracts, (6th Edition), Sir Anthony May, Sweet & Maxwell, 1995

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PART 4, SECTION 2

PART FOUR: CONSTRUCTION ADMINISTRATION AND MANAGEMENT
SECTION 2: ASCERTAINING THE AMOUNT OF LOSS AND EXPENSE INCURRED IN BUILDING PROJECTS
Introduction
The purpose of this Section is to provide practical advice to those who are required to ascertain the amounts due in reimbursement of direct loss and/or expense incurred in building projects. Surveyors are particularly reminded that their role in these matters is set out in their building contract and is normally limited to determining quantum; it does not usually extend to determining liability. Reference has been made to the contract administrator throughout this document. This reference includes architects where that function exists under the contract. It cannot be emphasised too strongly that the ascertainment of loss and/or expense is an exercise in calculating as precisely as possible that which is incurred by the contractor directly and solely due to the matters listed in the contract. It is not an attempt to impose a penalty on an employer or design team for failing to live up to obligations or expectations. Equally, it is not the quantity surveyor’s role (to whom the task of ascertainment is usually given) to seek to get away with as little a payment as he can. The contractor, for his part, may understandably press hard for a significant figure and on occasions overstate his case either in words or money or both. Too often the quantity surveyor is seen, or even sees himself, as being at the opposite end of a tug-of-war rope to the contractor. This is incorrect. Whilst the quantity surveyor is perfectly entitled to probe such submissions by weighing all the contrary evidence, his ultimate task is to determine a proper ascertainment in accordance with the conditions of contract and the circumstances that have prevailed.

4.2.1 General Principles
G 4.2.1.1 Under common law, if one party to a contract is in breach then that party is liable to the other for damages. The level of such damages has been established by a number of Court cases.

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G 4.2.1.2

However, the level of damages payable at common law has never intended to act as a penalty or deterrent but simply to ensure that, in respect of the aggrieved party, “he is, so far as money can do it, to be placed in the same situation with regard to damages, as if the contract had been performed”.1 Nor are such damages intended to recompense the aggrieved party for all losses whatever their nature. In the case of Hadley v. Baxendale2 it was established that damages ought to be of a kind which “should be such as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such a breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. Where building contracts contain clauses dealing with the entitlement of the contractor to recover direct loss and/or expense for any delay or disruption to the regular progress of the Works caused by the client or his team or other designated causes, such clauses have been developed against this general background. There are important distinctions to be drawn between the express provisions in a form of contract on the recovery of direct loss and/or expense, and recovery of damages at common law. In the case of the former the requirements laid down in the contract must be rigidly adhered to; if they are, then reimbursement is a contractual entitlement and does not require judgement of the Court or an arbitrator. The provisions of the loss and/or expense clauses are generally without prejudice to any other rights and remedies which the contractor may possess, and which he may wish to pursue through arbitration or the Courts. This consideration is, however, outside the scope of this Section of the Handbook. To determine the contractor’s entitlement one must calculate the difference between the costs arising from the application of the following two questions: (a) What is the reasonable cost of carrying out the particular element of work in the delayed or disrupted circumstances that were created directly as a result of the matter under consideration (for example late instructions)? (b) If that delay or disruption had not been so caused what would those costs have been?

G 4.2.1.3

G 4.2.1.4

G 4.2.1.5

G 4.2.1.6

G 4.2.1.7

G 4.2.1.8

An element of judgement and even conjecture is almost always inevitable in answering the second question; and judgement may indeed be involved in answering the first question, for even if there are verified cost records of the

1 2

Robinson v. Harman (1848) 1 Ex.850 Hadley v. Baxendale (1854) 9 Ex. 341

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work that was carried out it does not follow necessarily that all such costs were properly incurred. G 4.2.1.9 Thus, even if the form of contract refers to ‘ascertaining’ the loss – as does the JCT form (see G 4.2.1.13) – complete proof in the way of invoices or verified cost records is unlikely to be available. Indeed, as outlined elsewhere in this Section, the surveyor is not required to establish ‘complete proof’ but is instead required to use professional judgement. This should not, however, detract from the critical importance of ensuring that proper and reasonable records are maintained by the contractor and contract administrator. The primary purpose of this guidance is not to provide a legal treatise on the matter of claims but to provide practical comment on how to go about determining, as reliably as possible, the contractor’s monetary entitlement. The correct ascertainment of the amount of any direct loss and/or expense to be reimbursed to the contractor requires sound knowledge and experience of building practice, careful study of the conditions of the relevant contract and an understanding of their legal application, together with knowledge of the relevant and up-to-date case law. In addition, the person undertaking the evaluation requires access to the best records and other information that is available on that particular contract. The principles referred to are generally applicable to all cases where a contractor is entitled, by the conditions of contract, to reimbursement of his direct loss and/or expense. This entitlement is provided in most, but not all, forms of building contract, even where the expression ‘direct loss and/or expense’ may not be used. This guidance is based predominantly upon the provisions of the 1998 edition of the Standard Form of Building Contract, published by the Joint Contracts Tribunal – referred to as JCT 98. The wording used in the form is either identical, or very similar, to that adopted in many of the other forms published by the JCT, for example the Works Contracts used in association with the JCT Standard Form of Management Contract and the JCT Standard Form of Building Contract with Contractor Design. It should be noted that in this text extracts from printed forms are frequently paraphrased. Readers therefore should in all cases check the precise wording used in the particular form with which they are involved in practice, particularly where the form is not one of those promulgated by the JCT. It may even be that, although a JCT Standard Form has been used, particular clauses have been amended. Following the terminology used in the JCT forms, an event or failure which gives the contractor grounds for seeking reimbursement of any resultant loss and/or expense is referred to as a ‘matter’; whereas an event or failure which
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G 4.2.1.10

G 4.2.1.11

G 4.2.1.12

G 4.2.1.13

G 4.2.1.14

G 4.2.1.15

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gives the contractor grounds for seeking an extension of time for the completion of the works is referred to in this Section as an ‘event’ (also see G 4.2.3.2).

4.2.2 Definitions
G 4.2.2.1 LOSS AND/OR EXPENSE Any monies which a contractor has a proper expectation of receiving but has not received and/or monies properly expended or to be expended by him. G 4.2.2.2 DIRECT “The direct consequence of the act giving rise to the claim”,1 or “that which flows naturally from the breach, without other intervening cause”.2 Clearly this word ‘direct’, when used in conjunction with the words ‘loss and/or expense’, is a very restricting one and disqualifies all costs and/or expenses that do not arise as a direct result of the matter under complaint. Thus, any costs due, for example, to mismanagement, to other causes not recognized as matters by the wording of the contract or to other concurrent delays should be excluded from those reimbursable to the contractor as they are not the direct result of the matter under consideration. G 4.2.2.3 ASCERTAINMENT The definition of this word should be seen in the context of the subject of the ascertainment. Given that judgement is almost always called for (see G 4.2.1.5 and G 4.2.1.6) it follows that ‘to ascertain’ can rarely mean to prove comprehensively with invoices and records but rather to establish by the use of such facts as are available and by the use of expert judgement.

4.2.3 Entitlement
G 4.2.3.1 LIMITATIONS Appendix D provides a checklist of items on which entitlement is allowed under JCT 98. The contractor’s entitlement to reimbursement under the terms of the contract should be determined as set out below: (a) The loss and/or expense must arise directly as a result of one of the matters referred to under the terms of the contract. Such matters do not usually extend to the contractor underpricing the rates to be used in valuing variations. Thus, losses arising from any such underpricing are not usually reimbursable.
1 2

A & B Taxis Ltd v. The Secretary of State for Air (1922) 2KB 328 Saint Line Ltd v. Richardson Westgarth & Co (1940) 25 BLR 140 refers to the case only in passing

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(b) Indirect costs – i.e. costs not arising directly as a result of the matter under consideration – should be excluded. In this respect the link between cause and effect is a vital factor. (c) Costs incurred in respect of which the contractor has not compelled with the conditions laid down in the contract in relation thereto cannot be dealt with under the terms of the contract (but see G 4.2.1.6). For example, JCT 98 requires the contractor to make an application in writing to the contract administrator as soon as it is reasonably apparent that disruption will occur as a result of a matter referred to in clause 26 of that contract (or under clause 34 in the case of loss and/or expense arising from the discovery of antiquities). For the contractor to be able to obtain reimbursement in accordance with the contract he must first have complied with that provision (see G 4.2.3.3 for more detailed advice on the validity of written applications). (d) Reimbursement is restricted to loss and/or expense which the contractor is not entitled to recover under any other provision of the contract. For example, the payments made to the contractor may include allowances for working under changed conditions, fluctuations in prices, or preliminaries associated with variations. None of these costs should therefore be duplicated in an ascertainment of loss and/or expense under clause 26. (e) It is important to consider the mitigation of loss and/or expense. To the extent that any part of the loss and/or expense incurred could reasonably have been avoided by the contractor taking reasonable steps, that amount would not be reimbursable. This requirement to mitigate requires the contractor to act reasonably in all the circumstances. It may be reasonable, for example, for a contractor to bring additional plant or labour to a site in order to reduce the overall effect of a matter on the project as a whole. Even where such an act was not entirely successful the contractor would be entitled to the reimbursement of the costs incurred provided that he acted reasonably in so doing. It is important, therefore, that in reviewing with hindsight what was reasonable, the quantity surveyor may have good cause to reject certain costs put forward by the contractor. The contractor has to make day-to-day decisions in developing situations that may, in retrospect, be shown to be wrong. The test must be: “Was the action reasonable in the circumstances prevailing at the time?” (f) On the other hand, a contractor who through good management is destined to increase the profit he anticipated making at tender stage cannot be denied this prospect by the incidence of a matter giving rise to a loss and/or expense claim. For example, at tender stage the contractor might have anticipated removing some element of plant by, say, the twentieth week. In the event he may be beating this target and be destined to be able to remove it by, say, the fifteenth week. If a delay caused by a matter recognized by the contract occurs which requires that plant to be retained for a further four weeks, i.e. until the nineteenth week, he is entitled to additional reimbursement for those four weeks.
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G 4.2.3.2

EXTENSIONS OF TIME Under JCT 98 and other forms of contract in the same series, the expression ‘extension of time’ is replaced by the words ‘fixing a new completion date’ but the more traditional ‘extension of time’ is used in this Section. Extension of time does not necessarily mean that the contractor has an entitlement to reimbursement of loss and/or expense. On the other hand, the contractor may have an entitlement to such reimbursement even when there is no extension of time. Each matter needs to be treated on its merits whether or not an extension of time is due or granted. Nevertheless, under JCT 98 there is a requirement that the contract administrator declares the amount of any extension of time granted for any event which also constitutes a matter under clause 26 where such a declaration is necessary for the ascertainment of loss and/or expense. Thus, in ascertaining the contractor’s entitlement to reimbursement of loss and/or expense, the existence and amount of any attendant extension of time must be revealed where this is relevant to that ascertainment.

G 4.2.3.3

WRITTEN APPLICATION Before the contractor is entitled to any reimbursement in respect of loss and/or expense he should first have made an application, at the appropriate time, to the appropriate party named in the conditions of contract. The purpose of this written application is to enable the contract administrator to form his opinion on whether or not there has been, or will be, loss and/or expense incurred which would not be reimbursed under any other provision in the conditions of the contract. In addition, it should be noted that, with reference to the matter of applications: (a) Applications must be made by the contractor as soon as it reasonably becomes apparent to him that the regular progress of the Works is likely to be materially affected by any of the relevant matters listed in the conditions of contract. (b) Applications to the quantity surveyor, in contrast to those made to the contract administrator, are not valid unless specific authority has been given by the employer.1 (c) Reference to loss and/or expense in site meetings or the like, or references to ‘delays’ which do not mention loss and/or expense, do not constitute valid written applications to recover loss and/or expense.

G 4.2.3.4

ADEQUACY OF THE DETAILS JCT 98 requires that the contractor provides the contract administrator (or if so instructed, the quantity surveyor) with all the documents necessary for

1 John

Laing Construction Ltd v. County and District Properties Ltd (1982) 23 BLR 1

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adjusting the contract sum. This will include documents in support of ascertainments of the contractor’s entitlement to reimbursement of loss and/or expense (see clause 30.6.1.1). Moreover, clause 26.1.3 requires the contractor to supply to the contract administrator or quantity surveyor, upon request, such details as are reasonably necessary for the ascertainment of any reimbursable loss and/or expense. But note that these details have to be requested and clearly, for such details to be of maximum use, the request for them should be made at the earliest opportunity. G 4.2.3.5 In practice, what is going to be adequate data will depend upon the nature of the disruption or delay. Thus, the request for the contractor to keep such details should not only be timely but should also be as specific as possible as to the data required. NOMINATED SUB-CONTRACTORS In general the same principles apply to ascertaining the loss and/or expense to be reimbursed to a nominated sub-contractor as apply to the main contractor. It must be recognized, however, that a nominated sub-contractor may have an entitlement under the terms of the sub-contract to reimbursement by the main contractor (due, for example, to the latter’s mismanagement) which should be passed on to the employer.

G 4.2.3.6

4.2.4 Ascertainment
G 4.2.4.1 RESPONSIBILITY FOR ASCERTAINMENT Under JCT 98 the responsibility for ascertaining the amount due is the contract administrator’s, unless he instructs the quantity surveyor to undertake this task. Where the contract administrator so instructs the quantity surveyor this instruction should be in writing, to be copied to the contractor, and be specific as to the matters which are covered in such an instruction. However, the contract administrator cannot delegate to the quantity surveyor, or anyone else, the task of forming an opinion on whether or not there is a case in principle for loss and/or expense to be ascertained. A checklist of steps required under JCT 98 is included at Appendix E. G 4.2.4.2 The quantity surveyor should be careful to ensure that the contract administrator undertakes this task of forming an opinion before embarking upon any ascertainment. The quantity surveyor should also ask the contract administrator for all the data he has upon which he formed that opinion; for the quantity surveyor’s task is always one of determining quantum in respect of the items which in the opinion of the contract administrator are admissible in principle. It is not for the quantity surveyor to usurp the role of the contract administrator in matters which the contract conditions specifically reserve for him.1

1

John Laing Construction Ltd v. County and District Properties Ltd (1982) 23 BLR 1

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G 4.2.4.3

However, once the quantity surveyor has been properly instructed to ascertain the amount due he should proceed with this task without delay. It is for the contract administrator or quantity surveyor, as the case may be, to ascertain the amount and not to await a detailed submission from the contractor. In general the surveyor should ensure that the basis, calculations and evidential records used in the ascertainment are recorded in writing. This may be a mandatory requirement on public sector contracts. USE OF JUDGEMENT IN MAKING AN ASCERTAINMENT An element of professional judgement is often inevitable in ascertaining the contractor’s entitlement to reimbursement of loss and/or expense. This is because what the contractor’s cost would have been had the relevant delay or disruption not taken place has to be estimated (see G 4.2.1.6 and G 4.2.1.7). However, in forming that judgement the best evidence available should always be used in reference. For example, where there is contiguous work that has not been affected by delay or disruption this might well provide good evidence of the progress that the contractor could have been expected to have made generally.

G 4.2.4.4

G 4.2.4.5

G 4.2.4.6

Clause 26.1 of JCT 98 requires that ascertainment is made from time to time. This means that ascertainment should be an ongoing process where the facts are sufficiently established to make a proper and finite calculation. Moreover, clause 30.2.2.2 of JCT 98 states that any amount ascertained under clause 26 should be included in interim certificates. Thus, wherever ascertainment can properly be made of part of a contractor’s entitlement it is important that this is done and the relevant amounts be certified for payment. If part of a contractor’s entitlement can be wholly ascertained then it should be, but there is no provision in this form of contract for provisional assessment to be made. COSTS VERSUS When ascertaining a contractor’s entitlement it is the actual loss or actual expense which is relevant. The prices in the contract bills or schedule of rates should not be used as the actual costs may be more or less than these. Additionally, the general rule of damages is that the type or kind of loss payable is that “as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it” (see G 4.2.1.3).

G 4.2.4.7

G 4.2.4.8

G 4.2.4.9

GLOBAL OR INDIVIDUAL ASCERTAINMENT In recent years there has been much discussion on whether claims should properly be considered on a global basis or whether each item should be considered in isolation. In this respect the quantity surveyor need only be concerned with the points in G 4.2.4.10 below.

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G 4.2.4.10

It is important that a contractor makes proper applications on each and every occasion that an entitlement to make a claim arises. (a) It is necessary that each application conforms fully with the rules written into the contract about them (for example timing, in writing, sent to the contract administrator). (b) The contractor must keep such records as are necessary for the ascertainment of the amount due. (c) Only where the effect of a series of matters (for example the late issue of a number of instructions or the instructing of a number of variations) is such as to create extra costs which by their nature are indistinguishable from one another can an application on a global basis be entertained. Simply because there is, for example, a series of variation instructions which create overlapping or contiguous disturbance, it does not follow that all other matters on that project can be added in to make a global claim. A global approach to ascertainment should be restricted solely to events which create indistinguishable effects. Thus, no contractor should be penalised by being denied reimbursement simply because extra costs were incurred which could not by their nature be particularised. On the other hand, the facility of global ascertainment should not be used to mask facts and figures that could properly have been particularised and presented.

4.2.5 Admissible Items
G 4.2.5.1 GENERAL A list of possible items admissible as part of an ascertainment of loss and/or expense (which is to be read as including those attributable to sub-contractors) is as follows: • extended and/or increased use of ‘preliminaries’, for example more supervision, more plant etc.; • reduced labour outputs; • extra waste or abortive purchase of materials; • increase in the price of resources, i.e. inflation; • increased cost of head office overheads; • loss of profit; and • finance charges. More often than not the dominant items will be the first two from the above list. G 4.2.5.2 PRELIMINARIES A representative list of the items normally comprising the preliminaries is given at Appendix A.

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G 4.2.5.3

When ascertaining the extra cost of ‘preliminary’ items (but see G 4.2.4.8) it is important to break each item down into the following components: (a) Setting-up costs would be admissible where additional plant is properly brought onto the site. If plant is already on site, setting-up costs would rarely be admissible unless setting up has been delayed by a relevant matter and inflation has occurred which is not reimbursable under the fluctuations clauses. (b) Removal costs are admissible in the same way as setting-up costs. (c) Extra hire charges would be reimbursable if the particular item is required to be kept on site longer than otherwise would have been the case due to the relevant matter. The comparison is between the period that the item would have been on site had the matter not occurred and the period that it was reasonable to have been on site given that the matter did occur (see G 4.2.1.7). Where the plant in question is owned by the contractor the measure of his loss is the amount (if any) that he could have earned by using the plant elsewhere had it not been tied up on the site for longer than would have been the case if the matter in question had not occurred. (d) Extra running charges would be reimbursable if, due to a relevant matter, the particular item is required for a longer period than otherwise would have been the case. Again the comparison is between the period that the item would have been in use had the matter not occurred and the period that it was reasonable to have been in use given that the matter did occur (see G 4.2.1.7).

G 4.2.5.4

DISRUPTION OF LABOUR The ascertainment of the cost of disruption to labour is invariably a difficult process. It is impossible to give precise and definitive advice as all will depend upon the circumstances in each case. However, the following general pointers should be of some assistance: (a) In all circumstances avoid the application of an overall percentage to global labour costs; rarely if ever are the whole labour costs on a project disrupted. (b) Wherever possible request that contemporary records be kept, noting the output achieved in practice by the particular workmen who are disrupted. Clerk of works’ records and diaries can be invaluable evidence of this. (c) Have regard to whether any delay comprises a series of small recurrent delays or one large one. In the former case the proportional loss of output can be very high, whereas in the latter case the loss can be mitigated by redeploying resources elsewhere.

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(d) Recognize that there is a learning curve in all activities. The advantage of this can be lost if a new gang of men is brought in to undertake work which has become familiar to others; the resultant extra cost will be reimbursable. Moreover, if additional labour has to be recruited at short notice it may be necessary to pay premium rates which would in principle be reimbursable. (e) Whatever the level of variation orders, late instructions and so on, much of the work of labour will not actually be significantly affected. For example, bricklaying or fixing pipework once under way may suffer little or no delay. The delay may be associated with becoming familiar with an unexpected or unplanned task. The ‘coal face’ operation may not be affected at all. (f) Recognize that great economies can flow from a repetitive task, for example fixing partitions in a series of identical dwellings, the interruption of which can result in far-reaching losses. G 4.2.5.5 A list of items relevant to the calculation of reimbursable extra costs of disruption is given at Appendix B. EXTRA WASTE AND/OR ABORTIVE PURCHASE OF MATERIALS These may not be significant elements in an ascertainment but it may be that the constant moving of materials, stores or compounds following a relevant matter will result in extra waste. As long as this has not resulted from a lack of proper management this cost will properly form part of any ascertainment. Alternatively, it may be that materials purchased for the works have been omitted by a subsequent variation order. Provided that such materials were not purchased prematurely the cost would again properly form part of any ascertainment. G 4.2.5.7 INFLATION If work is executed later than otherwise would have been possible as a result of a relevant matter and if inflation has caused the cost to rise then, provided that such costs are not reimbursable under the fluctuations clause, they will form part of the ascertainment. Even where the contract contains a fluctuations clause, if it contains a non-adjustable element, a delay in the execution of work might well increase the non-recoverable element, which would be reimbursable. G 4.2.5.8 INCREASED COST OF HEAD OFFICE OVERHEADS Loss in the recovery of head office overheads is an admissible item but the amount of such loss may be difficult to substantiate. Overall percentages, not related to the particular circumstances, cannot be used.1 G 4.2.5.9 Wherever possible, proof should be sought of such items as extra site visits by head office staff or the greater involvement of head office staff in managing

G 4.2.5.6

Tate & Lyle Food and Distribution Co. Ltd & Another v. Greater London Council & Another (1982) 1WLR 149

1

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the project as a result of the matters giving rise to a claim. Appendix C gives further guidance on the components and methods of such an ascertainment. G 4.2.5.10 Account should be taken of the extent to which extra costs are already being reimbursed through the pricing of the variation account. Where there has been a delay as a result of a relevant matter but no consequent increase in value (thereby excluding some contribution to extra head office costs) some extra recovery is an entitlement provided that this does not extend to include costs that should have been mitigated. It should also be shown that, but for this delay and the consequent tying-up of head office resources for a longer period than would otherwise have been the case, those resources could have been productively used elsewhere. The Courts have increasingly recognized that, providing all the pre-conditions are met, a formula approach to calculating this element maybe permissible.1 As with the recovery of loss of profit, however, it is important that overriding consideration be given to the level of recovery that would have been possible on alternative work had the contractor been free to do so (see G 4.2.5.13). LOSS OF PROFIT If, as a direct result of a matter referred to in the conditions of contract, loss of profit is suffered which could have been earned in the normal course of business elsewhere, there is an entitlement to reimbursement of that profit.2 This amount should be calculated by reference to the level of profit to have been made by the use of the resources on other projects during the period of retention on site as a direct result of the cause of delay. The level should be that prevailing in the market during the period immediately following the original date for completion or such earlier date at which the resources would have been released from the contract. It might, therefore, be higher or lower than that contemplated in the contract sum. Moreover, where loss of profit is being calculated as a result of a delay caused by the execution of variations it is important that a deduction be made for any other profit reimbursed to the contractor for those variations priced at contract rates. G 4.2.5.14 FINANCE CHARGES Clause 30.1.1.1 of JCT 98 now provides for the payment of interest, at 5% over the base rate of the Bank of England, for any payments which are overdue. This is in line with the statutory right now available to certain classes of businesses under the Late Payment of Commercial Debts (Interest) Act 1998. The JCT form expressly notes that the payment of contractual interest may not be construed as a waiver by the contractor of his or her rights to proper and timely payments. However, finance charges are not an interest on a debt, but a debt which has interest charges as one of its component parts which have been paid by a contractor on money which was

G 4.2.5.11

G 4.2.5.12

G 4.2.5.13

1 St Modwen Developments Ltd v. Bowmer & Kirkland Ltd (1996) 1996 CILL 1203 2 Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 114

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borrowed (or interest that could not be earned on capital) in order to finance the prime cost of the loss and/or expense. Such finance charges are reimbursable.1 G 4.2.5.15 Finance charges are recoverable from the date that the primary loss and/or expense was incurred up to the time that the certificate, which included the payment of that loss and/or expense, was issued, provided, as always, that the conditions in the contract in that respect have been met (see G 4.2.3.3 (c)). The rates and manner of interest payable should be those actually incurred (or being earned on capital).

G 4.2.5.16

4.2.6 Inadmissible Items
G 4.2.6.1 GENERALLY It is not possible to list all the items which are inadmissible. However, it might be helpful to comment upon certain items which are occasionally claimed as being reimbursable when they are not. Among these the most usual are: (a) The costs of acceleration, unless specifically approved by the employer beforehand (see G 4.2.6.2). (b) The cost of preparing a submission for the reimbursement of loss and/or expense. G 4.2.6.2 THE COST OF ACCELERATION In common with most lump sum contracts JCT 98 does not contain provisions for instructions to be given to accelerate the works. If acceleration is required it should be achieved by means of a separate agreement. G 4.2.6.3 However, the contractor’s obligation whenever he is, or is likely to be, delayed is to “use constantly his best endeavours … to prevent the completion of the Works being delayed”. It is generally thought that the use of ‘best endeavours’ is likely to be limited to the rescheduling of resources and the taking of such measures as may be appropriate to allow the works to proceed without incurring (significant) costs. THE COST OF PREPARING A SUBMISSION FOR REIMBURSEMENT OF LOSS AND/OR EXPENSE There is no contractual requirement for a contractor to prepare details of the amount of loss and/or expense and thus there is no entitlement to any reimbursement for so doing. G 4.2.6.5 Where, however, he provides the data which might be required by the quantity surveyor under clause 26.1.3 the cost of so doing may be reimbursable.

