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Module 0 INTRODUCTION TO FOUNDATION IN QUANTITY SURVEYING

Course Overview

This is a foundation level quantity surveying course designed for:

• both member and non-member professionals working in the quantity surveying sector
• APC candidates on the quantity surveying pathway
• Surveyors in other sectors.

1. How much will it cost?’ is often the key question on any building project, and it’s so
important to build up core knowledge that you can apply to your work.

With an increased focus on effective cost management, as well as the environment and
sustainability in construction projects, there is high demand for Quantity Surveyors to provide
a cost management service to the construction industry.

This course comprehensively covers the role of a Quantity Surveyor.

2. By taking this course, you will learn about quantity surveying from the ground up, so you can
work autonomously or part of a project team on a variety of construction project tasks.
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You will receive training around the key principles of construction technology, estimating,
procurement, tendering, contract, and project financial control.

3. You will be able to appreciate the skills required and build on these skills through reflective
learning in the workplace.

4. At the end of this suite of modules, there will be a final examination module which will test
your knowledge, understanding and practical application of the information you will have
studied.

5. Finally, for all those aspiring to become a full Member of the Royal Institution of Chartered
Surveyors (MRICS) in the future, you are required to undertake the RICS APC which ensures
that those applying for RICS membership are competent to practise and meet the high standards
of professionalism required by RICS.

Watch this short video about working as a Quantity Surveyor.

Working as a Quantity Surveyor

RandstadUKHolding

https://www.youtube.com/watch?v=-1tC2tB2e0s

This course has been designed to follow two complementary pathways:

1. the general course and direction of a construction project
2. RICS Assessment of Professional Competence (APC).
3.
First pathway

The first pathway is the general course and direction of a construction project from inception to
completion.

The course consists of six technical modules, as follows:

1. Construction technology and environmental services

2. Design economics and cost planning
3. Quantification and costing of construction work
4. Procurement and tendering
5. Contract practice
6. Project financial control and reporting
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Each of the modules occurs in the same linear order that the activities discussed within the module
would occur on a real construction project, with the first module giving a general overview of
construction technology and principals.

Following construction basics, we talk about estimating, measurement, procurement, contract, and
finally post contract financial management.

RIBA Plan of Work 2020

In addition, in the Construction technology module, we introduce the RIBA Plan of Work 2020,
which is a real-world framework used on the majority of construction contracts.

This framework mirrors our course structure to a degree, following the same linear direction.

The second pathway

The second pathway is the RICS Assessment of Professional Competence (APC).

The APC is the final examination that all candidates wishing to become a fully Chartered Member
(MRICS) or Associate Member (AssocRICS) of RICS must undertake. For each sector pathway,
a candidate is assessed against a range of specific competencies.

The six modules of this course are all directly aligned to the APC competencies, and we cover, at
foundation level, some of the key activities these competencies include.

Competencies for each pathway are split between mandatory, core and optional competencies.
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Each module of this course is structured around one of the core competencies of the quantity
surveying and construction pathway.

The first module covers Construction Technology and Environmental Services at level 1 –
knowledge and understanding.

Find out more about RICS APC assessment and the required professional competencies for
the Quantity Surveying and Construction pathway guides for MRICS and AssocRICS.

RICS APC assessments

https://www.rics.org/join-rics/candidate-support

Quantity Surveying and Construction pathway guide MRICS

https://www.rics.org/join-rics/sector-pathways#page=7

Quantity Surveying and Construction pathway guide AssocRICS

https://www.rics.org/join-rics/sector-pathways#page=4
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The overall aim of the course is to provide the knowledge and understanding of the core
competencies of Quantity Surveying practice, present best practices and guidance to enable
successful candidates to progress their careers closer toward full membership.

Apply the practices and procedures of international Quantity Surveying

Demonstrate forms of construction for various property types
Evaluate the factors which affect the cost of a building.
Apply cost planning methods to control the financial aspect of a project.
Undertake the quantification and costing of construction works.
Evaluate the sources of cost data relating to construction.
Differentiate between the types of procurement strategies.
Identify general contractual provisions for a construction project.
Identify the contractual requirements and procedures relevant construction finances.
Report and forecast costs during the construction phase.
Manage various aspects of a project, including change procedures and accounts.
Apply the implication of Building Information Modelling to QS projects.

ACCESS TO ISURV AND FAQS

With access to our industry-leading online library isurv included, you will be able to access
a wealth of information to support your learning.

Watch the short video 'What is isurv?' to learn more.

https://www.rics.org/profession-standards/isurv

Why can’t I accrss isurv?

If you encounter trouble accessing any of the content in isurv, the first thing to do is to check if
you are logged in. The page expires after a certain time, and you are automatically logged off.

If you are logged on and still get an error message, then most likely it is a problem with the browser
cache being full. To solve issues with cache, go to the settings of your browser and clear the cache.

If none of this works, then please contact [email protected]

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Help – There’s so much to learn!

With so much to read, we are often asked about what to focus on while working through the study
material in preparation for the exam at the end of the course.

Remember that this is a foundation course, so you are not expected to memorise everything
you read.

However, here is an example relating to the RIBA Plan of Work section of the types of issues that
are important to know about:

• The framework of the construction process (general overview) - understand the Stages 0-7
and what they include.
• The scope of the QS and their roles in the construction process - important but will develop
throughout all 6 modules.
• Alternatives for RIBA Plan of Work 2020 - important, as some projects may use different
frameworks.

The end of module 'Quiz' on your course area, will give you an indication of the type of questions
you will be asked in the final exam.

We recommend you use this type of approach for each of the e-learning resources.

In relation to the volume of reading and hours spent on the course:

Course hours: The first module is the longest one with the most reading. You should read/skim
all of the content on the eLearning as well as the essential reading materials, mostly found on isurv.
You should expect to spend approximately 5-8 hours per week studying throughout the course.

Skimming: Skimming is reading a text quickly to get a general idea of meaning. It can be
contrasted with scanning, which is reading in order to find specific information, e.g. figures or
names. Skimming is a specific reading skill which is common in academic learning. It is important
to understand that there is no need to read every word when skimming as it is aimed at encouraging
speed. There are two levels of skimming.

1. Overview - At this level you should read the introduction, summary or overview to get an
insight into the purpose and the findings of the document, and then read the headings and the
subheadings to see how the information is organised. By reading any conclusions you can make
sure that the outputs from the piece can contribute to your understanding.

2. Specific - You may still feel that you need a better understanding of what the authors are
trying to do before you read the text in its entirety. Here it may help to read the first paragraph
of each section, or even to read the first two lines of each paragraph. Doing this will make it
easier to decide whether or not to read the entire text.
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What’s is the recommended learning journey?

In terms of completion of the modules, we recommend that you undertake the modules in the
following order:

1. Read the course guide.

2. Open the course calendar to check the exam window period, the dates of the live
consolidation sessions and the deadlines for the case studies. Make sure you save the course
calendar or add the key dates to your preferred online calendar.

3. Start by completing the e-learning first.

4. Then, complete the essential reading using skimming techniques.

5. Next, work on the case study and submit your answer via the case study forum. A model
answer is provided however we highly recommend that you only open it after you have
attempted the case study. The trainer will cover the solution to the case studies during the live
consolidation sessions so any questions you might have while working on the case study can
be answered then. Alternatively, you can use the Discussion Forums provided in each module
to ask the trainer specific questions about that module.

6. Undertake the end of module quiz.

7. You should then move on to the next module when it becomes available.

8. Undertake the final exam.

I have completed FDS. What is the next level of QS training available at RICS?
RICS also offers the Certificate in Quantity Surveying Practice course.

Depending on your broader career plans, if you wish to become a Chartered Surveyor, then we
suggest you explore the APC Assessment section on the RICS website.

If you have a degree (in any field), then you could possibly apply direct entry to large
contractor/QS firms graduate programmes. They will likely request that you undertake a
conversion course (view career sections on their websites).

Alternately, if you don't have a degree yet, look for apprenticeship schemes, or degree
apprenticeships as these will usually provide a good route (some with fees paid if you get a place)
to a permanent QS job. Most of the big firms also have apprentice opportunities.

Another good route of entry in the profession is via Local Authority apprenticeship schemes. For
example, Manchester run a scheme called PlanBEE. You may contact the principal universities
and ask them for advice on degree apprenticeships, as follows (in no particular order):

• Salford
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• Reading
• College of Estate Management (Distance Learning)
• Loughborough
• Liverpool John Moores
• Leeds Met
• Nottingham
• Trent
• Northumbria

Plagiarism
The following guidance on referencing supporting information in your case study answers will
help you avoid copying directly and creating issues around plagiarism:

Your coursework: What you need to know

If you experience formatting issues when posting your case studies in the forums, please email us
directly at [email protected]

KEY CHANGES TO THE 2022 VERSION

The 2022 version of the Foundation in Quantity Surveying has undergone a complete
review. Watch this short video to see the key changes.
Enable the Closed Captions for this video by clicking on the CC button.

Key changes to the 2022 version – Video transcript

The key changes are:

• The course has been updated to RICS current standards and legislation.
• RIBA Plan of Work fully updated to the 2020 framework.
• The section on Business Information Modelling (BIM) has been re-written and updated to
reflect modern working practices.
• Increased worked scenarios and global examples.
• Improved and detailed consolidation sessions
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MODULE 1 – INTRODUCTION TO FOUNDATION IN QUANTITY SURVEYING

INTRODUCTION TO THE MODULE

Watch this short video to learn more about the contents and learning outcomes of this module.

Video transcript – Introduction to module 1

Hello, and welcome to module one of Foundation in Quantity Surveying.

In this module, we will be looking into Construction technology and environmental services.

Module structure Module two is split into 6 parts:

Part one: The stages of Design, from inception to completion

Part two: How the various elements of the building work interrelate
Part three: Impact of current legislation and regulations
Part four: Building Information Modelling (BIM)
Part five: Appreciating how design solutions vary for different types of building
Part six: Understanding alternative construction details

Learning outcomes

At the end of this module, you will be able to:

1. Understand the stages of the RIBA Plan of Work

2. Apply your understanding to different design and construction activities
3. Examine how those activities involve the Quantity Surveyor
4. Appreciate how design solutions vary
5. Understand alternative construction details
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PART 1 – THE STAGES OF DESIGN FROM INCEPTION TO COMPLETION

1.1 GLOSSARY

This glossary defines the terms used in this module.

Building Regulations: The minimum standards for design and construction of buildings and cover
all elements of building construction.

BIM: A digital representation of physical and functional characteristics of a facility creating a

shared knowledge resource for information about it and forming a reliable basis for decisions
during its life cycle, from earliest conception to demolition.

Category A: Includes works within the general office areas, such as raised floors, suspended
ceilings, floor/wall/ceiling finishes, mechanical, electrical, and plumbing installations beyond
risers. Typically, category A is what the developer provides as part of the rentable office space.

Category B: It completes the fit-out to the tenant’s specific requirements.

Category C: It includes furniture.

Contract: The formal agreement between the parties based on the following six basic
requirements:

1. Offer
2. Acceptance
3. Consideration
4. Capacity
5. Legality of Object (freedom from illegality)
6. Intention to create legal relations

Modern Methods of Construction (MMC): A process which focuses on off-site construction

techniques, such as mass production and factory assembly, as alternatives to traditional building.

Off Site Manufacture (OSM): A component part of Modern Methods of Construction.

Preliminaries: The costs of running the project including elements such as site accommodation
and the contractor’s staff and management.

Procurement: The overall act of obtaining goods and services from external sources (i.e. a
building contractor) and includes deciding the strategy on how those goods are to be acquired by
reviewing the client’s requirements (i.e. time, quality, and cost) and their attitude to risk.

RIBA Plan of Work: A framework for all disciplines on construction projects that organises the
process of briefing, designing, delivering, maintaining, operating, and using a building into eight
stages. It should be used solely as a guidance for the preparation of detailed professional services
and building contracts.
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Shell & Core: Developments include fully finished landlord areas comprising main entrance and
reception, lift and stair cores, lobbies, and toilets.

Tendering: The bidding process, to obtain a price; and how a contractor is appointed.

Work Breakdown Structure (WBS): A structure that provides an elemental breakdown of the
component parts of building project.

1.2 KEY LEARNING POINTS

The stages of the RIBA Plan of Work 2020.

The application of the different design and construction activities.
How those activities involve the quantity surveyor.

1.3 WHY IS THE RIBA PLAN OF WORK IMPORTANT?

The RIBA Plan of Work is the starting point for all construction professionals to discuss, organise
and manage construction projects in a common framework.

It maps the stages and activities of a construction process, whilst being flexible enough to adapt
across the full range of sectors and project sizes.

The RIBA Plan of Work 2020 update has enabled it to incorporate:

1. all forms of procurement route
2. sustainability
3. Building Information Modelling (BIM), and
4. town planning procedures.

1.4 WHAT IS THE RIBA PLAN OF WORK?

The RIBA Plan of Work organises the process of briefing, designing, delivering, maintaining,
operating, and using a building into eight stages.

It is a framework for all disciplines on construction projects and should be used solely as
guidance for the preparation of detailed professional services and building contracts.

The RIBA Plan of Work was initiated in 1963 to provide a framework for architects to use on
projects with their clients, bringing greater clarity to the different stages of a project.

It has evolved over the years to reflect changing trends in project approaches and has become an
industry-wide tool.

The plan underwent a significant update in 2013 to better reflect the way buildings are procured
today.

After years of the 2013 version being used and evaluated, RIBA decided to change its core
guidance to, The new RIBA Plan of Work 2020.
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• The new RIBA Plan of Work 2020 is an update as a clarification of the 2013 structure but
with a closer, more contemporary fit.
• The biggest addition to the new RIBA Plan of Work comes in the form of the
new sustainably project strategy. (RIBA, 2020).
• It consists of the following stages: manage the briefing, design, construction, handover
and use of a building.

An open mind is required because a building might not be the most appropriate solution.

The RIBA Plan of Work 2020 has 8 stages (Stage 0 - Stage 7). It can be used:

• by a client at the start of a project to support them in structuring their project

• by any project team member during the project as a continual point of reference and to
remind them of the core tasks that should be undertaken at any specific stage.

Stage 0 is about defining the best means of achieving the Client requirements and ensuring
the Business Case and Strategic Brief are robust prior to preparation of the Project Brief.

At Stage 1, the Project Brief is approved by the client and confirmed that it can be accommodated
on the site.

Preparation of the Project Brief include:

• Feasibility studies
• Information gathering
• Determining objectives
• Undertaking a risk assessment
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• Preparation of an initial project programme

At Stage 2, the Architectural Concept is approved by the client and aligned to the client’s vision,
Project Brief and budget.

The Concept Design is:

• the design team's initial response to the brief

• the determining of early procurement strategies
• production of Formal Cost Plan

At the stage 3, Architectural and engineering information are spatially co-ordinated.

• The design has now been developed to a stage where all design services (primarily,
architecture, structural and services engineering) have been co-ordinated.
• Formal Cost Plan 2 is developed, and early change control procedures may be adopted
to ensure the budget is maintained.

At Stage 4, all design information required to manufacture and construct the project is
completed (full production information) and no further design information should be required to
construct the project (subject to changes).

At Stage 5, manufacturing, construction, and commissioning are completed.

The project is constructed on site, ‘as-built’ design information is produced and included in the
Health and Safety File, and upon completion of the building, a Certificate of Practical Completion
is issued.

At Stage 6, the building is handed over to the Client, aftercare initiated, and the building
contract concluded.

Also, the defects ‘Rectification Period’ commences and responsibility for the building falls to the
client (insurance, etc.).

At Stage 7, the building is used, operated, and maintained efficiently.

Increasingly, Clients are requiring more involvement in the ongoing operational and maintenance
of their finished projects.

This stage focuses on this as well as providing a structure for post-occupancy analysis and a review
of project performance (lessons learned).
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The RIBA Plan of Work 2020 is the starting point for all construction professionals to
discuss, organise and manage construction projects in a common framework.

A quantity surveyor should ideally become involved in the process as early as possible.

The RIBA Plan of Work organises the process of briefing, designing, constructing and operating
building projects into eight stages and explains the stage outcomes, core tasks and information
exchanges required at each stage.

Guidance in the RIBA Plan of Work 2020 Overview is based on nearly seven years of feedback,
gathered by the RIBA, from the construction industry. It now includes an expanded glossary,
comparison to international plan of work equivalents and guidance on the following core project
strategies:

• Conservation Strategy
• Cost Strategy
• Fire Safety Strategy
• Health and Safety Strategy
• Inclusive Design Strategy
• Planning Strategy
• Plan for Use Strategy - see the RIBA Plan for Use Guide
• Procurement Strategy
• Sustainability Strategy - including detailed tasks aligned to the RIBA Sustainable
Outcomes Guide

1.5 THE RIBA PLAN OF WORK AND THE RICS NEW RULES OF MEASUREMENT

This lesson briefly explains how the RICS New rules of measurement (NRM) map against
the RIBA Plan of Work. First, let's look at the main purpose of the NRM.

NRM provides a standard set of measurement rules and essential guidance for the cost
management of construction projects and maintenance works.

It maps the estimating and cost planning activities of the quantity surveyor against the RIBA
Plan of Work 2020.

NRM provides a standard set of measurement rules and essential guidance for the cost
management of construction projects and maintenance works.

1.5.1 NRM 2021 PUBLICATIONS

For the first time, all three volumes of the New Rules of Measurement (NRM) suite have been
published at the same time. The updated suite consists of three separate volumes:

• NRM 1: Order of cost estimating and cost planning for capital building works
• NRM 2: Detailed measurement for building works
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• NRM 3: Order of cost estimating and cost planning for building maintenance works

These new editions of NRM were effective from 1 December 2021.

The primary development in recent years has been the publication of the International Cost
Management Standard (ICMS) (formerly known as International Construction Measurement
Standards). Together with the recent publication of the Cost prediction professional statement,
there now exists a hierarchy of cost management standards and tools from the high-level and global
ICMS, through the more detailed principles of all aspects of cost prediction in the professional
statement, to the detailed rules and guidance in the NRM suite.

Other recent developments that have resulted in the need for a revised edition include the
publication of a new RIBA Plan of Work (2020), which provides a framework for the analysis of
construction costs.

A mapping tool between NRM and ICMS will be provided here shortly, mapping the new NRM
with ICMS 3, launched in November 2021. While NRM is based on UK practice, it provides a
framework for a common set of rules and guidance with global application.

A number of other supporting documents are also being provided alongside the new NRM
guidance notes, which are designed to assist users with their understanding and use of the new
NRM suite. These downloads will be available from, or shortly after, launch.