G 4.2.6.4

1F

G Minter Ltd v. Welsh Health Technical Services Organization (1980) 13 BLR 2

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PART 4, SECTION 2, APPENDIX A

Appendix A: Ascertaining the Cost of Running a Site
The items given below are intended only as a guide; the list is not comprehensive. A1 STAFF AND ADMINISTRATION Note: This includes security and welfare personnel and the supervisory time of trades foreman and the like. Consider: • staff salaries (including subsistence, guaranteed bonuses and allowances where paid); • travel costs, including cars and fuel; • national insurance, pensions etc. – employer’s contributions; • private health insurance – employer’s contributions; • employer’s liability insurance, third party insurance; • training levy; • redundancy fund, holidays with pay, superannuation; and • agency staff where applicable. A2 TEMPORARY ACCOMMODATION Consider: • • • • • • • • • • • • • • • • • • • • • • • • • • • temporary offices – rental/repairs and maintenance; stores – rental/repairs and maintenance; canteen – rental/repairs and maintenance; canteen equipment; canteen consumables; canteen subsidy; signs, boards and notices; fire-fighting equipment; first-aid equipment; nurse/first-aider; site welfare and safety; gas and electricity; rates on temporary buildings; telephone/facsimile lines/system rental; telephone/facsimile calls; mobile phone calls; office furniture; computers, including servers and data lines; photocopiers – equipment and consumables; office consumables and stationary; drawing and copying; postage/franking machine; office cleaning; sanitary accommodation and welfare facilities; general cleaning and disposal; general site wear; and progress photographs.

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A3

PLANT This covers plant owned by the contractor or hired from a subsidiary or specialist company. It is advised that the conditions of hire are examined. There is often a guaranteed minimum period of hire which would have been paid for in any case. When long delays have occurred, loss must be mitigated by use elsewhere or the termination of the hire contract. Consider: • • • • • • • • • • • • • • • tower cranes; mobile cranes; banksmen and slingers; weighbridge; wheel washing facilities; compressors; mixers; pumps; hoists; site surveying equipment; site/crane radio system; concrete testing; general site equipment; small plant and tools; and rubbish removal (skips).

A4

TEMPORARY WORKS/ACCESS Consider: • temporary roads – maintenance; and • clean access and site roads.

A5

FENCING AND SECURITY Consider: • • • • site boundary fencing/hoarding; site compound fencing; site security (including guards if appropriate); and temporary weather proofing.

A6

DISTRIBUTION Consider: • • • • • • service gang –cleaning, attendance and distribution; forklifts and drivers; dumpers and drivers; telescopic hoists, including driver; internal site transport; and hoist drivers.

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A7

SCAFFOLDING Consider: • extra hire; • adaptations; and • additional work – for example safety rails where scaffolding removed.

A8

TEMPORARY ELECTRICS Consider: • • • • equipment – generators, transformers etc.; fuel consumption; consumables; and maintenance.

A9

TEMPORARY WATER Consider: • water and sewerage – rates/metered consumption; and • maintenance.

A10

INSURANCE Consider: • • • • contractor’s all risk; public liability; professional indemnity; and performance bond.

A11

HEAD OFFICE STAFF COSTS Consider: • that proportion of time spent on project which is only applicable if not booked directly to the project. See general comments at G 4.2.5.8 to G 4.2.5.12 and Appendix C.

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Appendix B: Disruption
B1 B1.1 THE EFFECTS OF DISRUPTION Labour Factors to be taken into account include: • loss of productivity (labour resources must have been available and able to have been used profitably elsewhere had the loss of productivity not occurred); • standing time; • overtime; and • changes in labour strength on the site and in gangs; B1.2 Plant Refer to invoices to indicate additional costs due to: • • • • • B1.3 relocation of plant, on or off site; additional plant; additional tools; alterations or additions to scaffolding; and standing time.

Materials Extra costs can be incurred due to the: • • • • double handling of materials; waste and damage of materials; return of materials to the store or supplier; and substitution of materials.

B2 B2.1

INFORMATION AVAILABLE TO THE CONTRACT ADMINISTRATOR/QUANTITY SURVEYOR Apart from issued drawings, written instructions and correspondence, other information that should be referred to includes: • • • • • • • contractor’s programme and amendments; site reports; site measures; clerk of works’ reports; daywork records; photographs; and minutes of meetings.

B2.2

This information can assist in the ascertainment of the effects of instructions upon progress. QUANTITY SURVEYOR’S CONSIDERATIONS It is important to receive from the contractor proper, detailed records of delays which disrupt progress. Ideally, this information needs to be in diary form and should indicate:

B3 B3.1

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• • • •

the immediate effect upon working trades; the knock-on effect upon succeeding trades, particularly sub-contractors; the effect upon allied trades working in the vicinity; the inability to divert labour elsewhere (i) on the site, and (ii) to other contracts; • evidence of efforts made to divert labour to other contracts, or to otherwise mitigate the costs of construction and effects of disruption; and • the relationship with nominated firms and sub-contractors and records from them to substantiate the claim of disruption. B3.2 There may be further items not covered above which the contractor could bring to the notice of the quantity surveyor. In making an assessment of disruption, the quantity surveyor may require the tender progress intentions of the contractor, and to examine data on which projections of progress were based in order to indicate the effect that changes have had upon the planning. The information may include critical path analyses and similar information. The quantity surveyor should give careful consideration to all this information and judge its relevance to the particular matters being examined (but see G 4.2.4.2).

B3.3

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Appendix C: Ascertaining the Cost of Head Office Overheads
C1 HEAD OFFICE OVERHEADS A contractor seeking direct loss and/or expense in relation to head office overheads will probably include some or all of the following: • • • • • • • • C2 C2.1 company offices, rents and rates; plant yards; running costs/maintenance costs of these units; directors’ and staff’s salaries, emoluments and allowances (estimating and sales staff should not be included); expenses, including office equipment, postage, telephones etc.; cost of travelling, including allowances for company’s motor cars etc.; professional legal and/or accountancy fees; and depreciation.

ESSENTIAL BACKGROUND INFORMATION Consider the method adopted by the contractor as policy in incorporating these costs in his tenders: • percentage; • lump sum(s) (specify how compiled); and • spread in rates of all items.

C3 C3.1

ASCERTAINMENT OF THESE COSTS Check: • time records or diaries which may indicate additional time spent with consequential financial disbursements (this should be time arising from relevant events over and above that which would have been spent on ordinary administration of the contract); • proof of payment made on all admissible items; and • details showing build-up of general head office costs at the relevant time or throughout any relevant period.

C3.2

For a contractor to succeed, it is recommended that the quantity surveyor is reasonably satisfied that: • time expended was additional to that reasonably to have been expected; • the extra costs have not been recouped in other ways (for example from set-off or other arrangements with sub-contractors); • any loss and/or expense sought has not been avoided by re-deployment of resources on other contracts; • additional costs have not been recovered through rates for measured works; • additional costs have not been recovered in dayworks; and • head office staff costs have not been recovered elsewhere.

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C4 C4.1

FURTHER CONSIDERATIONS FOR THE QUANTITY SURVEYOR At what stage in the contract did delays occur and what was the impact on head office costs? (The costs are unlikely to have been incurred until the end of original contract period.) While it is correct that the actual sum allowed in the contract price for head office overheads will not necessarily be expanded by the contractor until after the end of the original contract period, the contractor will actually incur the additional costs at the time of the delay and since it is likely that overhead recovery will be delayed as a result of the later execution of original contract work then the additional overheads could be payable before the end of the original contract period. What were the relevant events giving rise to delays under the conditions of contract? Were head office costs applicable to those events? To what extent was the head office involved in, for example, site visits, meetings etc.? Was there a need to employ additional head office staff whether or not a delay had occurred? How effectively did the firm employ staff on this contract as against other contracts that they were undertaking? What was the size of the contract in relation to the size of the firm and, therefore, the impact of the delay to progress on the business of the firm?

C4.2

C4.3

C4.4

C4.5

C4.6

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Appendix D: Checklist of Items for which Loss and/or Expense are Allowed
The contract clause numbers referred to in this form are from JCT 98
Contract clause number 26.2.1 Item Tick

The contractor not having received in due time necessary: instructions drawings, details; and levels for which he specifically applied in writing provided the date of application was neither unreasonably close to nor distant from the date the contractor needed them bearing in mind the date of completion Inspection – tests under clause 8.3: opening up for inspection any work covered up and making good testing of any executed work and making good unless inspection reveals items not in accordance with the contract Discrepancy or divergence between the contract drawings and/or the contract bills Execution of work (not forming part of the contract) by the employer or by persons engaged by him; failure by these parties to execute such work Postponement by the architect of any work to be executed under the contract After receipt of any notice the contractor is required to give, failure by the employer to give ingress or egress in due time to the contractor from the site of the works or any part thereof in the possession and control of the employer, in accordance with the contract bills/contract drawings: through or over land, buildings, way or passage adjoining or connected with the site through or over land etc. as last item as otherwise agreed between architect and contractor Instructions issued regarding expenditure of provisional sums except work being carried out as a PC sum by the contractor after submission of a tender for it, but excluding variations for which a clause 13A quotation has been accepted Execution of approximate quantity work where bills are not a reasonably accurate forecast

26.2.2

26.2.3

26.2.4

26.2.5

26.2.6

26.2.7

26.2.8

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Appendix E: Checklist of Steps Required when Considering Submissions by Contractor
The contract clause numbers referred to in this form are from JCT 98.
Contract clause number 26.1 Item Comments from the quantity surveyor Tick

The contractor has applied in writing stating: he has incurred/is likely to incur direct loss and/or expense not reimbursed by any other contract provision progress has been/is likely to be materially affected by the items listed in clause 26.2

26.1.1

The contractor has made application as soon as it was reasonably apparent that: the regular progress of the works/or part of the works has been/is likely to be affected the contract administrator has requested supporting details to enable an opinion to be formed

26.1.2

The contractor has upon request: supported the application with information to enable an opinion to be formed

26.1.3

The contractor has upon request: provided details of loss and/or expense to assist ascertainment The architect has: requested information from the contractor (26.1.2, 26.1.3) to form an opinion has ascertained/requested the quantity surveyor to ascertain the amount of loss and expense The architect has stated in writing: the extension of time granted (if any) from time to time during the contract the relevant event(s) for which it is given (clause 25) and more particularly defined in clause 26.3

25.3.4

A new completion date; not later than 12 weeks after receipt of this notice, sufficient particulars and estimate (where completion is less than 2 weeks distant, set a date not later than completion date)

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Appendix F: Further Reading
BOOKS
Chappell, David. Powell-Smith and Sims’ Building Contract Claims, 3rd Edition, Blackwell Science Ltd, 1998 Duncan-Wallace, I N. Hudsons Building and Engineering Contracts, 11th Edition, Sweet & Maxwell, 1995 Keating, Donald and May, Anthony Sir. Keating on Building Contracts, 7th Edition, Sweet & Maxwell, 2001 Parris, John. The Standard Form of Building Contract JCT 80, 2nd Edition, Collins, 1985 Powell-Smith, Vincent and Furmston, Michael. A Building Contract Casebook, 2nd Edition, BSP Professional Books, 1990 Trickey, G G and Hackett, M. The Presentation and Settlement of Contractors’ Claims, E & FN Spon, 2000

LAW REPORT SERIES
Building Law Reports Construction Industry Law Letter Construction Law Digest Construction Law Reports

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PART 4, SECTION 3

PART FOUR: CONSTRUCTION ADMINISTRATION AND MANAGEMENT
SECTION 3: THE MANAGEMENT OF RISK
Introduction
Risk is present in all projects and surveyors are routinely involved in making decisions which have a major impact on risk. Risk management is concerned with establishing a set of procedures by which risk is managed, rather than being dealt with by default. Major clients, such as Network Rail and BAA, already have formal procedures in place for managing risk. Other clients are likely to seek guidance from their professional advisers, which includes surveyors, on how best to deal with risk. The effective management of risk can only be achieved by the actions of the whole project team, including the client. The role of a risk manager is to facilitate input into the project management process such that risk is effectively dealt with. With further training, surveyors are well placed to undertake the role of risk manager. The role can be either full- or part-time, combined with other responsibilities on the project. The risk management process outlined in this section can be applied to any procurement route and to new build or refurbishment-based projects, regardless of cost or technical complexity. Risk management formalises the intuitive approach to risk which project teams often undertake. By utilising a formal approach, risk may be managed in a more proactive manner. Essentially, there are three steps to perform: • identification – collect the information available which might affect the achievement of an objective; • analysis – assess to what extent these aspects might affect the objective; and • response – review what can be done to limit this effect. In addition, there needs to be an overall management strategy such that this three-step process is implemented in a co-ordinated fashion. This strategy should include how risk management will be integrated into the project management process on a project. This section of the handbook provides an overview of the principles of risk management. The procedures outlined should produce a framework that can be utilised on the majority of construction projects. Surveyors who want to
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specialise in the application of risk management are advised to undertake further training in this area with a recognised training provider.

I

4.3.1 Definitions
In the context of this section of the handbook, risk management is considered to be a process for identifying, assessing and responding to risks associated with delivering an objective, for example, a construction project, and the focus is on commercial type risks. Health and safety related risks are likely to need separate consideration and the Health and Safety Executive (HSE) provide specialist guidance in this area. Definitions for key terms used in this section are: 4.3.1.1 Risk: An uncertain event which, should it occur, will have an effect on the achievement of the project’s objectives. A risk can be measured in terms of likelihood (probability) and consequence (impact). Risk management: A structured and auditable process for the benefit of all members of the project team which is dedicated to the sole purpose of controlling and mitigating uncertainty in a project. Risk identification: The utilisation of methods assessed as effective and appropriate (desk-top studies, interviews, brainstorming, etc.) to collate all the potential uncertainties in delivering an objective. Risk analysis: An adequate and effective assessment of the individual and combined effect of identified risks on the successful delivery of the objective. Risk response: An action to reduce either the probability of risk arising or the significance of its detrimental impact if it should arise. Risk management plan: An auditable document which describes the risk management approach (identification, analysis and response) to be adopted for a specific project or objective delivery and which states who should undertake it and when. Risk register: A document listing all the risks identified for the project, explaining the nature of each risk and recording information relevant to its assessment and management.

4.3.1.2

4.3.1.3

4.3.1.4

4.3.1.5

4.3.1.6

4.3.1.7

I

4.3.2 The rationale for risk management in the construction process
4.3.2.1 Surveyors will invariably be called upon to advise clients as to whether they should undertake risk management on their project. While the benefits of risk
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management may not be immediately apparent to clients, the direct costs of undertaking the process will be. 4.3.2.2 The demands of delivering a construction project are extremely onerous. The desire to deliver projects cheaper and faster, while moving closer to the boundaries of innovative design, all increase the risk profile of a project. In this respect risk is good, without it there would be no opportunity. It is the very presence of risk that represents the opportunity for a building project to go ahead in the first place. Furthermore, the actual impact of risk is unique to a project even though its presence may be commonplace. The risk management process may not be at fault just because risks were realised. Indeed, if no risks were realised, the effectiveness of risk assessment would be questioned because without risk there would be no opportunity. 4.3.2.3 Risk management is not a panacea and there are likely to be times when it may not be effective to practise all its facets. However, the delivery of any objective can be made more effective if the risks are fully appreciated. There is a need for appreciation of risk not just its analysis. The extent of analysis necessary is related to the extent to which the cumulative effects of risks can be appreciated. Risk management, together with other services provided, should be flexible, adapting to the circumstances of the client’s needs and the project. Some clients require a snapshot of the risks at the outset of the project, with an initial risk assessment, the provision of a one-off risk register and a quick estimate of the combined effect. Other projects may require a full risk management service with risk being continually addressed throughout the project. A concern often voiced by clients is how to quantify the benefits of risk management. Since risk management has a major emphasis on reducing potentially detrimental effects, it is not usually politic to demonstrate its effective application as having minimised the impact of cost overrun to, say, 15%. THE RECOGNITION OF UNCERTAINTY By undertaking risk management, it is possible to ensure that clients appreciate just how sensitive their projects are to changing circumstances. This leads to: • increased confidence in achieving the project objectives and therefore improved chances of success; • ‘surprises’ being reduced, such as cost and/or time overruns and/or forced compromises of performance objectives. These surprises usually result in ‘fire fighting’ and the ineffective application of urgent remedial measures;
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• identification of opportunities as risks are diminished, perhaps by relaxing overcautious practices such as duplicating insurances or seeking performance bonds unnecessarily; • all ranges of parameters which might affect the project being incorporated, rather than a single-point estimate (for example, the cost for bricks can be between £200 and £300 per 1000 rather than £225); and • the team recognising and understanding the composition of contingencies, thus avoiding duplicating any allowance already made.
4.3.2.7 JUSTIFIABLE DECISION MAKING Risk management allows decision making to be based on an assessment of known variables. Judgement can become far more objective and justification for action (or inaction) demonstrable both at the time and at a later date, should it be questioned. There are a wide range of techniques which can be utilised to facilitate effective decision making. The use of risk management provides an audit trail which can be used should problems occur during later stages of the project. 4.3.2.8 TEAM DEVELOPMENT During risk management workshops a ‘snapshot’ of what might happen to the delivery of a project is taken. During the workshops the project team discusses its concerns and agrees a common way forward. As with other types of facilitated workshops, such as value management, this benefit alone can justify undertaking risk management. The advantages are: • it facilitates team development; • it is a communication tool; • it opens up discussion on what could go wrong without fear of penalty; • it acknowledges but transcends contractual restrictions; • it challenges preconceptions; and • it affirms the project procedures. 4.3.2.9 In summary, to fully realise the benefits of risk management, certain principles should be understood and appropriately applied: • risk management is an awareness of uncertainty; • awareness of uncertainty can lead to positive attributes if recognised early enough; • risk management will add both direct and secondary benefits to the delivery of any objective; • the management of risk should not remove incentive; • allocation of risk is to be gauged by the various parties' abilities to bear and control that risk; • complete transfer of risk is rarely wholly effective; • information about and perception of a risk are fundamental to its assessment and acceptance; and • all risks change with time and any action (or inaction) taken (or not taken) upon them.
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4.3.3 The risk management process
There are three basic steps to the risk management process; identification, analysis and response. These three steps are iterative in nature and it is this iteration which constitutes risk management.

The risk management process

4.3.3.1

A risk cannot be managed effectively unless it is identified. The earlier a risk is identified, the more time is available for analysis and the development of a suitable response. Although the process is linear it does allow for iteration and is designed to be proactive. Unfortunately, most risk is still dealt with in a reactive manner where a response has to be devised and implemented as soon as the risk arises. This reactive response does not allow any time for identification and analysis and the right response may not always be implemented. The risk management process also needs to be integrated into the project management process. Since any risk management workshop or assessment is a snapshot in time, the process has to be undertaken on a repetitive basis. Essentially, the risk management process should be commenced as early as possible in a project life cycle and each of the three stages repeated as necessary to effectively manage the risks associated with that project. At the start of the process a risk management plan should be developed. The risk management plan is similar in nature to the project execution plan and may form part of that document. RISK IDENTIFICATION The identification stage should commence as early as possible, preferably as part of any feasibility study for the project. One of the key principles is that the identification of risks should be undertaken at various stages of the project life cycle. Identification is not just undertaken at the start of the project and then simply monitored during construction. The construction phase itself will generate new risks and the project team is expanded by new members in the form of trade contractors who can bring additional information to the risk identification process. (a) Methodology (i) Structured identification of all sources of risk to the project The risk management process is based on the concept of providing a structured approach to dealing with risk. It may seem obvious that ground

4.3.3.2

4.3.3.3

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conditions are one source of risk, but how would this impact on other risks that might be identified on the project? It is this inter-relationship between risks that can only be drawn out through the use of a structured workshop and identification methods where the whole project team have the ability to contribute. (ii) Preliminary analysis to establish probable major risks for further investigation The identification stage is designed to prompt team thinking and to bring out all possible risks that might impact on the project. Several hundred risks could be identified and the team may not have time to analyse and develop responses to them all. It is normal during the identification stage to begin by sifting and removing those risks which the team feel are not worth investigating further. (iii) The true risk needs to be identified. Risks are caused by background conditions which are essentially ‘givens’ e.g. location of site. If the risk does occur it will affect the project. This is shown diagrammatically below.

Cause, risk and effect It is all too easy to mistakenly manage the effect rather than the risk itself. By identifying and managing the true risk, effort is expended managing the risk rather than the effect. (b) Techniques (i) Research While exactly the same project will not have been executed before, something similar will have been. Investigation into projects on neighbouring sites or projects previously undertaken by the client should be instigated. (ii) Structured interviews/questionnaires Interviews with key members of the project team (including client and suppliers) will elicit the greatest insight into risks to the project and how they are perceived by individuals. Interviews allow a greater depth of understanding to be achieved than group discussions but do take up a lot of time.
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(iii) Checklists/prompt lists A simple and effective way to stimulate the team into thinking about risk is to use a checklist. An easy way to start a checklist is for each team member to write down all the variation orders on their last project, with the reasons for their issue. (iv) Brainstorming in a workshop environment Bringing the team together in a focused workshop creates a powerful environment in which to discuss risk. The team can have a better understanding of how each member perceives risk differently. One important aspect of such workshops is that lateral thinking is encouraged. The workshop gives the team an opportunity to experiment with different viewpoints which individuals might normally reject out of hand if working alone. (v) Risk register A risk register is probably the most useful tool in the risk management process. It enables risks to be logged and tracked through the life of a project. While a risk register can be maintained by hand, it is much more useful to use a computer spreadsheet package. This allows the information to be sorted into different categories. Specialist risk management software is also available which integrates the risk register with risk analysis tools. An example of a risk register is shown in figure 1. The example is very generic in nature and additional information may be shown, such as who is responsible for undertaking actions in response to the risk and by when. Typical column headings for a risk register are: • Risk number – a unique identifying number for the risk. • Risk description – a written description of the risk. • Ownership – who is responsible for the management action in responding to the risk. • Probability – how likely is the risk to occur. • Impact – what happens if the risk does occur. • Risk factor – probability multiplied by impact. • Response – what actions need to be taken to deal with the risk. • Status – the status of the risk can be shown as: – done: the risk has arisen and been dealt with; – active: the risk is currently being managed; and – monitor: the risk has been identified but no analysis or response has yet been developed for it. • Comments – allows notes to be kept on the risk. The probability and impact of the risk can also be shown; the importance of these factors is discussed in 4.3.3.4(a). Finally the response to the risk can be shown. The risk register is a very useful format for showing a wide range of information in the risk management process. If the register is placed on a
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Figure 1: Typical Risk Register

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computer spreadsheet it is easy to sort the risks in a variety of ways, for instance by category or magnitude of probability. The risk register allows risks to be logged but can also display additional information linked to the project management process. It is also possible to place identified risks into categories, for example, ‘client control’. In figure 1 six categories are shown, but these can be altered to suit the circumstances of each project. The use of categories allow risk to be bundled together and can help responses to be tailored to deal with a category, rather than an individual risk. (vi) Database of historic risks Experience is a ‘great teacher’ and the provision of a risk register allows information to be stored in a convenient format ready for use on the next project. The benefit of historical risk registers is that you know if a risk actually occurred and whether the appropriate response was set in place. The historic database should be used as a starting point in the risk management process, but although it may save some time in the identification stage, this stage cannot be completely omitted. 4.3.3.4 RISK ANALYSIS The analysis stage is concerned with trying to achieve a better understanding of the nature of the risks identified during the previous stage. (a) Methodology (i) Analysis of risks to assess the severity of impact and the probability of occurrence Risks have two dimensions: • probability – this is the likelihood of the risk occurring and is generally expressed as a percentage; and • impact – if the risk did occur what impact would it have on meeting the project’s objectives. For each of the risks identified, its probability and impact should be assessed, normally in a workshop environment with key stakeholders present. Before the risks can be entered onto the risk register, a scale should be set for the probability and impact dimensions. Setting a common scale will ensure a consistent approach to placing newly-identified risks on the matrix at a later stage in the project life cycle. An indicative layout for defining scales is shown in figure 2. While the probability scale shown in figure 2 may be utilised for any project, the impact scale should be set for each project. In figure 2 the cost and time impacts are shown as a percentage of the original cost and time. Hence a very high impact would mean the cost of the project would increase by more than 50% of the original budget.
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Figure 2: Scoring of probability impact scales

PROBABILITY Cost Very high High Medium Low Very Low 70% – 95% 50% – 70% 30% – 50% 10% – 30% 5% – 10% > 50% 20 – 50% 10 – 20% 5 – 10% < 5%

IMPACT Time > 50% 20 – 50% 10 – 20% 5 – 10% < 5%

Although time and cost impacts have been shown separately it is possible to combine them, or to use other criteria such as performance. Again, the scale should be set according to the needs of a project. Once set the scales should not be changed during the life of a project. This allows risks to be compared on a common scale throughout a project and for the risk profile of a project to be accurately monitored. A higher level of sophistication can be applied to the ranking of the risks on the probability/impact matrix. By assigning generic units to a matrix, the relative importance of each cell can be seen, as shown in figure 3.
Figure 3: Example of weighting of probability and impact scales

The method of having the probability scale linear and the impact scale non-linear emphasises the significance of low probability/high impact risks. The matrix allows each risk to be ranked and compared on an even basis. Where resources are scarce it also allows attention to be focused on those risks which sit in the high-risk category of the matrix. Once assessed, plotting risks on to a matrix, as shown in figure 4, indicates very quickly those risks which require detailed consideration and those which only need a cursory glance. So, a risk with a high probability of occurring, which does occur, would have a very high impact on the project and would require detailed consideration. This allows the right amount of resource to be
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used in managing risk. The risk ID numbers from the risk register in figure 1 have been plotted in figure 4 to demonstrate the principle more thoroughly.
Figure 4: Mapping risks onto the probability/impact matrix

The probability/impact matrix (figure 4) allows a risk profile for a project to be developed. For instance, if most of the risks are plotted in the top left section of the matrix it indicates a high-risk project. This matrix is very useful for providing a graphical representation of the risk on a project. The risk management strategy is to manage these risks proactively through the project life cycle. During later risk assessment exercises, the profile should show risks plotted more in the bottom right section of the matrix. (ii) Synthesis of all risks to predict the most likely project outcome Risk tends to have a ‘knock-on’ effect and so it is important to consider not only the effect of individual risks but their cumulative effect as well. (iii) Investigation of alternative course of actions Analysis allows for different scenarios to be developed to provide a high degree of confidence that the appropriate course of action has been chosen. The alternative courses of action may be plotted on the probability/impact matrix to obtain a clearer understanding of their relative merits in relation to the risk profile. (b) Tools and techniques The probability/impact matrix is the easiest technique to use and allows all project team members to participate in the process via a risk workshop. More sophisticated tools and techniques may be applied to provide a better understanding of the identified risks. There are a wide range of such tools and techniques available, many of which are supported by computer software packages:
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• Monte Carlo simulation modelling of cost and time risks; • cost movement forecast; • decision trees; • sensitivity analysis;. • hard/soft money analysis; • ‘what if?’ analysis; • influence diagrams; • simulation packages; • multiple estimate risk analysis (MERA); • spider diagrams; • multi-decision criteria analysis; • linear regression; • spreadsheets; and • flowcharts.
It is not possible to provide an explanation of all the tools and techniques available. However, further information can be obtained from one of the texts in the further reading section (appendix A). 4.3.3.5 RISK RESPONSE The analysis stage provides the team with a better understanding of the risks. The next stage is to develop a response to those risks. (a) Methodology (i) Choose the appropriate course of action The principle is to choose the right response based on available information. It might be that the response changes with time as more information becomes available. The response will generally fall into one of the following categories:

• • • •

avoid; transfer; mitigate; and control.