NRM 1 has been revised to interface with new developments, so that clients can be advised of and
have confidence in the quality and consistency of the cost information being provided to them.

For NRM 2, we have taken user feedback into consideration for this latest edition. We are
publishing this revised edition of NRM 2 shortly before the 100th anniversary of the publication
of the first edition of SMM in 1922 – a milestone in long-standing guidance for surveyors. There
are also supporting documents available as downloadable Excel files to assist users with the
preparation of estimates and cost plans that are in accordance with NRM 2.

With NRM 3 we have linked the cost analysis of the capital cost of a construction project with
consideration of whole-life-cycle costing, and provided the tools to enable a seamless transfer of
cost information from the construction team to the asset management team. In this respect, the use
of BIM increasingly plays a significant part in the analysis of cost information, and revisions in
this edition acknowledge the move from PAS 1192 to ISO 19650.

As with NRM 1 and NRM 2, there are supporting documents available as downloadable Excel
files to assist users with the preparation of estimates and cost plans that are in accordance
with NRM 3.
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1.5.2 COST ADVICE, PROCUREMENT AND CONTRACT

The figure below illustrates how the RIBA Outline Plan of Work 2007 (A-L stages) and RIBA
Plan of Work 2013 (this is also valid for the 2020 version) map against each other.

Cost Advice: With the benefit of historical ‘benchmark’ data, the quantity surveyor can
provide order of cost estimates based on high level £/m2 or £/Unit indicators.

Procurement: Initial guidance can be provided on the most appropriate procurement routes, based
on the cost, time, quality and risk transfer objectives of the client, can be given which will indicate
the level of design information required before tendering.

Contract: The quantity surveyor can offer early advice on current contracts in use, which contract
is most appropriate to suit the procurement route and any particular contract amendments the client
should consider prior to tendering.

The figure below illustrates the cost estimating, elemental cost planning and tender document
preparation stages in context with the RIBA Work Stages and OGC Gateways.
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• The RIBA Plan of Work organises the process of briefing, designing, delivering,
maintaining, operating, and using a building into eight stages.

• It is a framework for all disciplines on construction projects and should be used as guidance
for the preparation of detailed professional services and building contracts.

• The earlier the quantity surveyor can be involved in a project the better. The quantity
surveyor can offer valuable cost, procurement, and contract advice at the very early stages
of the project and then monitor and control costs throughout the latter stages.
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Knowledge Check
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PART 2 – HOW THE VARIOUS ELEMENTS OF A BUILDING WORK AND INTER-RELATE

The key points for you to focus on in part 2 are:

The individual elements of a Work Breakdown Structure (WBS).

How WBS is used in conveying information (e.g. construction drawings).

The different elements of legislation (building regulations) related to elements of the

building.

Part 2 of this module 1 will focus on how various elements of the building work and inter-
relate. The content has been aligned to the RICS New Rules of Measurement (NRM)
elemental method of building classification.

The elemental method considers the major elements of a building for the purposes of order
of cost estimating and is based on an elemental breakdown of the building project.

The major elements commonly used when preparing an order of cost estimate using
the elemental method are listed below:

• Facilitating works
• Substructure
• Superstructure
• Internal finishes
• Fittings, furnishings and equipment Services
• Prefabricated buildings and building units
• Works to existing buildings
• External works
• Preliminaries and overheads and profit
• Design and professional fees
• Risk allowances

1.6 FACILITATING WORKS

This section of a cost plan deals with any works required to facilitate the construction of the
building. It includes elements such as:

• Toxic/hazardous/contaminated material treatment

• Major demolition works
• Temporary support for adjacent structures
• Specialist groundworks
• Temporary diversion works
• Extraordinary site investigation works
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1.7 SUBSTRUCTURE

The next element is the substructure. It includes all works below the ground as you can see
on this illustration:

The information in the Building Construction Handbook has now given you an
understanding of different substructure options. The option that is the most appropriate will
be based on the individual site conditions, the structural engineer’s views and the QS’s cost
estimate.
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1.8 SUPERSTRUCTURE: FRAME & UPPER FLOORS

1.8.1 WHAT IS A FORMWORK AND WHY IT IS USED?

Formwork is essentially a mould, usually made from timber, which allows wet concrete to form a
shape and cure in place.

It can be either temporary or permanent and may also be supported by temporary falsework which
is removed when the concrete has cured.
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1.8.2 WHAT ARE THE ADVANTAGES OF USING A PERFORATED OR CASTELLATED BEAM?

Perforated or castellated beams have a number of advantages over traditional steel beams as they
can provide similar structural performance but have reduced weight.
They can also allow for services (such as cables or pipes) to pass through them, potentially
reducing the depth of a ceiling void (for a suspended ceiling), which in turn may reduce the overall
height of the building.

Castellated beams used as part of steel frame building can reduce the overall height of the building,
improving the wall: floor ratio (covered in Unit 2).

This is important from a Quantity Surveying perspective, because the lower the overall height of
the building (delivering the same amount of floor space), less cladding is required thus the cost of
construction is reduced.

1.8.3 DIFFERENCE BETWEEN STEEL AND CONCRETE FRAMES?

Concrete frames are generally used where high thermal mass and good acoustic properties are
required, such as low-rise residential developments.

Steel frames are suited to high rise developments that may require greater flexibility for
division and future-proofing, such as office developments.

Finally, steel portal frames are generally used in warehouse construction as they can provide
large open plan spaces with wide spans between structural columns.
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1.8.4 WHAT IS THE PURPOSE OF RAISED FLOORS?

A Raised Access Floor, typically used in Office developments, allows for the cabling associated
with Electrical Installations, Information Technology (IT) and Audio Visual (AV) installations to
be hidden in the floor, which allows flexibility in designing desk layouts above.

1.9 ROOFS

Roofs have 3 main elements. They are:

Waterproof covering, for example, tiles, single-ply membrane, and mastic asphalt

Insulation

Vapour control layer

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1.9.1 ROOF TYPES

Take a look at a real-world roofing company review of different roof types and their purpose.

There are two principal causes of roof failures and defects: moisture and temperature.
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Avoid flat roof designs wherever possible, they are more likely to fail and require greater
maintenance resulting in higher life cycle “CROME” costs (“Capital, Renewal, Operational,
Maintenance, End of Life” costs, discussed later in the course).

1.10 OFF-SITE MANUFACTURE (OSM)

The industry is facing several tough challenges:

• Money for investment is tight
• Buildings are becoming more complicated
• The heat is on to reduce carbon emissions
• Clients are challenging the industry to come up with ways of delivering better value for
their investments.

In an environment such as this, it is hardly surprising that a growing number of clients, designers
and constructors are looking at alternatives to traditional construction methods to deliver the
buildings they want at a price they are willing to pay.

Indeed, for many clients, the construction site has already become the place where factory-made
components are merely assembled - as the value adding processes have already taken place in the
factory rather than on site.
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Some professional and construction teams are in the vanguard of this new off-site way of working
but the implications are likely to impact the industry.

The use of factory-made material components to assemble buildings on site can be an attractive
commercial and project proposition because of:

• the potential benefits of faster construction on site

• predictable project time and cost
• assured quality and accuracy
• minimisation of waste, etc.

Factory-made components are also becoming ever more sophisticated as innovative

manufacturers and designers identify ways to incorporate additional structural or service
features with high accuracy and quality.

However, these developments are possible only if there is a very close and sustained working
relationship between the client, their consultants, and manufacturers.

For much of the industry, this represents a substantially new way of working with increased
collaboration across the construction team becoming a necessary reality rather than simply an
aspiration.

When the Second World War ended, the UK faced a severe housing shortage: houses were needed
immediately, but there wasn't time to build them using typical construction methods.

In response, the then Ministry of Works built thousands of prefabricated, or prefab, homes. One
type could be built in aircraft factories and was known as the AIROH house for the Aircraft
Industries Research Organisation on Housing. The 156,623 AIROH prefab homes constructed
proved successful, with some such as the Excalibur Estate in Catford, south London, remaining in
use until very recently.

1.10.1 COMMERCIAL OFFICE FIT OUTS

When undertaking building works, for commercial office fit outs, the level of completion
undertaken is referred to as either:

• Shell & Core

• Category A
• Category B

Read the following descriptions and try to guess which is Shell & Core, which is Category A,
and which is Category B.
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1.10.1.1 CORE & SHELL

Shell-and-core developments include fully finished landlord areas comprising main entrance
and reception, lift and stair cores, lobbies, and toilets.

These areas are not part of the space rented to the tenant:

• Structural frame and external envelope complete.

• Internal Subdivision necessary to separate non-functional common use landlord areas
(reception, circulation, WC's, stairs, lifts, plant, etc) from areas that are to be dedicated to
operational use (offices, conference rooms) or are ancillary user functions (computer suites,
coffee shop, restaurants).
• Landlords central plant and services installations relating to domestic water, heating,
ventilation, air conditioning, lifts, escalators, fire detection/protection, lightning protection,
façade cleaning - all to general standards that would not take account of the specific
requirements of an individual tenant.
• Fit-out of common use landlord areas, further subdivision (partition and doors) as
necessary, stair balustrades/handrails, wall/floor/ceiling/stair finishes.
• Complete services installations - hot/cold water and drainage to/from fittings in WC's,
heating/ventilation/air conditioning ducts, boxes and terminals, wall/ceiling fixed lighting,
small power, fire detection/protection.
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1.10.1.2 CATEGORY A

Category A works include works within the general office areas.

It usually comprises of the following:

• Raised floors
• Suspended ceilings
• Floor, wall, and ceiling finishes
• Mechanical, electrical, and plumbing installations beyond risers

Typically, category A is what the developer provides as part of the rentable office space.

The developer may contribute to the tenant for the carpets, floor boxes and grommets, to be
installed as part of the tenant’s category B fit-out which may prevent damage to and can enhance
the tenant's final layout and finishes.
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1.10.1.3 CATEGORY B

Category B completes the fit-out to the tenant’s specific requirements.

It usually comprises of the following:

• Cellular offices, meeting rooms
• Enhanced finishes, reception area
• Specialist lighting, IT, and AV installations
• Kitchens, tea-points, break-out space
• Furniture (sometimes referred to as Category C)

1.11 STAIRS

1.12 EXTERNAL WALLS, WINDOWS, AND DOORS

This lesson will cover masonry, cladding and curtain walling.

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These elements form the main part of the building envelope and, alongside the mechanical
and electrical elements, will form the most expensive part of the build.

1.12.1 MASONRY AND CLADDING

1.12.2 CURTAIN WALLING

In historical terms, a curtain wall formed the enclosure to a fortification. Nowadays, it is a

form of cladding, providing a weatherproof enclosure and increasingly serving as a means
of controlling the internal environment of a building.

Curtain walling may be defined as a weatherproof, non-load-bearing enclosure of windows

or metal panels in a light metal framework that is fixed back to the structure of a building,
usually at intermediate floor levels.

There are various systems in common use ranging from simple, site-assembled 'stick systems'
to larger, pre-assembled panels or unitised systems.

Many glass curtain walls comprise a system of mullions and transoms with the insulating glass
units held in place with clamping plates. In more recent years, silicone bonded systems have
become popular; in these systems either 2 or 4 edges of the glass are held in place with silicone
adhesive.

Few, if any, curtain walling systems can be made totally weathertight. It is usual to accept that
some leakage will take place from the outer, weather facing seals, but to drain this water away in
a controlled fashion.

There are several mechanisms of water penetration into a system: force of gravity, kinetic energy,
capillarity, pressure assisted capillarity, surface tension and air pressure differentials. Of these, air
pressure differentials are possibly the most significant.

Wind pressure against a facade creates localised areas of high pressure. If the air pressure inside a
building is lower, air leaks through, taking moisture with it. If the air in the cladding system can
equalise quickly with the external air pressure, the propensity for leakage is much reduced.

Drained and pressure equalised cladding systems (which are generally most common) use this
principle and divide the ventilated void in the cladding into small fields to permit rapid
equalisation.

Problems of leakage are possibly the most common form of defect, although defective fixing
details are not unknown. Fixings must be robust and durable, as they are inaccessible and cannot
be inspected or repaired easily.

The fixing system must be capable of accommodating building movements due to loading, creep,
thermal and moisture movements, etc.
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Most systems rely to a large extent upon the performance of sealants. The basic types of sealant
failure are:
• adhesion failure
• cohesion failure
• delamination failure
• reversion

1.12.2.1 STICK SYSTEM

Stick construction is the traditional form of curtain walling, comprising a grid of mullions and
transoms into which various types of glass and/or insulated panels can be fitted. The systems are
usually fairly low cost, using extruded components supplied by the system manufacturer. Mullions
are usually assembled first, with transoms then fitted in-situ.

A variety of jointing systems are employed but most stick systems have some form of stub
connection between individual lengths or transoms. Mullions are usually fixed back to the structure
at floor levels, although longer spans are possible according to the section properties of the
component.

Aluminium is the usual material for the framework, although some older buildings experimented
with steel. Most of the grid assembly work is done on site. This permits some measure of
dimensional adjustment and tolerance, but it is highly workmanship-sensitive and relies on
accurate cutting of components and the correct use of sealants at joints.

Assembly on site is fraught with risk as many systems are superficially similar so that a contractor
who is familiar with one system may omit crucial components such as seals at junctions when
assembling components provided by another manufacturer. (Weatherproofing problems in modern
glazing systems, CIOB, 1992).

Similarly, if shop drawings are hard to read (perhaps in a different language) or do not detail items
such as drainage or ventilation slots, there is a risk that these items are neglected or installed
incorrectly.

1.12.2.2 UNITISED SYSTEMS

Unitised systems comprise narrow-width, storey-height units of aluminium framework containing

glazed and/or opaque insulated panels. The entire system is pre-assembled under factory-
controlled conditions, thus avoiding some of the problems of assembly encountered on site.

The unitised panels are usually craned into position, with pre-positioned brackets attached to the
floor slab or the structural frame. Modern installation techniques increase the speed of erection
and often minimise the requirement for scaffolding.

Unitised systems do have higher direct costs but nowadays the curtain walling to most prestige
buildings is of this type.
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1.12.2.3 PANELLISED CURTAIN WALLING

Like unitised systems, panellised curtain walling is constructed in the factory to improve quality
control and speed of erection. However, the systems comprise large, prefabricated panels of bay
width and storey height, which are connected back to the primary structural columns or to the floor
slabs.

Panels may be of precast concrete or comprise a structural steel framework and are often clad with
a variety of stone, metal, and masonry cladding materials.

The advantage of these systems is improved adherence to specification as a consequence of factory

prefabrication, allowing improved control of quality and rapid installation with the minimum
number of site sealed joints.

Panellised systems are less common and more expensive than unitised construction.

1.12.2.4 STRUCTURAL SILICONE

Structural sealant glazing is a form of glazing that can be applied to stick or unitised curtain walling
systems. With structural sealant glazing the insulating glass units (IGUs) are attached to the grid
framework with factory applied structural silicone sealant rather than by pressure plates and
gaskets in a more traditional system.

1.12.2.5 STRUCTURAL GLAZING

Structural glazing typically comprises large thick single panes of toughened glass assembled with
special bolts and brackets that are supported by a secondary steel structure.

This form of glazing is often referred to as 'Planar' glazing and is commonly used to form the
enclosure to atriums and entrances. Planar is a trade name rather than a generic type of glazing
system.

1.12.2.6 RAINSCREEN

Rainscreens are not curtain walls as such, as they provide a screening function rather than an
enclosure in its own right.

A rainscreen is used to shield a wall, whether this be of masonry, metal studwork or in some cases
glass.

Usually a rainscreen is designed to permit some controlled leakage with the main functions of
resistance to air and water being provided by the shielded wall behind.
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1.12.3 CHALLENGES INVOLVING CLADDING

1.12.3.1 1 PROBLEM
ST

The science and technology of cladding is fairly complex. Therefore the cladding industry is
often plagued with design or workmanship problems. Over recent years, dozens of cladding
manufacturers and installers have failed, often as a result of difficulties with particular projects.

One major cladding manufacturer is reputed to have purchased an entire office building from the
employer as a means of resolving a dispute. It is unsurprising therefore that many surveyors shy
away from cladding inspections, preferring to leave the inspection and resolution of defects to
those with appropriate skills.

1.12.3.2 2ND PROBLEM

The cladding supply chain is also complicated - populated with a large number of specialist
contractors of varying degrees of competence and a smaller number of correspondingly larger
manufacturing organisations.

Frequently (and especially with window systems) the components of the system are supplied by
the manufacturer to a franchised fabricator, who may decide to introduce non-franchised
components into the system and produce an installed product that is not fully in accordance with
the manufacturer's specification or design.

1.12.3.3 3RD PROBLEM

There may be an infinite number of variations of cladding designs, but there are some fairly basic
concepts that are worth examining as they help develop an understanding of how cladding works
and why it can go wrong.

1.13 INTERNAL FINISHES: INTERNAL WALLS, PARTITIONS, DOORS & FINISHES

This section covers internal construction, internal doors, and ceilings. Please download and
read the sections from the Building Construction Handbook below on internal construction
and internal doors and ceilings.

1.14 BUILDING SERVICES

Building services are responsible for the artificial environment present in our buildings, from
the heating, cooling, lighting, power to the toilets, fire alarms and sprinkler systems. They
are as follows:

If the building fabric and structure is colloquially known as the ‘bricks and sticks’ of the
building, the mechanical, electrical and plumbing Installations are known as the ‘heart and
lungs’ of the building. In this section, we will review the three principal elements of building
services, mechanical, electrical and plumbing (MEP) installations.
`

The mechanical installations element of building services includes:

Heat source – Method of heating the building, boilers, etc.

Fuel installations – storage of petrol, oil, gas, etc.

Space heating and air conditioning – Method of heating and cooling the building as well as controlling
the humidity and cleanliness of the air.

Ventilation – Method of moving air into and out of the building.

The electrical installations element of building services includes:

Electrical installations – includes power and lighting installations asphalt

Lift and conveyor installations – vertical transportation

Fire and lightning protection – fire and smoke alarms

Communication, security, and control system – CCTV and access controls

Specialist installations – Medical gases, refrigeration systems

The plumbing installations element of building services includes:

Sanitary installations – Toilets, bathrooms

Services equipment – Catering equipment

Disposal installations – Above ground drainage

Water installations – Hot and cold-water supplies

Builder’s work in connection with services (BWIC) – Any construction work required to facilitate services,
e.g. holes through walls/floors for pipework.
`

1.15 EXTERNAL WORKS

The final section relating to construction work in the New Rules of Measurement is the
external works, which includes the following elements:

External works and more broadly urban design is hugely important in shaping the
environment in which we live and work.
`

One of the key “unknowns” that often catches Quantity Surveyors out (and by extension Client’s
and Contractors) is underground obstructions or unknown services.

Always include a healthy contingency in your risk register for these items and make sure the
contractual allocation of this risk is clearly understood by all parties before you begin!

1.16 PRELIMINARIES, OVERHEADS AND PROFIT

1.16.1 PRELIMINARIES

Preliminaries: Main contractor's preliminaries are a cost significant element in most

construction projects, which are directly influenced by the choice of construction method
more than any other element. The cost checking of main contractor's preliminaries is an
iterative process which is repeated for each formal cost plan.

The methods of estimating the cost of the preliminaries will vary according to the RIBA Work
Stage reached.

To begin with, for Formal Cost Plan 1 (prepared for RIBA Work Stage 2: Concept Design), the
estimated cost of the main contractor's preliminaries will be based on a percentage addition derived
from a properly considered assessment of cost analyses of previous buildings (for a commercial
office building typically 12-15%).

However, as more information becomes available, a more detailed approach to cost, checking the
cost target for the main contractor's preliminaries is to be taken.
`

When preparing Formal Cost Plans 2 and 3 (i.e. at RIBA Work Stages 3 and 4), to ensure that
the previous cost target is sufficient, it is essential that thorough cost checks are carried out on cost
significant items of the main contractor's preliminaries.

1.16.2 OVERHEAD AND PROFIT

When preparing a cost estimate for main contractor's overheads and profit, they can be
either combined as a single cost centre or treated as two separate cost centres (i.e. one being
main contractor's overheads and the other main contractor's profit).

The main contractor's overheads and profit are to be based on a percentage addition.

The estimated cost of any main contractor's overheads and profit is to be calculated by applying
the selected percentage addition for overheads and profit to the combined total cost of the building
works estimate and the main contractor's preliminary estimate.

The UK and other major English-speaking countries have the world’s worst profit margins; a
survey has found

Typically ranging from 2-8% (generally around 2-4%), contractor’s margins are extremely
tight. Historically, some commentators have argued that extremely low margins may risk driving
poor behaviours including a claims conscious approach, late payment of supply chain and a lack
of investment in training and innovation. Increasing margins may encourage a more collaborative
approach.
`

1.17 PROFESSIONAL AND DESIGN FEES

Project/design team fees are the fees associated with the project/design team and other
specialist consultants required for the building project (i.e. consultants' fees). Project/design
team fees also include main contractor's pre-construction fees.

Where design liability is to be transferred to the main contractor for the entire building project (i.e.
where a design and build or other main contractor led design contract strategy is to be used) and
all, or some of the consultants within the design team are to be novated, the balance of the
consultants' fees due after novation has occurred are to be transferred.

1.18 RISK ALLOWANCES

Constructions risks are generally managed by the site management team, whereas financial
risks should be managed by the commercial/cost management teams.

Construction risks
• Health & safety risks.
• Site investigations.
• Abnormal ground conditions, contaminated ground.
• Effect of discovery of archaeological artefacts or other antiquities, leading to delayed start.
• Work to existing buildings, monitoring of adjacent buildings.
• Abnormal service provisions, disconnection, diversion and/or abandonment of existing
services.
• Tenants' standby generators and UPS systems.

Financial risks
• Site acquisition and associated costs including land, agents, legal fees.
• Utilities connection costs.
• Capital allowances or other incentives/grants.
• Local authority charges, costs of planning approval, section 106/278 agreement.
• Professional/legal fees; planning/building control fees; statutory fees; site surveys.
• Inflation, interest rates, exchange rates.
`

• Finance charges (interest on capital borrowed or loss of interest on capital employed).

1.18.1 COSTED RISK REGISTER

Risk management is the process associated with identifying, analysing, planning, tracking,
and controlling project risks.

Risks are often managed through a Risk Register, which is a document compiled by the entire
project team which records all possible risks. Risk registers must be continually monitored and
updated.

The responsibility for managing risks (and their associated costs should they be realised) is usually
allocated to either the client or the contractor.

Risk registers can also be used as a more structured way of calculating contingency on a project
as shown in the table below.

1.19 SUMMARY OF PART 2

Part two focuses on how various elements of the building work and inter-relate and is aligned to
the RICS New Rules of Measurement (NRM) Elemental Method of building classification.
`

The elemental method considers the major elements of a building, for the purposes of order of cost
estimating, and is based on an elemental breakdown of the building project utilising a standard
Work Breakdown Structure (WBS).
`
`

PART 3 – IMPACT OF CURRENT LEGISLATION AND REGULATIONS

This part will look at the impact of current legislation and building regulations on the design and
construction of buildings.

The key points for you to focus on in part 3 are:

• How the main Health and Safety Legislation applies to your role.
• How Building regulations may apply to clients and contractors
• The importance of following all the guidance

Let’s start by looking at the two main pieces of legislation – The Health and Safety at Work
Act (HSWA 1974) and the Construction (Design and Management) Regulations 2015 (CDM
2015).

1.20 HSWA 1974

The Health and Safety at Work Act 1974 is the primary piece of legislation covering
occupational health and safety in the UK.

The Health and Safety Executive (HSE), with local authorities (and other enforcing authorities) is
responsible for enforcing the Act and other pieces of legislation relevant to the working
environment.

The general purpose of the Act is as follows:

"All workers have a right to work in places where risks to their health and safety are properly
controlled. Health and safety is about stopping you from getting hurt at work or ill through work.
Your employer is responsible for health and safety, but you must help"
(Health and Safety Executive, 2017)

1.21 CDM REGULATIONS 2015

The CDM Regulations 2015 came into force on 6 April 2015. They are the principal form of
legislation for health and safety in relation to the design and construction of buildings.
`

The CDM regulations describe:

• The law that applies to the whole construction process on all construction projects,
from concept to completion.
• What each duty holder must or should do to comply with the law to ensure projects
are carried out in a way that secures health and safety.

1.22 HEALTH AND SAFETY

The four main duties in relation to health and safety that you should comply with are:
• Take reasonable care of your own and other people’s health and safety.
• Follow any training and guidance provided by your employer.
• Co-operate with your employer on health and safety.
• Tell someone (your employer, supervisor, or health and safety representative) if you think
the work or inadequate precautions. are putting anyone’s health and safety at risk.

The main consequence of not following Health and Safety guidance is death. Further consequences
can include serious injury, disease, or long-term health impacts.

Other considerations could include:

• Criminal or Civil proceedings.
• Organisational impact including insolvency as a result of reputations damage and or fines.
• Impact on staff and colleagues including guilt, lack of trust, sense of loss.

It is important that incidents and accidents are investigated appropriately by a competent

Investigator. The root cause or causes should be determined and action taken to prevent it from
happening again.

1.23 BUILDING REGULATIONS

Building regulations are the minimum standards for design and construction of buildings
and cover all elements of building construction.

In the UK, the following Approved Documents provide guidance on ways to meet the
building regulations.
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`

1.23.1 THE PLANNING PORTAL

Since 2002, the Planning Portal has helped to transform the planning process, making
information and services simpler and more accessible for those involved in the process, be
those applicants, agents, or local authorities.

By working in partnership with every local authority across England and Wales, the
Planning Portal is the national home of planning and building regulations information and
the national planning application service.

Building regulations are minimum standards for design, construction and alterations to virtually
every building. The regulations are developed by the UK government and approved by Parliament.
The Building Regulations 2010 cover the construction and extension of buildings and these
regulations are supported by Approved Documents. Approved Documents set out detailed
practical guidance on compliance with the regulations.

Building regulations approval is different from planning permission and you might need both for
your project.

You can apply to any local authority building control department or Approved Inspector for
building regulations approval.

Building Control Applications

1.24 ELEMENTS OF THE BUILDING IMPACTED BY BUILDING REGULATIONS

The elements of the building mainly impacted by the Building Regulations, particularly from
a cost perspective are as follows:

• Building fabric – The choice of concrete or steel frame can have profound implications
on the thermal performance of the building.
• The performance of the cladding and roofing materials will also impact on how well the
building conserves energy.
• Building services – The choice of building services is also a critical element.
• The choice of energy efficient materials and components and the mechanisms used to
control them will be critical to building performance.

The energy required to heat, cool, ventilate, heat water, and light the building are controlled
by Part L of the Building Regulations.

Please note that how the design works to meet the requirements of Part L of the Building
Regulations are for the interpretation of the design team but represent the minimum
requirements to meet the legislation.

Part L is one of the most important regulations when it comes to climate

change and sustainability.
`

However, following the tragic events at Grenfell Tower, London, Part B is now also in huge focus
across the industry. You can read about Grenfell and the impact on surveyors in the RICS
Supplementary Information Cladding for Surveyors.

1.25 INTERNATIONAL CODES

1.25.1 THE INTERNATIONAL BUILDING CODE (IBC)

The International Building Code (IBC) is the foundation of the complete Family of International
Codes®. It is an essential tool to preserve public health and safety that provides safeguards from
hazards associated with the built environment. It addresses design and installation of innovative
materials that meet or exceed public health and safety goals.

1.25.1.1 BENEFITS
• The principles of this model code are based on protection of public health, safety and
welfare.
• This code results in efficient designs that provide flexibility for the code official, designer,
engineer and architect.
• Provisions of the code encourage the use of new and smarter technological advances.
• This code emphasizes both prescriptive and engineered solutions and allows the use of
time-tested methods.
• This code references nationally developed consensus standards.

1.25.1.2 ADVANTAGES
• Safety – It has a proven track record providing safe and sanitary plumbing installations.
• Ease of Use – This code uses the same easy-to-use format provided in all I-Codes
• Embrace of New Technology - This code and its predecessors have a tradition of
innovation while protecting the health and safety of the public.
• Correlation – This code is specifically correlated to work with ICC's family of codes.
• Open and Honest Code Development Process - This code is revised on a three year cycle
through ICC's highly-respected consensus code development process that draws upon the
expertise of hundreds of plumbing, building and safety experts from across North America.

1.25.2 BRITISH STANDARD

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1.25.3 EUROCODES

The EN Eurocodes are a series of 10 European Standards, EN 1990 - EN 1999, providing a

common approach for the design of buildings and other civil engineering works and construction
products.

The EN Eurocodes apply to the structural design of buildings and other civil engineering works
including, geotechnical aspects, structural fire design and situations including earthquakes,
execution and temporary structures. For the design of special construction works (e.g. nuclear
installations, dams, etc) other provisions than those in the EN Eurocodes might be necessary.
`

1.25.4 CHINA

1.25.5 AUSTRALIA

We ensure safe and sustainable building and plumbing systems through regulatory and non-
regulatory measures, in collaboration with Australian governments and industry.

The Australian Building Codes Board (ABCB) is a standards writing body responsible for the
National Construction Code, WaterMark and CodeMark Certification Schemes, and regulatory
reform in the construction industry. The ABCB is a joint initiative of the Commonwealth and State
and Territory Governments, together with the building and plumbing industries.

1.25.6 WHAT IS THE RELATIONSHIP BETWEEN THE UK BUILDING REGULATIONS, BRITISH

STANDARDS AND EUROCODES?

Eurocodes were developed through a desire to harmonise standards across the EU. Eurocodes are
mandatory in the European Union; however, they are not mandatory in the UK as existing
standards may still be used.
`

However, in UK public sector projects, it must be demonstrated that designs are technically
equivalent to Eurocodes

The UK Building Regulations, British Standards, and Eurocodes are all related to the construction
and design of buildings in the United Kingdom, but they serve different purposes and have distinct
roles. Here's an overview of their relationship:

1. UK Building Regulations: The UK Building Regulations are a set of national standards

that set out minimum requirements for the design, construction, and alteration of buildings
in the UK. They cover a wide range of aspects, including structural integrity, fire safety,
energy efficiency, accessibility, and more. The Building Regulations are legally binding
and enforceable in England, Wales, Scotland, and Northern Ireland. They are administered
by the respective local authorities or building control bodies in each region.

2. British Standards (BS): British Standards are voluntary technical standards developed by
the British Standards Institution (BSI). They provide detailed guidance, specifications, and
requirements for various aspects of construction, including materials, products, methods,
and processes. British Standards are widely used in the UK construction industry as a
recognized benchmark for quality and safety. While compliance with British Standards is
not mandatory, they are often referenced in the Building Regulations as a means of
achieving compliance.

3. Eurocodes: Eurocodes are a set of European standards for structural design that have been
developed by the European Committee for Standardization (CEN). They provide
harmonized design rules and guidelines for various structural elements and materials,
covering areas such as loadings, concrete, steel, timber, and more. Eurocodes aim to
promote uniformity and facilitate cross-border trade within the European Union. In the UK,
Eurocodes have been adopted as the accepted standards for structural design by the
Building Regulations.

In summary, the UK Building Regulations provide mandatory requirements for building design
and construction in the UK. British Standards offer voluntary guidance and specifications that are
often referenced within the Building Regulations. Eurocodes, on the other hand, specifically
address structural design and have been incorporated into the Building Regulations as the
recognized standards for structural engineering. Compliance with the Building Regulations is a
legal requirement, while adherence to British Standards and Eurocodes is generally considered
good practice.

There is also a legal consideration here:

If a particular Eurocode sets a more recent standard of best practice (and certainly if it sets a higher
standard), then using an alternative ‘lesser’ standard could open a designer to claims for negligence
(see Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, which will be discussed
in more detail in Module 6).
`

If, on the other hand, the Eurocode set a lower standard, it would be prudent to err on the side of
caution and apply the higher, existing British Standard.

1.25.7 SUMMARY

The four main health and safety duties you should comply with are:

• Take reasonable care of your own and other people’s health and safety
• Follow any training and guidance provided by your employer
• Co-operate with your employer on health and safety
• Tell someone (your employer, supervisor, or health and safety representative) if you think the
work or inadequate precautions are putting anyone’s health and safety at risk
• There are numerous Acts of Parliament, statutory instruments and other forms of legislation
that apply to the design and construction of buildings.
• The main pieces of legislation that are generally relevant to Construction Technology and
Environmental Services are the Health and Safety at Work Act 1974 (HSWA 1974) and the
Construction (Design and Management) Regulations 2015 (CDM 2015).
• Building Regulations are the minimum standards for design and construction of buildings and
cover all elements of building construction.
• The Approved Documents provide guidance on ways to meet the building regulations.
`
`

PART 4 – BUILDING INFORMATION MODELING

This part covers Building Information Modelling for design and construction.

The key points for you to focus on in part 4 are:

• What BIM is and how it relates to design and construction
• The benefits of BIM to clients and the broader industry
• The impact of BIM in practice (the Manchester Town Hall Case Study)

Building Information Modelling (BIM) exploits the potential in ICT based modelling
technology to provide an innovative new way of designing buildings and managing the design
and construction process.
`

BIM is a process which should encourage joined up thinking and collaboration such as to eliminate
project clashes. There is no universally accepted definition of BIM, perhaps because it is ever
evolving. But there have been some exemplary definitions:

BIM is one of the most promising developments that allow the creation of one or more accurate
virtual digitally-constructed models of a building to support design, construction, fabrication, and
procurement activities through which the building is realized.

BIM is a digital representation of the physical and functional characteristics of a facility creating
a shared knowledge resource for information about it and forming a reliable basis for decisions
during its life cycle, from earliest conception to demolition.

A comprehensive definition of BIM includes three related aspects:

• The model itself - a digital representation of the physical and functional characteristics of
a project.
• The process of developing the model - the hardware and software used for developing
the model, electronic data interchange and interoperability.
• The use of the model - business models, collaborative practices, standards, and semantics,
producing real deliverables during the project life cycle.

BIM is about more than just the model and the modelling process: it is the effective and efficient
use of the model (and the information stored in it).

Next, let’s see the levels of maturity in BIM.

1.26 BIM MATURITY

Implementing BIM in an organisation and on projects is a gradual and varied process. The
BIM Maturity Matrix is a framework which can help organisations or project teams monitor
and manage performance of BIM Maturity.

Due to the complexity of BIM, BIM specialists, experts and consultants are usually positioned
in organisations to manage BIM maturity.

Next, we’ll consider Bew-Richards BIM Maturity Model.

Another key contribution of UK BIM activities is the BIM maturity model (known as the
Bew-Richards BIM maturity model). This ramp model demonstrates a systematic transition
of BIM maturity levels in the industry.
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Last, we'll explore the BIM dimensions.

1.27 BIM DIMENSIONS

2D (Cartesian Coordinate System) is a traditional design process which led to 3D design.

BIM’s need for the collaboration of all sectors of the construction industry and involvement
with the entire life cycle of a project introduced more dimensions: 4D, 5D, 6D and 7D.

4D BIM for example includes a 3D model plus time, derived from the project program, which
allows the construction process to be visualised rather than the design only being visualised.

5D BIM adds cost on top of 4D to create a cost estimate over time.

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6D BIM is referred to as integrated BIM (or iBIM) and involves the inclusion of information to
support facilities management and operation to drive better business outcomes (NBS).

7D BIM adds sustainability information to a project, including whole life cost and carbon
footprint.

1.28 QUANTIFYING THE BENEFITS OF BIM

How do you know if BIM is a smart investment? As a business owner adopting BIM in your
organisation, it is important to know whether BIM is a smart investment. Quantifying the
benefits of BIM is a debated topic due to many factors such as the reliance on users inputting
data.

To achieve some of the known benefits of BIM, for example better collaboration and
communication, an organisation or project team need to evaluate the use of BIM and its
effects on the organisation/project team. By collecting quantitative data, an organisation or
project team can form benchmarks.

BIM is a remarkable development that has recently engulfed the built environment sector.

Though it is essentially a technology-driven concept, BIM cannot just be dealt with at the
technology level as it has far-reaching implications, impacting:

1. People, projects, firms and the entire sector

2. The entire life cycle of the project
3. The underlying 'operating system' of the built environment
4. The way the project is delivered by affecting all project processes

BIM allows the creation, storage and sharing of project information that is far superior to
current methods.

For example, it can:

• link design, construction, and operation more closely
• provide analytical power to enhance functions such as risk management
• reduce waste and optimise resource use
• integrate project-delivery networks more by enhancing collaboration, coordination, and
communication
• enable project information to be available anywhere, anytime
• enable the sector to be more knowledge-driven than skill-driven, allowing product
orientation
• enhance operational efficiency by integrating and automating facility management (FM)
processes
• optimise procurement and contractual paradigms
• standardise processes and systems for greater profitability
• allow the sector to tap into up-and-coming technologies, such as cloud computing, big
data etc
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• allow the sector to contribute to broader societal issues such as sustainable and smart cities
• increase the intellectual and reputational capital of the industry
• create new business opportunities for existing and new players.