An important point to consider when developing responses concerns the generation of secondary risk. When a response is proposed, its full implications should be assessed to ascertain if a secondary risk arises out of implementing the response. If the sum of the secondary risk plus the reduced risk (the original risk with the response in place) is greater than the original risk, then an appropriate response has clearly not been identified and an alternative should be found.
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Figure 5: The creation of secondary risks

(b) Tools and techniques The techniques available are primarily integrated with the project management process, for example:

• contract acquisition plan; • contingency management; and • project controls.
The tools available are not usually related purely to risk management. For instance, most surveyors would recommend to their clients that the contractor has third party insurance for the project. This is a risk management response designed to reduce clients’ exposure to claims for damages if a particular incident were to occur. This is a risk management tool, although most surveyors would consider it to be common project procedure. Typical tools available are:

• • • • • • • •

insurances/bonds/warranties; contingency plans; forms of contracts; contingency drawdown models; special cost schedule allowance; earned value analysis; resource levelling; and training.

All responses to risks that are put in place should be managed. This should form part of the project management system. Unless responses are effectively managed, the whole risk process fails. Until a response is actioned, the risk may still occur, regardless of how well it has been identified and analysed.

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4.3.4 Summary
In conclusion, the key components of a risk management strategy are: • identify staff and resources assigned to the risk management process; • define lines of reporting and responsibility for the risk management process; • link the risk management plan to other project tools such as safety (including CDM), quality and environmental management, and planning and reporting systems; • consolidate all risks identified into an appropriate and digestible response strategy in order that cumulative effects can be perceived; • state risk audit intervals and key milestones; • include risk milestones in project plan; • identify possible response strategies and programmes for each risk category including contingency plans and how to handle new or unresolved risks; • assess cost involved; and • monitor success of responses strategies and produce feedback for reporting into future projects.

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Appendix A: Further reading
Akintoye, A. et al., Local Authority Risk Management and the Private Finance Initiative, Royal Institution of Chartered Surveyors, London, 1999 (ISBN 0 85406 990 9) Akintoye, A. et al., Public Private Partnerships: Managing Risks and Opportunities, Blackwell, Oxford, 2003 (ISBN 0 63206 465 X) Boothroyd, C. et al., Risk Management: a Practical Guide for Construction Professionals, Witherby Publishing, London, 1996 (ISBN 1 85609 120 1) BSI, Project Management. Guide to the Management of Business Related Project Risk (BS 6079–3:2000), British Standards Institute, London, 2000 (ISBN 0 580 33122 9) Chapman, C. and Ward, S., Project Risk Management: Processes, Techniques and Insights, John Wiley and Sons, Chichester, 1997 (ISBN 0 47195 804 2) Edwards, L., Practical Risk Management in the Construction Industry, Thomas Telford, London, 1995 (ISBN 0 72772 064 3) Flanagan, R. and Norman, G., Risk Management and Construction, Blackwell Scientific Publications, Oxford, 1993 (ISBN 0 63202 816 5) Godfrey, P. S., Control of Risk: a Guide to the Systematic Management of Risk from Construction (SP125), CIRIA, London, 1996 (ISBN 0 86017 441 7) Smith, N. J. et al., Managing Risk in Construction Projects, Blackwell Science, Oxford, 1998 (ISBN 0 63204 243 5) Taylor, M., Avoiding Claims in Building Design: Risk Management in Practice, Blackwell Science, Oxford, 2000 (ISBN 0 63205 326 7) Tweeds, Laxton’s Guide to Risk Analysis and Management, Laxton’s/Butterworth-Heinemann, Oxford, 1996 (ISBN 0 75062 973 8)

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PART FOUR: CONSTRUCTION ADMINISTRATION AND MANAGEMENT
SECTION 4: VALUATIONS FOR INTERIM CERTIFICATES
Introduction
Many construction projects require interim payments to be paid to a contractor. This is in order to relieve the contractor of the burden of financing the whole of the works until completion; works which may take many months or years to complete. The purpose of valuations is to provide advice to the certifier on a construction project (usually the architect) for the issue of interim certificates. The certificates issued by the certifier to the contractor are then presented by the contractor to the employer who pays the contractor on an interim or instalment basis. Within each contract there will be clauses which set out the criteria under which interim payments will be made, the timing of these payments and the administrative rules under which quantity surveyors, architects, employers and contractors must operate. In many contracts, whilst the completion and calculation of the value is important, the method and procedure of the interim payment which the contractor receives is equally as important. This section of the handbook provides guidance to surveyors carrying out such valuations.

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4.4.1 Valuations
An interim valuation involves a revaluation of the whole work, not the work done since the last certificate was issued. The valuations should be treated almost as ‘mini final accounts’ as they generally reflect all the matters and items which appear in a final account. Interim valuations may now be subjected to the same scrutiny as final accounts as they may be the subject of adjudication provisions in contracts and per se are required to be compiled with care. The valuation must be a realistic assessment. A low valuation creates unreasonable financial problems for a contractor whereas a high valuation creates a risk to the employer of paying sums for which he or she obtains no benefit.

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The quantity surveyor’s purpose is to assess value as distinct from cost, particularly with reference to prices of certain items, for example temporary works. The quantity surveyor carrying out the valuation must be aware of the overall position of any valuation within a project; to assess what remains of the anticipated final contract value after each valuation and ensure that within the terms of the contract this will be adequate to complete the works. This action is particularly valid towards the end of the contract.

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4.4.2 Assumptions
It has been assumed throughout this section of the handbook that the interim valuation by the quantity surveyor is provided for the benefit of an architect: the person who certifies the amount of the valuation to the employer. Under JCT contracts that person is normally the architect but could be referred to as the contract administrator. This section has been prepared from the standpoint of a quantity surveyor acting for an employer, assuming normal terms of appointment. A basic checklist of actions necessary for practicing quantity surveyors is provided below. However, it should be noted that any specific directives within the quantity surveyor’s own organisation (such as those within quality assurance schemes) should supplement this advice. 4.4.2.1 JCT FORM OF CONTRACTS Most quantity surveyors carry out interim valuations under a JCT Form of Contract. Therefore, this section is based on the JCT Standard Form of Building Contract With Quantities 1998 (JCT 1998 With Quantities). This contract is only intended for use where the client has engaged a professional consultant to advise on and to administer its terms. It is recognised that there are differing methods of procurement and differing forms of contract being used. However, the principles set out here will remain valid. Variations required for different contract terms will be noted later. 4.4.2.2 ROLE OF A QUANTITY SURVEYOR PAYMENTS
IN

CARRYING OUT VALUATIONS

FOR INTERIM

This section of the handbook assumes that the quantity surveyor has normal terms of appointment and the relative roles of the quantity surveyor carrying out a valuation for an employer under a normal JCT contract. The guidance in this section is equally relevant to a quantity surveyor acting for a contractor who will be required to produce valuations in similar circumstances to that of a quantity surveyor acting for an employer.

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4.4.2.3

DEFINITIONS Quantity Surveyor This refers to a valuer acting independently for an employer and carrying out a valuation under a JCT 1998 contract. In this section the quantity surveyor may be a quantity surveyor acting for an employer or a quantity surveyor acting for a contractor. This generally refers to an architect acting for an employer or, if the local authorities version of the JCT contract is used, a contract administrator. The client as used in JCT 1998. In JCT 1998 With or Without Quantities the contractor is assumed to be a main contractor who may be asked to employ nominated sub-contractors or request permission to sub-contract portions of work to domestic sub-contractors.

Architect

Employer Contractor

4.4.2.4

LEGISLATION The requirement to provide stage or interim payments is now contained in the Housing Grants and Reconstruction Act 1996 where it is stated in Section 109 that, ‘A party to a construction contract is entitled to payment by installments, stage payments or other periodic payments for any work…’ Parties to the contract are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they become due. Section 110 of the Act states that every construction contract shall provide an adequate mechanism for determining what payments become due under the contract and provide for a final date for payment in relation to any sum which becomes due. Section 111 states that a party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless an effective notice of intention to withhold payment has been given.

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4.4.3 Valuation Under a JCT Contract: Background
The current JCT contract (and the one referred to in this part of the section) is the JCT Standard Form of Building Contract With Quantities 1998 (JCT 1998 With Quantities). JCT 1998 With Quantities contains the right of the contractor to interim payments at clause 30 (Certificates and Payments). Clause 30.1.1.1 states that, ‘The Architect shall from time to time ... issue Interim Certificates

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stating the amount due to the Contractor from the Employer specifying to what the amount relates and the basis on which that amount was calculated.’ Clause 30.1 also sets out a timescale for payment and the right of the contractor to interest if the timescale is not adhered to by the employer. The employer has to advise the contractor of the amount which he or she is due to be paid and the amount of, and reason for, any deduction to that payment. Clause 30.1.2.1 states, ‘Interim valuations shall be made by the Quantity Surveyor whenever the Architect considers them to be necessary for the purpose of ascertaining the amount to be stated as due in an Interim Certificate’. Clause 30.1.2.1 allows the contractor to submit an application for payment to the quantity surveyor which should set out what the contractor considers to be the amount of the gross valuation. The quantity surveyor, in response to the contractor’s submission, ‘shall make an interim valuation’. It is essential that the quantity surveyor makes and issues a valuation even if the interim payment calculation is zero. Under clause 30.1.3 the dates for the first and subsequent interim certificates are set out in the Abstract of the conditions. Clause 30.2 states how the amounts due in an interim certificate are to be ascertained. It follows that any interim valuation prepared by the quantity surveyor should follow the same method as that for an interim certificate. In clause 35.13 it is stated that the architect shall direct the contractor as to interim payments to nominated sub-contractors. The ascertainment of amounts due to nominated sub-contractors are calculated in accordance with clause 4.17 of the JCT 1998 Nominated Sub-Contract Conditions (NSC/C). Clause 4.17 contains step-down provisions similar to clause 30.2 of JCT 1998 With Quantities and the works of nominated sub-contractors are assessed in the same manner as that of the main contractor.

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4.4.4 Recommended Action at the Start of a Contract
4.4.4.1 CONTRACT REQUIREMENTS (i) Check that the architect requires regular valuations for interim certificates and refer to the contract for the frequency; Note whether there are any ad hoc amendments made to the standard form of contract that have a bearing on interim certificates; and Prepare a job progress chart and cash flow forecast ready for checking against the value of work completed at successive valuations.

(ii)

(iii)

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4.4.4.2

EMPLOYER’S REQUIREMENTS (i) Check that the programme of valuations and certificates matches the employer’s programme of payments; Confirm the programme of valuations and certificates with the architect; and Check whether the employer requires valuations to be built up under various headings.

(ii)

(iii)

4.4.4.3 GENERAL ADMINISTRATION (i) Obtain a breakdown of preliminaries from the contractor (if not previously supplied); Note any adjustments to the contract price made in the summary of the bills of quantities or elsewhere; If not already detailed, establish which preliminaries are one-off expenditure items and which are related to time or to value of work done; similarly, with the items in the summary of the bills of quantities; Where there are to be fluctuations, refer to 4.4.9.3 of this section; and Calculations made in the course of the interim valuation should be set out in a clear form and retained for future reference. Any details which are applicable to the final account should be collected together as a running record.

(ii)

(iii)

(iv) (v)

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4.4.5 Communications
4.4.5.1 PRELIMINARY DISCUSSIONS WITH THE CONTRACTOR (i) Agree with the contractor the programme of valuations decided with the employer, in line with the employer’s arrangements for payment; Arrange a procedure for the receipt and verification of invoices, daywork sheets and other supporting information. Remind the contractor that you will be keeping/organising a close watch in the monitoring and checking of daywork and labour returns, and that your own records will be kept. Stipulate that the provision of the contract for submitting daywork records (clause 13.5.4) must be seen as representing the latest permissible time for submission; and Agree the basis on which preliminaries and sums in adjustments to the tender (and/or in the correction of errors) will be incorporated into valuations.

(ii)

(iii)

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4.4.5.2

PRELIMINARY DISCUSSIONS WITH THE CONSULTANTS (i) Provide the consultants responsible for preparing valuations for specialist work with details of the interim valuations programme and agree deadlines for the consultants submission to you; and Arrange with the architect a detailed procedure for recording the contractor’s resources on site. Obtain the architect’s agreement that you set up this procedure, including briefing and controlling the clerk of works in this respect. Remind the architect that he or she (or authorised deputy) has responsibility for verifying daywork.

(ii)

4.4.5.3

PRELIMINARY DISCUSSIONS WITH THE NOMINATED SUB-CONTRACTORS (i) Inform the nominated sub-contractors of the valuations programme and make arrangements for the valuation of their work (the evaluation to be made by you, or by the consultant (vetted by you) in the case of specialist work where a specialist consultant is appointed).

4.4.5.4

PRELIMINARY DISCUSSIONS WITH THE CLERK OF WORKS (i) Impress on the clerk of works (or site engineer or any person to whom the responsibility has been given to record contractor’s resources, time, materials, plant, etc.) that diligence and accuracy in checking on resources used is crucial and that, therefore, he or she must keep a reliable daily record. Inform him or her that you will be visiting the site to make spot checks unannounced; Acquaint the clerk of works with the valuation dates programmed. Request that you are notified of all items of work likely to become hidden so that you can ensure that records are made, ready for measurement; and Arrange with the clerk of works to receive his or her labour record (which is required for checking wages fluctuations).

(ii)

(iii)

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4.4.6 Approach
4.4.6.1 METHOD (i) The method of approach for preparing the valuations should be determined by the quantity surveyor after consideration of all the employer’s, contractor’s and architect’s requirements; The format for the valuations will be suited to the particular project, and for measured works, the format of the bills of quantities (for example, separate buildings, elements, trades) may well determine the order of sections that best suits the contract basis (for example, grouping as that required for fluctuations);
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(iii)

In approaching each valuation, the quantity surveyor should note first in general terms the position of the particular valuation in relation to the overall project and the progress that has been made relative to the forecast of payments; and The quantity surveyor should ensure that backup information and documentation which he or she requires from the contractor is available in time for each valuation.

(iv)

4.4.6.2 CONTRACTOR’S SUBMISSION (i) The JCT 1998 With Quantities allows the contractor to submit an application for payment to the quantity surveyor; The format in which the contractor presents his or her valuation should be agreed in the same manner as detailed earlier in 4.4.5.1 and 4.4.6.1 of this section. Whilst the format which the contractor uses will, in normal circumstances, be pre-agreed, there is no requirement for the contractor to use an agreed format. However, it is necessary for the quantity surveyor to respond to the contractor’s submission in the same detail as that used by the contractor; and (iii) The contractor has the opportunity when submitting his or her valuation to include with it all the relevant documentation. Agreement should be made with the contractor at the outset of the contract that he or she must submit this documentation at the same time as his or her valuation.

(ii)

4.4.6.3

SITE VISIT (i) It is important (and necessary) to visit the site of the works. First, to assess the overall progress of the works and, secondly, to assess the various aspects of the valuation in detail. It is also necessary to assess the materials on site for incorporation in the works. The details and quantities should be checked.

4.4.6.4

DETAIL OF VALUATION (i) It is important to detail the calculations made to assess the interim valuation and to retain these calculations for future reference; When the valuation is complete, sufficient calculations should be supplied to the contractor in order for him or her to understand how the valuation was calculated. It is good practice for the contractor to be in attendance when the quantity surveyor is carrying out the valuation so that most of this information will be known to him or her;

(ii)

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(iii)

It is important for the contractor to be aware of these calculations, particularly the calculation of the amounts in respect of work which he or she has sub-contracted; and If the contractor has made a submission under clause 30.1.2.1 of the contract, the quantity surveyor must respond to the contractor’s submission in the same detail as was supplied by the contractor.

(iv)

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4.4.7 Content of a Valuation
4.4.7.1 A valuation is likely to consist of the following elements (although not all of these elements will be found in every valuation): Work Executed Measured Work Approximate Quantities Preliminaries Sub-Contracts – Nominated Sub-Contracts – Domestic Suppliers Variations Dayworks Materials – On Site Materials – Off Site Fluctuations Loss and Expense Special Payments Deductions 4.4.7.2 WORK EXECUTED (a) Measured Work Work under this category relates to work included in the tender documents and, subsequently, the contract as measured either in bills of quantity format or schedules, or descriptions of work items. Include an assessment of the work properly executed using rates within the bills of quantities. Consider whether an adjustment shall be made to the rates where the item is partially executed, allowing for the location of the work and for inflation if it is a fixed price contract. This assessment will normally be carried out using rates within the bills of quantities. However, where the item is only partially executed, adjustment to the rates will be necessary having due regard to the location and circumstances of the work.

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(b) Approximate Quantities During the construction the quantity surveyor should take regular measurements in respect of work for which there is an approximate quantity in the bills. If measurements are taken regularly, the quantities for these items will be up to date and available for valuations, or to check against the contractor’s submission. The rates for the work are contained in the bills and adjustments made in valuations as described in 4.4.7.2 (a) for partially completed work. (c) Preliminaries From the detail of preliminaries items (see 4.4.4.3 (i)) include one-off payment items as circumstances dictate. Assess items which are related to value, including those items which appear in the summary of the bills of quantities. Assess time-related items in relation to the programme. Consider adjustments where the contract is behind schedule. Preliminary items should be further divided into set-up, running and removal costs where appropriate. (d) Sub-Contractors – Nominated The work carried out by nominated sub-contractors should be assessed in the same way as the main contract works. The work represented in the categories Measured Work and Approximate Quantities, together with Variations to Special Payments are equally applicable to nominated sub-contracts and should be considered as part of the nominated sub-contract work values. They should not be included with the main contractor’s value headings. (e) Sub-Contractors – Domestic Under JCT 1998 With Quantities the contractor is permitted to sub-contract with his or her own choice of sub-contractor (defined as domestic subcontractors in the contract). However, work carried out in a project by domestic sub-contractors may comprise a substantial proportion of the whole of the works. The contractor will provide the quantity surveyor with documentation from the domestic sub-contractor as part of his or her substantiation of the valuation. The quantity surveyor must ensure that the detail and information provided from this source is in the terms of the main contract and not the values which occur in the contract between the contractor and domestic sub-contractor as these values may be different.
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(f) Suppliers The value of goods on site supplied by nominated suppliers should be included at the rates stated in the nomination. Invoices confirming the values should be obtained and the relevant discounts checked. 4.4.7.3 VARIATIONS It is not possible to cover all the required information on variations within this section. However, the following simple rules should be followed: (i) Only variations properly instructed under the terms of the contract should be included in a valuation. The valuation of variations is described in clause 13 of the Conditions of Contract. For simplicity, variations have been categorised in accordance with the following: • Pre agreed – where the variation has been agreed both in terms of content price and time before being instructed. • Agreed in terms of price but not in terms of effect on the contract. • Instructed to be carried out and to be evaluated in terms of the contract. • Items identified by the contractor as variations but not instructed by the architect at the time of valuation. All variations should be identified in the quantity surveyor’s valuation in a separate section so that they can be easily identified. Items pre-agreed in all facets – for the purposes of valuations items in this category are easily dealt with by following the rules for valuation under Work Executed. It is relevant to keep the variation items separate even if the work within the variation is the same as that within Measured Work. Items agreed in terms of price but not in terms of effect on the contract – the price for work in this category, having been agreed, can be dealt with as for pre-agreed items. The quantity surveyor has to seek further information from the architect and contractor regarding effect on contract. There may be no easy answer in respect of this item. Instructed to be carried out and to be evaluated in terms of the contract – the variation must be evaluated in terms of the contract (clause 13) and the rules are set out in that clause. The quantity surveyor must seek agreement with the contractor for the way in which any variation is accounted for at an early stage. Remember, the contractor will be seeking to maximise his or her interim recovery in respect of the item until final agreement is reached. In an ongoing situation the contractor will be basing his or her level of recovery on the amount which he or she is having to pay out and for an interim valuation the quantity

(ii)

(iii)

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surveyor should seek from the contractor the same information, invoices, etc. so that he or she can make a judgement using the same information. Contractor’s price statement – an alternative to evaluation of an architect’s instruction or of an approximate quantity, which the contractor is free to adopt, is for the contractor to submit a ‘price statement’ within a prescribed timescale. The contractor’s price in this statement must be based on the provisions of clause 13.5 of the contract and then, if the price statement is accepted, when the work related to the instruction is being carried out, appropriate amounts will be included in interim valuations. If the price statement is not accepted, the instruction is evaluated in the normal way. A price statement may include loss and expense or the price may be accepted without an assessment of the effect on the contract. The quantity surveyor should be aware of the content of any price statement before including it in an interim valuation. (iv) Clause 13A quotation When the architect issues a variation instruction it is at the employer’s option to ask the contractor to submit a clause 13A quotation on the premis that after a suitable timescale the instruction may not be ratified and thus falls. If accepted, a clause 13A quotation becomes an instruction with an agreed price for the scope of work represented by that instruction. Care should be taken by the quantity surveyor when including the value or part of the value of the clause 13A quotation in an interim valuation as it may include loss and expense as part of the evaluation of the variation instruction, together with the cost of preparing the quotation. 4.4.7.4 DAYWORKS Include dayworks only if they are prepared in accordance with clause 13.5.4 of the contract and verified by the architect. If dayworks are to be included, check that the percentage additions to prime costs are in accordance with those quoted in the contract documents. 4.4.7.5 MATERIALS – ON SITE Include materials on site in accordance with the provisions of clause 30.2.1.2 of the contract. Value materials at current rates where it is a fixed price contract under clause 38.

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Value materials at base rates where it is a fluctuating price contract under clause 39. Value materials at current rates where it is a fluctuating price contract under clause 40. 4.4.7.6 MATERIALS – OFF SITE The value of materials or goods intended for the works but stored off site are not included in interim valuations except those which were noted as ‘the listed items’ prior to the contract. Clause 30.3.1 of the contract states that the property in uniquely identified listed items must be demonstrated by the contractor to the architect to be vested in the contractor. Where the items listed are not uniquely identified the contractor must provide evidence of vesting. The means by which the contractor supplies ‘reasonable proof’ of ownership is explained by a special note in the guidance notes which accompanied the publication of Amendment 18 to JCT 80 (see Appendix B of this section of the handbook). A bond (details of which are set out in Annex 1 to the appendix to the contract) is provided by the contractor if required by the contract. Clause 30.3.4 sets out the conditions under which the materials are to be stored before payment is included in a valuation. The quantity surveyor may be asked by the architect to view and assess the materials off site. If so, the quantity surveyor should ensure that all the relevant conditions have been met before including the value of the materials or goods in the interim valuation. 4.4.7.7 FLUCTUATIONS Where there are to be fluctuations these should be added as described in 4.4.7.3 of this section of the handbook (or deducted, if appropriate (see 4.4.7.10 (e)). 4.4.7.8 LOSS AND EXPENSE Loss and expense may be included within an interim valuation. The basis of the loss and expense in a contract must be established before any monies are included in an interim payment.

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4.4.7.9

SPECIAL PAYMENTS Within the terms of the contract there may be other costs which are required to be added into the valuation. Examples of special payments include: • Clause 6.2: Statutory fees and charges – fees and charges detailed in this clause shall be added to the contract sum only under the conditions outlined in clause 6.2. • Clause 8.3: Inspection and tests – the cost for this work, together with making good, is to be added to the contract sum if the tests show that the works or materials being tested are in accordance with the contract. • Clause 9.2: Royalties – where, in compliance with the architect’s instructions, the contractor is liable to pay royalties or other monies for patent rights, these royalties are added to the contract sum. • Clause 21.2.1: Insurance – the premiums incurred by the contractor to affect 21.2.1 insurance (which is a joint insurance indemnifying against injury or damage to adjoining buildings which are not the property of the employer) are included in interim valuations.

4.4.7.10 DEDUCATIONS (a) Retention Retention should be deducted from the gross valuation at the rate stated in the contract. The gross valuation is calculated in the total derived in the categories referred to above (Work Executed to Special Payments). Retention is applied in terms of the contract. Clause 30.4 sets out the rules for ascertainment of retention and clause 30.2.1 clarifies the items. The items described in the categories Work Executed to Materials – Off Site are subject to retention; Fluctuations is generally subject to retention; Loss and Expense is excluded from the retention calculation; and the items detailed in Special Payments (statutory fees and charges) are not subject to retention. For retention at practical completion or partial possession see 4.4.7.10(c) below. (b) Work not properly executed The architect should advise the quantity surveyor in writing of work which, although having been carried out, is not in accordance with the contract. The value in the contract for this work should not be included within an interim valuation. The quantity surveyor, when compiling his or her valuation, assumes that all work completed is in accordance with the contract. It therefore follows that he or she must then deduct the value of work which is not.

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The quantity surveyor should compile a list of the work and values deducted and include the list with the notes passed to the contractor. The previous two paragraphs assume that, in deducting for work which is not in accordance with the contract, the work will require to be redone or amended in accordance with the contract. However, under clause 8.4.2 the work not in accordance with the contract may be accepted by the architect and a reduction in value allowed for it. This reduction will be shown as a deduction to the valuation. In a similar manner, if defects, shrinkages, etc. are not made good, a deduction may be made under clauses 17.2 and 17.3. (c) Amounts previously certified Although it may be obvious, the amount previously certified should be deducted. It is important to check the amount certified by the architect and not to assume that the amounts within the quantity surveyor’s previous valuation have been used. However, payment to the contractor by the employer as distinct from certification by the architect is a different matter. Payment to the contractor is determined by the employer, and the quantity surveyor should ignore the amounts paid. The quantity surveyor’s valuation should refer to the total value to that proscribed date less the amount certified by the architect. Retention held at interim valuations is partially released at practical completion of the works and where the employer takes partial possession of part of the works. Clause 30.4.1.3 of the contract refers to this. (d) Advance payments (This item does not occur in the local authority version of JCT 1998 With Quantities) If an advance payment has been made to the contractor, the amount of the advance will be stated in the appendix to the contract. The amount of the advance will be reimbursed to the employer in the amounts and at the times stated (this is also stated in the appendix). (e) Fluctuations Where the operation of the fluctuations clauses and the subsequent calculation indicates a reduction, a deduction will have to be made to the valuation. For additional information please see 4.4.9 below.

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(f)

Errors in setting out Under clause 7 of the contract, if errors have been made in setting out, these errors may not be amended (at the sole cost to the contractor). A deduction may be made to the contract in lieu.

(g)

Nominated sub-contracts (clause 4.17.3) Where work has not been properly executed, as stated in 4.4.7.1(b) above, the rules apply equally to the work of nominated subcontractors. An appropriate deduction is made but kept separate from that of the main contractor.

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4.4.8 Administration
4.4.8.1 GENERAL The quantity surveyor should ascertain the way in which the architect requires the valuation and whether any additional explanation and information is to be provided at the time of valuation. The use of a standard form, such as that issued by the Royal Institution of Chartered Surveyors (RICS) for interim valuations is recommended. As indicated in 4.4.3 above, under clause 30.1.1.1 of the contract, the architect, when issuing the certificate to the employer, must specify to what the amount of the certificate relates and the basis on which that amount was calculated. Whilst the same wording is not used in the contract in the context of the quantity surveyor issuing a valuation to the architect, it is prudent for the quantity surveyor to provide additional detail of the valuation to the architect than is required by the contract terms. The architect may well require this additional detail when explaining the content of the certificate to the employer. One way for the quantity surveyor to achieve this additional detail is for the quantity surveyor to use in his or her advice, a similar format that is used in the example in Appendix C of this guidance. 4.4.8.2 COVERING LETTER When making his or her recommendation for payment, the quantity surveyor should state the basis of his or her calculations in a covering letter to the architect, if not detailed separately (as described in 4.4.6.1 above) or on the valuation form. This covering letter would need to include a statement on the authority for part release of retention and details of defective works not included in the valuation.

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In a letter advise the architect whether all the work executed is included in the valuation (the quantity surveyor may have been instructed to exclude specific items). It is prudent to remind the architect that he or she is to adjust the recommended figure if there are further works or unfixed materials that are not acceptable to him or her. The wording of the RICS standard form at note (iii)(a) refers to this point, but it is advisable to mention the matter in the letter. Where appropriate, advise the architect in respect of matters regarding previous valuations, for example, whether nominated sub-contractors have all received their payments under previous certificates.

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4.4.9 Special Situations
4.4.9.1 DETERMINATION OF SUB-CONTRACTOR
THE

EMPLOYMENT

OF A

CONTRACTOR

OR

NOMINATED

There are special provisions relating to valuations in the case of a determination of the employment of a contractor (or of a nominated subcontractor) under the Conditions of Contract. The detail of the requirements for valuations are to be found in clause 27 of the contract and will depend on the circumstances of the determination. 4.4.9.2 LIQUIDATED DAMAGES The application of liquidated damages affects payments to the contractor, but it is generally not an element of a valuation which should be included (or amounts deducted) by the quantity surveyor. Advice to the employer and the architect should include: • In a contract, where there is a provision for liquidated damages to be applied at the rate included in the contract, the quantity surveyor may be required to advise of the amount of liquidated damages for which the contractor is liable. • On there being an appropriate certificate issued under clause 24 of the contract, when issuing valuations the quantity surveyor should advise the employer and/or the architect of the amount of liquidated damages for which the contractor is liable and continue to advise thereafter, each time stating the amount. 4.4.9.3 FLUCTUATIONS The contract will state the basis of adjustment: whether there is to be detailed cost recovery (clause 38 or 39) or the use of price adjustment formulae (clause 40). Where detailed cost recovery is to be the basis, check that basic prices of materials goods, electricity and fuels have been agreed. Note any imported

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goods which will be subject to currency fluctuations. If fluctuations are to be dealt with by the price adjustment formulae method, agree with the contractor the allocation of bill items to categories, as this method requires.

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4.4.10 Other Contract Terms (relative to valuations)
4.4.10.1 PRIME COST SUMS Prime cost sums are expended on the written orders of the architect in respect of nominated sub-contractors or nominated suppliers. A separate section of the quantity surveyor’s interim valuation should be created for all work carried out under the expenditure of prime cost sums. 4.4.10.2 PROVISIONAL SUMS Provisional sums are expended on the written orders of the architect. The valuation of work instructed under this method may be dealt with by reference to the other sections. A separate section of the quantity surveyor’s interim valuation should be created for all work carried out under the expenditure of provisional sums. 4.4.10.3 PERFORMANCE SPECIFIED WORK JCT 1998 With Quantities allows for performance specified work which shall not be carried out by nominated sub-contractors or nominated suppliers. The contractor is required by the contract to supply an analysis of the portion of the contract sum to which the performance specified work relates. This analysis may then be used for interim valuations. 4.4.10.4 STAGE PAYMENTS In clause 30.2 the contract allows the parties to agree to stage payments. If stage payments were included in the contract for all or part of the works, the values for these parts or sub-portions have been pre-agreed. The stage payment will be included in valuations when the scope of work to which the stage payment relates has been completed and so indicated by the architect. 4.4.10.5 ACTIVITY SCHEDULE An activity schedule may be included in the contract. Clause 30.2.1.1 states how the value of work in an activity schedule is to be included in an interim valuation. An example of an activity schedule issued by JCT is included in Appendix C of this section of the handbook.

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4.4.10.6 ELECTRONIC DATA INTERCHANGE (EDI) Annex 2 of the contract allows for an agreement between the parties in respect of the exchange of communications by electronic means. Therefore, interim valuations can be communicated by such means. The simplest form of electronic communication is by fax machine and the use of this is now widespread. Information is simply reproduced by a fax and the recipient receives a copy. This is useful where invoices and the like require to be transferred. The transfer of information through computers does not generally provide ‘copies’ of material to the recipient unless the original material was scanned into the computer. When using computers to transfer the valuation, backup care should be exercised where originals or copies of invoices and the like are required to be provided. The Code of Practice for Electronic Data Interchange states that parties proposing to contract on terms which expressly give administrative or other responsibilities to third parties should not adopt EDI in connection with that contract without the agreement of those third parties. It would appear to be prudent that when EDI is being set up at the outset of the contract the ‘rules’ for interim valuations should also be set out clearly.

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4.4.11 Valuations Under Other Forms of Contract
The principles and procedures set out in this section for valuations carried out under JCT 1998 With Quantities will largely be pertinent to other forms of JCT contract, together with forms of contract produced by other bodies. The guidance provided in this section will apply equally to the JCT Without Quantities edition, the Local Authority editions, and these forms used with the sectional completion supplement and with the contractors designed portion supplement. 4.4.11.1 OTHER JCT CONTRACTS In general terms other JCT contracts will have the principles set out here applied although the detail may be different. 4.4.11.2 OTHER FORMS OF CONTRACT Contracts issued by other bodies will, in general terms, have the principles set out here applied although the detail may be different.

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Appendix A: Further Reading
JCT. Practice Note 26 (’94) Valuation and Certification for Interim Payments including Variation, RIBA, London, 1994 Seeley, I.H. Quantity Surveying Practice, Macmillan Press Limited, Basingstoke, 1997 The Aqua Group. Contract Administration for the Building Team, Blackwell Science, London, 1996

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Appendix B: JCT Definition of ‘Reasonable Proof’
1. Clause 30.3.1 makes it one of the conditions of the inclusion, in the amount stated as due in an Interim Certificate, of the value of what clause 30.3 defines as ‘listed items' before their delivery to or adjacent to the Works, that the Contractor has provided the Architect with 'reasonable proof ' that the property (ownership) in the listed items is vested in the Contractor. The Contractor is only required to provide ‘reasonable proof’. Thus if, notwithstanding the provision of such reasonable proof, it transpires that the property in the listed items is not vested in the Contractor the risk of having paid for listed items for which the Contractor cannot give a good title to the Employer is with the Employer. In practice however Employers will only pay pursuant to clause 30.3 if the proof provided of the Contractors ownership is as water-tight as possible. Where the listed items are purchased from a supplier by the Contractor, the Contractor should give the Architect a copy of the written contract of sale applicable to the listed items; and a written statement from the supplier that any conditions in that sale contract that must be fulfilled before the property passes to the Contractor have been fulfilled. The statement of the supplier should also say that the supplier's property in the listed items is not subject to any charge or encumbrance which would prevent the passing of the property unconditionally to the Contractor after fulfilment of all the relevant terms of the sale contract with the Contractor. Where the listed items have been purchased from a supplier by a sub-contractor the Contractor should give the Architect a copy of the written sub-contract with the sub-contractor which should expressly state the conditions that have to be fulfilled before the property in these listed items passes from the sub-contractor to the Contractor; and a written statement from the sub-contractor that any conditions in that sub-contract that must be fulfilled before the property passes to the Contractor have been fulfilled. Where the listed items are manufactured or assembled by any sub-contractor, the Contractor should give the Architect a copy of the written sub-contract with the sub-contractor which should expressly state the conditions that have to be fulfilled before the property in those listed items passes from the subcontractor to the Contractor; and a written statement from the sub-contractor that any conditions in that sub-contract that must be fulfilled before the property passes to the Contractor have been fulfilled.

2.

3.

4.

5.

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Appendix C: Example of Priced Activity Schedule
A B C D E F G H J K L M N P Q R S T U V W X Y Z AA Preliminaries – see breakdown on page 2 Demolition Substructure including ground floor slab Structural frame Upper floor and staircase structures Roof structure and coverings External walls Windows and external doors Internal walls and doors therein Partitioning and doors therein Plasterwork Screeds Suspended ceilings Wall tiling Floor tiling Other floor finishings Metalwork Fittings and fixtures Decorations Sanitary installation and fittings Rainwater installation Mechanical services – see breakdown on page 3 Electrical services – see breakdown on page 4 Underground drainage External works 170,000.00 40,000.00 178,000.00 265,000.00 112,000.00 58,000.00 203,000.00 102,000.00 75,000.00 45,000.00 21,000.00 33,000.00 53,000.00 16,000.00 11,000.00 64,000.00 30,000.00 35,000.00 12,000.00 48,000.00 8,500.00 297,000.00 222,000.00 16,500.00 75,000.00 ___________ £ 2,190,000.00 ___________

Note that the above excludes the prime cost sums and profit thereon, provisional sums and provisional quantities.

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Preliminaries breakdown A B Site accommodation (offices, stores, toilets, etc.) Services (power, lighting, telephones, small plant, rubbish disposal, etc.) Mechanical plant Temporary works (roads, walkways, scaffolding, hoardings, etc.) Management and staff The contract, etc. (insurance premiums, cost of providing bond, etc.) 16,000.00

11,000.00 8,500.00

C D

5,000.00 122,500.00

E F

7,000.00 ___________ £ 170,000.00 ___________

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Mechanical Services breakdown A B C Heating installation Hot water installation Cold water installation including rising main and tank Gas installation Mechanical ventilation Controls and wiring Testing and commissioning As installed record drawings Operation and maintenance manuals 235,000.00 6,000.00

14,000.00 2,500.00 25,000.00 9,000.00 3,000.00 1,500.00 1,000.00 ___________ £ 297,000.00 ___________

D E F G H J

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Electrical Services breakdown A Distribution boards, switchgear and sub main cabling Power installation Lighting installation including fittings Fire alarm system Security system Earthing and bonding Testing and certification As installed record drawings Operation and maintenance manuals

28,000.00 72,000.00 92,000.00 14,500.00 6,000.00 5,000.00 2,500.00 1,250.00 750.00 ___________ £ 222,000.00 ___________

B C D E F G H J

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PART FOUR: CONSTRUCTION ADMINISTRATION AND MANAGEMENT
SECTION 5: EXTENSION OF TIME
Introduction
There are probably more disputes about extension of time and consequential cost issues than any other disputes under construction contracts. It is therefore imperative that extension of time issues are dealt with in a proper manner by the contract administrator. The majority of standard form construction contracts enable the contract administrator to grant extensions of time for completion of the work where delay occurs due to certain specified causes. Such provision is of benefit to both parties to the contract. The contractor will benefit because the effect of the provision, if operated, will be to reduce or avoid liability to pay liquidated or unliquidated damages in the event of the delay in question. However, the primary benefit is to the employer. This is because the absence of extension of time provisions can have the effect of preventing the employer’s entitlement to liquidated damages in cases where the delay, or even a small part of it, is due to some prevention or default of the employer or his or her agents, or any other matter for which the employer would be responsible. Therefore the primary purpose of extension of time is to preserve the effectiveness of the liquidated damages provisions for the benefit of the employer. Standard forms and bespoke construction contracts contain extension of time clauses setting out the criteria under which extensions of time will be awarded. This includes: • the provisions for the timing and content of delay notices by the contractor; • the parameters that a contract administrator needs to work within to assess a contractor’s entitlement to an extension of time; • the administrative procedure to be adopted in awarding an extension of time; • the events that entitle a contractor to an extension of time. However, most forms of construction contracts do not include practical guidance on how a contract administrator should carry out an assessment of an extension of time entitlement. Instead, practitioners have to look at guidance
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provided by case law as well as good practice as defined by legal commentators. This section of the handbook provides guidance to surveyors who are required to carry out assessments of extension of time entitlement under a construction contract by virtue of appointment under the contract as contract administrator. It is also for surveyors who are asked to advise either party to a construction contract on extension of time issues.

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4.5.1 Extension of Time Clauses
There are several forms of construction contract and each form will have its own procedure for dealing with extension of time. Whilst the principles to be adopted may be similar, the exact procedure and events that entitle a contractor to an extension of time may well be different depending on the form or edition of contract adopted or indeed the amendments made thereto. The practitioner should therefore always be primarily guided by the words contained in the relevant contract.

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4.5.2 Assumptions
This section has been prepared from the standpoint of the surveyor who has to assess extension of time entitlement under a construction contract by virtue of appointment under the contract as contract administrator. 4.5.2.1 JCT FORMS OF CONTRACTS This section introduces the principles of an extension of time. For illustrative purposes, it is based on the JCT Standard Form of Building Contract With Quantities 1998 (JCT 1998 With Quantities). It is recognized that there are other forms of contract being used. However, the principles set out here will remain valid. Extension of time procedures for different contract terms are briefly noted later (see 4.5.11 and 4.5.12). 4.5.2.2 DEFINITIONS Contract administrator This refers to the person undertaking the functions of the ‘architect’ on behalf of the employer under a JCT 1998 With Quantities contract. Employer Contractor The client as used in a JCT 1998 With Quantities contract. In JCT 1998 With Quantities the contractor is assumed to be a main contractor who may be asked to employ nominated sub-contractors or request permission to sub-contract portions of work to domestic sub-contractors.
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4.5.3 Extension of Time Under a JCT Contract
JCT 1998 With Quantities contains the provision for the contract administrator to award an extension of time at clause 25. Clause 25.2.1.1 provides that: If and whenever it becomes reasonably apparent that the progress of the Works is being or is likely to be delayed the Contractor shall forthwith give written notice to the [contract administrator] of the material circumstances including the cause or causes of the delay and identify in such notice any event which in his opinion is a Relevant Event. Clause 25.2.2 provides that: In respect of each and every Relevant Event identified in the notice given ... the Contractor shall, if practicable in such notice, or otherwise in writing as soon as is possible after such notice: (25.2.2.1) give particulars of the expected effects thereof; and (25.2.2.2) estimate the extent, if any, of the expected delay in the completion of the Works beyond the Completion Date resulting therefrom whether or not concurrently with delay resulting from any other Relevant Event... Clause 25.3.1 provides that: If, in the opinion of the [contract administrator], upon receipt of any notice, particulars or estimate ... (25.3.1.1) any of the events which are stated by the Contractor to be the cause of the delay is a Relevant Event and (25.3.1.2) the completion of the Works is likely to be delayed thereby beyond the Completion Date the [contract administrator] shall in writing to the Contractor give an extension of time by fixing such later date as the Completion date as he then estimates to be fair and reasonable. The contract administrator is required to state which relevant events he or she has taken into account and fix a new completion date within 12 weeks. This should not be later than the completion date that applies at that time, from receipt of the notice and of reasonably sufficient particulars or estimates. The contract administrator, by virtue of clause 25.3.3, also has the power to carry out a final review of the completion date not later than 12 weeks after the date of practical completion. This can result in the fixing of an earlier or later completion date than previously set under clause 25.3.1. (It should be noted that the contract administrator cannot set a completion date earlier than that stated in the appendix.) This final review is not subject to receipt of a notice or particulars and estimate from the contractor. Clause 25.3.4 provides the award of an extension of time is always dependant on the contractor using ‘constantly his best endeavours to prevent delay in the progress of the Works, howsoever caused, and to prevent the completion of the Works being delayed or further delayed beyond the Completion Date.’

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Clause 25.4 includes reference to relevant events. Each of these relevant events entitles the contract administrator to award an extension of time in the event, and to the extent, that they cause a delay. Whilst all relevant events may give rise to entitlement to an extension of time, not all of them entitle the contractor to be reimbursed for any loss and expense arising therefrom. (In any event it should be noted that JCT 1998 With Quantities contains separate provisions under clause 26 in dealing with the financial effect of delay to the Works. It specifically deals with the separate notice provisions required and a list of matters that may entitle the contractor to be reimbursed for any loss and expense incurred arising from the Works being delayed.) Whilst it is convenient to categorize relevant events which are not also set out in the list of matters under clause 26 as neutral events and those which are also set out under clause 26 as employer risk events, it should be emphasized that clause 25 does not provide for financial adjustment of the contract sum. If the contractor wishes to claim loss and expense arising from delay to the Works, he or she is required to make the necessary applications under clause 26.1. The granting of an extension of time under clause 25 is not a condition precedent to a right to direct loss and expense under clause 26.11.

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4.5.4 Notice by the Contractor of Delay to Progress
To receive entitlement to an extension of time during the contract period and before practical completion, the contractor is required to give notice ‘forthwith’ where ‘the progress of the Works is being or is likely to be delayed’. The contractor must give written particulars of the expected effects of the relevant events delaying the Works, estimate the expected delay and keep the particulars and estimates up to date. It is implicit that the contractor should provide information that the contract administrator reasonably requires in order to assist the contract administrator in his or her duty in relation to extensions of time. Whilst the contractor is required to give notice forthwith, the courts have held that such notice (in relation to the JCT 1963 form) was not a condition precedent to the performance of the contract administrator’s duties in respect of giving an extension of time2. Whilst this was in relation to an earlier form of contract, case law further indicates that for something to be a condition precedent a time for compliance must be given and the consequence of non-compliance stated3. Therefore, whilst it may well be that if the contract administrator is unable to take steps to reduce the delay as a result of the contractor not giving notice forthwith, then the contractor should only be entitled to the extension of time that would have occurred had the notice been given. The failure to give notice forthwith does not prevent the contract administrator from awarding an extension of time during the contract period and before practical completion if notice is given later. Further, it should be stressed that, by virtue of clause 25.3.3.1, the giving of notice per se is not a condition precedent to the granting of an extension of time after practical completion.

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4.5.5 The Award of an Extension of Time during the Contract Period and Before the Completion Date
Clause 25.3.1 requires the contract administrator to give extensions of time if he or she is of the opinion that the completion of the Works is likely to be delayed beyond the completion date by one or more of the relevant events notified by the contractor. The contract administrator has 12 weeks (subject always to a cut-off point of the completion date in place at that time) from receipt of the contractor’s notice and reasonably sufficient particulars and estimates. ‘Sufficient’ particulars and estimates are thought to be those that comply with clauses 25.2.2.1 and 25.2.2.2. Therefore it follows that, provided a contractor gives the best particulars and estimates it can in the circumstances that exist at the time of the notice, the contract administrator will not be able to delay granting an extension of time beyond the 12 weeks (or such shorter period if notice is given within 12 weeks of the completion date), on grounds that he or she cannot yet judge the effect that the cause of delay will have on the progress. Whilst the granting of an extension of time is subject to the opinion of the contract administrator, ultimately the opinion may be subject to review by an arbitrator or judge. Therefore, it important that the principles adopted by a contract administrator in assessing an extension of time entitlement are sound. When assessing an extension of time during the contract period and before practical completion, the contract administrator, by virtue of clause 25.3.1.2, can only take into account relevant events that occur before the original or previously fixed (in the event of further extension of time assessments) completion date. Relevant events that occur after the completion date are dealt with when the contract administrator reconsiders extensions of time after either the completion date or practical completion under clause 25.3.3. The contract administrator is required to award an extension of time that he or she estimates to be ‘fair and reasonable’. This reflects that the assessment of the extension of time entitlement will not be an exact science, but will have to be the result of a consideration of various factors such as: • the exact terms and application of the facts of the relevant event in question; • the amount of the immediate delay in the progress of the Works; • the effect of any delay caused by the contractor’s default; • the effect of concurrent causes of delay and whether one of them is an effective dominant cause; and • the extent to which the contractor has used its best endeavours to prevent delay in accordance with clause 25.3.4.

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The courts have held that a contract administrator, in assessing an extension of time, should conduct a logical analysis in a methodical way of the impact which events, whether relevant events or not, were likely to have on the planned programme4. A contract administrator is required to make a calculated, rather than impressionistic, assessment of extension of time entitlement. Therefore the contract administrator, having satisfied him or herself that an event is relevant, is required to assess whether the affected activities were on the critical path or not. In assessing delay the contract administrator could consider the effect of the causes of delay as a whole by carrying out a retrospective delay analysis. This will involve assessing the effect of each individual delaying event in conjunction with other delaying events. This will inevitably involve the preparation of an ‘as built’ record or programme to identify the delayed activities and a subsequent analysis of the causes of the delayed activities and assessment of whether the causes of delay are relevant events. A comment on the approach in dealing with the effect of concurrent delays and consequential entitlement is made later in this section (see 4.5.8 and 4.5.9). Further, if the contract is drafted to include sectional completion dates, the contract administrator is required to assess the effect of each delay in respect of each section and decide whether appropriate extensions of time need to be issued. There will be times where the records either do not exist or are inadequate to construct an ‘as built’ record. Further, an assessment of an extension of time entitlement may have to be considered before the effects of delays are known, thereby preventing a retrospective delay analysis. In these instances the contract administrator should undertake an objective analysis of the likely or probable impact on the critical path activities based on logical analysis and not an impressionistic assessment.