All the revolutionary shifts that BIM theoretically allows rest on the ability of a project team
to produce and use high-fidelity models that are information rich.

1.29 THE MANCHESTER TOWN HALL CASE STUDY

Manchester renovation project: the vision, the team and BIM

1.29.1 INTRODUCTION

Manchester Town Hall complex is a series of 3 buildings made up of iconic structures of

international architectural significance and exceptional craftsmanship. But while the complex had
been maintained over the years, extensive works became necessary to prepare the buildings for
many more years of civic duty, and to meet the City Council’s commitment to reducing its carbon
footprint.

The complex comprises the Grade I-listed Waterhouse designed Town Hall, together with the
Vincent Harris-designed Grade II* listed Town Hall Extension and the Central Library, plus
exterior spaces Library Walk and St Peter’s Square. Together, the Town Hall Extension and
Central Library buildings and the 2 external spaces make up the Town Hall Complex
Transformation Project.

The work aimed to protect important heritage features while creating a more accessible, multi-
functional public facility. Works to refurbish the Town Hall are reserved for a future period.

1.29.2 THE CITY’S VISION

The construction programme was integral to the comprehensive transformation of how Manchester
City Council (MCC) delivered its services, and the way its employees would work in future,
aligned with published best practice including Working without walls 2004 and Working
beyond walls.

In addition, the council was concurrently developing a new customer services strategy, to define
how the various authority directorates could improve service provision to Manchester’s citizens,
businesses and visitors.

‘Excellent customer service’ depends on 2 key capabilities:

• effective means of customer access to council services
• effective service delivery.

For the refurbishment, this meant creating easier access to customer services via a Customer
Service Centre, the Central Library and other public areas. It was an essential tenet of the brief that
customers should find the council approachable and focused on their needs, whether they wished
`

to pay their council tax, receive information on a central library exhibition or understand how to
become a councillor.

At the heart of the programme was cultural and behavioural change, which would be for the benefit
of the citizens of Manchester. The office space had to lend itself to more modern, flexible working
arrangements with a desk to staff ratio of at least 8 to 10, with more desk spaces created allowing
leased premises to be vacated with consequent financial savings.

The central library would become a world-class facility doubling its capacity for visitors, and
reversing the apportionment of space where only 30% had been accessible to the public. In
addition, archives would allow paper, film or digital content to be stored securely in environmental
conditions appropriate to their needs, achieving conditions compatible with the requirements of
the National Archive.

A transformed service in the central library was underpinned by 3 primary cornerstones:

The library as a knowledge hub

• where knowledge is shared and new thoughts emerge
• where people (and perhaps ‘unlikely’ people) can come together and learn from each other
• where dialogue, discussion and debate can thrive in a safe environment.

The library as an experience

• a dynamic and engaging experience rather than a range of products and services
• a constantly surprising experience where one gets more than one expects
• standards of service that are nothing short of exceptional.

The library as the Third Place

• a combination of facilities and activities in which visitors could become immersed
• a unique physical environment and beautifully designed spaces – an iconic building that
the people of Manchester and beyond could continue to love
• one of Manchester’s ‘must-see’ attractions for residents and visitors alike.

The library was designed by Vincent Harris in neoclassical style and completed in 1934. It contains
areas of high heritage significance, which required extremely sensitive treatment. The Reading
Room and the Shakespeare Hall are of paramount importance as public spaces, the former retaining
much of its original furniture and fittings.

Other public spaces retained their high-quality finishes and decoration, which needed to be
preserved, refurbished or restored, while accommodating a mixture of existing and new uses. The
areas above the first-floor level were of lesser significance, although there are some high-quality
meeting rooms and offices. Like the town hall extension, partitions were arbitrarily placed within
the overall structural regime.

Procurement of the consultancy design team was undertaken through a combination of Official
Journal of the European Union process, and selection from existing framework arrangements. The
team shortlist was heavily weighted in favour of quality, and all appointed team members were
`

required to be resident in a project office established close to the site. The city council project
management team comprised existing staff, specially recruited staff and Mace, a framework
partner. Skills transfer was an essential element of the Mace appointment, with its project
managers working closely and mentoring team members.

MCC adopted a ‘One Team’ philosophy to deliver the project, and collocation of the entire team
was an essential element of this strategy. This shared project office paid dividends throughout the
development phases, but especially in the early RIBA design stages with daily design team contact
with stakeholders and stakeholder representatives. This One Team philosophy was subsequently
expanded to incorporate construction team partners, and ultimately led to the site being similarly
branded. This successful adoption of a programme wide corporate identity was an essential
element of the project’s ultimate success.

The emphasis on quality in the consultant selection assisted with the collocation requirement, and
enabled the development of the ‘ownership’ necessary for delivery of such a complex project.

The city council is committed to long-term partnering arrangements, and the works were the first
procured through the North West Construction Hub major contractors framework. Given the
prequalified nature of the framework, price was slightly more important, but not at the overall
expense of quality. The bespoke ‘mini competition’ launched to select the ultimate construction
partner was heavily biased towards ’relevant experience’. Both buildings are considered to have
national architectural significance. Therefore, it was vital to the city that a team with appropriate,
expertise was selected for what would be probably the largest single construction project delivered
in recent years.

Selection of the preferred construction partner was not, therefore, without its complications
because MCC was determined that there would be no weak links in the programme. The
discussions with shortlisted contractors were protracted. Again, with a view to not sacrificing
quality on the altar of price, an NEC target cost contract with shared pain/gain was selected. This
maintained flexibility for as long as possible, given that a number of stakeholders were unable to
be specific about final scope and relationships until late in the design stage. With ultimate
agreement of target cost, based on what was then developed RIBA stage E design and a detailed
construction programme, MCC had the confidence to sanction financial approval within budget
and time constraints.

Design responsibility was transferred to the selected construction partner, Laing O’Rourke at this
stage, with representatives of architects, structural and services engineer being retained by the city
council and Laing O’Rourke to deliver construction information. While this could have been seen
as compromising independence within the consultancy team, the benefit of this arrangement was
the consolidation of the One Team identity, coordinated design and construction solutions and
design and construction challenges generally being resolved before they became problems. The
city’s PM and retained design team were also able to challenge and contribute to design
development during the construction phase, which frequently resulted in improved solutions that
would otherwise have been missed.
`

Sustainability and carbon reduction are very high on MCC’s agenda, and the opportunity to
enhance the performance of the civic buildings could not be missed. While the brief asked for
BREEAM Good as a minimum standard, aspirations stood significantly higher. However, it was
an MCC requirement that in all cases, the buildings’ long-term performance as a work space and
the heritage nature of the spaces would remain a number one priority, with all viability studies
taking this into account. Yet although staying faithful to the fabric would see potential benefits in
operation and efficiency related costs discarded, the buildings achieved BREEAM Excellent
notwithstanding.

The construction partner also had to produce a sustainable construction plan. The main objective
was to demonstrate clearly how it would design for manufacture and assembly, minimise waste,
reduce energy and water consumption and generally minimise the impact of the project on the
environment, following the principles of reuse, restore, recycle. As an extension to this policy, the
contractor was asked to look at how surplus materials including lead roofing, bronze window
frames, hardwood doors and door frames could be recycled within the project. Again successful
results would be achieved, including recasting lead and bronze to produce replacement roof sheets
and window furniture.

The city also required the development of a Regeneration Employment and Skills Plan focused on
maximising local and regional spend and the creation of at least 66 new and 20 sustained
apprenticeships. Again both targets were exceeded.

Building Information Modeling (BIM) can greatly complement facilities management (FM) and
life cycle costing (LCC) throughout the project. Here's how:

1. Enhanced Data Management: BIM serves as a digital representation of the building,

containing a wealth of information about its components, systems, and materials. This data
can be utilized by FM professionals to efficiently manage and maintain the facility
throughout its life cycle. BIM provides a centralized platform for storing and accessing
crucial information, such as equipment specifications, maintenance schedules, and
warranty details.
2. Improved Collaboration: BIM enables seamless collaboration between project
stakeholders, including architects, engineers, contractors, and FM teams. By sharing a
common data environment, everyone involved can contribute their expertise and insights,
ensuring accurate and up-to-date information is available to FM professionals. This
collaboration facilitates effective decision-making, enhances operational efficiency, and
reduces errors or discrepancies in the facility management process.
3. Visual Asset Management: BIM's 3D visualization capabilities aid in understanding the
building's physical and spatial characteristics. FM teams can leverage this visual
representation to identify key assets, locate equipment, and plan maintenance activities
effectively. By visually navigating the model, FM professionals gain an intuitive
understanding of the building's layout, systems, and access points, making their tasks more
efficient and precise.
4. Maintenance Planning and Predictive Analysis: BIM integrates with FM software tools to
support maintenance planning and predictive analysis. By linking BIM data with asset
management systems, FM professionals can access historical and real-time information
`

about equipment performance, maintenance history, and energy usage. This data can help
identify potential issues, schedule preventive maintenance tasks, and optimize life cycle
costs by identifying opportunities for energy savings and efficiency improvements.
5. Life Cycle Costing Integration: BIM facilitates the integration of LCC considerations into
the design and construction phases. By incorporating cost-related data into the BIM model,
such as material costs, energy consumption, and maintenance requirements, LCC analysis
can be performed more accurately. This analysis aids in evaluating design alternatives,
selecting cost-effective materials and systems, and optimizing long-term operational costs.
FM teams can also benefit from this integrated approach by accessing the LCC data and
making informed decisions during facility management.

Overall, BIM provides FM professionals with a comprehensive digital toolset for effective facility
management and life cycle costing. It streamlines data management, supports collaboration,
enhances visual asset management, aids in maintenance planning and predictive analysis, and
integrates LCC considerations. By leveraging BIM throughout the project, FM teams can optimize
facility operations, reduce costs, and enhance overall performance across the building's life cycle.
`

1.30 CONCLUSION

• BIM exploits the potential in ICT based modelling technology to provide an innovative
new way of designing buildings and managing the design and construction process.
• BIM is a process which should encourage joined up thinking and collaboration such as to
eliminate project clashes.
• A comprehensive definition of BIM includes three related aspects:
• the model itself - a digital representation of the physical and functional characteristics of a
project.
• the process of developing the model - the hardware and software used for developing the
model, electronic data interchange and interoperability.
• the use of the model - business models, collaborative practices, standards, and semantics,
producing real deliverables during the project life cycle.
• BIM is about more than just the model and the modelling process: it is the effective and
efficient use of the model (and the information stored within it).
`
`
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PART 5 - UNDERSTANDING CONSTRUCTION SECTORS AND ROLES FOR CHARTERED QUANTITY

SURVEYORS

This section will cover the main construction roles and sectors Quantity Surveyors operate as well
as how different design solutions vary for different types of buildings.

The key points in part 5 are:

The differing priorities and terminology used in different construction sectors.
The impact of differing priorities on design and construction outcomes.
The implications of these priorities for the Quantity Surveyor.

1.31 CONSTRUCTION SECTORS AND PROFESSIONAL ROLES

Understanding construction sectors and the quantity surveyor’s role within them is
important for a variety of reasons.

- Different terminology and ‘jargon’ are used within each sector.

- There are different standards applied across sectors.

For example:

The International Property Measurement Standard for Offices (IPMS) is an example of standard
that is applied differently across sectors.

Understanding the Net: Gross efficiency of space in Offices is a key measure, whereas in
warehouses it might be the slab to eaves height or the type of construction of the floor slab that are
more important.

The main construction sectors have two main categories:

- real estate, and
- infrastructure.

REAL ESTATE:
• Residential – housing, apartments, prs, social/affordable housing
• Commercial – offices, business parks
• Industrial – warehouses, distribution, logistics
• Leisure – hotels, exhibition centres, museums, aquatic centres, gyms
• Agricultural – farms, nurseries
• Retail – shops, malls
• Education – primary and secondary schools, further education (FE) colleges, higher
education (HE) universities
• Health – hospitals, laboratories
• GP surgeries
• Custodial – prisons, blue light
• Defence – barracks, offices, firing ranges
`

INFRASTRUCTURE
• Roads
• Railways
• Airports
• Waterways – rivers, canals
• Sea Ports
• Coastal Defences
• Power Generation – nuclear, fossil fuels, renewables
• Utilities – gas, water, telecoms

The following sections review how different design solutions may vary for commercial offices,
residential, and industrial distribution warehouse.

Let start by looking at commercial offices.

1.32 COMMERCIAL OFFICE - PROPERTIES AND METRICS

With commercial offices the principal Key Performance Indicator is the Net: Gross
efficiency of the floor space.

Net: Gross efficiency focuses on the relationship between the Net Internal
Area (NIA) and Gross Internal Floor Area (GIA), as defined in NRM:

NIA: NIA is the usable area within a building measured to the internal face of the perimeter
walls at each floor level. The rules of measurement of net internal area are defined in the
latest edition of the RICS Code of Measuring Practice.

GIFA or GIA is the [total] area of a building measured to the internal face of the perimeter
walls at each floor level. The rules of measurement of gross internal floor area are defined
in the latest edition of the RICS Code of Measuring Practice.

The British Council for Offices (BCO) suggest the best practice target for the NIA/GIA
ratio should be between 80-85%.

So why is this important?

It is important because it is the most direct measure between the cost of building the building
(£/m2 GIA Construction Cost) and the value of renting the building (£/m2 NIA Rental
Value).

1.32.1 EXAMPLE
1.32.1.1 OFFICE

8 Storey Office Block in Central Manchester with 1,500m2 (16,145ft2) per floor = Total
Space of 12,000m2 (129,167ft2)
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Note: In the UK office market, it is traditional to quote space in imperial measures ft2, both are
presented here for completeness.
`

1.33 RESIDENTIAL - PROPERTIES AND METRICS

With residential buildings net: gross efficiency remains important but is less so than in
commercial office space.

Other factors, including the individual size of unit, the number of bedrooms, acoustic
properties, and density of units on a particular site are more important.

If we take an apartment building for example, the design solution of the structural frame can have
multiple impacts on factors such as acoustic and thermal performance, as the following table
illustrates:

ADVANTAGES

Concrete Steel Timber

High intrinsic acoustic properties Fast Erection on Site Good acoustic properties
Quick lead-in time Lightweight construction Lightweight construction
Allows for smaller floor to floor Good fire protection properties if
Inherent fire protection properties
heights designed correctly
Potential to use waste materials in Reduces amount of external Allows for smaller floor to floor
mix cladding required heights
Provides for integration of MEP Reduces amount of external
High thermal mass
services within fram cladding required
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Concrete Steel Timber

Provides for integration of MEP
Potential aesthetic uses Low -Very High rise
services within frame
Low-High rise Low embodied energy
Recyclable

DISADVANTAGES

Concrete Steel Timber

Fewer providers leading to
Slow Erection on Site Poor intrinsic acoustic properties
increased costs
Exposure to weather prior
Heavy construction Long lead-in time
to enclosure
Fire protection requires
Larger floor to floor heights Requires additional fire protection
high on-site quality control
Less aesthetic soffits, may require
Additional external cladding Low thermal mass
suspended ceilings
Susceptible to decay from
Services attached to soffit of slab Very low thermal mass
moisture
Very high embodied energy High embodied energy Low rise only

A high-rise residential building would be restricted to either steel or concrete.

Concrete would benefit from improved inherent acoustic and thermal performance, but it would
take longer to construct on site, which would lead to increased costs of preliminaries (such as staff
and management, site cabins, etc.).

Alternatively, a low rise (three-storey) apartment block may benefit from a structural timber frame,
which is faster to construct and has good acoustic, thermal and broader sustainability properties
but is more difficult to procure due to fewer providers and may not be appropriate in all locations.

1.34 INDUSTRIAL DISTRIBUTION WAREHOUSE - PROPERTIES AND METRICS

Industrial distribution warehouses are an excellent sector to demonstrate the variety of

different construction solutions and methodologies that will impact on the cost and
performance of the final building.
The key performance indicator in this sector is usually the construction of the floor slab.

This may seem like a standard part of the construction of any building, so why should it have
particular importance in this sector?

The construction of the floor slab will impact upon the fitness for purpose of the final building,
for the following reasons:

• Floor Loading – the slab must support applied loads without cracking or deforming.
`

• Joints – have a minimum number of exposed joints that are maintenance free and do not
impede truck operating speeds.
• Dust free – high abrasion resistance.
• Extreme tolerances – flatness of the slab to allow for manual handling systems.
• Finish – be smooth and easy to clean without being slippery.
• Flexibility – be flexible enough to allow for future changes in operating systems.
• Aesthetics – contribute to a safe, pleasant working environment.

Other key performance indicators for Industrial Distribution Warehouses

• Ground Conditions - Are abnormal foundations required e.g. piling or vibro
compaction? Is any remediation required?
• Size – Large units benefit from reduced £/m2.
• Height of the building - What is required clear height to eaves in warehouse?
• Structural Grid - Any requirements for clear spans or specific grid centres. Any
requirement to design in flexibility for extension or future division?

Quantity Surveyors tend to experience all sectors in the early stages of their career.

As you gain experience you can then specialise, becoming an expert in that sector’s unique
knowledge, properties, metrics, and jargon.

Sector experts tend to be leading figures within their practices, disseminating knowledge through
both their businesses and industry.

Factors to consider when chosing the material to be used

As this section has illustrated, the material that is used depends upon several competing
factors:
- Time – cost – quality relationship with the client’s objective
- Resulting procurement method and its impact on construction programme
- Design of the building
- Sustainability of the building

Final considerations

From a cost perspective, whilst a steel frame may look more expensive at first glance, when we
factor in the faster construction time and the resulting savings in preliminaries (staff and
management) costs, the difference in cost between the two alternatives may be negligible, but
again this will depend upon the individual characteristics of the project.

For a medium to high rise building, the impact of increased floor to floor heights, due to being
unable to locate services within the frame (castellated beams), may significantly increase the cost
of the cladding on the project, for an equivalent size steel framed structure, alternately if the
cladding is of cheaper quality this advantage may be offset by the cost of fire protecting the steel
work.
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The conclusion is that, depending on the individual characteristics of the site, the type of building,
its design and its future use and the speed required for construction, either material may suit a
particular client’s purposes, but it is important to understand how these factors interrelate.