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4.5.6 The Award of an Extension of Time after the Completion Date
Clause 25.3.3. requires the contract administrator to reconsider any previous extension of time awards and/or deal finally with the question of extension of time within a period of 12 weeks from the date of practical completion. In reviewing the completion date, the contract administrator is required again to grant an extension of time that is fair and reasonable. The contract administrator is not limited to relevant events notified by the contractor and, in reviewing earlier extension of time awards, can fix an earlier completion date by taking into account any omissions justifying a reduction in any extension of time awards granted previously. Prior to 1993 it has been argued, in relation to the JCT 1963 form of contract, that if a variation was issued after the completion date, that is, after the date of any previous extension of time awards, the employer would be prevented from deducting liquidated damages for the period up to the date of the issue of the instruction to undertake the variation. However, it has been held that this

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principle does not apply to the JCT 1980 form and, by virtue of the same wording being adopted, its successor the JCT 1998 form. The correct position now is that if instructions for additional work are issued at a time when the contractor is in culpable delay, that is, the Works being incomplete after the latest extended completion date, the contractor is only entitled to a fair and reasonable ‘net’ addition (sometimes referred to as the ‘dot on’ principle) to the previously fixed completion date and not by fixing as the completion date the calendar date upon which the work would reasonably be expected to be completed having regard to the calendar date upon which the variations were instructed5.

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4.5.7 Relevant Events
The relevant events have been categorized as ‘employer risk’ (4.5.7.1) and ‘neutral’ (4.5.7.2) events. 4.5.7.1 EMPLOYER RISK EVENTS Clauses 25.4.5.1 and 25.4.5.2: Compliance with [contract administrator’s] instructions under clauses 2.3, 2.4.1, 13.2 (except for a confirmed acceptance of a 13A Quotation), 13.3 (except compliance with a [contract administrator’s instruction for the expenditure of a provisional sum for defined work or of a provisional sum for Performance Specified Work), 13A 4.1, 23.2, [34, 35 or 366] or in regard to opening up for inspection of any work covered up or the testing of any of the work, materials or goods in accordance with clause 8.3 (including making good in consequence of such opening up or testing) unless the inspection or test showed that the work, materials or goods were not in accordance with this Contract. A contract administrator will need to examine the cause of instructions being issued in the first place (for example, was it a result of defective workmanship?) before assessing the effect of its timing and scope of work on the progress of the Works. It will also be necessary to assess whether the contractor was already in culpable delay or if there are competing causes of delay for which the contractor is responsible. Clauses 25.4.6.1 and 25.4.6.2: Where an information release schedule has been provided, failure of the [contract administrator] to comply with clause 5.4.1 [or] failure of the [contract administrator] to comply with clause 5.4.2. If there is to be an information release schedule the contract administrator will be required to follow it. To the extent that it is not complied with and such non-compliance causes a delay, the contractor will be entitled to an extension of time. However, if there is no provision for an information release schedule, by virtue of clause 5.4.1 being deleted, or if the information release schedule

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does not cover the issue of information that is required, then the contract administrator is required to provide any other drawings and details to explain and amplify the contract drawings when they are reasonably necessary. It has been held that a contractor’s programme or document presented at the commencement of the Works could constitute a specific application for instructions or information provided that the date specified for delivery for each set of instructions met the requirement of not being unreasonably distant from nor unreasonably close to the relevant date7, subject to it being modified if the Works did not progress to plan. It has also been held (by analogy to a House of Lords decision in relation to a similar clause in JCT 1963) that whilst the withdrawal of a nominated sub-contractor may not come within this clause, delay by the employer in making a timeous re-nomination was covered8. Clauses 25.4.8.1 and 25.4.8.2: The execution of work not forming part of this Contract by the Employer himself or by persons employed or otherwise engaged by the Employer as referred to in Clause 29 or the failure to execute such work [or] the supply by the Employer of materials and goods which the Employer as referred to in clause 29 or the failure so to supply. This clause is also known as the ‘artists and tradesmen’ clause. Its scope includes work by a local authority or statutory undertaker under a contract with the employer. Clause 25.4.12: Failure of the Employer to give in due time ingress to and egress from the site of the Works or any part thereof through or over any land, buildings, way or passage adjoining or connected with the site and in the possession and control of the Employer, in accordance with the Contract Bills and/or Contract Drawings, after receipt by the [contract administrator] of such notice, if any, as the Contractor may be required to give, or failure of the Employer to give such ingress or egress as otherwise agreed between the [contract administrator] and the Contractor. This clause is not concerned with possession of the site itself, but with access to it over other land in the possession and control of the employer as stated in the contract documents. Clause 25.4.14: By reason of the execution of work for which an Approximate Quantity is included in the Contract Bills which is not a reasonably accurate forecast of the quantity of work required. What constitutes a reasonably accurate forecast will be a matter of fact. However, it is suggested that empirical studies of the accuracy of quantity surveyor’s estimates may give guidance, that is, +/– 5 per cent accuracy.
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Clause 25.4.17: Compliance or non-compliance by the Employer with clause 6A.1. Clause 6A.1 relates to the employer ensuring that the planning supervisor (and the principle contractor, where the contractor is not the principle contractor) carries out his or her duties under the CDM regulations. Clause 25.4.18: Delay arising from a suspension by the Contractor of the performance of his obligations under the Contract to the Employer pursuant to clause 30.1.4. Clause 30.1.4 relates to the contractor’s rights to suspend the Works as a result of failure by the employer to pay the contractor in accordance with the contract payment terms and procedure in compliance with the Housing Grants, Construction and Regeneration Act 1996. Therefore, if the contractor is entitled to suspend the Works under clause 30.1.4 it will be entitled to an extension of time in the event that the Works are delayed as a result. It is interesting to note that the corresponding matter clause (26.2.10) is more restrictive in that it only entitles the contractor to recover any direct loss and expense if the suspension was not ‘frivolous or vexatious’. 4.5.7.2 NEUTRAL EVENTS

Clause 25.4.1:
‘force majeure’ This term is used in reference to all circumstances independent of the will of humankind which is not in our power to control, such as war, inundations and epidemics. It is wider than ‘Acts of God’, but it is generally thought that in relation to standard forms of construction contracts it has a restricted meaning. This is because matters such as war, strikes, fire, weather and government action are expressly dealt with in the contract. Clause 25.4.2: ‘exceptionally adverse weather conditions’ The correct test to be applied by the contract administrator is whether the weather itself was exceptionally adverse9 so as to give rise to delay. This should be decided in light of the historic norm for the area and the status of the Works when the delay occurred. Therefore, the contract administrator should examine local meteorological and site records, looking at details and timing of rainfall, high wind speed, temperature and assess the effect on the labour, plant and work operations on site for the relevant periods.

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Clause 25.4.3: ‘loss or damage occasioned by any one or more of the Specified Perils’ These are defined by clause 1.3 and include: • fire; • lightning; • explosion; • storm; • tempest; • flood; • bursting or overflowing of water tanks; • apparatus or pipes; • earthquake; • aircraft and other aerial devices or articles dropped therefrom; and • riot and civil commotion. However, they exclude: • ionizing radiations or contamination by radioactivity from any nuclear fuel or nuclear waste from the combustion of nuclear fuel; • radioactive toxic explosive or other hazardous properties of any explosive nuclear assembly or nuclear component thereof; and • pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds. The scope of the specified perils is very wide and could stem from acts of negligence by the contractor. Clause 25.4.4: Civil commotion, local combination of workmen, strike or lock-out affecting any of the trades employed upon the Works or any of the trades engaged in the preparation, manufacture or transportation of any of the goods or materials required for the Works. The terms strike and lock-out should be given their ordinary meaning. The courts have given guidance on the meaning of civil commotion in relation to insurance contracts to include a stage between ‘riot and civil war’10.
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Clause 25.4.5.1: Compliance with [contract administrator’s] instructions under clauses ... 34, 35 or 36... Clause 34 instructions relate to ‘fossils, antiquities and other objects of interest or value’ found on site during excavation. Clauses 35 and 36 relate to instructions connected with nomination. Whilst the contractor is seemingly not protected for recovering loss and expense monies by virtue of there not being a corresponding ‘matter’ listed under clause 26, with regard to a late nomination it would appear that a contractor could seek to rely on clause 26.2.1 for late instruction of the expenditure of a provisional sum relating to a nominated sub-contractor or supplier. Clause 25.4.6: Delay on the part of nominated sub-contractors or nominated suppliers which the contractor has taken all practicable steps to avoid or reduce. The effect of this clause is that if such a delay causes an extension of time, even if the delay is due to the default of the nominated sub-contractor, the employer is deprived of the right to deduct liquidated damages. However, it should be noted that if a nominated sub-contractor has completed its work and has to return to site to remedy defective workmanship which in turn causes a delay to the Works, then this clause does not apply11. In this scenario an extension of time would not be granted. Whilst the employer is not liable to the contractor for losses caused by nominated sub-contractors and nominated suppliers, the contractor may be able to recover its losses directly through its nominated sub-contract or supplier contract. Clause 25.4.9: The exercise after the Base Date by the United Kingdom Government of any statutory power which directly affects the execution of the Works by restricting the availability or use of labour which is essential to the proper carrying out of the Works or preventing the Contractor from, or delaying the Contractor in, securing such goods or materials or such fuel or energy as are essential to the proper carrying out of the Works. The effect of this sub-clause is to reduce the scope of the force majeure sub-clause (clause 25.4.1) to those events not contained within this wording. Clauses 25.4.10.1 and 25.4.10.2: The contractor’s inability for reasons beyond his control and which he could not reasonably have foreseen at the Base Date to secure such labour [goods or materials] as is [are] essential to the proper carrying out of the Works. These words limit the effect of the sub-clause in respect of shortage of labour, materials or goods that the contractor could have foreseen by reasonable enquiry were likely to continue or arise at all.
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Clause 25.4.11: The carrying out by a local authority or statutory undertaker of work in pursuance of its statutory obligations in relation to the Works, or the failure to carry out such work. This sub-clause is limited to situations where the relevant authority or undertaker carries out work using its statutory powers, as opposed to under a contract with either the employer or contractor, and such work hinders the Works and causes delay. Clause 25.4.13: Where clause 23.1.2 is stated in the appendix to apply, the deferment by the Employer of giving possession of the site under clause 23.1.2. Clause 23.1.2 enables the employer to defer possession of the site by six weeks without being in breach of contract. This clause enables the completion date to be extended accordingly without the employer losing his or her right to deduct liquidated damages for any delay for which the contractor is culpable. Clause 25.4.15: Delay which the Contractor has taken all practicable steps to avoid or reduce consequent upon a change in the Statutory Requirements after the Base Date which necessitates some alteration or modification to any Performance Specified Work. The effect of this clause is limited to legislative changes that affect performance specified work, the effects of which the contractor has made attempts to mitigate. There is no requirement for the contractor to have made reasonable enquiry at or before the base date. Clause 25.4.16 The use or threat of terrorism and/or the activity of the relevant authorities in dealing with such use or threat. The effect of this sub-clause is to reduce the scope of the force majeure sub-clause (clause 25.4.1) to those events not contained within this wording.

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4.5.8 Concurrent Delays
When assessing a contractor’s entitlement to an extension of time, the contract administrator will need to assess the effect of concurrent causes of delay. This is important for two reasons: 1) In relation to the granting of an extension of time: for example in assessing whether delay is caused in total or in part by an event for which the contractor is culpable under the contract. 2) In relation to clause 26 which deals with loss and expense: that is, some relevant events are paying and some are non-paying.

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The contract administrator may be faced with a scenario where there are concurrent causes of delay, each of which could have an equal delaying effect, or alternatively could have significantly unequal effect. The law is unclear on the correct approach. However, the generally accepted approach is that it is the dominant delaying event that should govern the award of an extension of time. Therefore, if a contractor seeks to rely on late instructions as entitlement for an extension of time and at the same relevant time the contractor is also delayed by events for which it is culpable, the contract administrator will need to satisfy him or herself that the delay caused by the late instructions was the dominant delay in order to award an extension of time. Which cause is dominant is a question of fact. This is not solved by the mere point of order of time but is to be decided by applying common sense standards12. The court had to consider the question of concurrent delays in 1999 and held that a contract administrator is entitled to consider the contractor responsible for concurrent delays when establishing whether or not a relevant event has in fact caused a delay13. Therefore, the question for consideration by the contract administrator when there are competing causes of delay, one of which is a relevant event and one which is not, is which cause was the dominant cause of delay. The courts also commented that where those competing causes were of equal causes, then if the contract administrator considers it fair and reasonable to do so, he or she is required to grant an extension of time14.

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4.5.9 Consequential Entitlement
Consequential entitlement is where a delay that is a non-paying relevant event could fall to be an ‘employer risk’ event or ‘matter’ under clause 26. For example, the Works could be delayed by the issue of contract administrator’s instructions that cause the Works to overrun into an ‘exceptional adverse weather’ or industry shutdown period. It is generally thought that the extension should be given under the primary cause.

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4.5.10 Administration
A notification granting an extension of time must be taken with great care. Use of the RIBA and/or RICS Notification of Extension of Time form is recommended. The notification should include: • the job title and number (if any); • the contractor’s name; • the date of issue; • the completion date; • a list of the relevant events for which an extension of time has been given;

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• the extent to which the omission of work has been taken into consideration; • the date of the contractor’s written notice of delay (if any); and • the revised completion date.

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4.5.11 Extension of Time under an ICE Contract
Although the specific contract clauses differ, the principles set out in relation to JCT contracts equally apply to the ICE contracts. The contractor can apply for an extension of time by giving notice, although such notice is not a condition precedent for the giving of an extension of time as the engineer can make an assessment in the absence of such notice. In assessing a contractor’s entitlement for an extension of time, the engineer is required to make an assessment of the delay suffered and consider whether that delay fairly entitles the contractor to an extension of time. The engineer is required to undertake a final review within 14 days of substantial completion.

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4.5.12 Extension of Time under a GC Works Contract
The project manager or supervising officer under GC/Works forms of contract has the power to award an extension of time. However, it should be noted that some forms do make the giving of a notice by the contractor a condition precedent of an extension of time being awarded.

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Notes
1. Fairweather v. Wandsworth (1987) 39 BLR 106 2. London Borough of Merton v. Leech (1985) 32 BLR at pp.89 et seq. 3. Bremer Handelgesellschaft MBH v. Vanden Avenne-Izegem [1978] 2 LLR 109 4. John Barker Construction Limited v. London Portman Hotel Limited (1996) BLR 83 5. Balfour Beatty v. Chestermount Properties (1993) 62 BLR 1 6. Instructions under clauses 34 (antiquities), 35 and 36 (nomination of sub-contractors and suppliers) are non-paying 7. London Borough of Merton v. Leach [1985] 32 BLR 51 at pp.85-89 issue 5 8. Percy Bilton v. GLC [1982] 1 WLR 794 (HL) 9. Walter Lawrence v. Commercial Union Properties (1984) 4 ConLR 37 10. Levy v. Assicurazioni Generali [1940] 3 All ER 427 at p.437 11. Jarvis J. & Sons v. Westminster Corporation [1970] 1 WLR 637 (HL) 12. Leyland Shipping v. Norwich Union [1918] AC 350, Yorkshire Dale Steamship v. Minister of Ware Transport [1942] AC 691 13. Henry Book Construction (UK) Limited (Manchester) Limited 1999) TCC 18.10.99 v. Malmaison Hotel

14. Henry Book Construction (UK) Limited v. Malmaison (Manchester) Limited 1999) TCC 18.10.99 at paragraph 13

Hotel

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Appendix A: Further Reading
Eggleston, B. (1997) Liquidated Damages and Extensions of Time in Construction Contracts, 2nd edition, Oxford: Blackwell Science Emden’s Construction Law, Butterworth Tolley Duncan Wallace, I.N. (1994) Hudson’s Building and Engineering Contracts, 11th edition, London: Sweet & Maxwell Ramsey, V. & Furst, S. (2000) Keating on Building Contracts, 7th edition, London: Sweet & Maxwell Pickavance, K. (2000) Delay and Disruption in Building Contracts, 2nd edition, Lloyds of London RIBA, The Architect and Extensions of Time

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Surveying safely
Your guide to personal safety at work

Surveying safely Your guide to personal safety at work

Why is health and safety important?
Because it affects you! We take significant risks in our jobs regularly, be it driving in connection with our work, being at a premises or on site.
Serious accidents at work destroy and disrupt family and personal lives. The loss of a parent, breadwinner, partner, friend is devastating and trying to rebuild a life after an accident can be equally traumatic, especially if it could have been avoided. You have a critical role, whatever part you play in the industry. Decisions taken in the boardroom can have as much influence on health and safety as working practices in the office, travelling on business or being at a property or on site. Adequate planning, innovation and best practice, good design, sufficient resources and effective training will provide a better product more safely and more economically. This guide has been produced by the new RICS Health and Safety Forum to help you to put health and safety first when carrying out your duties and responsibilities. It will also remind you of the many aspects of our industry that can be hazardous. Using effective health and safety procedures will: • Provide a safer environment for those involved in managing property and construction • Result in higher productivity, and • Lessen the chance of having accidents or suffering illness. If we are to make a difference, and make our industry a safer place to work, we have to take personal responsibility to make it happen by eliminating or reducing risks, and planning and controlling the risks that remain for ourselves, to our colleagues and the public at large. You can make a difference by putting health and safety first.

Ian Watson, FRICS MCIArb MaPS Chairman of RICS Health and Safety Forum 2

Contents
General statement of employers’ and employees’ duties Safety of employees Your workplace Identifying hazards and undertaking risk assessments Before visiting premises/sites Upon arrival and during visits to premises/sites Safety of yourself and others Your legal duties Case studies For more information 4 4 5 6 7 9 11 12 14 15

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Surveying safely Your guide to personal safety at work

General statement on employers’ and employees’ duties
The Health and Safety at Work etc Act 1974 places a statutory duty on all employers, including their managers, to provide and maintain equipment and systems of work that are safe and without risk to the health of employees, or others who may be affected by their undertaking. Equally, employees need to take reasonable care of their own safety and that of others who may be affected by their acts or oversights. In addition, both employers and employees have a duty of care in tort (particularly negligence) towards those who may be affected by their actions or instructions.

Safety of employees
Make sure you comply with the provisions of the Health and Safety at Work etc Act 1974. Other regulations that are important to know and adopt include:

• •

The Workplace (Health Safety and Welfare) Regulations 1992 The Management of Health and Safety at Work Regulations 1999.

Employers must: • Provide information on health and safety • Have emergency procedures • Carry out risk assessments • Eliminate and control risks • Have insurance • Carry out health surveillance • Provide Personal Protective Equipment (PPE) • Provide for those with special needs • Control working hours • Provide regular health and safety training. Employers with five or more employees must: • Have written health and safety documents. The HSE document ‘Successful Health and Safety Management (HS(G) 65)’ provides guidance on how to satisfy the legal requirements of the regulations • Have a policy statement by the chief executive/managing director/senior partner outlining the organisation’s commitment to health and safety, and that it will be reviewed on a regular basis • Detail the organisation’s health and safety structure, with roles and responsibilities for managing health and safety • Make sure arrangements are in place that show the organisation’s approach to health and safety, and how the management system is planned and implemented (including hazard identification, risk assessments and control measures) • Measure, audit and review the organisation’s health and safety performance on a regular basis.

4

Employer’s actions You have a special responsibility for people in your charge, particularly those in training or who are inexperienced.

• • • • •

• •

Make sure employees in your charge take the right equipment with them on visits. Check they know how to use it Make sure scrupulous records are kept of employees’ movements Keep available, records of hazards on particular sites. Make sure all relevant people are notified Make sure a supply of the right equipment is available. Helmets, steel capped shoes, ear defenders, face masks, overalls, torches and batteries – these should be in your office as appropriate and in good condition Make sure your offices are safe: Are there fire precautions and means of escape? Washing facilities? Is electrical equipment up to date and safe? Do you prepare and store food and drink safely? Have you carried out Display Screen Equipment Assessments? Are you aware of the stress that some employees may be suffering? Assess the risks of manual handling in the office or look at the materials being used or stored and whether COSHH assessments are needed Provide guidance on driving on your organisations business or the use of hand held devices while driving.

Finally, the best way to make sure safe practice by people in your charge is to set a good example.

Your workplace
The Workplace Health Safety and Welfare Regulations 1992 provide information on what assessments you should be making and the facilities you should provide, depending on the size and nature of your organisation: Welfare Smokers Rest room First aid Pregnant mothers Fire – The Fire Regulations Act 1991 and Fire Regulations 1997 need you to maintain adequate fire safety equipment. Your employees need to have training on how to use it. Occupiers of premises must also carry out fire risk assessments. First aid – accident books – you should have the correct form of accident book, which allows personal details to be extracted from the book and placed in a secure location to comply with the Data Protection Act 1998.

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Surveying safely Your guide to personal safety at work

Signage – in addition to helpful Health & Safety signs on first aid, fire or manual handling, you should have safety signs displayed for any other significant risks, whether it be very hot water or fragile roofs. Portable Appliance Testing (PAT) – around 25% of reportable electrical accidents involve portable appliances. Make sure you have them tested regularly (recommended annually) by an approved tester. Contractors – to protect yourselves, you should have procedures to make sure no one comes into your building to work without you knowing they are competent, a risk assessment has been carried out and a safe system of work has been established. Asbestos – everyone in control of premises must proactively locate and manage any asbestos that exists. Disability Discrimination Act 1995 (DDA) – the DDA and the Disability Rights Commission Act 1999 requires anyone providing a service from their building and receiving visitors, to suitably provide for people with disabilities. Legionnaires disease – depending on the use of the building with which you may be involved, you should make sure you are not at risk, by employing a WTC (Water Treatment Company) to carry out an assessment. And get advice on how to reduce any risks and how to carry out your own checks.

Identifying hazards and carrying out risk assessments
An underlying principle of effective management of health and safety is that of risk assessment. In the words of the Health and Safety Executive (HSE), risk assessment is ‘nothing more than a careful examination of what, in your work, could cause harm to people so that you can weigh up whether you have taken enough precautions or should do more to prevent harm.’ Risk assessment involves two key concepts, being those of hazard and risk. Hazard and risk Hazard is something with the potential to cause harm to someone. Risk is the likelihood (whether high or low) of the harm being caused. Importantly, risk increases as both the severity or likelihood of the harm increases. Working with risk assessments The principles of risk assessment are based on common sense. Familiarity with the basis of risk assessment will make the process a natural part of your day to day work and will give you the mental skills to deal effectively with hazards on site. However, it is important to write down a summary of the risk assessment process so there is a record of it and so that other people can refer to it. A range of HSE and other guidance is available that will allow you to develop a system suitable for you and your business.
6

Managing risk Having identified a hazard and assessed the risk involved, consider how the risk might be reduced to a level as low as reasonably practicable by looking at:

• •

Removal of the hazard by re-planning the work process or activity Accepting the hazard will remain but re-planning of the work process or activity to reduce the likelihood of harm happening or to reduce the severity of the consequences if it does.

Either option will involve a consideration of the method of working and if necessary documenting a ‘Safe system of work’ or ‘Method statement’ for the activity.

Before visiting premises/sites
When you receive instructions to inspect a site or premises, make sure you get relevant information about the property, identify likely hazards and carry out a risk assessment. You must make as full an assessment as reasonably possible, consulting with others as necessary. The sorts of factors you need to take into account include: Travelling to and from site • Plan the journey to avoid driving too fast, for too long or when tired • Be aware of where to park (clear, secure, easy to exit, well lit). Lone working • Is lone working a safe option and if so what provisions are made for communications in an emergency. Does the office have a record of employees’ mobile numbers? • Who has a record of where the lone worker is and when to expect them back in the office or at home? • Have procedures been made for regular ‘check-in’ calls? • How would access for rescue be achieved? • Does a lone worker suffer from any medical condition which could affect personal safety, ie epilepsy, diabetes, etc? Condition of site • If a construction site, what stage has been reached? hat are the site rules? • Are the premises known to be derelict or in poor condition, and if so what is the extent and nature of the damage? • Are areas to be defined as unsafe for access? • Are security measures in force and how is access to be gained? • Is protective clothing or special equipment needed (see later)? Occupation • Is the property occupied? If so, does the occupant know you are coming and have they made any special access arrangements? • Who are you likely to encounter on the building or site, eg children, squatters, vagrants, animals? • Are the occupants or neighbours likely to be aggressive or disaffected?
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Surveying safely Your guide to personal safety at work

Activity • If a building/site is occupied, what is the nature of that occupation, i.e. residential, manufacturing, warehousing, etc, and what might you encounter, e.g. noise, fumes, vehicle movements, electronic equipment etc? Site rules and welfare • Does the client/premises manager have ‘house rules’? • Are there ‘Permit to work/enter’ procedures to be followed? • If a site, is there a ‘Construction phase health and safety plan’ including induction procedures to be followed? • Might toilet, wash and first aid facilities be needed and how will these facilities be provided? High structures • If a scaffold exists, it is safe to use? When it was last inspected by a competent person? • Are any towers, masts or tall chimneys involved? • Are they to be inspected, and if so how will they be accessed? • Is a ‘cherry picker’ or other special access equipment needed and who is to provide/manage it? Dangerous substances • Is the inspection likely to bring you into contact with hazardous substances such as chemicals, radiation, asbestos, gas or other noxious atmosphere, explosives etc? • Are records such as a Register of Asbestos Containing Materials or environmental reports available? What do they reveal and what special precautions need to be taken? Diseases • Is the nature of the site such that it could be contaminated with any form of clinical waste? • Are you likely to encounter used syringes/needles, condoms, razor blades etc? • Could the site be a source of anthrax which, for example, could be present in haired plaster? • Could legionella be present in disused water storage systems? • What hazards might arise from vermin (eg Weil’s disease)? Special access • Will special access arrangements be required (eg underground) and who will provide it and manage it? • Is special training needed? Special risks • Is the nature of the building or site such that it presents special hazards, eg railway premises, security establishments, confined spaces, plant rooms, etc? Special equipment In certain circumstances any of the following equipment may be necessary: • Gloves • Respirator or face mask • Safety helmet

8

• • • •

Ear defenders Eye protection Boots Temporary lighting

Having considered the ‘physical hazards’ that might exist, you need to consider these in the light of personal and environmental issues: Environmental • Will weather conditions and/or light levels increase risk? (eg windy conditions and high structures) • Will temperature extremes present a hazard? Personal • Does gender or level of fitness have any bearing on the hazards which have been identified? Pregnant or nursing mothers need special consideration. Would lack of fitness present a hazard in itself? • Are special skills needed and do you have those skills? • Do you have any phobias or suffer from vertigo or claustrophobia that would impair judgement with regard to personal safety? The above lists are by no means exhaustive and the extent to which any of the items might be relevant in a particular circumstance will vary.

Arriving and during visits to premises/sites
However well a survey or inspection is planned in advance, you need to be alert to matters that are unknown until arrival at the premises or site. This may arise simply through a general lack of information about the site, or because the condition of the property, its occupation or other factors have changed unexpectedly. Review the risk assessment as necessary and be alert during the inspection to other hazards such as. Structures • The chance of partial or total collapse of: • Chimney stacks, gable walls or parapets • Leaning, bulged and unrestrained walls (including boundary walls) • Rotten or corroded beams and columns • Roofs and floors. Timbers and glass Rotten and broken floors and staircases. Flimsy cellar flaps and broken pavement lights Floorboards, joists and buried timbers weakened by age, decay or attack Projecting nails and screws, broken glass Glazing in windows and partitions may be loose, hinges and sashcords weak or broken. Glass panels in doors and winglights may be painted over.

• • • •

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Surveying safely Your guide to personal safety at work

Roofs • Fragile asbestos cement and plastic coverings • Fragile rooflights (often obscured by dirt or temporary coverings) • Low parapets or unguarded roof edges, loose copings • Rusted, rotten or moss covered fire escapes, access ladders and guard rails • Rotten roof decking and joists • Slippery roof coverings (slates, moss or algae covered slopes) • Broken access hatches • Mineral wool dust, mortar droppings and birds’ nesting material and excrement in roof voids. Cornered birds and vermin • Insects, including bee and wasp colonies • Water cooling plant may harbour legionella • Unguarded flat roofs • Broken, loose, rotten and slippery crawling boards and escape ladders • Weak flat roofs and dust covered rooflights • Slippery roof surfaces • High winds during roof inspection • Ill-secured or flimsy, collapsible, sectional or fixed loft ladders • Concealed ceiling joists and low purlins • Ill-lit roof voids. Unsafe atmospheres • Confined spaces with insufficient oxygen including manholes, roof voids, cellars, vaults, ducts and sealed rooms • Rotting vegetation which may consume oxygen and give off poisonous fumes • Accumulation of poisonous of flammable gases in buildings on contaminated land • Stores containing flammable materials such as paint, adhesives, fuel and cleaning fluids • Hazardous substances, including toxic insecticides and fungicides • Gas build-up in subfloor voids. Danger from live and unsecured services • Electricity, gas, water and steam supplies • Awkward entrances into sub-stations and fuel stores • Temporary lighting installations: mains connections and generators • Buried cables and pipes • Overhead electrical cables. Hidden traps, ducts and openings • Lift and services shafts, stairwells and other unguarded openings • Manholes, including those obscured by flimsy coverings. Cesspools, wells and septic tanks. Intruders and others • Physical dangers from squatters, vagrants or guard dogs • Disease risks from discarded syringes and condoms • Structures weakened by vandalism or arson • Aggressive tenants or property owners.

10

Contamination • Asbestos, lead and other substances hazardous to health • Chemicals in storage or leaked • Contaminated water supplies • Contaminated air conditioning systems (legionella) Rural Environments Hazardous operations such as tree felling or tractor work Shafts, holes, pits, ditches, etc Farm animals Chemicals in storage or in use.

• • • •

Vermin and birds • Rats and mice (Weil’s and other diseases) • Bird droppings • Lice and fleas may be present in bedding, soft furniture and carpets. Securing the site and leaving • Upon completion of the visit, the property should be left secure • Inform any occupier or staff in site office that you are leaving • Someone in the office or at home should know where you are and when you are due to return. Let them know as you leave and confirm when you expect to be back.

Safety of yourself and others
All employees of any organisation must, under the health and safety legislation, take reasonable care of their own health and safety and that of others who may be affected by their acts or omissions. As well as cooperating with their employer as necessary to help their employer to comply with their statutory duties. It is equally a criminal offence for you to intentionally or recklessly interfere with or misuse any thing provided in the interests of health, safety or welfare. If you are a manager within an organisation you are also personally liable if you do not carry out the health and safety responsibilities associated with your duties. Safety of yourself • Make sure you are familiar with your organisation’s health and safety policy and arrangements for implementing safe working procedures • Comply with the office safety policy and ensure that any equipment you may use is in good and safe condition • Comply with your organisation’s safe systems of work, or ensure one is put in place prior to carrying out work, particularly where a risk assessment shows that a hazard exists • Refuse to condone unsafe working practices by yourself or others and distribute information on hazards • Make sure your advice to clients will minimise the risk to the health and safety of others

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Surveying safely Your guide to personal safety at work

• •

Make sure you are aware of any hazards which may exist, together with any safe working instructions, which have been issued by clients prior to carrying work at their premises If you are working alone, make sure you follow your organisation’s lone working procedures.

In other words, follow the dictates of common sense. Safety of others You are responsible for anyone under your supervision, particularly those in training or who are inexperienced, and also towards anyone who may be affected by your or their work.

• • • • • •

Make sure anyone in your charge takes the right equipment with them on visits. Check that they know how to use it and that it is safe to use Make sure a suitable and sufficient risk assessment has been carried out of the tasks to be performed, and a safe working method is in place that has been communicated to and understood before any field work taking place Make sure everyone has suitable and sufficient information, training and instruction on health and safety matters for the task in hand Check available records of hazards on particular sites and make sure that all relevant people are notified Make sure, wherever necessary that precautions are put in place to safeguard anyone who may be in the vicinity of works and unaware of the possible hazards Make sure the right equipment is used. Helmets, safety shoes, ear defenders, face masks, overalls, torches and batteries. Do not use any equipment that is defective – report it to your employer.

Finally, the best way to ensure safe practice by people in your charge is to set a good example.

Your legal duties
Criminal liability The wide ranging requirements of the Health and Safety at Work etc Act 1974 are implemented principally through the Management of Health and Safety at Work Regulations 1999. These must be followed to make sure there are satisfactory and safe systems in place for the carrying out of surveying activities, many of which by their very nature (particularly when working alone) must be regarded as hazardous activities. The regulations need you to have a health and safety policy and to have effective management systems in place for the planning, organisation, control and review of safe working practices (identified through the risk assessment). You will find the key elements of such systems in HSE publication HS(G) 65 – Successful Health and Safety Management. Not taking the necessary actions to protect people from avoidable dangers in the workplace is in itself a criminal offence and charges may be brought against both the organisation, the directors/partners and individual managers for non compliance with any health and safety regulations. An accident does not have to happen before action is taken against you for non-compliance. If action is taken, it is for you to prove everything reasonably practicable was done to comply with the relevant legislation.
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Employers may develop generic sets of safe working practices for each activity carried out. However, individual managers/team leaders also have a further responsibility for making sure any generic safe working practices are either sufficient or expanded as necessary for any particular activity taking place within their area of responsibility (Armour v Skeen, see case studies). Equally employees must be given sufficient training in hazard identification and reduction/ control techniques to ensure that any non-foreseeable hazards arising during the course of their work do not give rise to otherwise avoidable accidents occurring. Civil liability Employers and employees owe a duty of care to anyone who may be affected by their actions, where effects of their actions are reasonably foreseeable. The duty to provide safe systems of work is illustrated by the judgement in General Cleaning Contractors v Christmas which stated: ‘It is the duty of the employer to consider the situation, to devise a suitable system, to instruct his/her men what they must do, and supply any implements which may be required.’ An increasing area of liability in negligence is that of stress through work overload, particularly in cases where the result is reasonably foreseeable (Barber v Somerset County Council see case studies). Key regulations This publication sets down the background to health and safety legislation as it affects the work of surveyors. Bearing in mind the wide ranging nature of the profession it is not intended to specify every piece of health and safety legislation, code of practice or guidance notes published by the HSE. The employer or employee must seek out the relevant information themselves. Where in doubt get specialist advice.

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Surveying safely Your guide to personal safety at work

Case studies
Criminal offence caused by neglect of director, manager or secretary of an organisation Armour v Skeen Strathclyde Regional Council and its director of highways were both prosecuted following the death of one of its employees due to lack of a safe system of work and failure to make notification of certain works taking place. While it was held that it was SRC (as the body corporate ) that had committed the offence, its director of roads (being a manager or similar officer within the meaning of the Health and Safety at Work etc Act 1974) was found to have been negligent in not having a sound safety policy, developed from the authority’s overall policy, in place for his department, failing to provide information to his subordinates, and failing to provide training and instructions in safe working practices. Criminal offence caused by failure to ensure persons not in an organisations employment were not exposed to safety risks A heating engineer was working on a development in Fitzroy Square, London. He climbed an unguarded ladder to a half platform from which he fell some 2.5metres and suffered fatal injuries. The principal contractor on site had not carried out a risk assessment in the area in the engineer was working, the half platform had no edge protection, nor had the area been declared an exclusion zone. The principal contractor was found guilty of failing to make sure people not in their employ were not exposed to health and safety risks under S3(1) of the Health and Safety at Work etc Act 1974. Criminal offence caused by employer’s failure to manage asbestos High street retailer Poundstretcher Ltd was ordered to pay £15 000 in fines and costs after exposing employees to asbestos fibres. A routine inspection by environment health officers found damaged asbestos insulation boarding and asbestos debris on the floor. Employees had been exposed to asbestos fibres over a period of time during routine work activities. Civil liability for safe systems of work General Cleaning Contractors v Christmas A person was employed by a contractor to clean the outside windows of a club. To carry out this work he stood on the sill on the outside of the window, using one hand on the window sash to steady himself. The second sash fell on to his fingers, causing him to let go, fall and injure himself. It was decided, in the House of Lords, that his employers were negligent in failing to devise a safe system for carrying out such operations on the properties their employees had to visit. And they ought to have instructed their employees how to avoid accidents and supply any implements that may be needed. Civil liability relating to stress at work Barber v Somerset County Council The House of Lords decision published in April 2004 is the leading case relating to stress at work. Mr Barber was a teacher who was forced to take three weeks off work due to stress, which was known to his employers. When he returned to work, his employers took no action to help, monitor his situation or reduce his workload. This resulted in his being forced to retire through work related stress and the court awarding him £100 000 damages.

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For more information
www.rics.org www.hse.gov.uk www.hse.books.com www.shponline.co.uk www.iosh.co.uk www.rospa.com www.britishsafetycouncil.co.uk http://agency.osha.eu.int/ www.aps.org.uk

15

www.rics.org
RICS is the mark of property professionalism worldwide, promoting best practice, regulation and consumer protection for business and the community. It is the home of property related knowledge and is an impartial advisor to governments and global organisations.

The Royal Institution of Chartered Surveyors 12 Great George Street Parliament Square London SW1P 3AD United Kingdom T +44 (0)870 333 1600 F +44 (0)207 334 3811 contact@rics.org www.rics.org

Oct 2004/5 000/40236/D.Freeman

PART 5, SECTION 2

SECTION 5.2: CONSTRUCTION (DESIGN AND MANAGEMENT) INFORMATION
Health and Safety, and CDM in particular, is a growth industry and is supported by a plethora of books, publications and other sources of reference. The number of publications is daunting and the members of the RICS working party on CDM are frequently asked for advice in this respect. In response to this, guidance has been prepared which is based on the personal experience of the working party members. The list is not exhaustive and has been prepared impartially without inference or preference or ranking and no doubt there are many other equally suitable sources of information not included. Other eminent organizations, not the least of which is the Library Service of the Institution, produce reading lists which contain much more comprehensive information, if this is required. This schedule attempts to meet the widest needs, ranging from introductory background for the beginner to more detailed coverage on specific topics for the more experienced reader. A variety of available media has been included such as videos and audio tapes, as well as the written word. Where possible, data has been collated on a functional basis under the heading of the various representatives of the project team for whom it is felt that the information is most useful.

THE RICS HEALTH AND SAFETY IN CONSTRUCTION PRACTICE PANEL

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5.2.1.

Schedule of Sources of Useful CDM Information

Regulations
The Construction (Design and Management) Regulations 1994, HMSO, 1994 [0110438450] The Construction (Design and Management) (Amendment) Regulations 2000, HMSO, 2000 ‘Managing Construction for Health and Safety’ Construction (Design and Management) Regulations 1994. Approved Code of Practice and Guidance, HSC, 2001 [071 7621391] The Construction (Health, Safety and Welfare) Regulations 1996, HMSO, 1996 [0110359046]

Accident Awareness/Statistics
‘Blackspot Construction’ – Study of fatal accidents in the building and civil engineering industries 1981–1988 (out of print), HSE, 1988 [0118839926] ‘Not Just an Accident.’ Video, CIRIA, 1993 [Video SP100V] Health and Safety Statistics of HSE 2000/01, HSE, 2000/01 [0717621103]

Risk Assessment
5 Steps to Risk Assessment, HSE, 1998 [0717615804]

Clients
Engaging an Architect: Guidance for Clients on Health and Safety, RIBA, 1995 [1859460062] Clients and The CDM Regulations: What You Need to Do, APS, 2002 Construction Sheet No. 39 Construction (Design and Management) Regulations 1994: The Role of the Client, HSE, 2000 [CIS 39]

Clerk of Works
The CDM Regulations: Their Implications for Practice. A Guidance Note for Clerk of Works, ICW GB

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Forms of Appointment for Planning Supervisors
Form of Appointment as Planning Supervisor, RIBA, 2000 [PS/99] Form of Appointment as Planning Supervisor, APS, 2000 [FOA/2000] Where a Consulting Engineer is Engaged to Act as Planning Supervisor, ACE, 1995 [Agreement F]

Designers
Designing for Health and Safety in Construction (The Green Book), CONIAC, 1995 [0717608077] CDM Regulations Case Study Guidance for Designers: An Interim Report, CIRIA, 1995 [0860174212] Information on Site Safety for Designers of Smaller Building Projects, by Sylvester Bone, HSE, 1995 [0717607771] A Safer Bet: An Introduction to the Principles of the CDM Regulations 1994, CERCI, 1995 [Video 1898671044] Out of Print Construction Safety Sheet No. 41. Construction (Design and Management) Regulations 1994: The Role of the Designer, HSE, 1995 [CIS 41] Site Safety Handbook, CIRIA, 2001 3rd edition [08 601 78005] Building Design: Easibrief. CDM Primer by Henry Haverstock, Building Design, 1997 Out of Print

Planning Supervisor
Construction Sheet No. 40. Construction (Design and Management) Regulations 1994: The Role of the Planning Supervisor, HSE, 2000 [CIS 40]

CDM Documents
(See also ‘Comprehensive Guidance’) Construction Sheet No. 42: CDM – The Pre-Tender Stage Health and Safety Plan, HSE, 1995 [CIS 42] Construction Sheet No. 43: The Health and Safety Plan During the Construction Phase, HSE, 1995 [CIS 43]

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Construction Sheet No. 44: The Health and Safety File, HSE, 1995 [CIS 44] The Building Centre Maintenance Manual & Health and Safety File, Building Centre Trust, 1997 [0901919136]

Comprehensive Guidance
CDM Regulations: How Do Regulations Affect You? HSE, 1995 [PML 54] Out of Print A Guide to Managing Health and Safety in Construction (The Brown Book), HSC, 1995 [0717607550] CDM Regulations Explained by Raymond Joyce, Thomas Telford 2nd edition 2001 [0727730363] Croner’s Management of Construction Safety (includes 2 updates and 12 newsletters p.a.), Croner, 1997 CDM: The View from Here, CITB, 1995 [GCI] Health and Safety in Construction, HSE, 1996 [HS G 150] [0717621065] Construction Health and Safety Manual (includes 2 updates/year), CIP, 1997 [1852630 027]

Specific Hazards
Safety in Excavations, HSE, 1997 [CIS 8 rev] Tower Scaffolds, HSE, 1997 [CIS 10 rev] Inspections and Reports, HSE, 1997 [CIS 47] General Access, Scaffolds and Ladders, HSE, 1997 [CIS 49] Dust and Noise in the Construction Process, Contract Research Report, HSE, 1995 [CRR73] [0717607682] Control of Substances Hazardous to Health in Construction by HSC, HMSO, 1990 [M20 6/90] Out of Print Prevention of Falls to Window Cleaners: Guidance Note, HSE, 1991 [GS 25 0118856820] Out of Print

Contractors
(See also ‘Comprehensive Guidance’)

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Safety Policies for Construction – BEC Guide, BEC, Newsletter [SPOL] Construction Safety Manual (2 Volumes), BEC, 1997 [CHSMAN] Construction Site Safety: Safety Notes Loose-leaf, CITB, 2000 [GE 700] CD-Rom

Audio Tapes
CONDAM – CDM Regulations. RICS and College of Estate Management, Owlion 1995 [ASP 10100] Construction Radio: Talking Point on the CDM Regulations, CITB, 1995 [AT 1] Health and Safety in Property. RICS and College of Estate Management, Owlion, 1995 [ASP 17230]

Key to References Used
Name ACE (Association of Consulting Engineers) Address Alliance House 12 Caxton Street London SW1H 0QL Telephone 020 7222 6557

APS (Association of Planning 16 Rutland Square Supervisors) Edinburgh EH1 2BB Building Centre Trust The Building Centre 26 Store Street London WC1E 7BT CMP Information City Reach 5 Greenwich View Place Millharbour London E14 9NN 26 Store Street London WC1E 7BT

0131 221 9959 020 7692 4000

Building Design

020 7861 6467

CIC (Constructio Industry Council)

020 7637 8692 020 7222 8891

CIRIA (Construction Industry 6 Storey’s Gate Research and Information London SW1P 3AU Association) CITB (Construction Industry Training Board) CITB Publications Bircham Newton Kings Lynn Norfolk PE31 6RH

01485 577577

CONIAC (Construction HSE Books Industry Advisory Committee) PO Box 1999 Sudbury Suffolk CO10 2WA

01787 881165

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Construction Federation

Construction House 56–64 Leonard St London EC2A 4JX Croner CCH Group Ltd 145 London Road Kingston upon Thames Surrey KT2 6SR HSE Books PO Box 1999 Sudbury Suffolk CO10 2WA 1st & 2nd Floors The Old House The Lawns 33 Thorpe Road Peterborough PE3 6AD Bracknells Lane Garston Watford WD25 9XX RICS Books Mail Order Surveyor Court Westwood Business Park Coventry CV4 8JE 66 Portland Place London W1B 4AD

020 7608 5000

Croner

020 8547 3333

HSE/HSC (Health and Safety Executive/Commission)

01787 881165

ICW GB (Institute of Clerks of Works of GB)

01733 564 033

LPC (Loss Prevention Council) Owlion

01923 66 4000

020 7222 7000 (mail order)

RIBA (Royal Institute of British Architects) The Stationery Office (previously HMSO) Thomas Telford Publishing

020 7580 5533 0870 600 5522

The Institution of Civil Engineers 1 Great George Street London SW1P 3AA

020 7987 6999

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PART 5, SECTION 3

PART FIVE: ADDITIONAL GUIDANCE AND INFORMATION
SECTION 3: BUILT ENVIRONMENT GROUP ROLES AND INFORMATION
Introduction
The articles and guidance published in the Construction Handbook are largely the responsibility of three faculties and their associated forums. The contributing faculties are: BUILDING SURVEYING The Building Surveying Faculty aims to increase the public perception and appreciation of the core values offered by a building surveyor and in particular the building surveying specialisms. The faculty wants to be identified as the principal source of knowledge and innovative thought on building surveying matters. It also seeks a clearer understanding for the public, employers, media and other construction professionals of the skills building surveyors hold and an awareness of what can be added through their appointment. CONSTRUCTION The Construction Faculty is responsible for: • strategic construction consultancy; • construction management, economics, planning, contracts and materials procurement, management, and health and safety relating to all forms of construction; and • surveying profession services in civil, heavy, mechanical, electrical, petrochemical and instrumentation engineering. PROJECT MANAGEMENT This Faculty is responsible for project management in the property and construction industries. The associated forums are: BUILDING CONTROL The Building Control Forum was initially established as a consequence of the members of the former Institute of Building Control (IBC) taking up membership of RICS on 1 January 2001. It represents the building control discipline within RICS but also has a remit to provide a mechanism for all those interested, involved or affected by building control issues to network. It currently has a membership of approximately 4000.
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BUILDING CONSERVATION The Building Conservation Forum was founded in 1987 to develop a forum for chartered surveyors linked by common interest in conservation. Since its formation the forum has contributed to increasing the profile of building conservation. It represents the building conservation discipline within RICS but also has a remit to provide a networking mechanism for all those interested, involved or affected by building conservation issues. It currently has around 1000 members. The forum runs an accreditation scheme for surveyors in conservation. This highly respected scheme was started to help surveyors win church work and grant-aided work. Now there is an architects’ accreditation scheme in operation and one for engineers in prospect. English Heritage and Historic Scotland will be making it a requirement that professionals involved in grant-aided work be accredited by their professional organisation. The forum publishes a regular series of short guides on matters related to historic buildings, and has arranged an active programme of events for members. Most of these are low cost, and are a very pleasant way to achieve CPD. The events range from an annual seminar to half-day visits to work in progress at historic buildings. I 5.3.1 Faculty working groups and committees of selected members have the following roles in respect of defined spheres of surveying services: • • • • • • to help members meet the market’s requirements for their professional services; to respond to consultation papers from other bodies on the content of professional services and to developments in the market; to produce or contribute to responses to government consultation papers; to assist in answering queries on the content and quality of professional services (from members, lawyers, the public, the media, etc.); to make strategy recommendations for new marketing activity and to assist in the implementation as appropriate; and to receive market briefings and advice on developments in the market and to provide appropriate support to members.

Groups and committees fulfil these roles primarily by providing these types of outputs: • • • • • •
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Practice Statements, Guidance Notes, and Information Papers, after consultation with members; information and articles in RICS Business and (if produced) faculty journals; electronic communications; dedicated web-sites; model and standard conditions of engagement and standard services, e.g. Appointing a Building Surveyor (guidance note); seminars and conferences;
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• • • I 5.3.2

representations to other bodies; advice to others on the content of professional services; and proposals for marketing and policy initiatives.

Faculty working groups and committees are responsible for producing material for this handbook. Within the Faculties and Forums department there is a Professional Information Section which provides a free professional and technical enquiry service. The section can be contacted: • • • by telephone on +44 (0)20 7334 3791; by fax on +44 (0)20 7334 3844; or by email to profinfo@rics.org.uk

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5.3.3

Working groups and committees are not permanent and are subject to continuous review. The following working groups are currently in existence and are listed by faculty: BUILDING SURVEYING FACULTY Asbestos – management of asbestos regulations, guidance and related asbestos matters. Building Insurance and Assessment of Claims Construction Administration and Management Building Survey and Maintenance Dilapidations DDA Construction Design and Economics – certification of domestic structures Boundaries and Party Walls CONSTRUCTION FACULTY IT – working with construction IT Railways – cost planning and cost control of major infrastructure projects and maintenance contracts Cost Planning Taxation – capital allowances, etc. Health and Safety Oil and Gas M&E Engineering JCT Consultant QS Procurement Contractors

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PROJECT MANAGEMENT FACULTY Project Management – PM Agreement FACULTY CONTACTS The relevant faculties can be contacted by Email at the following addresses: Building Surveying: Construction: Project Management: bs.faculty@rics.org.uk construction.faculty@rics.org.uk pm.faculty@rics.org.uk

or by fax on +44 (0)20 7334 3844. GENERAL ENQUIRIES For general enquiries, please get in touch with the RICS Contact Centre on +44 (0)870 333 1600, by Email at contactrics@rics.org.uk or by post to: RICS Contact Centre Surveyor Court Westwood Way Coventry CV4 8JE United Kingdom If you already know who you need to speak to, please call our main switchboard on +44 (0)20 7222 7000. The postal addresses of our headquarters (Parliament Square) and two other central offices are: RICS 12 Great George Street Parliament Square London SW1P 3AD United Kingdom RICS Surveyor Court Westwood Way Coventry CV4 8JE United Kingdom RICS 3 Cadogan Gate London SW1X 0AS United Kingdom

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SECTION 5.4: BUILDING COST INFORMATION SERVICE (BCIS)
I 5.4.1 BCIS provides current, accurate building cost and tender price information for the construction industry and the property market. It is regarded as authoritative, reliable and useful by subscribers, who include quantity surveyors, building surveyors, general practice surveyors, architects, engineers, building contractors, developers, financial analysts and property owners in both public and private sectors. The BCIS database is collated by analyzing unique data submitted by members and incorporates material from all other relevant sources. The information is interpreted by BCIS professional staff and presented to subscribers in two accessible and practical formats: the comprehensive BCIS Bulletin Service, which provides hard copy data; and BCIS Online for those preferring to receive it electronically via the internet.