Understanding construction sectors and the quantity surveyor’s role within them is important for
a variety of reasons. Different terminology and ‘jargon’ are used within each and there are different
standards and KPI’s applied across sectors, some examples include:

• Commercial - Net: Gross Ratio

• Residential - unit size
• Residential - unit density
• Industrial – floor slab construction
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PART 6 - UNDERSTANDING ALTERNATIVE CONSTRUCTION DETAILS

The key points in part 6 are:

-The impact of different design solutions on substructure solutions.
- The connection of the results of design decisions on the final building environment.
- The impact of alternate design solutions on a given scenario (end of unit Scenario).

1.35 SUBSTRUCTURE OPTIONS

This section covers the functional design elements and construction details, piling solutions,
and air conditioning solutions.

1.35.1 FOUNDATIONS

Different foundation solutions will have an impact on design efficiency, cost and the amount
of time required on site to install them. Foundations are a key element of the building and
will be strongly influenced by the Structural Engineer. Some of the most complicated and
expensive foundations involve piling.

1.35.2 PILING

There are many different types of piling solution. The following list reviews some of these
solutions and the most appropriate solution to the context of the construction project given.

1.35.3 AIR CONDITIONING

To control the environment of our buildings there are a number of different solutions.

From natural ventilation (opening windows) to full air conditioning (complex controlled systems),
as we progress from simple to more complicated solutions, costs increase.

It is part of the QS and the design team’s role to advise the client on the most appropriate solution
for their objectives within their project. The following activities review some of the different
solutions.

Link to video
1.35.3.1 WHY DO BUILDINGS REQUIRE COOLING?

Buildings require cooling to discharge heat gained from a variety of sources to maintain
comfortable temperatures for human habitation, such sources include:

- Solar gain: Sunlight falling directly on the building fabric and retained through thermal
mass.
- Metabolic gain: Heat produced by people inside the building.
- Equipment gain: Lighting, computers and other types of equipment emit heat.
`

The different methods of controlling the internal environment of a building are as follows:
• Natural ventilation – The simplest method of this type of system is opening windows.
• Mechanical ventilation – This requires mechanical plant to move air both into and out of
the building.
• Comfort cooling – This requires mechanical plant to both move and cool the air within
the building.
• Air conditioning – These systems provide for full control of air temperature, humidity,
freshness, and cleanliness.
• HVAC System – System that provides heating, ventilation and air-conditioning.

The air conditioning paradox

"Air conditioning units used globally are expected to top 5.6 billion in number by 2050. But the
cooler we are indoors, the hotter it gets outdoors. As we face a future of increasing urban
temperatures, how can we address the air conditioning paradox?"

Air conditioning (AC) was developed by US Engineer, Willis Haviland Carrier, to control air
humidity for a printing press in 1902.

Currently, there 1.9 billion AC units worldwide, one for every four people on our planet.
• In the 1920’s, AC saw its first application in modern building used in movie theatres in the
US, then being rolled out to commercial and residential property.

In modern architecture, AC has become ubiquitous.

"Traditional buildings maintain lower indoor temperatures through passive means such as thick
walls, shading and ventilation. Modern buildings do away with all that and can afford exposing
entire glass-clad facades to the summer sun, as long as cool air can be pumped indoors."

The use of AC has a number of benefits:

• Allows working in hot climates
• Enhances productivity by 3-4%
• Allows increased density in our cities (a positive for sustainable cities)

There are a number of drawbacks however:

• Substantial energy use
• Substantial Carbon emissions – circa 10% of global emissions relate to AC
• Release of dangerous chemicals, hydrofluorocarbons (HFC) refrigerants
• Require frequent maintenance to avoid internal air pollution

The paradox is that the more we cool our buildings, the hotter our cities become, hence the more
we need cooling, a negative feedback loop.

AC is on the rise.
India’s AC peak energy demand has risen from 10% to 45%.
`

As global temperatures increase, the UK and Japan are both expected to see installation of AC
units rise to 5.6 billion by 2050.

“By 2050 the International Energy Agency expects the number of AC units to reach 5.6 billion,
which would make AC the second source of electricity demand globally, requiring as much power
as the current capacity of the US, Europe and Japan”

The solution, well that is still being designed, but what we know is that around the world we need
to build growing tolerance for less comfortable environments, movement toward natural
ventilation and openable windows will be a start.

Improving air flow through cities and greening our cities will have huge impacts too.

1.36 SUMMARY

As previously noted, depending on the individual characteristics of a site, the type of building, its
design and its future use and the speed required for construction, construction details may suit a
particular client’s purposes, but it is important to understand how these factors interrelate.
• The Time, Cost Quality relationship within the Client’s objectives.
• The resulting procurement method and its impact on construction programme.
• The design of the building.
• The sustainability of the building.

From a cost perspective, the difference in approach may be negligible but it could have huge
knock-ons for time, quality, or risk. Reviewing the impact of these alternatives and understanding
their consequences is essential to ensure the most efficient and effective result for the client.
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MODULE 1 SUMMARY
• The design and construction of buildings and other structures, the processes frequently used in
the industry as well as common construction solutions with some initial guidance on when they
are appropriate for selection.
• The RIBA Plan of Work 2020 stages of design, from inception to completion.
• Impact of current legislation and regulations
• How the various elements of the building work and inter-relate
• How design solutions vary for different types of building
• The alternative construction details in relation to functional elements of the design
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CASE STUDY MODULE 1: CHOOSING THE BEST DESIGN SOLUTION

1.37 PART 1

A Developer approaches you for advice in relation to the design and construction of a 12,000m2,
10 storey office development. The Ground Investigation report from the Structural Engineer
indicates that the site has poor ground conditions; the Developer asks you for advice on what type
of foundation solutions are available.

1.38 PART 2

The Developer has asked for a brief report on the options available for the external cladding of the
building. Outline the various options and make a recommendation on the most appropriate choice.

1.39 PART 3

Finally, the Developer has asked for some advice on the environmental services (heating, cooling
and ventilation) solution for the building. Propose a solution to manage the internal environment
of the office and explain your reasoning.
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MODULE 2- DESIGN ECONOMICS AND COST PLANNING

Hello, and welcome to module two of Foundation in Quantity Surveying. In this module, we
will be looking into Design economics and cost planning.

Module structure

Module two is split into 6 parts:

• Part 1: The stages of cost planning and sources of cost data
• Part 2: Use of historical cost data to predict cost using benchmarking techniques
• Part 3: Adjustments required in cost constructions (for factors such as location,
specification, time, market forces and trends)
• Part 4: Factors that affect design economics over the whole life of the building
• Part 5: Evaluating building design efficiency
• Part 6: Risk and value management techniques

Learning outcomes

At the end of this module, you will be able to:

1. Review and analyse the complex stages of estimating and cost planning.
2. Describe techniques used for benchmarking, risk, and value management.
3. Appraise and evaluate the impact of different construction solutions on price and
programming.

Benchmarking: The overall process of improvement aimed at providing better value for money
for our employers utilising a systematic method of comparing the performance of your
organisation against others, then using lessons from the best to make targeted improvements.

Building cost inflation – BCI : The rising cost of building costs. Building cost inflation (BCI) is
also referred to as Construction Inflation.

Cost: The amount incurred in producing a product, service or building. Cost is objective, based on
facts and figures.

CROME; Construction costs: The capital expenditure/investment cost of construction (CAPEX).

Renewal costs: The cost of major repair or replacement items throughout a built assets life cycle
(forward maintenance).

Operation costs: The operational and occupancy costs of running the asset, energy costs, rent,
taxes, insurances, etc. (OPEX).

Maintenance costs: Annualised maintenance costs including scheduled (planned) preventative

tasks, inspection and monitoring, cleaning costs, etc.

End of life costs: The net cost or fee of disposing of an asset at the end of its service life or period
of interest, including: costs resulting from decommissioning, deconstruction and demolition of a
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building; recycling and making it environmentally safe; recovery and disposal of components and
materials; and transport and regulatory costs.

Gross external area – GEA: The area of a building measured externally, i.e. to the external face
of the perimeter walls, at each floor level.

Gross internal floor area – GIFA: The area of a building measured to the internal face of the
perimeter walls at each floor level.

Hazard: The potential to harm or damage people, property or the environment. Hazards
include the characteristics of things and the actions or inactions of people.

IPMS 1: The sum of the areas of each floor level of a building measured to the outer
perimeter of External Walls or other external construction features, Sheltered Areas and
External Floor Areas.

IPMS 2: The total of the areas of each floor level of a Building measured to the Internal
Dominant Face (IDF) of all External Walls and External Floor Areas on each level.

IPMS 3: The Floor Area available on an exclusive basis to an occupier.

Life cycle costing – LCC: A decision-making technique that takes into account both initial
and future costs over the life of a building. For buildings and structures this usually means
considering not just capital costs but relevant costs in use or operational costs, i.e. CROME.
Net: Gross ratio: The ratio of IPMS 3 (NIA) to IPMS 2 (GIA) area determing the overall
efficiency of the building area in terms of useable space vs. total space.

Net Internal Area – NIA The usable area within a building measured to the internal face of
the perimeter walls at each floor level.

Net Lettable Area – NLA: The area the agent is quoting rent on, rather than the ‘usable’ or
‘exclusive’ area itself. Unlike IPMS 3, this area may sometimes include standard facilities
that are exclusive to the occupier. Some property agents use the term Net Lettable Area (NLA)
instead of NIA and/or IPMS 3.

New rules of measurement – NRM : New rules of measurement (NRM) is a suite of

documents written to provide a standard set of measurement rules that can be understood
by anyone involved in a construction project. They comprise rules for the measurement of
the construction, repair, renewal, maintenance and demolition of built assets.

The suite provides essential guidance to all those involved in the cost management of
construction projects.

The NRM suite comprises three volumes:

• NRM 1: Order of cost estimating and cost planning for capital building works
• NRM 2: Detailed measurement for building works
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• NRM 3: Order of cost estimating and cost planning for building maintenance works

Order of cost estimate – OCE - The determination of possible cost of a building(s) early in the
design stage in relation to the employer’s fundamental requirements. This takes place prior to
preparation of a full set of working drawings or bills of quantities and forms the initial build-up to
the cost planning process.

Price: The amount charged for the product, service or building. Price is objective, based on
facts and figures. It is usually includes the cost and a margin (profit) that can be achieved.

Risk: An uncertain event or circumstance that, if it occurs, will affect the outcome of a
project, usually measured in terms of probability (likelihood of occurrence) and impact.

Tender price inflation (TPI): The rising cost of tender prices. (TPI is also referred to as Tender
Inflation).

Value: The perceived worth of the product, service or building. Perception is from the buyer,
user or client’s perspective. Value is subjective; it can be influenced by external factors, e.g.
marketing.

Value for money – VFM: The optimum combination of whole-life costs and quality to meet
the user requirement.

Whole life cost (WLC): The present value of the total cost of an asset over its operating life
including initial capital cost, maintenance and replacement cost, energy cost and the cost or
benefit of the eventual disposal of the asset at the end of its life. An asset can include
buildings, plant and infrastructure.

PART 1: THE STAGES OF COST PLANNING AND SOURCES OF COST DATA

The key points in part one are:

The various stages of cost planning.

Best practice guidance from the New Rules of Measurement (NRM).

The impact on the planning of construction projects.

1.40 NEW RULES OF MEASUREMENT (NRM)

We will start this lesson by discovering the history and evolution of the RICS New Rules of
Measurement. We will then explore the key points of each of the three NRM standards as
well as their application.
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1.41 THE EVOLUTION OF NRM

• 1922

The Royal Institution of Chartered Surveyors (RICS) published the first Standard Method of
Measurement (SMM) in 1922.

• 1998

The SMM was introduced to promote consistency of approach in producing Bills of Quantity for
tendering purposes. The last version was published in 1988, revised in 1998.

• 2009

However, RICS argued that SMM did not provide an adequate platform for cost estimating and
cost planning. There was a lack of consistency which led to a significant lack of clarity amongst
design teams and employers on what is, and what is not included. This led to the introduction of
RICS new rules of measurement: Order of cost estimating and elemental cost planning with its
first edition published in 2009.

1.41.1 NRM 1 – ORDER OF COST ESTIMATING AND COST PLANNING FOR CAPITAL BUILDING
WORKS

NRM 1 is the ‘cornerstone’ of good cost management, enabling more effective and accurate cost
advice, as well as facilitating better cost control.

NRM is a RICS guidance note for best practice and can be used as a baseline for assessment of
competence in a case of negligence.

The document provides guidance on the quantification of building works for preparing cost
estimates and cost plans.

Direction is also given on quantifying other construction project costs which are not reflected in
the following measurable building work items:
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• Preliminaries
• Overheads and profit
• Project team and design team fees
• Risk allowances, inflation, and other development and project costs

It can also be used to capture historical, benchmark data.

1.41.2 NRM 2 – DETAILED MEASUREMENT FOR BUILDING WORKS

NRM 2 provides guidance on the detailed measurement and description of building works for
the purpose of obtaining a tender price.

Rules address all aspects of bill of quantities (BQ) production, including setting out the information
required from the employer and other construction consultants to enable a BQ to be prepared.
Guidance is also provided on the content, structure, and format of BQ, as well as the benefits and
uses of BQ.

NRM 2 also deals with the quantification of non-measurable work items, including contractor
designed works and risks, and effectively replaces the Standard Method of Measurement 7
(SMM7).

1.41.3 NRM 3 – ORDER OF COST ESTIMATING AND COST PLANNING FOR BUILDING
MAINTENANCE WORKS

NRM 3 provides guidance on the quantification and description of maintenance works for the
purpose of preparing:
• initial order of cost estimates during the preparation stages of a building project
• cost plans during the design development and pre-construction stages
• detailed, asset-specific cost plans during the pre-construction phases of a building project.

NRM 3 also aids procurement and cost control of maintenance works.

This table illustrates where it is appropriate to use which form of measurement rule, i.e.
NRM 1, 2 or 3.
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Figure 1: Figure 1: Relationship between RICS formal cost estimating and cost planning stages
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1.42 ORDER OF COST ESTIMATE AND ELEMENTAL COST PLAN

An Order of Cost Estimate (OCE) is the determination of possible cost of a building(s) early
in the design stage in relation to the employer’s fundamental requirements.

This takes place prior to the preparation of a full set of working drawings or bills of
quantities and forms the initial build-up to the cost planning process.

NRM 1 defines an Order of Cost Estimate as:

"An estimate based on benchmark data for a similar type of project based on the client’s strategic
definition or initial brief. Its purpose is to establish affordability of a proposed development for a
client. It takes place prior to the preparation of a full set of working drawings or bills of quantities
and forms the initial build-up to the cost planning process. Order of cost estimates are a method of
cost prediction."

NRM 1 - Order of cost estimating and cost planning for capital building works

An order of cost estimate can be based on one of the 3 methods:

- Floor area method
- Functional unit method
- Elemental method
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1.42.1 MEASUREMENT RULES FOR COST PLANNING

Figure 2: Formal Cost Plans vs. RIBA Stages 2-4

1.42.2 ELEMENTAL COST PLAN

Elemental cost plan (or cost plan) – is the critical breakdown of the cost limit for the
building(s) into cost targets for each element of the building(s). It provides:
`

A statement of how the design team proposes to distribute the available budget among the elements
of the building and a frame of reference from which to develop the design and maintain cost
control.

A work breakdown structure (WBS) and a cost breakdown structure (CBS), which, by codifying,
can be used to redistribute work in elements to construction works packages for the purpose of
procurement.

1.42.3 DIFFERENCES BETWEEN NRM AND SMM7

One of the great improvements that was made between NRM and SMM7 was the inclusion
of measurement rules for areas previously not discussed, such as preliminaries, overheads
and profit, and inflation.

It also defined for the first time what a formal cost plan should include in terms of reporting:
• 1- Project title
• 2- Project description
• 3- Executive summary – which include the project details, the base date, the GIA, total
estimate of cost, cost per square m, indicative programme and key risks and opportunities
• 4 - Status of cost plan
• 5- A statement of cost (including cost limit)
• 6- Details of the information and specification on which the cost plan was prepared,
i.e. drawings and specifications
• 7- A statement of the floor areas
• 8- The cost plan
• 9- Basis of cost estimates – any assumptions made and critically any exclusions not
included in the costs presented. Some examples include:
• Site acquisition and associated costs including land, agents, legal fees
• Site investigation costs, the discovery of archaeological artifacts or other antiquities
• Cost of performance bond
• VAT, if applicable
• Finance charges
• Artwork, furniture, white goods, internal planting
• Tenants' standby generators and UPS systems
• Abnormal service provisions, disconnection, and/or abandonment of existing
services
• 10- Estimate base date, i.e. to which inflation has been applied
• 11- Reasons for changes to previous cost targets (explaining the transfers and
adjustments that have taken place against the previous cost plan)
• 12 -Estimated costs of and a request for decisions on any alternative proposals
• 13- Value engineering options
• 14 - Conclusions
• 15- Recommendations
• 16 - Cash flow forecast, where appropriate
• 17 - Inclusions and exclusions, i.e. a statement of what is included in and excluded from
the order of cost estimate
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1.42.4 CONSTITUENTS OF AN ORDER OF COST ESTIMATE

1.43 SOURCES OF COST DATA

There are many sources of cost data that can be utilised to produce an estimate. The best
sources are those that are the newest and closest to the market.
From the list below, which do you think will help most with an estimate? Rank them from
most to least important.
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1.44 SUMMARY

Cost analysis
• Cost analysis is an examination of the distribution of cost across the construction elements
of a project.
• According to RICS, cost analysis is 'a full appraisal of costs involved in previously
constructed buildings…aimed …at providing reliable information which will assist in
accurately estimating (the) cost of future buildings. It provides a product-based cost model,
providing data on which initial elemental estimates and elemental cost plans can be based.’

A cost analysis will reveal the cost impact of design proposals for each of the construction elements
and an analysis may be used for:
• estimating the costs of similar buildings
• estimating the cost of similar construction elements
• comparing the cost of design options at an element level
• cost modelling design solutions

Elemental cost plan

• According to NRM 1, an elemental cost plan is 'the critical breakdown of the cost limit for
the building(s) into cost targets for each element of the building(s)…'.
• An elemental cost plan also provides a frame of reference from which to develop the design
for a project and maintain cost control.

NRM 1, 2 & 3
This section has reviewed various measurement codes of practice including the New Rules of
Measurement:
`

• NRM 1: Order of cost estimating and cost planning for capital building works
provides guidance on the quantification of building works for the purpose of
preparing cost estimates and cost plans.
• NRM 2: Detailed measurement for building works provides guidance on the
detailed measurement and description of building works for the purpose of
obtaining a tender price.
• NRM 3: Order of cost estimating and cost planning for building maintenance works
provides guidance on the quantification and description of maintenance works and
guidance on the procurement and cost control of maintenance works.

Order of cost estimate

We learned that an Order of Cost Estimate can be based on one of three methods:
• Floor area method
• Functional unit method, e.g. per bed space, per house type and per m2 of retail area
• Elemental method, i.e. individual elements

Sources of cost data

Finally, we reviewed various sources of cost data available for estimating:
• Quotations from the supply chain
• Historical ‘benchmark’ data
• A ‘star’ rate
• Pricing books
• Trade literature
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PART 2: USE OF HISTORICAL COST DATA TO PREDICT COST USING BENCHMARK TECHNIQUES

1.45 COST ANALYSIS AND BENCHMARKING

This lesson summarises the purpose and process of both cost analysis and construction
project benchmarking.

It is based on current RICS best practice and covers the general principles applying to each
operation. It doesn’t cover every approach to cost analysis or benchmarking, but it does look
at the subject areas from a practical aspect.
`

While the processes of cost analysis and benchmarking are applicable to the whole life costs
associated with the construction and operation of a building, this lesson considers capital cost
only.

The principles covered may, however, also be applied to costs in use (Whole Life Costs/Life
Cycle Costs).

1.45.1 COST ANALYSIS DEFINITION

Cost analysis is an examination of the distribution of cost across the construction elements of a
project. According to RICS Professional Guidance, it is:

…a full appraisal of costs involved in previously constructed buildings…aimed …at providing

reliable information which will assist in accurately estimating (the) cost of future buildings. It
provides a product-based cost model, providing data on which initial elemental estimates and
elemental cost plans can be based.

1.45.2 BENCHMARKING DEFINITION

‘Benchmarking’ is a frequently used term and has been defined as:

… overall process of improvement aimed at providing better value for money for our employer.
The six steps of the benchmarking process are:
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When using benchmark data, you must be aware of factors that may limit its accuracy and
application. They are:

Benchmarking is best when its up to five years old (preferably less). Information older than five
years becomes too out of date, no matter the adjustments made to update it, and can lead to
inaccurate estimating.
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1.46 SUMMARY

Benchmarking is the process of collecting and comparing data within an organisation or external
to an organisation to identify the ‘best in class’.

Benchmarking tends to be a business-based process used to measure and then improve

performance. It can be effective in developing an understanding of the market and generating
competitive advantage through increased efficiency. This course module considers benchmarking
in terms of construction project performance rather than business performance, and in this respect
the data can serve additional purposes to establishing ‘best in class’.

The six steps of the benchmarking process are:

• Define the process
• Data collection
• Data comparison
• Analysis
• Action
• Repeat
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PART 3: ADJUSTMENTS REQUIRED IN CONSTRUCTION COSTS

The Key points are:

1.47 BENCHMARKING – INFLUENCING FACTORS

It’s important when estimating or cost planning that different factors are assessed as to their
relevance, accuracy and robustness to ensure the resulting cost plan is as accurate as it can
be.

When utilising sources of data, particularly historical benchmark data, pricing books or
trade literature it is important to review the following factors:

• Tender Price Inflation (TPI) (also referred to as Tender Inflation) – the rising cost of
tender prices.
• Building Cost Inflation (BCI) (also referred to as Construction Inflation) – the rising cost
of building costs.
• Location – regional, national and international locations will have an impact on price.
• Specification – the specification (quality) of the product will determine its price.
• Programming and planning – the rate for completing works outside of normal working
hours would typically be higher.
• Market forces and trends – a shortage of supply if a particular material at a particular
point in time may lead to a short-term increase in the price that may not be representative
of a longer term trend.

1.48 TENDER PRICE INFLATION

It is typical to price a cost plan on what is known as a ‘Day One’ basis.

However, this is unlikely to be the case for most Cost Plan’s, and there is likely to be a period of
time between the completion of the Cost Plan and the commencement of construction.
`

During that period, it is likely that the prices will change due to inflation or deflation.

There are two types of inflation generally measured in construction, Tender Price Inflation and
Building Cost Inflation, these are defined as follows:

1.48.1 TENDER PRICE INFLATION

This measures the movement in value of tender prices from the ‘Base Date’ of the estimate to the
‘Tender Return Date’ (or Start on Site date – it is assumed the tenders allow for the period up to
start on-site, even if the actual dates are different). Tender Price Indices are used to measure this
movement.

1.48.2 BUILDING COST INFLATION

BCI measures the movement in value of building labour, plant and material costs during the period
of construction (i.e. the Tender Return Date to Practical Completion). This is discussed in more
detail below.

Records of submitted tender prices are collated by both RICS (BCIS) and construction companies.
This data is converted into indices which can be used to measure trends and calculate inflationary
uplifts in Cost Plans.

An example of the BCIS ‘All-In’ Tender Price Index is shown below:

`

It’s important to allow for Tender Price Inflation as an addition to a typical Cost Plan as it can be
a significant cost. By providing an assessment of the inflationary pressure with the cost of the
construction work, the Cost Plan presents a truer reflection of the actual cost the Client is likely to
pay.
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'Q' in the mathematical calculations in respect of Tender Price Indices (TPI) signify Quarter,
i.e. Q1, Q2, etc.
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1.49 BUILDING COST INFLATION

Building Cost Inflation (BCI) measures the movement in value of building labour, plant and
material prices during the period of construction (i.e. Tender Return Date to Practical
Completion).

BCI differs from TPI in two ways:

• In the time scale, it is inflation encountered during the construction period (as opposed to
TPI which is from the Base Date of the Cost Plan to the Tender Return Date).
• It measures the change in building cost actually incurred by the Contractor in the form of
wages, material prices, plant costs, business costs and overheads.
• Building cost inflation is calculated using a similar method to TPI although it uses a
different index (Building Cost Index).
• The main difference to take account of in the calculation is that inflation is only
calculated to the mid-point of construction, i.e. for a construction programme of 12 months
duration, BCI would only be calculated from the Tender Return Date to the end of Month
6.

The reason for this is that at Month 6, 50% of the work would be complete, therefore you
would not incur inflation on works already bought and paid for (this method assumes 50%
of the value of the work is complete at the mid-point, this should always be assessed on an
individual basis for each new project).

Consider this example

Residential Apartments Cost Plan of £23,000,000 with a 24 month construction period from 1
January 2023 to 31 December 2024.
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1.50 LOCATION

Building prices will change depending on where in the world the project is located, either
regionally, nationally and internationally. Different factors may influence local pricing
structures, such as availability of labour or materials, market competition, tax
considerations, transport costs, etc.

In the UK, pricing books (such as Spon’s Architect’s and Builder’s Price Book) and benchmark
data tend to assume the project is based in London, therefore, adjustments need to be made if the
project is based elsewhere.

This is achieved through the use of a location factor, as the following table (adapted from Spon’s
(2017) Architects and Builder’s Price Book) illustrates:
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Example:

A rate of £250/m3 (priced in Outer London) for reinforced concrete to be applied to a project in
Manchester (Northwest) would need to be factored as follows:

£250.00 x Location Factor - Northwest 0.89% = £222.50

1.51 SPECIFICATION

A well prepared and coordinated specification communicates what the client is buying from
the contractor.

Specification deals with scope, quality, activity, and responsibility, and as such complements
the contract conditions and other documentation.

In a similar respect to project location, every project’s required quality level is different, and
this will have an impact on unit rate pricing levels

It is important to understand what has been specified when pricing a Cost Plan as different types
or specification of a similar product may cost significantly different amounts.

A standard external cladding panel with 100mm insulation may cost £300/m2 however, if that
cladding panel is specified with a 60-minute fire rating and/or a 35dB acoustic requirement, the
rate is likely to be higher.

It is critical to ensure that any pricing data being used is similar in specification to that being priced,
to ensure the closest accuracy.

If the pricing data is too remote, then advice should be sought from the manufacturer or supplier
of the product specified.

1.52 PROGRAMMING AND PLANNING

Programming and planning can also influence pricing.

The Contractors methodology for completing the works and the timing of that completion
are important.

For example
• A Contractor plans to complete the painting and decorating of a new school classroom
during the holidays and prices it at a rate of £4/m2.
• Due to a deferment in the date of possession of the site by the Employer, the works start 6
weeks later, during the school’s term time. As a result of the delay, the works are now
required to be completed at night or ‘out of hours.’
• The Contractor amends his pricing to £9.50/m2 to allow for the additional labour costs for
night-time working.
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As you can see, the planning of when and how the works are to take place can have an impact
upon pricing. Other considerations should include site access and constraints, specific site risks or
temporary works required and inefficient or disruptive working patterns.

All of these factors may have an impact on the price of the work.

1.53 MARKET FORCES AND TRENDS

Market forces can have a significant impact on construction output and prices.

A shortage of skilled workers can drive up salaries and resulting costs to employer’s which
increases prices. Similarly, economic uncertainty can lead to Client’s putting investment on
hold, which reduces the number of projects in the pipeline leading to a fall in demand for
construction work, thus prices could fall.

For example
A shortage of skilled workers can drive up salaries and resulting costs to employer’s which
increases prices.

Similarly, economic uncertainty can lead to Client’s putting investment on hold, which reduces
the number of projects in the pipeline leading to a fall in demand for construction work, thus prices
could fall.

1.54 SUMMARY
• It is important when estimating or cost planning that a number of different factors are assessed
as to their relevance, accuracy and robustness to ensure the resulting cost plan is as accurate as
it can be.
• When utilising sources of data, particularly historical benchmark data, pricing books or trade
literature it is important to review the following factors:
• Tender Price Inflation (TPI) (also referred to as Tender Inflation) – the rising cost of
tender prices.
• Building Cost Inflation (BCI) (also referred to as Construction Inflation) – the rising
cost of building costs.
• Location – regional, national and international locations will have an impact on price.
• Specification – the specification (quality) of the product will determine its price.
• Programming and planning – the rate for completing works outside of normal working
hours would typically be higher.
• Market forces and trends – a shortage of supply if a particular material at a particular
point in time may lead to a short-term increase in the price that may not be representative
of a longer term trend.
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PART 4: FACTORS THAT AFFECT DESIGN ECONOMICS OVER THE WHOLE LIFE OF THE BUILDING

1.55 WHAT IS WHOLE LIFE COSTING (WLC)?

The whole life cost (WLC) is defined as: The present value of the total cost of that asset over its
operating life (including initial capital cost, maintenance and replacement cost, energy cost and
the cost or benefit of the eventual disposal of the asset at the end of its life). An asset can include
buildings, plant and infrastructure.

Whole life costing techniques can be used to evaluate options at the elemental, component and
total building levels.

At the initial design stage, a whole life comparison of building refurbishment against demolition
and new build would recognise the life-cycle efficiencies of the latter, and could be crucial to
efforts to establish the correct way forward.

During the design process, it may be appropriate to compare window-cleaning access options or
alternative heating solutions.

Clients are concerned with sustainability of a building and reducing costs both in
construction and in ongoing maintenance. It is this demand that has generated the need for
whole life costing.

1.55.1 KEY WHOLE LIFE CYCLE COSTING DRIVERS

1.55.1.1 PRIVATE FINANCE INITIATIVE:

Perhaps the main driver for whole life costing currently is the private finance initiative (PFI),
where the accurate prediction and control of WLC is critical to the successful performance of a
PFI deal. Under PFI the tender price comprises the full cost of construction and operating
the building for, typically, 25 or more years, there is therefore a clear incentive, based on
competition, to reduce whole life costs by optimising capital, maintenance, replacement and
energy costs. Further, there is a need to analyse maintenance and component life to assess and
minimise the risk of building shut-down, which may bring severe penalties.
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1.55.1.2 VALUE ENGINEERING

Value engineering is a key part of whole life costing.

It involves carrying out structured option appraisal exercises during the design process, thus
demonstrating value for money for clients.

Its use is increasing, and with it the opportunity and need for whole life costing to form part of the
option appraisal criteria.

1.55.1.3 MECHANICAL AND ELECTRICAL BUILDING SERVICES

The increasing capital cost significance and complexity of mechanical and electrical building
services has resulted in greater cost emphasis during the early design stages.

These stages are increasingly carried out by specialist quantity surveyors, granting them greater
opportunity to focus on mechanical and electrical whole life costing.

This is opportune, as a significant proportion of a building's costs in use are accounted for
by the maintenance, energy use and replacement costs associated with mechanical and
electrical installations.

1.55.1.4 INFRASTRUCTURE

The UK government’s strategy and the Treasury’s Infrastructure UK reports highlighted the need
for greater availability and transparency for infrastructure costs and benchmarks.

It also emphasised that there should be a clearer understanding of the cost of the risk of future
inflation on long-term projects and programmes.

Infrastructure generally comprises the following:

• transport (road, rail, aviation and ports)
• energy (utilities, renewable sources, nuclear)
• petrochemicals
• oil and gas
• mining and resources

1.55.1.5 ENERGY EFFICIENCY ISSUES

There is a 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 WLC can
be used as a tool for predicting the cost benefits that can be achieved by investment in energy
efficiency.
`

Typical investments would include:

• increasing the thickness of insulation
• installing energy-efficient services
• installing building energy management systems
• designing intelligent buildings
• refurbishing buildings in an energy-conscious fashion
• using passive cooling techniques as opposed to air-conditioned design

It is, for example, now recommended to install energy-efficient LED bulbs as opposed to the now
restricted tungsten filament and halogen bulbs. These LED bulbs last longer, use less electricity
and perform better. Condensing gas boilers can likewise save 10-20% of fossil fuel bills, with pay-
back in 5-10 years.

It is also worth noting that oil is becoming increasingly harder to extract and that environmental
concerns generally will grow in the near future.

1.55.1.6 BUILDING SUSTAINABILITY

If there is to be a conscious shift of opinion towards sustainable buildings - i.e. those that have a
viable life expectancy beyond their initial designed use - there must be a simultaneous re-
examination of a building's cost in use, or perhaps more correctly, costs in uses.

Buildings have not been traditionally designed for anything beyond their immediate requirements.
However, as more are converted to alternative uses, it is probably only a matter of time before
those with investments in property call for properties to be constructed with a view to extending
these buildings' usable lives - perhaps through conversion to house an increasingly less mobile
and aged population. Such considerations become increasingly valid the shorter the predicted
current building life is.

This concept will require building layouts and structures to be more flexible, with maintenance,
re-servicing and conversion functions simplified and made more economical.

A 'cost in use' study at the design stage may be able to justify larger bay sizes, raised flooring or
greater storey heights, for example, in order to demonstrate continual viability for future
generations.

A whole life costing study would explore the economics involved in using the building for its
notional design life and for the use intended in the usual way.

Supplementary investigations would then explore the 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 given at the initial design stage to the potential future uses of
a building, this could be used to demonstrate the continued asset value of the property, and
would go a considerable way towards minimising the number of obsolescent properties that
currently dominate certain market sectors.
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1.55.1.7 DATA SOURCES

The lack of data in a suitable format on maintenance, replacement and energy costs is given as a
major reason why whole life costing has been rarely carried out in the past.

However, published data is improving with the advent of BIM and building surveyors and facility
managers will have valuable in-house data; in addition, professional judgment should not be
disregarded.

BCIS have a Component Life Cycle Costs module that aims to improve this situation by looking
at both financial costs and carbon costs of all major building components.

1.56 WHAT IS THE LIFE CYCLE COSTING?

Life cycle costing (LCC) is a decision-making technique that takes into account both initial
and future costs over the life of a building. For buildings and structures this usually means
considering not just capital costs but relevant costs in use or operational costs.

Life cycle costing considers construction costs and ongoing costs in use.

What are construction costs?

Construction costs are:
• planning
• design
• construction

What are costs in use?

Costs in use include:
• maintenance
• refurbishment
• operational
• occupancy
• end of life costs

Typically, LCC is considered as part of the whole life costing. Whole life costing includes life
cycle costing but also encompasses a wide range of costs including non-construction costs such as
incomes, business costs, acquisition and planning as well as external costs.

The terms ‘Whole Life Cost’ and ‘Life Cycle Costs’ are often used interchangeably. For the
purposes of general use either term is acceptable.

Why is life cycle costing important?

Any full assessment of sustainability will consider the environmental, social, and economic
issues of any design decision. Models or tools that assist decision-makers must make explicit
`

the complexity of the problem and the trade-offs and potential synergies that exist in the
three facets of sustainability.

LCC Use

The main drivers for life cycle costing and whole life costing in the UK come from the
government to demonstrate value for money and promote sustainability. Both the Latham
and Egan reports recommended whole life costing as part of the procurement process.

The Office of Government Commerce defines value for money as:

The optimum combination of whole life cost and quality to meet the user’s requirement.

The Office of Government Commerce

Whole life costing is an integral part of projects procured through PFI and PPP routes. A building
with low whole life costs would tend to demonstrate a more sustainable option.

There are many uses of LCC; the outcomes can provide information for financial and asset
management, investment appraisal or comparing alternatives.

A life cycle cost plan can be carried out at any stage, and for either a new or existing project or
asset. The cost data obtained in the preparation of the plan can be used to establish maintenance
budgets, sinking funds and service charges.

LCC Report

LCC comprises four basic steps:

1. Defining the brief (for LCC)
2. The analysis of the problem to be examined.
3. Structuring and doing the calculations
4. Validating and interpreting the results

When defining the problem

A fundamentally important step is precisely defining the problem, and therefore the brief.
What is the reason for the whole life study?

• To predict cash flows over a fixed period, for budgeting, cost planning, cost
reconciliation, tender preparation and audit purposes.
• As part of an option appraisal exercise.
• As part of a tender appraisal exercise where tenderers include a bid for the capital works
and either information on, or a bid for, operations and/or maintenance. Such studies will
be carried out in a way that is transparent to the tenderers and in accordance with a set of
rules notified to tenderers in the tender information pack.
`

Consider the information the client requires to make an informed decision.

The LCC reports apply to the following RIBA stages of the design and construction process:

STRUCTURE OF STANDARD LIFE CYCLE COSTING

The Standardised Method of Life Cycle Costing (SMLCC) looks at the whole life cost for any
constructed asset and splits the periods and costs into clearly defined phases and elements. The
diagram below illustrates those phases.
`

Costs are divided initially into the following five sections:

1. Construction
2. Maintenance
3. Operation
4. Occupancy
5. End of life

Considerations on the maintenance and operation elements of the SMLCC

Within the maintenance and operation elements there are many sub-elements, all of which are
clearly defined in the SMLCC.