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5.4.2

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5.4.3 BCIS Online
BCIS Online gives direct access to the BCIS database of information and is therefore always complete and up-to-date. It includes the following information.

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5.4.3.1

ANALYSES Elemental analyses have been at the heart of BCIS since the first printed service was launched. Using analyses allows the cost of a new building to be forecast using examples of buildings priced in the market place. BCIS Online has a search capability which allows you to quickly and easily find the most appropriate examples to match your current project from the database of over 14,500 projects. Subscribers can also automatically recalculate the costs to reflect a selected location and date.

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5.4.3.2

INDICES BCIS compiles a full range of building cost, tender and output indices; a range of derived regional tender price indices and trade price indices; together with indices for certain sub-markets in the construction industry. A wide range of background statistics is available, including consumer prices, construction output and new order statistics.

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5.4.3.3

AVERAGE PRICES BCIS average prices can be used to give indicative costs prior to producing elemental estimates and they can also be used as a cost check. Five studies are available: • £/m2 study; • Element cost per m2;

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• Element unit rate study; • Functional unit prices; and • Group element prices I 5.4.3.4 BRIEFING BCIS Online Briefing carries the latest news in areas of key importance to the construction economy, together with the BCIS commentary and background to the forecasts. This section also includes the annual BCIS Five Year Forecast. I 5.4.3.5 STUDIES Tender price studies report on the effect on tender prices of location; regional trends; selection of contractor; building function; building height; type of work; site conditions and contract sum. Contract percentage studies report on preliminary percentages and percentage additions to PC sums. I 5.4.3.6 DAYWORKS BCIS interprets the definitions of prime cost of daywork for all the main types of operative in the industry. Current and historic base rates are provided, together with the build-up for the latest rates. Details of construction wage agreements, national insurance and CITB levy supplement this part of the service.

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5.4.4 Other BCIS Publications and Services
5.4.4.1 BCIS Review Online provides access to summary level information for the BCIS Database. It includes the following sections: • Indices BCIS Cost and Tender Price Indices are available together with Retail Price Indices. • Average Prices Two studies are available: • £/m2 study • functional unit prices Briefing BCIS Review Online Briefing carries the latest news in areas of key importance to the construction economy. Together with the BCIS commentary and background to the forecasts. This section also includes the annual BCIS Five Year Forecast.

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Studies Tender price studies report on the effect on tender prices of location; regional trends; selection of contractor; building function; building height; type of work; site conditions and contract sum. I 5.4.4.2 QUARTERLY REVIEW OF BUILDING PRICES The BCIS Quarterly Review contains a selection of BCIS data which gives guidelines on the general level of building prices. It also carries a brief commentary on market conditions and tender prices, location factors and average £/m2 building prices. I 5.4.4.3 BULLETIN SERVICES BCIS Bulletin Services contain information selected from the BCIS database published in regular bulletins. They include: (a) Indices and Forecasts

Published quarterly, this bulletin contains a complete series of BCIS indices, including tender prices, regional prices, input costs and output costs. It also has an executive summary, commentary on market conditions and projected trends. (b) Surveys of Tender Prices

This quarterly publication contains a range of current pricing studies and an update of the BCIS Tender Price Index. (c) Elemental Analyses

The key source of price information from accepted tenders available at either concise or detailed level. Detailed analyses break down tender prices into 34 elements. Published quarterly. (d) Labour, Hours and Wages and Dayworks

BCIS publishes details of the principal wage rates in the building and allied industries. The information shows the rates and operative dates for current and recent settlements. (e) Digests

Digests give the source of publication and a brief summary of articles on construction economics. I 5.4.4.4 GUIDE TO DAYWORK RATES AND UPDATING SERVICE This annual guide covers the daywork rate for 63 grades of operative. An updating service informs subscribers of any changes. I 5.4.4.5 RICS SCHEDULE OF BASIC PLANT CHARGES For use in connection with Daywork under a Building Contract. The 2001 edition of the schedule has been revised and extended to reflect the types of plant likely to be available on a building site.
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5.4.4.6

GUIDES TO DOMESTIC REBUILDING COSTS FOR INSURANCE PURPOSES (a) Guide to House Rebuilding Costs

This annual guide is widely used by professionals when assessing rebuilding costs for insurance valuations. It contains sixteen main tables of costs for: • four regional groups; • five house types; • three sizes of house; and • three quality specifications (b) Guide to Rebuilding Cost of Flats

This new guide provides cost per unit area tables for: • modern low-rise and medium-rise flats which will be applicable to many flats built post 1950; and • flats in converted houses built between 1900 and 1950 which will also be applicable to low-rise purpose built mansion blocks Additional cost advice is given to help to adjust the base figures for a range of specific circumstances. (c) Regional Supplement

The Regional Supplement contains separate tables of costs for each of the Standard Regions. It helps surveyors and valuers take account of differences in various parts of the country. (d) ABI/BCIS House Rebuilding Cost Index

This index assists in the updating of the figures in the guides between the annual issues. A monthly figure is circulated to all subscribers.

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5.4.5 Further details are available from:
BCIS Ltd 12 Great George Street Parliament Square London SW1P 3AD Tel: 020 7695 1500 Fax: 020 7695 1501 Email: bcis@bcis.co.uk Website: www.bcis.co.uk

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SECTION 5.5: BUILDING OCCUPANCY COST INFORMATION (BMI)
5.5.1 BMI provides an independent cost information service for professionals in facilities management, maintenance and refurbishment. Subscribers are provided with information on current, historic and forecast costs of building maintenance and occupancy in a readily accessible form. The BMI information will help in budgeting, forecasting, benchmarking, cost control, contract administration and life-cycle costing. The publications listed below are included in the full BMI subscription service but are also available separately.

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5.5.2 BMI Quarterly Cost Briefing
The BMI Quarterly Cost Briefing provides information o current and forecast trends in maintenance costs making it an essential tool for the facilities and maintenance manager. Cost indices track the general movement of costs in different industry sectors allowing users to monitor their own costs against general maintenance cost inflation. Indices are included for: • redecoration; • fabric maintenance; • services maintenance; • cleaning (labour and materials); • lift service labour; and • energy (coal, gas, fuel, oil, electricity)

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5.5.3 Building Maintenance Price Book
The BMI Building Maintenance Price Book is the only annual guide to estimating and pricing exclusively for building maintenance and repairs. The Price Book gives labour constants and measured rates for over 1,300 items as well as current wage rates and materials prices. It contains guidance on letting maintenance work. It is a valuable working document for all those involved in estimating, checking and negotiating rates for maintenance and repair work. It is widely used as a schedule of rates to ensure competitive prices.

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5.5.4 Special Reports for Benchmarking
BMI publishes regular reports on maintenance, occupancy and rehabilitation costs covering a range of common building types, detailed occupancy cost plans and special benchmarking studies. The annual surveys of information provide estimated annual average costs for a range of common building types: • maintenance (redecoration, fabric, services); • occupancy (cleaning, utilities, administrative costs); and • rehabilitation. Detailed occupancy cost plans for typical buildings show maintenance and occupancy costs projected over a 20 year period. Two plans a year are published and recent examples include retail centres and sports centres.

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5.5.5 News, Digests and Reports
BMI also monitors changes in the maintenance and facilities management industries and reports the findings to keep subscribers up to date. BMI occasional reports include: • The Economic Significance of Maintenance; and • Guide to Information Sources for Facilities Management BMI News summarizes the latest industry developments and contains statistical and editorial articles designed for quick reading to keep subscribers well informed. BMI publishes digests of articles with a bearing on property occupancy from a wide cross-section of the building maintenance and facilities management press. This information can save subscribers hours of reading time and is backed up with a photocopying service. I 5.5.6 Annual subscription rates, further details, a full list of BMI special reports, up-to-date prices and special rates for chartered surveyors are available by contacting: BMI 12 Great George Street Parliament Square London SW1P 3AD Tel: 020 7695 1500 Fax: 020 7695 1501 Email: bmi@bcis.co.uk

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PART FIVE: ADDITIONAL GUIDANCE AND INFORMATION
SECTION 6: ELECTRONIC DOCUMENT STORAGE – LEGAL ADMISSIBILITY
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Introduction
The production and storage of documents and other information on computer systems has become increasingly common and it is, therefore, inevitable that these stored documents will be used in their electronic form as a basis for business transactions, and will be produced, transmitted and stored in significant numbers. There is a need to store and retain records for professional and legal purposes. However, paper storage is a significant problem for many practices. The quantity of paper produced is increasing year on year and would do so even without expansion of the business. Two factors have led to the increase in the amount of documentation being produced by businesses. First, there is far more regulation being introduced into everyday life, and this is linked directly to a more litigious population. The need is now to be able to prove what actions occurred and when. Secondly, the growth in management systems generally, as previously promulgated in BS EN ISO 9001:1994 and now in BS EN ISO 9001:2000, has led to an increase in documentation. In fact, the processes involved in compliance with ISO 9001 are designed to provide the documentary evidence which will satisfy the regulations which are relevant to the particular business and, it is hoped, provide acceptable evidence in the event of litigation. The requirement for storage also has implications – not least of which is the cost of dedicated storage areas. Storage conditions must be right to ensure that storage is effective. Using a local lock-up garage will probably not be adequate to prevent deterioration of paper copies over a period of time. Increasingly, businesses are turning to electronic storage. This is a medium that requires far less floor space and ensures longer term storage, without deterioration, under the right conditions. However, there are a number of problems related to electronic storage which have to be addressed. In particular, legal admissibility has to be considered: there has to be a certainty that electronically stored documents will have the same weight and validity as the original versions. There is no current standard which guarantees legal admissibility (some countries have made a move towards this), but there is a shift of emphasis away from admissibility towards evidential value or weight which is in line with the Civil Evidence Act 1995. Annex G of the Code of Practice (see Part 1) gives information on relevant national legislation. The purpose of this text is to provide information on the best practice principles which have thus far been identified.

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5.6.1 Code of Practice – DISC PD 0008: 1999 A Code of Practice for Legal Admissibility and Evidential Weight of Information Stored Electronically
There has been considerable discussion about the value of documents stored on a document management system (DMS) when documents are required to be kept as evidence for a considerable time. It has been accepted by most commentators that a common discipline needs to be agreed so that the value of these documents as evidence can be maximised. It has not been possible to develop a set of requirements and may not be for some time. The difficulty is the range of issues which have to be considered, the rate of change of technology and the need to consult our European partners on all legal aspects. The Civil Evidence Act 1995 would have to be updated annually just to keep pace and this clearly cannot happen. Instead, a Code of Practice (DISC PD 0008) has been developed, which is evolving as technology and electronic commercial practices mature. It defines best practice in document management and provides guidance that will help maximise the value and integrity of information in a court of law. First prepared and published in 1996, the Code came about as a result of the merging of the research carried out by two organisations, namely the Legal Images Initiative (formed by the Information and Document Management Association) and the Document Management Forum (a group of the Computing Suppliers Federation). In the absence of a formal set of requirements approved by the courts through case law or by Parliament through the Civil Evidence Act, leading institutions took the view that a Code was required which recognised new technologies and would give a framework which reflected the existing legal precedents but applied to the new technologies. A document entitled Principles of Good Practice for Information Management, written by two of the authors of the Code of Practice, contains a detailed explanation of the background to each of the sections of the Code. The Code of Practice should be used as a basic reference document. It covers data files stored on Write-Once-Read-Many times (WORM) optical storage systems and as such covers WORM, multi-function media systems used in a write-once mode, and compact-disc-recordable (CD-R) systems. It has also been extended from the original version to cover any type of electronic storage medium, including those that are rewriteable. The use of rewriteable media requires additional controls, as it is necessary to be able to demonstrate not only that the correct data was stored in the first place, but also that the data now present has not been modified in any way. It should be emphasised that the Code does not guarantee legal admissibility. It seeks to define the current interpretation of best practice. In this guidance note, where it is stated that an action ‘should’ be carried out in relation to the Code, the word ‘should’ indicates that such action is necessary in order to claim compliance with the Code.

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The Code pays particular attention to the setting up of authorisation procedures and to the subsequent ability to be able to demonstrate, in a court of law, that these procedures have been followed. Whilst the Code defines essential procedures to be implemented, it does not follow that documents held on a system that does not conform are not legally acceptable. It is likely, however, that it will be more difficult to prove their integrity in a court of law. The Code contains examples of compliance statements at Annex I and recommends that the Compliance Workbook PD 0009 be used to demonstrate compliance with the Code.

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5.6.2 Weight of evidence and document destruction
Each business will have its own requirements and it is important to determine, in advance, how a document would be presented to a court of law, and if weight of evidence or courtroom tactics could be unduly influenced by the destruction of the original document, the document storage system or the access control systems. It will rarely be possible to give a definitive recommendation regarding the destruction of original documents because, until there is a request to produce a document, the reason behind the request may not be known. It is the reason for the request that will indicate whether, if possible, the original document should be produced. Each business should consult its solicitor, who will be able to provide a view as to which types of document are most likely to be disputed regarding their authenticity rather than their content. There are different considerations for civil and criminal law. In a criminal case, the prosecution faces a much higher burden of proof ‘beyond reasonable doubt’ than in civil proceedings ‘on the balance of probability’.

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5.6.3 Authenticity
It is important to be able to demonstrate that the computer has been functioning properly (i.e. according to agreed procedures) in order to authenticate documents stored on the system. Documents may be rejected if this cannot be shown. There are three methods for doing this: (1) A maintenance record should be kept recording regular servicing of the equipment and any repair work either by the supplier/maintenance contract or by the in-house IT support where qualified/trained to do this. (2) By having a control set of documents which have been used, scanned and reproduced from the scanned version to set a benchmark for the quality of copy. (3) By keeping proper records of scanning and scanning difficulties, especially of any modifications to settings required. This is explained in more detail below (see 5.6.7).

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In most cases, arguments are over what a document says rather than the authenticity of the document. However, the adversarial legal process means that the other party may try to discredit evidence on the basis of authenticity, to avoid dealing with the content. Arguments over authenticity of evidence can lead to an investigation into the system that produced the paper and the method of storage; operation and access control; and even the computer programs and source code. It could be necessary to satisfy the court that the information is stored in a proper manner. This issue could be used by the opponent to try to discredit the evidence and to make inadmissible that and any similarly stored documents that are produced. By questioning hardware reliability, for example, an opponent could establish, to the satisfaction of the court, that the document storage system is flawed and cannot be trusted. This would allow the whole system to be brought into question and any documents stored within it ruled inadmissible.

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5.6.4 Photocopies, microfilm and image processing
In very general terms, image processed documents will be treated as secondary evidence in the same manner as a photocopy or microfilm image. However, photocopies and microfilm images are admissible as evidence. Indeed, some photocopies use a raster scan copying mechanism which is essentially the same as an image processing scanner. It follows that image processed documents are likely to be admissible with the same weight of evidence as photocopies and microfilm images, although no cases have yet been reported where this has been tested.

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5.6.5 Document storage
It is very important to note that, no matter how an organisation stores business documents, it is the responsibility of the executives of the organisation to be able to produce the documents when required. The company secretary or partners and the manager of the document storage systems are responsible for this document retrieval process, not the vendor of the storage system. Therefore, the advice of the company secretary (or solicitor) should always be sought before implementing any document storage system, particularly when the original documents are subsequently destroyed. The Code recommends that all interested third parties should be consulted, and it would be prudent to include professional indemnity insurers. It could be disastrous for a business to find that it was uninsured because it had introduced a scan and destroy procedure. The procedures by which documents are stored and accessed are vital in satisfying a court of law about the authenticity of a ‘copy’ of a document and the inability to tamper with it. All copies of documents (photocopy, microfilm or image processing) will be treated as secondary evidence by a court of law,

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with a subsequent reduction of weight of evidence if the authenticity of the copy can be questioned. For example, where the content of a document is under question, the original or a copy should be treated with equal weight, but if a signature is being disputed then the original is likely to carry more weight than the copy. There may be some confusion about ‘originals’ and ‘copies’. Many items to be scanned are actually themselves photocopies. The original document may reside in a file elsewhere. It may be necessary, if this is not readily apparent, for the image processing system to indicate whether an image taken was from the original or from a copy of it.

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5.6.6 Storage and access procedures
Due to the duration of storage of many documents, the person who ‘certified’ a system, or a document stored on it, may not be able to give evidence in person. It is essential that a proper system for auditing and certifying is implemented to demonstrate that the integrity of the system has been maintained from the time the document was stored. Regular audits of the system should be performed, and certificates obtained from the company auditors. This is in line with current procedures for microfilmed documents. Although formal affidavits will not usually be necessary, advice should be sought from a company solicitor, particularly if the original documents are to be destroyed. It may help demonstrate the proper functioning of a system if a copy of the audit record is stored in the image system at the time of audit. As well as the specific details included in the Code, users should also comply with the relevant sections of BS 7799-1:2000 – Information Technology – A Code of Practice for Information Security Management. Of major importance to this Code is the Civil Evidence Act 1995. The Act introduces a flexible system whereby all documents and copy documents, including computer records, can be admitted as evidence in civil proceedings. However, the court judge or arbitrator still has to be persuaded to treat the evidence as reliable and so organisations have to put in place procedures to prove the authenticity and reliability of the record. Sections 8 and 9 of the Act address the hub of this issue: 8 (1) Where a statement contained in a document is admissible as evidence in civil proceedings, it may be proved: (a) by the production of that document; or (b) whether or not that document is still in existence, by the production of a copy of that document or of the material part of it, authenticated in such manner as the court may approve.

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(2) It is immaterial for this purpose how many removes there are between a copy and the original. 9 (1) A document which is shown to form part of the records of a business or public authority may be received in evidence in civil proceedings without further proof. (2) A document shall be taken to form part of the records of a business or public authority if there is produced to a court a certificate to that effect signed by an officer of the business to which the records belong. Similar work is being undertaken by the Home Office on a Police and Criminal Law amendment.

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5.6.7 Format of the Code of Practice
The Code of Practice contains an introduction and six sections, each of which includes details of processes and procedures that need to be put into place to ensure conformity with the Code. In addition, there are ten annexes, including one which identifies the changes since the previous edition. Sections 2 to 6 are structured in accordance with a set of five principles established in BSI DISC PD 0010 Principles of Good Practice for Information Management which are as follows: 1) recognise and understand all types of information; 2) understand the legal issues and execute ‘duty of care responsibilities’; 3) identify and specify business processes and procedures; 4) identify enabling technologies to support business processes and procedures; and 5) monitor and audit business processes and procedures. 5.6.7.1 GENERAL Scope The Code describes the use of electronic management systems to store information, where the issues of legal admissibility, authenticity and evidential weight of information contained in these stored documents is important. It is used with a document management system (DMS) incorporating write-once optical media as the storage device, covering Write-Once-Read-Many times (WORM), multi-functional media systems used in a write-once mode, and compact-disc-recordable (CD-R) systems. It now incorporates rewriteable media (for example, magnetic storage).

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The Code covers any type of data file controlled by the DMS. Data files may be created by the DMS, or may be imported into it. The Code covers all such data files, either created or imported, directly or through a network system, from the time at which the system assumes complete control of the data file. Such networks may be local or wide area. While the Code covers aspects of document management that impinge upon the issue of legal admissibility of digitised images, it also covers aspects that may affect the use of images in a legal context, even where admissibility per se is not at issue. Such aspects include the legibility and completeness of the document images, and the transfer of the images to other systems. The Code covers the capture of digitised images both from the original documents and from microform versions of the original documents. In the latter case, users should be aware of the implications of the processes used in the microfilming of the original documents. The Code is intended for: • systems integrators and developers whose equipment provides facilities to meet the requirements of end users; and • end users who wish to ensure that the information created by, entered into and/or stored within the information management systems can be used with confidence as evidence in a court of law. Where users wish to claim adherence to the Code, the paragraphs identified by text in bold type in the Code are considered essential in so far as they apply to the specific application concerned. Other paragraphs contain recommendations in italics that should be followed where practical. DISC PD 0008 was first published by the BSI in 1996, covering legal admissibility of information stored on electronic management systems. It has since been revised and reissued in 1999, and re-titled ‘A Code of Practice for Legal Admissibility and Evidential Weight of Information Stored Electronically’. Prior to this, BS 7799:1995 was published in 1995 setting out best practice for information security management. The Code is heavily reliant on this document, which has now been revised as Information Technology – Code of Practice for Information Security Management. BS ISO/IEC 17799:2000 (BS 7799-1:2000) specifies eight controls which are either essential requirements, for example, legislative requirements, or are considered to be fundamental building blocks for information security. These are designated ‘key controls’ and apply to all organisations and environments. They are intended as a basis for use by organisations setting out to implement information security controls.

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The recommendations for essential controls include the following: a) data protection and privacy of personal information; b) safeguarding of organisational records; c) intellectual property rights. The recommendations for common best practice include the following: a) development of an information security policy document; b) allocation of information security responsibilities; c) information, security, education and training; d) reporting of security incidents; e) business continuity management. BS 7799-1 is to be read in conjunction with BS 7799-2:2002 – Information Security Management Systems – Specification with Guidance for Use.

5.6.7.2

INFORMATION MANAGEMENT POLICY The Code advises that a policy document should be produced, dealing with the policy on: • what information is covered; • security classification, where appropriate; • storage media; • data file format and version control; • relevant information management standards; • retention periods and destruction; • responsibilities; and • legal advice sought and acted upon, including any special regulations. In addition, such bodies as professional indemnity insurers may wish to be consulted. This policy must be approved by senior management and reviewed at regular intervals. It is also recommended that the policy document details the responsibilities for compliance with the Code by identifying a person or job function and specifying retention periods for compliance documentation.

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The requirement for an information retention and destruction schedule is amplified as being critical to the successful implementation of the revised Code. In order to define the organisation’s information management policy, the Code recommends that information should be grouped into types, with the policy for all information within a type being consistent. The policy should list all types which are to be stored in compliance with the Code such as: 1) information generated by a computer system – also known as encoded data files; 2) scanned images/digitised voice and/or video; and 3) information generated at a remote user or third party site, in either of the above two types. 5.6.7.3 DUTY OF CARE It is essential that an organisation is aware of the value of information that it stores and executes its responsibility with regard to that information under the duty of care principle. Appropriate levels of security for managing information should be agreed and documented; systems should be adequately managed; and relevant sections of the Code should be implemented. Consultation with interested third parties at the planning stage, before the system is installed, is also critical. The revised Code contains more details of information security requirements which would be satisfied by compliance with BS 7799. Where the full weight of BS 7799 is not applicable, the controls listed in the Code should be implemented. In any event, there should be business continuity planning to ensure that all data can be recovered successfully following major failures of equipment, environment or personnel. 5.6.7.4 BUSINESS PROCEDURES AND PROCESSES The organisation should develop its own manual for the DMS. This can be incorporated in the quality management system, where the organisation already has one. Such a procedures manual, in addition to any vendor-supplied manuals for the system, should include the following topics: • document capture; • data capture; • indexing;
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• authenticated output procedures; • authentication of copies of data files; • file transmission; • information destruction; • backup and system recovery; • system maintenance • security and protection; • use of contracted services; • use of trusted third parties; • workflow; • self-modifying files; • date and time stamps; • video, audio and voice data (if applicable); • version control; and • maintenance of documentation. Procedures need to be implemented to ensure that staff who operate the system will comply with the requirements. Any changes to procedures have to be documented and checked, and it is necessary to keep copies of previous versions of the procedure. All procedures must be reviewed at least annually and the results of reviews must be documented. Document capture There must be procedures dealing with the situations either where data files are created by the system or where they are imported into the system. If the information management system is used for storing images, then these procedures should be documented and users should comply with the recommendations set out in Annex C of the Code. Preparation of paper documents The Code requires documents to be examined before scanning to ensure that they are suitable. The business should, therefore, have procedures for the examination process documented in its procedures manual.
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Factors which may affect the scanning process should be considered and there must be a procedure to deal with scanning difficulties. There should also be a method for identifying such things as ‘post-it’ notes attached to the original document or physical amendments which might not be visible after scanning. Detailed procedures need to be established for general document preparation and collation. Document batching Wherever possible, documents should be grouped in batches. Where workflow is used, alternative methods of controlling the scanning process may need to be established. Photocopying It may be necessary to photocopy a document prior to scanning and the procedures used must ensure that there is no loss of quality or of the total image. It is also advisable to provide some method of distinguishing between scanned originals and scanned photocopies. Scanning processes The Code requires that the procedures manual should include details of the operational procedures used in the scanning process and that records be kept of all audit trails. In particular, it requires each document to have a unique identity that cannot be changed or removed except on deletion and then only under tightly controlled circumstances. Information held in the records is expected to include as a minimum: • a unique identifier for each batch; • the date and time of scanning; • the name of the person who performed the scanning; • the type of material scanned; • the number of documents; and • details of post-scanning processes, if any. In practice, the scanning software will take care of many of the requirements and a paper record will fill the gaps. (Appendix A shows a specimen form for recording scanning information.) The procedures should also describe how it is ensured that all documents in a batch are scanned.