The data structure of the SMLCC also requires costs for major replacement, subsequent
refurbishment and redecoration to be presented in Building Cost Information Service (BCIS)
Standard Form of Cost Analysis (SFCA) element and sub-element cost structure categories.
Additionally, costs for elements 2.4, 2.5 and 2.6 may also be presented in BCIS elements.

2.0 Maintenance costs

2.1 Major replacement costs
2.2 Subsequent refurbishment and adaptation costs
2.3 Redecorations
2.4 Minor replacement, repairs and maintenance costs
2.5 Unscheduled replacement, repairs and maintenance
2.6 Grounds maintenance
2.7 Client definable costs
3.0 Operation costs
3.1 Cleaning costs
3.2 Utilities costs
3.3 Administrative costs
3.4 Overhead costs
3.5 Taxes (if applicable)
3.6 Client definable costs
4.0 Occupancy costs

There are many elements making up occupancy costs and these are often confused with
operating costs.

Operating costs cover all work that results from the actual building, such as the physical
maintenance or replacement of a component.
Occupancy costs on the other hand are costs that are more closely related to the building’s
occupants, and how efficiently the building is run.

This distinction is not quite the same as the difference between ‘hard’ and ‘soft’ facilities
management. Cleaning, although often included in hard FM, should be included in operation costs,
according to the SMLCC, as the costs are highly dependent on an organisation’s cleaning regime.
`

What is Crome?

The acronym ‘CROME’ describes the key constituents of the building LCCs of a constructed
asset, and broadly categorises how they relate to the construction costs and to the other
building maintenance costs (which are split into R costs and M costs) and to the other key
aspects of LCC.

First, let's see what CROME stands for:

Construction Costs
The capital expenditure/investment cost of construction (CAPEX)

Renewal Costs
The cost of major repair or replacement items throughout a built asset’s life cycle (forward
maintenance).

Operation Costs
The operational and occupancy costs of running the asset, energy costs, rent, taxes, insurances,
etc. (OPEX).
`

Maintenance Costs
Annualised maintenance costs including scheduled (planned) preventative tasks, inspection and
monitoring, cleaning costs, etc.

Envireonmental and’or end of life costs.

The net cost or fee of disposing of an asset at the end of its service life or period of interest,
including costs resulting from decommissioning, deconstruction, and demolition of a building;
recycling and making it environmentally safe recovery and disposal of components and materials
and transport and regulatory costs.

Summary

• With more and more emphasis on sustainability and cost reduction, Whole Life Costing is
critical at every stage of a construction project.
• Whole Life Costing techniques look at the big picture of expenditure and longevity of the
building. They can be used to evaluate options at all stages and are influential in external and
internal design.
• The Whole Life Cost (WLC) of an asset is defined as the present value of the total cost of that
asset over its operating life (including initial capital cost, maintenance and replacement cost,
energy cost and the cost or benefit of the eventual disposal of the asset at the end of its life). An
asset can include buildings, plant and infrastructure.
• Life Cycle Costing (LCC) is a decision-making technique that takes into account both initial
and future costs over the life of a building. For buildings and structures this usually means
considering not just capital costs but relevant costs in use or operational costs, i.e. CROME.
`
`

PART 5: EVALUATING BUILDING DESIGN EFFICIENCY

The key points in part 5 are:

1.57 EVALUATING BUILDING DESIGN EFFICIENCY

We’ve learnt that building costs are usually presented elementally. Different elements of the
building typically represent lesser or greater proportions of the overall cost.

Why Important? This becomes important when trying to evaluate building design efficiency
and also when attempting to implement the process of value engineering.

The following diagram shows the general proportions of cost on a typical office building:

When designing buildings, it’s important to recognise that design decisions can have
fundamental impacts on the efficiency of that building.
`

Obvious impacts, such as choice of material on life expectancy, or energy usage were looked at
earlier in this module under Whole Life Costs.

This lesson focuses on the following key building metrics:

• Wall: Floor ratio
• Storey height
• Cladding material
• Net: Gross ratio

1.58 WALL: FLOOR RATIO

The Wall: Floor ratio measures the amount of cladding required to enclose the walls of a
building compared to the amount of floor area within that building.

The lower the ratio, the more floor area is enclosed by the least amount of wall area thus the more
efficient the design.

This is directly impacted by the shape of a building as the following diagram illustrates:

The higher the ratio, the less efficient the building the higher the cost of cladding the building in
comparison to the floor area.
`

Consider this example

Worked Example of a Wall: Floor Ratio Calculation for a building with the following
measurements:
• Shape: Square
• Width: 40m
• Length: 40m
• Height: 4m
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1.59 STOREY HEIGHT

The height of each storey of the building will impact on its efficiency. This is impacted by:

• clear ceiling height requirements

• the MEP solution (if services need to run through floor or ceiling voids)
• the structural solution (i.e. services can run through a steel castellated beam, but not
typically through concrete).
`

The greater the height of each storey, the greater the overall height of the building which increases
the wall to floor ratio (as you have more cladding for the same floor area), thus the building
become less efficient.

1.60 THE IMPACT OF CLADDING ON COST

The type of cladding material will impact on the cost of a building. Typically glazing is a
more expensive cladding solution, thus the higher the proportion of glazing the higher the
cost per square metre.
`

1.61 NET: GROSS RATIO

Finally, one of the most important metrics in commercial development, particularly in

Commercial Office development, is the Net: Gross ratio.

This ratio compares the Net Internal Area (IPMS 3) to the Gross Internal Area (IPMS 2).
`

GIA, NIA and GEA

`

The main difference is in the method. IPMS measures to the internal dominant face which
may, in some cases, be a slightly different measurement to the internal face of the perimeter
wall (typically where there are deep wall thicknesses, and a shallow window is the dominant
face).

TOP TIP

From 1 May 2018, the RICS Property Measurement Standard is the current best practice guidance
for Office Measurement.

This standard utilises IPMS 1, IPMS 2 and IPMS 3 as the standard forms of office measurement.
This standard replaced the Code of Measuring Practice which utilised the terms GEA, GIA and
NIA.

Net: Gross ratio effectively measures how much of a building a landlord can rent out (IPMS 3)
including areas such as office floor, meeting rooms, exclusive use break-out and kitchen areas,
compared to the overall area of the building (IPMS 2) which includes both the NIA and other
shared use areas such as reception lobbies, shared toilets, plant areas, circulation space, lifts, and
stairs.

If a building has an IPMS 2 of 10,000m2 with an IPMS 3 of 8,000m2 this results in a Net: Gross
Ratio of 80% i.e. the landlord can only charge rent on 80% space he has built.

Thus, the higher the Net: Gross ratio, the more efficient the building and
the greater the income that can be received.

The current British Council for Offices guidance(opens in a new tab) for typical best practice
efficiency on Net: Gross ratios is 80-85%. Very efficient office buildings can achieve 90%+.
Ratios lower than 80% begin, tend to be too inefficient which makes it difficult for developers to
make their appraisals (business case) work.
`

Application with other buildings

Net: Gross ratios are not always appropriate metrics for all sectors or building owners as the
following table illustrates, however they remain a good indication of building efficiency
irrespective of the purpose.
`

TOP TIP

Always check your areas with the Architect (or professional that has provided them).

Typically construction areas are stated in IPMS 2. If you are dealing with letting agents they are
more likely to be talking IPMS 3 (or NIA/NLA).

Always double-check with the data provider before making any assumptions. An Order of Cost
Estimate based on IPMS 3 figures by mistake could be 20% too low (on an 80% Net : Gross
calculation)!

Question #1 - Answer key: What are the key exclusions from IPMS3?

IPMS3 – Office: The floor area available on an exclusive basis to an occupier, but excluding
standard facilities and shared circulation areas, and calculated on an occupier-by occupier or floor-
by-floor basis for each building.

Standard facilities are those parts of a building providing shared or common facilities that typically
do not change over time, including, for example, stairs, escalators, lifts/elevators and motor rooms,
toilets, cleaners’ cupboards, plant rooms, fire refuge areas and maintenance rooms.

NIA Typical Exclusions

• Those parts of entrance halls, atria, landings, and balconies used in common.
• Toilets, toilet lobbies, bathrooms, cleaners’ rooms, and similar.
• Lift rooms, plant rooms, tank rooms (other than those of a trade process nature), fuel stores,
and similar.
• Stairwells, lift-wells, and permanent lift lobbies.
• Corridors and other circulation areas were used in common with other occupiers.
• Permanent circulation areas, corridors and thresholds/recesses associated with access, but
not those parts that are usable areas.
• Areas under the control of service or other external authorities including meter cupboards
and statutory service supply points.
• Internal structural walls, walls enclosing excluded areas, columns, piers, chimney breasts,
other projections, vertical ducts and walls separating tenancies.
• The space occupied by permanent and continuous air-conditioning, heating, or cooling
apparatus, and ducting in so far as the space it occupies is rendered substantially unusable.
• The space occupied by permanent, intermittent air-conditioning, heating or cooling
apparatus protruding 0.25m or more into the usable area.
• Areas with a headroom of less than 1.5m.
• Areas rendered substantially unusable by virtue of having a dimension between opposite
faces of less than 0.25m.
• Vehicle parking areas (the number and type of spaces noted).
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Question #2 - Answer key – How does GIA differ in the Code of Measuring Practice from
IPMS2 reviewed earlier in this module?

The definition of GIA is as follows:

• Gross internal floor area (GIFA) (or gross internal area (GIA)) – is the area of a building
measured to the internal face of the perimeter walls at each floor level.
• IPMS2 – The sum of the areas of each floor level of an office building measured to the
internal dominant face (see below) reported on a component-by-component basis for each
floor of a building.

The difference is in the method, IPMS measures to the internal dominant face which may, in some
cases, be a slightly different measurement to the internal face of the perimeter wall (typically where
there are deep wall thicknesses, and a shallow window is the dominant face). See the diagram
below:

1.62 SUMMARY

Different elements of the building typically represent lesser or greater proportions of the overall
cost. This becomes important when trying to evaluate building design efficiency and also when
attempting to implement the process of Value Engineering.

When designing buildings it is important to recognise that design decisions can have fundamental
impacts on the efficiency of that building. Obvious impacts, such as choice of material on life
expectancy or energy usage were looked at earlier in this module under Whole Life Costs.
`

This section focused on the following key building metrics:

• Wall: Floor ratio
• Storey height
• Cladding material
• Net: Gross ratio
`

PART 6: RISK AND VALUE MANAGEMENT TECHNIQUES

The key points in part 6 are:

1.63 RISK MANAGEMENT

This section will cover risk and value management techniques.

Risk management permits the taking of risk and allocating it to the party best able to manage it to
avoid destroying value.

Value management defines and articulates value and then provides the means to deliver it.

As we have already seen, the success (and ultimately value) of most construction projects is usually
measured around three key deliverables: time, cost and quality.

Risk impacts all three of these deliverables.

`

Health and safety risks remain the most obvious and important risks to be aware of on a
construction site:

All workers have a right to work in places where risks to their health and safety are properly
controlled. Health and safety is about stopping you getting hurt at work or ill through work. Your
employer is responsible for health and safety, but you must help

Figure 3 is an example of a risk management process flow chart. It sets out the steps that can
be taken as part of a risk management process.

It is important that risk processes are defined so that they fit the host organisation’s working
practices. Risk management is a core process that sits alongside cost management,
estimating, scheduling and change control, so it must fit with these other processes.
`

While risk management can be applied in isolation – and frequently is – how the outputs are
to be used must be determined up front, particularly where quantification is applied.

1.63.1 STEP 1 - IDENTIFY RISKS

Risk identification should continue throughout the project life cycle, and all project staff should
have some responsibility for identifying risks.

The project manager, programme manager or functional lead has accountability for the
management of risk, but responsibility for managing risk may be devolved to anyone in the project
team. Where a risk manager exists, they usually have the primary responsibility for sponsoring
risk identification activities and collecting the identified risks for analysis.

There are many techniques available to help do this, and it is wise to record risks in a standard way
before identification begins. Projects can choose to use risk identification pro-formas to assist with
the identification of risks. Lists of categories, themes or areas of risk can also be used and are often
informed by previous experience and lessons learned.

There are several approaches to identifying project risks, including the following:
• workshop or brainstorming sessions
• structured interviews
• design reviews and design appraisals
• project documentation
• desktop studies
• SWOT, PESTEL analysis
• assumptions and
• cause and effect diagrams.

The number of risks that may occur during any project is large and the sources of risk are broad,
including managerial, technical, organisational, commercial and external risks.

Categorisation of risks is useful to ensure the that the full range of risk sources is considered, and
to group risks to provide useful information about the project. Such categorisation could help
discover the areas of the project with the highest risks, which could be specific projects, activities
or participants.

1.63.2 STEP 2 - ANALYSIS

Risk analysis seeks to understand the likely impact of the risk on the project by exploring how
likely it is to occur and the consequences if it does. This is by no means an exact science but it is
extremely useful. There are two ways of doing it: qualitatively or quantitatively. The former is
relatively simple and the latter as complicated as you want to make it, and the benefits are
commensurate – up to a point. That point being more complication for its own sake. Always
challenge the output and how useful it really is.
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1.63.3 STEP 3 - EVALUATE

Once the analysis has been completed, the results have to be interpreted to make them
understandable to all stakeholders. Generally, client and project teams are not interested in tables
and graphs of results; instead they want to know how risk will impact the project.

This is often forgotten by risk analysts and managers alike but is the most important part of the
exercise. The most insightful and brilliant analysis is useless if its conclusions cannot be articulated
simply and clearly.

How the results are displayed is one aspect of communicating the results, but what results are given
and how they are contextualised is more important. This is about understanding what the
stakeholders require.

1.63.4 STEP 4 - TREAT

Once the team has agreed on the initial risks that have been identified and assessed, the major task
is to identify actions and controls to manage them.

As with many elements of risk management, there are different approaches that can be taken and
lots of terminology to contend with.

The reality is simple: initiate some activity to limit the likelihood or impact of the risk. The activity
can either be continual (a control) or a specific action.

To ensure that risks are managed, each risk is assigned an owner. The owner analyses the risk and
determines what actions (mitigation, contingency or observation) or controls should be taken to
control them.

The risk owner also identifies the level of resources that should be committed to the risk action
plans.

They will also consider the proximity of the risk and prioritise which risks are more important at
what stage of the project, and should therefore take priority. Proximity in this case is the point at
which you need to do something before it is too late to be effective.

Risk management requires continuous monitoring and action if it is to be effective, and should be
regularly under review as part of the monthly cycle for project control.

1.63.5 STEP 5 - REPORT

The aims of risk reviews are to update the risk register, add new risks, retire old ones, check and
amend assessments and review treatment actions.

This should be done regularly, and usually in line with the project reporting cycle agreed for other
project control disciplines.
`

Specific reviews can also be held at key stages, for example RIBA works stages or project
gateways, to ensure that the risks reflect the current position for estimates, schedule, change and
progress.

Each review should:

• update and reissue the risk register after each review
• delete closed or passed risks
• assess new risks and assign new actions
• review management actions and revise if needed
• update assessments for risks and add new actions
• recalculate the risk allowances if risks are quantified and
• report on risk management effectiveness.

Reporting

The purpose of risk management is to promote change. It can only do that if its message is
published and understood. Anyone embarking on a risk management programme, no matter how
small, must have a plan to communicate its results in a clear, simple and consistent way.

There are many ways to present risk management results and most proprietary risk management
packages have many standard reports. With the addition of reporting capabilities from the likes of
Apple and Microsoft, the options are seemingly limitless, but choose carefully and always keep in
mind how the recipient of the report will view it. Consider the following tips for reporting:
• Avoid large amounts of raw data in tables.
• Limit the number of things being reported on.
• Keep conclusions short.
• Use images and graphs to illustrate points.
• Keep the report logical.
• Keep the report short and simple.

1.64 WHAT STEPS CAN BE TAKEN TO MANAGE RISK?

• Risk avoidance

Risk avoidance: where risks have such serious consequences on the project outcome that they are
totally unacceptable. Risk avoidance measures might include a review of the employer’s brief and
a reappraisal of the project, perhaps leading to an alternative design solution that eliminates the
risk or even project cancellation.

• Risk reduction

Risk reduction: where the level of risk is unacceptable, and actions are taken to reduce either the
chance of the risk occurring, or the impact of the risk should it occur. Typical actions to reduce the
risk can include further site investigation to improve information, using different
materials/suppliers to avoid long lead times or using different construction methods.
`

• Risk transfer

Risk transfer to the contractor: risks that may impact the building programme are transferred to
another party able to control it more effectively, usually involving a premium to be paid. If the risk
materialises, the impacts are carried by the other party.

• Risk sharing

Risk sharing by both employer and contractor: this is when a risk is not wholly transferred to one
party and some elements of the risk are retained by the employer. In accordance with NRM, the
approach for dealing with risks that are apportioned between the client and the employer will
normally be dealt with using provisional quantities, with the pricing risk being delegated by the
contractor and the quantification risk being allocated to the employer.

• Risk retention

Risk retention by the employer: in the event where risks are to be retained by the employer, the
appropriate risk allowance identified in the cost plan will be reserved and managed by the
employer.

1.65 RISKS IN CONSTRUCTION

Risk Management is about identifying, eliminating, controlling, and monitoring risks to

reduce the probability of them occurring or reducing the impact of them when they do.

Risks in construction are broader than health and safety however, they are many and
varied. A risk can be defined as an uncertain event or circumstance that, if it occurs, will
affect the outcome of a project. Some examples include:

1.65.1 RISKS IN CONSTRUCTION

• Health & Safety Risks
• Site investigations
• Abnormal ground conditions, contaminated ground
• Effect of discovery of archaeological artefacts or other antiquities, leading to delayed start
• Work to existing buildings, monitoring of adjacent buildings
• Abnormal service provisions, disconnection, diversion and/or abandonment of existing
services
• Tenants' standby generators and UPS systems

1.65.2 PROJECT FINANCIAL RISKS

• Site acquisition and associated costs including land, agents, legal fees
• Utilities connection costs
• Capital allowances or other incentives/grants
• Local Authority charges, costs of planning approval, section 106/278 agreement
• Professional fees; planning/building control fees; statutory fees; site surveys
• Inflation, interest rates, exchange rates
`

• Finance charges (interest on capital borrowed or loss of interest on capital employed

1.66 VALUE MANAGEMENT

Understanding cost, price and value Cost, price and value are often used interchangeably to
mean the same thing, however they have important and different meanings.

What is cost?

Here are some examples of statements made on real projects. Do they actually mean cost or price?