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Quality control To be able to assess the validity of any scanned copy, it is necessary to prepare a benchmark for evaluation. The operator, using normal settings, should make scanned copies of a range of types and conditions of document. Prints are then obtained through the normal printing process. All hardware and settings are recorded and the quality of each reprint is checked against the originals to ensure it is acceptable by the standards required by the business. (It may be acceptable, for example, for the copy to be fractionally smaller than the original, where no scale is needed or where a drawn scale is available.) This set of prints and originals is retained and periodically rescanned and checked. The Code gives a number of criteria which may be appropriate to the user, including print size and grey scale, which can be used to establish the quality of the scanned image. The results of all quality control checks (including audits) should be recorded, as should any problems or difficulties which are experienced. In addition the equipment should be properly maintained at all times. Rescanning If, following an audit, a document has to be rescanned, the procedures should ensure that the original image is replaced and that the batch numbering and audit trail are not compromised. Image processing If image processing is used to improve the quality of the image, this could conceivably lead to image manipulation. The procedures manual should define how this is managed. Annex D of the Code describes some of the different documents and associated image processing facilities that may be used. Data capture This is mainly used where the original data is provided by such methods as Optical Mark Reading (OMR) or manual entry from an existing document. Procedures need to be established which specify the quality and accuracy level required and that records of accuracy checking are retained. There should also be a procedure to deal with data migration from one system to another.

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Indexing The procedures manual must describe the indexing technique to be used and should include a method for checking the accuracy of the records. This is often built into scanning software and electronic document management systems. Any changes to the index should be fully explained and audit trails dealing with the amendment should be available. The Code also advises that in all cases the index files should be retained for at least as long as the information to which they relate. There should be procedures for rebuilding indexes and for amending/correcting information held in the indexes and ensuring its accuracy at all times. Authenticated output procedures For the prints to be legally admissible, there should be a formal process for recovery whereby the operator certifies that all equipment is operating normally and identifying the storage index data and document information which confirms that the reproduction is a true and complete record. Appendix B shows a specimen retrieval record for a scanned document/file, which allows the operator to effectively certify that the document/file has been correctly retrieved. The Code also places great stress on the authentication process and for controls where the output is not an exact reproduction, for example, monochrome rather than coloured. If some aspect of the layout such as font or pagination is not maintained, then retrieval characteristics must be agreed and documented. Authentication of copies of data files It may be necessary to be able to identify whether a data file is original or a copy. In these instances, the Code suggests that an electronic/digital signature can be stored with a trusted third party and could then be used to demonstrate whether a file is a true copy of the original. File transmission If the documents are to be transmitted within a system, via a network or external, wide-area communications system to the storage device, then procedures should be defined to ensure that changes cannot occur during the transmission either accidentally or deliberately. When a data file is transmitted to another party, the original should be stored on the system. Equally, a data file received from an external source must be saved on the system and the time and date of any data file should be stored as part of the audit trail.

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The Code goes on to explain the benefits of this in questions of authenticity where, for example, the original file purports to have been saved at a later date than the copy. Information retention and destruction The procedure for retention and/or destruction of originals must be properly documented. For the sake of the business, it should not be possible to destroy an original before it is confirmed it has been safely stored. In some cases the original document will need to be retained, for example, where the original is of poor quality or holds annotations which cannot be scanned, or where fraud is suspected. In each case, the procedures should deal with this. Backup and system recovery Backup facilities on the system should allow for automatic backup and verification of all data files and associated information, including audit trails at regular intervals. Procedures used in these systems should be documented in the procedures manual, including the requirement for secure off-site storage of the backups. There should also be a record kept in the system audit trail of all backup activity, which should include details of any problems incurred during the procedure. It is important to ensure that the files can be read even when the original hardware is no longer available. Where backup data is used to recover from a system failure, there should be documented procedures to ensure that data file integrity has not been compromised. It is therefore important that the backup media be tested regularly. System maintenance Obviously, the hardware and the software should be operating normally. It is necessary, therefore, to have complete maintenance records, including records of any down-time and reasons for faults and to undertake routine preventative maintenance. Under certain circumstances, it will be necessary to rescan documents following the identification of a fault (see Information retention and destruction). Where document scanning is used, the procedures for checking of quality should be followed after maintenance procedures have been completed.

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Security and protection The system should operate within the guidelines provided in BS 7799-1:2000, although this is not now referred to directly in the Code. The procedures implemented should be described in the procedures manual and should include the following: • appropriate security controls, e.g. limited access, encryption keys and digital signatures; • mixed media may not be in write-once mode. This should be assessed; • removable media must be handled and stored as recommended; • data file transfers must be strictly controlled; • all media must be kept secure, with at least one backup off site; • user facilities may be in open areas, but the central system should be in a secure area; • virus protection should be installed; • hardware must be protected against power failure; and • all information on status of documents, maintenance and quality control and audit trails should be kept in a secure manner and be available for inspection and audit. Use of contracted services Having gone to the trouble of defining an internal procedure which complies with the Code, it would be unacceptable if the business used outside services which afforded any less protection. The procedures manual should contain all information relevant to the service provider; copies of their procedures and audit records may be necessary. Details of the procedures used and the transfer of documents and/or media from the client to the service provider and from the service provider to the client should be documented in the procedures manual. The Code recommends that the contract between the supplier and the client should set out details of the extent to which compliance is claimed. In addition, where the supplier also performs an indexing service, the client should check that the required accuracy is being achieved. If the documents have to be transported physically, there should be a procedure for despatch and receipt, including checking. The Code also describes the procedure where a copy is stored with a trusted third party as a secure means of detecting tampering with data files.
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Workflow This process allows a number of individuals to review a document at various stages. This record of review needs to be stored in conjunction with the original document as a complete record. Some workflow applications link documents by virtue of changes to the index information. The creation and destruction of these links should be recorded in the audit trail of each document affected. The Code requires operational details such as flow diagrams to be documented, as well as the process definition classification and the process definition life cycle. Self-modifying files In some cases, document files contain automatic functions such as date entries which change to the current date when the file is opened. This means that the file cannot be ‘frozen’ in the sense required by the Code. Either the automatic functions need to be disabled before storing or there need to be procedures which define how the files are to be stored and retrieved to ensure that authenticated copies of the original can be produced. Date and time stamps Of key importance is an accurate record of the date and time and, to this end, it is essential that the system is maintained with the correct information. Regular checking of system clocks and changes to reflect seasonal changes, i.e. ‘summer time’ must be incorporated into the procedures. Only authorised personnel should be able to change the system clocks. Voice, audio and video data The procedures should define how voice, audio and video data are to be dealt with. Where the recording is not under the control of the information management system, the recording system must be up to the same standard as that required by the Code for the information management system. There also needs to be a procedure dealing with authentication of the source data. Version control If changes are allowed to stored data files, then this must be in accordance with a documented procedure which includes any requirement to keep previous versions. The information management system should include version control and superseded versions should be kept for at least as long as the final version. The Code then makes the point that all changes to procedures and processes should be implemented in accordance with an approved change control procedure.
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Maintenance of documentation Procedures and records should be maintained and stored in the same way as information generally. 5.6.7.5 ENABLING TECHNOLOGIES General For a new system, the user should ensure that the system has been designed in accordance with the requirements of the Code. For systems already in operation, documents stored on the system prior to the introduction of the Code cannot be considered as conforming to it unless controls which meet the requirements of the Code were in place from the time of storing the documents. This section of the Code describes technologies and how they should be utilised and controlled. The following elements need to be addressed to achieve compliance with the Code. Systems description manual A list of hardware and software should be compiled, with information on how they interact, including system configuration and details of changes to the system. Storage media and sub-system considerations Access to information must be controlled with ‘read only’ access or ‘read write’ access where appropriate and it should be possible to identify any changes to the document or data by those with ‘write’ access. It is also important to prevent modifications being made without detection. Access levels The systems description manual must define the levels of access available, as follows: • system manager; • system administrator; • system maintenance; • authors or originators; • information storage and indexing; and • information retrieval.

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Only authorised members of staff may have access and such authority may only be given after suitable training. System integrity checks The system should ensure that the integrity of data files is maintained throughout the system, including during the transfer of this data to and from the storage media. An additional element in the Code deals with digital and electronic signatures and the ability to verify the true identity of a person prior to their being enrolled as document signatory. Compound documents Where an image such as a CAD (computer-aided design) drawing or a linked spreadsheet is stored, the parts may be separated electronically. The system should ensure that they are stored in the same location and can be retrieved as a complete facsimile of the image. Image processing There are a number of ways in which an image may be processed to improve its appearance. These may include the following: • deskew; • despeckle; • black border removal; • background clean up; • noise removal; and • forms removal. These should only be used with extreme care and should be fully documented. It is safer not to allow image processing, as any interference could invalidate not only that document but any other which may possibly have been adjusted. Compression techniques Two type of compression technique are recognised: (1) lossy; and (2) lossless.

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Lossy should not be used on primarily text files, as the compressed image will lose certain details which may be replaced by artificially generated data when it is reproduced. In general, it is safest not to use lossy compression at all, but the Code sets out the requirements should this method be used. Form overlays and form removal Where the system software removes a fixed overlay from the digitized image, leaving only the variable data, a record should be automatically generated to record the removal and a copy of the template should also be stored on the same medium. Environmental considerations The hardware manufacturer may well have its own recommendations for the operational environment. These should be acknowledged and addressed in the system manual. Handling and storage procedures should also be described, as well as the procedure for checking the storage media regularly. Data file migration With changes in technology, it is almost inevitable that the hardware and/or software will cease to be supported. The business should have procedures in place to handle the transfer of files at the appropriate time. Information deletion and/or expungement It is essential that the system is able to delete or expunge documents as described in the Data Protection Act 1998. This deletion can be accomplished by the removal of index entries to the relevant documents. It is also essential to be able to amend or remove incorrect or irrelevant data typically held in contravention of the Data Protection Act. Such correction may be accomplished by deleting the original document and substituting the corrected document or by using masks. In any event, the procedure for doing this must be documented. Audit trails To be able to use the stored information as evidence, it may be necessary to provide supporting information on the history of the document or data, including date of creation and/or storage, movements from one medium to another and evidence of the controlled operation of the system. This information will be the subject of the audit trails and the records kept should be sufficient to provide a full historical record of all significant events associated with the stored information, and the information management system.
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It is important that the audit trail be agreed with all stakeholders who might need to refer to the information, including the user, audit and legal functions. The Code recommends that, as far as possible, audit trail data should be generated automatically and that where this does not occur, there should be adequate procedures in place and that, in either case, the date and time should be recorded contemporaneously. Audit trail data should also be stored as a separate entity on the system. It should be kept for at least as long as the information to which it refers and should be accessible. In particular, it may be necessary to make it easily accessible to third parties who have little or no experience in the use of the system. The audit trail information should be treated as having the same level of security as the information to which it pertains with secure backup copies being kept. If paper copies are kept then the procedures should define how frequently they should be removed and stored. The procedures for data migration should be defined and the audit trail should include this information. Part of the audit trail should include the records of information capture, batch information, indexing, change control, destruction information and workflow.

G

5.6.8 Conclusion
The Code of Practice provides a sound basis for the use of electronic document and information management systems which, if followed, should mean that the information can be used as evidence in the civil courts. Even without this requirement, it defines the best-practice approach for electronic storage generally. With the enactment of the Human Rights Act 1998 and the Data Protection Act 1998, it is expected that the pressure will continue to increase for a formal documented statement on legal admissibility. In time, this is likely to feature in the Civil Evidence Act, either by reference to the Code or to some European wide standard. The danger, however, is that technology will continue to outpace any attempt at legislation.

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Appendix A: Specimen form for recording scanning information
The following files are authorised for scanning
Project number Project

Confirmation of scanning The above files have been scanned by ................................................................................ Date Indexing information
Project number File Folder reference Commentary

DIP Operator/Archivist

Confirmation of acceptance The above scanned files have been checked, the images are true and complete representations of the documents scanned. The batch contains ............... (No) images and consists of ................ (No) documents. Signed …..............……........... DIP Operator/Archivist Disk refererence…....………...

Optical disk backup confirmed by IT
........................................................ Confirmation of destruction The above original documents may now be destroyed

Date …………………...................

Signed ……………………………........................................................................ Managing Partner

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Appendix B: Specimen form for recording retrieval
Request for certified copies The following files/documents are required as certified copies
Project number Project Documents or drawings

Request authorised by Group Leader ……………………………………........................................... Authorisation to make certified copies The DIP Operator/Archivist/CAD Manager is authorised to make certified copies of the above Signed …………………………….................................................... Managing Partner Files/Documents/Drawings retrieved The above files/documents/drawings have been retrieved from disk/tape reference: Retrieved by …………………………................................................................ Name Date Indexing information
Project number File Folder reference Commentary

Certificate of authenticity I ……………………............................. being the DIP Operator/Archivist/CAD Manager employed by …………………….............................., certify that the attached files/documents are a true reproduction of the originals which were archived in accordance with the procedures set out in our user manual.

Signed ……………………………………….. Date ………………………………….............

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PART 5, SECTION 6, APPENDIX C

Appendix C: References
Further and more detailed information can be obtained from the British Standards Institution (BSI). Publications include: BSI-DISC PD 0005 Information Service Management BSI-DISC PD 0008:1996 A Code of Practice for Legal Admissibility of Information Stored on Electronic Document Management Systems (Edition 1) BSI-DISC PD 0008:1999 A Code of Practice for Legal Admissibility and Evidential Weight of Information Stored Electronically BSI-DISC PD 0009 Compliance Workbook BSI-DISC PD 0010 Principles of Good Practice for Information Management BSI-DISC PD 3000 Information Security Management: An Introduction BSI-DISC PD 3001 Preparing for BS 7799 Certification BSI-DISC PD 3002 Guide to BS 7799 Risk Assessment and Risk Management BSI-DISC PD 3003 Are you ready for a BS 7799 Audit? BSI-DISC PD 3004 Guide to BS 7799 Auditing BS 4783 Parts 1 to 8 Storage, Transportation and Maintenance of Media used in Data Processing and Information Storage BS 7083:1996 Guide to the Accommodation and Operating Environment for Information Technology Equipment BS 7799-1:2000 Information Technology – A Code of Practice for Information Security Management BS EN ISO 9000 Quality Management and Quality Assurance Standards BSI publications are available from Customer Services, Sales Department, 389 Chiswick High Road, London, W4 4AL. Tel: 020 8996 7000 Fax: 020 8996 7001 Web: www.bsi-global.com The following publications are available from The Stationery Office, 123 Kingsway, London WC1. Tel: 0870 600 5522 Fax: 0870 600 5533 Web: www.tso.co.uk • Civil Evidence Act 1995 • Civil Evidence (Scotland) Act 1968 • Police and Criminal Evidence Act 1984 • Criminal Justice Act 1988

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• Evidence Act (Northern Ireland) 1939 • Civil Evidence Act (Northern Ireland) 1971 • Statute Law Revision Act (Northern Ireland) 1973 • Police and Criminal Evidence (Northern Ireland) Order 1989 • Criminal Justice (Evidence) (Northern Ireland) Order 1988 Data Protection Registrar, Data Protection Guidance for Users of Document Image Processing Systems, 1995 Available from Information Commissioner, Wycliffe House, Water Lane, Wilmslow, Cheshire SK9 5AF. Tel: 01625 545700 Fax: 01625 524510

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INDEX
Note: references are to paragraphs. Figures and tables are not included

A ACA Standard Form of Contract for Project Partnering PPC 2000 4.1.2.10A acceleration 4.2.6.1(a); 4.2.6.2; 4.2.6.3 acceptance certificates 4.1.2.18(c) accidents 5.2.1 ACE see Association of Consulting Engineers activity schedules 2.3.3.2; 4.4.10.5; Part 4 Section 4: Appendix C addendums 3.2.4.6 adjudication 4.1(Intro); 4.4.1 administration cost Part 4 Section 2: Appendix A1 admissible items 4.2.4.2; 4.2.5; Part 4 Section 2: Appendix C3, D advance payments 4.4.7.10(d) agent see employer’s agent all–risks insurance 4.1.3; Part 4 Section 2: Appendix A10 all risks yield 2.2.2.3(d) allowances see tax allowances alteration costs Part 2 Section 2: Appendix C4 alternative design solutions Part 2 Section 1: Appendix C amounts previously certified 4.4.7.10(c) analyses 2.1.7.2(b); 5.4.6 analysis 1.2.7; 3.1.2.11; 5.4.3.1 see also risk analysis analysis checklist 3.1.3.4 Appendix to the Form of Tender 4.1.2.11(b) application for reimbursement, written 4.2.3.1(c); 4.2.3.3 appointment documents 2.5(Intro) approval processes 3.1.4.14(c) arbitration 4.1.2.5(c); 4.2.1.6 arbitrator 4.1.2.11(c); 4.2.1.5 architect as certifier 4.4(Intro); 4.4.2; 4.4.8.1; 4.4.8.2 architect as contract administrator 4.2(Intro); 4.4.2.3; 4.4.5.2 architect’s information 2.1.3.3(c); 2.1.7.3(b) architect’s instruction 4.4.7.3(iii)(iv) Architect’s List 4.1.2.10(c) ascertained damages 4.1.4.3(e) ascertainment 4.2 application 4.2.4.10 costs versus prices 4.2.4.8 definition of 4.2(Intro); 4.2.2.3 documentation for 4.2.3.4 global or individual 4.2.4.9 judgement in 4.2.2.3; 4.2.4.5 responsibility for 4.2.4.1–4.2.4.2 Association of Consulting Engineers 3.2(Intro) conditions of engagement 3.2.1.5; 3.2.2.6(a); 3.2.2.7(a) assumptions Part 2 Section 1: Appendix C attendances 3.2.4.3 audit trail 4.3.2.4; 5.6.7.4; 5.6.7.5

Australian ruling 4.1.6.4(k) authority, delegated 3.1.4.7(c); Part 2 Section 4: Appendix A (Intro) automatic practical completion 4.1.6.4(f) average risk premium discount rate 2.2.2.3(c) B balancing adjustment 2.2.3.4(e); 2.2.3.6 balancing allowance 2.2.3.4(f); Part 2 Section 2: Appendix A6, D8 balancing charge Part 2 Section 2: Appendix C6, D8 BCIS (Building Cost Information Service) 2.3; 5.4 BCIS Bulletin Service 5.4.2; 5.4.3; 5.4.4.2 BCIS Elements for Design and Build 2.4.4.9; Part 2 Section 4: Appendix A (Intro) BCIS Five Year Forecast 5.4.3.4 BCIS Online 5.4.2; 5.4.3 BCIS Online Briefing 5.4.3.4 BCIS Quarterly Review 5.4.4.1 BCIS standard elements 2.3.2.2; 2.3.3.2; Part 2 Section 3: Appendix A BCIS Standard Form of Cost Analysis 1.2.7.6; 2.3 (Intro); 2.3.2.4; Part 2 Section 4: Appendix B2.5 benchmarking 2.6.3.2; 2.6.3.4; 5.5.1; 5.5.4 best-fit solution 3.1 bills of quantities see quantities Blue Form 4.1.2.15 BMI (Building Maintenance Information) 5.5 BMI Building Maintenance Price Book 5.5.3 BMI News 5.5.5 BMI Quarterly Cost Briefing 5.5.2 bond/parent company guarantee 3.2.4.3 briefing 1.1.2.2; 2.5.4.4; 5.4.3.4 Brundtland definition 2.6 (Intro) BS 7799: 1995 5.6.7.1 BS 7799-1: 2000 5.6.6; 5.6.7.1; 5.6.7.3 BS EN ISO 9001 5.6 (Intro) BSRIA Allocation of Design Responsibilities for Building Engineering Services 3.2.1.4; 3.2.1.5(b) budget 2.1; 2.1.1.1–2.1.1.3; 2.1.2.1; 2.1.3; 2.1.6.2 see also time budget budget format Part 2 Section 1: Appendix B budget preparation methods 2.1.3.4; 2.3.1.2 budgeting 5.5.1 build insurance 4.1.4.2(b) buildability 3.1.2.16 builder’s work 2.1.5.4(b); Part 2 Section 3: Appendix A5N, A5O Building Cost Information Service see BCIS building life 2.2.1.8; 2.2.2(Intro); 2.2.2.1; 2.2.5.1; 2.2.5.6(c); Part 2 Section 2: Appendix B1, B4 Building Occupancy Information see BMI

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building options, life cycle costing 2.2.2(Intro); 2.2.5.6 building project Part 2 Section 4: Appendix B2.2, B2.4; 3.1.1.2–3.1.1.3; 4.2 Building Research Establishment 2.2.1.6; 2.6.3.2 building services installations 3.2.2.6 building services procurement 3.2 conditions of engagement 3.2.1.5 contractor 3.2.3 design coordination 3.2.2 design-only engineer 3.2.1.5 design responsiblities 3.2.1.4; 3.2.1.5 designer 3.2.1 options, procurement routes 3.2.3.3 tender documents 3.2.4 tendering 3.2.3.4 Building Services Research Information Association see BSRIA building standards and requirements 2.4.4.4 building surveyor’s information 2.1.3.3(c); 2.1.4.3(c); 2.1.5.3(c); 2.1.7.3(b) building sustainability 2.2.1.8; 2.6.5 built environment group 5.3 business rates 2.2.3.7 C cables 2.1.5.4(b) capital allowances 2.2.3(Intro); 2.2.3.2; 2.2.3.3; 2.2.3.4; 2.2.5.5(f); Part 2 Section 2: Appendix D4 worked example 2.2.3.7; 2.2.5.6(h) capital costs 2.2.(Intro); 2.2.2.4(a); 2.2.3(Intro); 2.2.3.2; 2.2.3.3; 2.2.5.1; 2.2.5.3; 2.2.5.5(b)(f); 2.2.5.6; Part 2 Section 2: Appendix C1 capital expenditure 2.2.3.1; 2.2.3.3; 2.2.5.5(f); Part 2 Section 2: Appendix D1, D3, D6 capital income 2.2.5.5(d) CDM (construction (design and management)) information 5.2 regulations 2.2.1.4; Part 2 Section 4: Appendix A1; 2.5.3.1; 3.2.2.7(d); Part 4 Section 1: Appendix A10 certificates see final certificates; interim certificates; practical completion certification of completion 4.1.1 change, avoidance of 3.1.4.13(g); 3.1.4.19(a) change control overview 3.1.4.19 changes 3.1.2.14(d) after contract let 3.1.4.19(h) late 3.1.4.13 prior to construction 3.1.4.19(g) see also client changes; cost plan; tender documents checklists analysis 3.1.2.13 contractor’s proposal Part 2 Section 4: Appendix B2 cost 3.1.4.3 employer’s requirement Part 2 Section 4: Appendix B2 items for which loss and/or expense allowed Part 4 Section 2: Appendix D procurement selection 3.1.3.2–3.1.3.4 risk 4.3.3.3(b)(iii)

submissions, steps when considering Part 4 Section 2: Appendix E time 3.1.3.3 choice (design) 3.2.1.2 CITB Levy 5.4.7 civil engineering 2.1 Civil Evidence Act 1995 5.6.1; 5.6.6; 5.6.8 cladding Part 4 Section 1: Appendix A6 clerk of works 2.4.3.4; 3.1.4.18(b); 4.2.5.4(b); Part 4 Section 2: Appendix B2.1; 4.4.5.4; 5.2.1 client 1.1; 2.4(Intro); 2.4.4.2; 2.4.4.4; 2.4.4.5; 3.2(Intro); 5.2.1 client and consultants 2.5(Intro); 2.5.1; 2.5.4.2 client and property costs 2.2.1.1 client changes 3.1.4.19(b) client context, life cycle costing 2.2.1 client needs 3.1 client reserve 3.1.4.13(m) client resources 3.1.2.14(b) client satisfaction 3.1; 3.1.2.7 client systems 3.1.4.11 client uniqueness 3.1; 3.1.2.7 client’s brief 1.2(Intro); 2.1.1.2; 2.4.4.7; 2.5.4.3(a) client’s information 2.1.3.3(b)(f); 2.1.4.3(a)(f); 2.1.5.3(a)(g); 2.1.7.3(a)(d) client’s input 2.4.4.6 client’s involvement 3.1; 3.1.1 client’s objectives 1.1.1; 1.2(Intro); 1.2.1; 2.4.4.4; 2.4.4.6; 3.1 clients requirements 1.2.1.2; 1.2.6.2; 1.2.7; 2.5.4.2 client’s responsibilities 1.1.5; 2.4.4.5; 2.4.4.6; 3.1.1.4; 3.1.1.7 client’s role 1.1.4; 1.1.6; 3.1.1 Code of Practice (DISC PD 0008:1999) 5.6.1; 5.6.5; 5.6.6; 5.6.7; 5.6.8 duty of care 5.6.7.3 enabling technologies 5.6.7.5 format 5.6.7 procedures and processes 5.6.7.4 procedures manual 5.6.7.4 scope and purpose 5.6.7.1 Code of Practice for the Selection of Sub-Contractors 3.2.3.3(i); 3.2.3.4(f) Codes of Practice 3.1.4.9(c); Part 3 Section 1: Appendix A; 4.1.4 Codes of Procedure 2.4.4.9; Part 2 Section 4: Appendix A (Intro) collateral contracts 3.1.1.16(b) commissioning 3.1.1.17 common inheritance 2.6 (Intro) competitive tenders 3.1.4.8(e) completed part of the works 4.1.2.17(d) completion date see completion date sectional 4.1.6.5(c) staged 4.1.6.4(l) see also perfect completion; two-stage completion completion date 2.1.4.6; 4.1