It is likely that the statements above were made about price, rather than cost or value.

Value is a subjective measure of benefit – not a penalty!

Consider this example

To fit photovoltaic panels to an office development:

• It may cost a contractor £10,000.
• The contractor’s price to the client for this work is £12,000 including his margin.
• The value to the client depends on several factors:
o To a corporate client it may be the saving in energy costs, the improvement in
CO2 emissions, and the improvement in their CSR profile.
o However, if the client happened to be Greenpeace, or the Green Party, or the
manufacturer of the panels, the value could be perceived to be much higher, even
though the cost and the price would remain the same.
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1.66.1 BENEFIT VS. INVESTMENT

Value = benefit / investment

What is the difference between value and benefit?

- Value is derived from achieving maximum benefit for minimum investment.
- Benefit is specific to each Client and is arrived from achieving Client objectives.

What is the difference between good value and poor value?

- Good value = benefits being greater than investment.
- Poor value = investment being greater than benefit.

1.66.1.1 VALUE FOR MONEY (VFM)

VFM is the optimum combination of whole-life costs and quality to meet the user
requirement.

1.66.2 EFFICIENCY VS. EFFECTIVENESS

Finally, there are two further methods of adding value to construction projects that can be
embedded within Value Management techniques:

• Doing things efficiently – i.e. saving cost

• Doing the right things – i.e. being more effective

Both of these add value:

Example
`

Granite flooring – Kitchen and back of house facilities changed to ceramic flooring.
• Initial cost saving on flooring: £265,000
• Time saving: 4 Weeks
• Additional cost saving on time: £80,000
• Total saving: £345,000.00

Value Management (VM) is not about cutting costs, although the term is often used incorrectly
when applied to simple cost savings. VM is about improving efficiency and effectiveness,
getting the maximum output for the minimum input.

Cost cutting is about reducing costs, getting the minimum input only, even if that reduces the
value or effectiveness of the final solution.

1.67 VALUE ENGINEERING - OMISSION OF THE WIND TURBINES

To ensure the project cost is reduced within budget, cost-cutting often happens under the
guise of value management/value engineering. Large 'add-on' technologies are often the first
to go, but is this meeting the client's needs?

Benefits of value management to the client

Ensuring the project is the most cost-effective way of delivering the business benefit
Maximising return on investment
Providing the basis for a clear project (and later design) brief, reflecting the client’s priorities, and
expectations and identifying the factors for project success
Improving communications between all stakeholders so that each can understand and respect
other’s constraints and requirements
Supporting good design by developing better technical solutions with enhanced performance and
quality where it matters
Optimising costs by:
- Reducing construction costs (but not at the expense of essential quality)
- Eliminating waste and inefficiency
- Minimising whole life costs
- Developing prioritised shopping lists of potential savings/enhancements to assist project
management
Optimising procurement methods
Improving value delivered through the supply chain
Enabling more effective project delivery and reducing inefficiency in the construction process

The 6 Stages of a Value Management approach

`

Type Project Stage Issue Addressed Methodology

1 Inception Need Verification Validate the need
2 Concept Project Definition Define optimum project
3 Feasibility Brief Development Select the best options
4 Outline Design Value Engineering Maximise Efficiency & Effectiveness
Practical
5 Handover Review Lessons learned for future projects
Completion
6 Use Post Occupancy Review Benefits evaluation

It is important to note the relationship between the impact of change and its subsequent cost during
a project’s lifecycle as shown in the graphic below:
`

Scenario Risk

A client has recently gained planning permission for a riverside development project.

The project is the demolition of an abandoned secondary school which is located adjacent to the
river in a housing estate on the outskirts of Coventry.

The school was built in the late 1950’s and is in a relatively low-lying area.

Following the demolition, the client is to construct a wildlife habitat, visitor centre and a bridge
over the river.

Denise Langdon, the Project QS, has been tasked with identifying risks relevant to her client’s
latest project. The client has been granted permission to undertake a re-development project
located close to a housing estate.

Part of the project requires the demolition of an old 1950’s secondary school.

Denise has identified that there could be a potential trespass risk from local children, who live
within the housing estate. She knows that by not addressing the risk there could be a lasting impact
on the client’s project which could cause:

• delays to the project

• cost increases
• additional safety measures needed
`

Denise decides that this is a medium risk to the client but with the potential to cause a significant
financial impact on the project.

Denise makes the recommendation to the client that they should implement the following
precautions to mitigate the risk:

• Site Hoarding
• Local school visits for communications

By following this advice, the client could reduce their financial risk by half and significantly reduce
the threat of any delays to the project delivery time frame.

Example:

SUMMARY

Risk Management permits the taking of risk, it allocates that risk to the party best able to manage
it and it ultimately avoids destroying value.

The success (and ultimately value) of most construction projects is usually measured around three
key deliverables, time, cost and quality. Risk impacts all three of these deliverables.

Risk is an uncertain event or circumstance that, if it occurs, will affect the outcome of a project,
usually measured in terms of probability (likelihood of occurrence) and impact.

Hazard is the potential for harm or damage to people, property or the environment. Hazards
include the characteristics of things and the actions or inactions of people.

Value management defines and articulates value and then provides the means to deliver it.

Value = Benefit vs. the investment required to realise that benefit.

Value is derived from achieving maximum benefit for minimum investment;

Benefit is specific to each Client and is arrived from achieving Client objectives;

Good value = benefits being greater than investment;

Poor value = investment being greater than benefit;

`

Value for Money (VFM) is the optimum combination of whole-life costs and quality to meet the
user requirement.
`

MODULE 2 SUMMARY

This module covers the impact of design and other factors on cost throughout the life of the
building, and the control of cost during the pre-contract stage. This module aims to give a clear
understanding of how design decisions and construction processes impact on construction and
operational costs, and what techniques are available to manage and control those costs.

This module has covered the following sections:

• The various stages of cost planning and sources of cost data
• Use of historical cost data to predict cost using benchmarking techniques
• Adjustments required for factors including location, specification, time and market forces
and trends in construction costs
• Factors that affect design economics over the whole life of the building
• Evaluating building design efficiency
• Risk and value management techniques

The primary learning points you focused on in this module were:

• Review and analyse the complex stages of estimating and cost planning
• Describe techniques used for benchmarking, risk and value management
• Appraise and evaluate the impact of different construction solutions on price and
programming

CASE STUDY MODULE 2: XXXXXXXXXXXXXXXXXXXXX

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MODULE 3 – QUANTIFICATION AND COSTING OF CONSTRUCTION WORKS

Hello, and welcome to module three of Foundation in Quantity Surveying. In this module, we
will be looking into Quantification and costing of construction works.

Module structure

Module three is split into 6 parts:

• Part 1: The various standard methods of measurement
• Part 2: The quantification of construction works (including both measurement and
definition) at the various stages of a project
• Part 3: The costing of construction works
• Part 4: Producing pricing documents
• Part 5: Negotiating and agreeing the valuation of construction works at various stages of
the project
• Part 6: The changing role of the quantity surveyor

Learning outcomes

At the end of this module, you will be able to:

1. Review and analyse the method of quantifying and defining construction work.
2. Describe the various standard methods of measurement.
3. Appraise and evaluate the use of alternate pricing methods and documents.

PART 1: VARIOUS STANDARD METHODS OF MEASUREMENT

1.68 GLOSSARY

Bill of quantities (BQ/BoQ)

A detailed analysis of all the works required to construct the building, priced according to the
measurement rules applicable.

Contract sum analysis (CSA)

It is typically a high-level list of work activities, either in an elemental or work package format,
with a lump sum price against each activity.

CESSM4
Civil Engineering Standard Method of Measurement 4th edition

Compensation event (CE)

It is a time and cost change to the contract position.

Contract sum
It is the amount (known as consideration) that the employer agrees to pay the contractor for
carrying out the construction work. In the case of lump sum contracts, it is a specified sum of
money written into the contract documents.
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Final account
It is the conclusion of the contract sum (including all necessary adjustments) and signifies the
agreed amount that the employer will pay the contractor.

GEA
It is the Gross External Area (GEA) The area of a building measured externally (i.e. to the external
face of the perimeter walls) at each floor level.

GIA
It is the Gross Internal Area (GIA) of the area of a building measured to the internal face of the
perimeter walls at each floor level.

GIFA
It is the Gross Internal Floor Area (GIFA) of the area of a building measured to the internal face
of the perimeter walls at each floor level.

ICMS
International Cost Management Standard

IPMS
International Property Measurement Standard

IPMS 1
The sum of the areas of each floor level of a building measured to the outer perimeter of external
construction features and reported on a floor-by-floor basis.

IPMS 2
The sum of the areas of each floor level of an office building measured to the internal dominant
face and reported on a component-by-component basis for each floor of a building.

IPMS 3
The floor area available on an exclusive basis to an occupier, but excluding standard facilities and
shared circulation areas, and calculated on an occupier-by occupier or floor-by-floor basis for each
building.

LLL
Lifelong learning

NIA
It is the Net Internal Area (NIA) defined as the usable area within a building measured to the
internal face of the perimeter walls at each floor level.

NLA
Some property agents use the term Net Lettable Area (NLA) instead of NIA and/or IPMS 3. NLA
refers to the area the agent is quoting rent on, rather than the ‘usable’ or ‘exclusive’ area
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itself. Unlike IPMS 3, this area may sometimes include standard facilities that are exclusive to the
occupier.

NRM
New rules of measurement

NRM 1
Order of cost estimating and cost planning for capital building works

NRM 2
Detailed measurement for building works

NRM 3
Order of cost estimating and cost planning for building maintenance works

Order of cost estimate (OCE)

It means the determination of possible cost of a building(s) early in design stage in relation to the
employer’s fundamental requirements. This takes place prior to preparation of a full set of working
drawings or bills of quantities and forms the initial build-up to the cost planning process.

POMI
Principles of Measurement (International) for Works of Construction

Priced activity schedule

This is sometimes referred to as a schedule of activities or schedule of works and it is typically
found in the NEC form of contract (either Traditional or Design and Build, Options A and C. It is
very similar in nature to a contract sum analysis but typically contains more detail.

Quantum meruit
An assessment on the basis of “what the job is worth.”

Schedule of rates
This is a list of prices, usually on labour, plant, and materials basis, for specific items of work
(typically against a given or notional quantity). Often used in measured term contracts for works
of a similar and repetitive nature where the specific items of work are not known at the outset.

SMM7
Standard Method of Measurement 7th edition

Valuation
It is a periodic payment(s) which can be either monthly or upon completion of work items or
stages.

Variation
It is a cost change to the contract position.
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1.69 KEY LEARNING POINTS - PART 1

The key points in part one are:
- The different methods of measurement still in use.
- The difference between the what and the how to of measurement
- The most appropriate standard(s) for each type of construction work

1.70 METHOD OF MEASUREMENT

There are various measurement rules for different purposes currently in use across the
industry. This module will briefly identify the key rules and guidance in use and then focus
on the RICS New rules of measurement (NRM).

The following measurement rules that may be applicable to your project could include one or more
of the following:
• RICS Professional statement - Property measurement, 2nd edition
• International Property Measurement Standards (IPMS)
• ICMS: Global Consistency in Presenting Construction Life Cycle Costs and Carbon
Emissions, 3rd edition
• CESMM4 - Civil Engineering Standard Method of Measurement, 4th edition RICS
Principles of Measurement (International) for Works of Construction (POMI)
• SMM7: Standard Method of Measurement of Building Works, 7th edition (Superseded by
NRM 2)
• RICS Guidance note - New rules of measurement (NRM 1, 2 and 3)

Before we look at the key measurement rules, let’s review the categories of RICS professional
content and their definitions.

The next lessons will cover the key rules and guidance for measurement and quantification.
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1.71 RICS PROPERTY MEASUREMENT

The 2nd edition of RICS Property Measurement was released in January 2018 and it updates the
1st edition by including residential measurement practice.

This professional statement provides guidance on its application and technical definitions.

It reflects the IPMS: Office Buildings and IPMS: Residential Buildings and will be updated over
time to comply with other IPMS standards, including industrial, retail, and mixed-use, as they are
published.

RICS property measurement comprises the following two elements:

• Application of this professional statement.
• Technical definitions.
• IPMS: Office Buildings, as applied under the professional statement.
• IPMS: Residential Buildings, as applied under the professional statement to office and
residential measurements only.

Part 2 - RICS IPMS data standard

1.72 INTERNATIONAL PROPERTY MEASUREMENT STANDARDS (IPMS)

The International Property Measurement Standards Coalition (IPMSC) is a group of more

than 80 professional and not-for-profit organisations from around the world, working together to
develop and implement international standards for measuring property.

At present, the way property assets – such as homes, offices, or shopping centres – are measured
varies dramatically.

For example, in some parts of the world, it is an established practice to include common space (lift
shafts, communal hallways, etc.) in floor area measurements; in others, off-site parking might be
included or even swimming pools.

With so many different methods of measurement in use, it makes it difficult for property users,
investors, occupiers, and developers to accurately compare space.
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1.73 INTERNATIONAL COST MANAGEMENT STANDARD (ICMS)

Since its inception, the driving principle behind ICMS has been that consistent practice in
presenting the performance of construction projects globally will bring significant benefits
to managing the performance of construction projects.

By providing a common reporting framework for life cycle costs and carbon emissions, ICMS
allows their interrelationship to be explored, and provides the opportunity to make decisions about
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the design, construction, operation, and maintenance of the built environment to improve
environmental sustainability.

1.74 CESMM4 - CIVIL ENGINEERING STANDARD METHOD OF MEASUREMENT

The Civil Engineering Standard Method of Measurement (CESMM) has been well-
established for over 35 years as the standard for the preparation of bills of quantities (BQs)
in civil engineering work. The original concepts of a standardised approach and item
coverage remain as fundamental as they did when they were first introduced in 1976.

CESMM4 is an invaluable guide for anyone who needs to prepare bills of quantities in civil
engineering work and competitive tenders with claims to sustainability based on real and reliable
data.

The document has been updated to make it applicable across all major modern standard forms of
contract and internationally.

1.75 PRINCIPLES OF MEASUREMENT (INTERNATIONAL) FOR WORKS OF

CONSTRUCTION (POMI)

Since these principles of measurement were first issued in 1979, many countries have developed
their own more detailed standard methods.

1.76 SMM7: STANDARD METHOD OF MEASUREMENT OF BUILDING WORKS

The 7th edition of the SMM7 was published in 1988. Following experience in use and in
consequence of queries raised, minor amendments were made until it was superseded by the
RICS New rules of measurement.

Since 1922, the Standard Method of Measurement of Building Works (SMM) has provided
quantity surveyors with rules of measurement for building works. However, these rules were
specifically drafted to advise quantity surveyors on how to measure building work items for
inclusion in bills of quantities which, in turn, are used for the purpose of obtaining a tender price
for a building project.

1.77 RICS NEW RULES OF MEASUREMENT (NRM)

Previous SMMs did not provide specific guidance on the measurement of building works for
the purpose of producing cost estimates or cost plans. In the absence of any rules for
measuring and describing building works for estimates and cost plans, quantity surveyors
have generally adopted the principles described in the SMM.

• RICS Quantity Surveying and Construction Professional Group researched the

problems associated with the measurement of building works for all stages of the design
and construction process.
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• The group concluded that essential guidance was needed to be made available to
quantity surveyors and that a common and consistent basis should be used to measure
areas and building works items for the order of cost estimates and cost plans.
• Giving guidance on providing a structured approach for dealing with the other
constituents needed to calculate cost estimates, cost limits or cost targets was also
necessary.
• Hence, it was decided that a bespoke set of measurement rules were required for the
preparation of order of cost estimates and elemental cost plans.

1.77.1 NRM 1

NRM 1 - New rules of measurement - Order of cost estimating and cost planning for capital
building works

NRM 1 is the ‘cornerstone’ of good cost management, enabling more effective and accurate cost
advice, as well as facilitating better cost control.

1.77.2 NMR 2

NRM 2 provides guidance on the detailed measurement and description of building works for the
purpose of obtaining a tender price.

It addresses all aspects of bills of quantities and production, including the content, structure, and
format of BQ, as well as its benefits and uses.

It also deals with the quantification of non-measurable work items, including contractor-designed
works and risks.

Main changes from SMM7

As we have seen, NRM 2 superseded SMM7. The main changes from SMM7 are:
New Work sections:
• Preliminaries
• Off-site manufactured material, components and buildings
• Ground remediation and soil stabilisation
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• Metalwork rationalised

Grouping of items changed

Work sections in numbers not letters
Simplified measurement rules:
• SMM7 - Bulk excavations measured to depths not exceeding 0.25m, then
1.0m, and in 1.0m stages thereafter
• NRM 2 - Bulk excavations measured to depths not exceeding 2.0m, and then
in 2.0m stages thereafter

Component items allowed (Clause 3.3.3.12)

Works of special types separately identified (Clause 3.3.4):
• Work to existing buildings
• Work to be subsequently removed
• Work outside curtilage of site
• Work carried out in extraordinary conditions

NRM 2 comprises of 3 parts:

PART 1 General (explains symbols, abbreviations and definitions used in the rules)
PART 2 Detailed measurement of building works
PART 3 Rules of measurement for building works

NRM 2: Part 2 - Rules for detailed measurement of building works

This section of NRM 2 explains the types of bills of quantities (BQs), its composition, the
information needed to prepare a BQ and how to prepare it. It gives guidance for use of both
firm and approximate bill of quantities.

Part 2 also provides measurement rules for building works and how to deal with:
• Provisional sums
• Contractor-designed works
• Risks
• Statutory undertakers
• Overheads and profit
• Credits, price fluctuations, dayworks, VAT

Part 2 also cover work breakdown structures (WBS) and codification of a bill of quantities.
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There are three principal breakdown structures for a BQ:

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NRM 2: Part 3 - Rules of measurement for building works

This section of NRM 2 contains information about how to use the rules of measurement
tables, information about the preliminaries section of the BQ and the rules of measurement
for building components/items.

• Main contractor’s preliminaries

• Work package contractor’s preliminaries
• Rules of measurement
• Move away from NBS (CAWS) style descriptions:
E- In-situ concrete/large precast’ (SMM7) has now changed to ’11-In-situ concrete’ (NRM
2), with pre-cast concrete now separated out under a new section ’12- Pre-cast/composite
concrete.
• SMM& vs. NRM 2
• Detailed preliminaries book
• Pricing schedule focusing on fixed and time related costs.
• Section for insurances, bond, guarantees and warranties.
• New section for OSM materials and components
• Flexibility on unit choice

Common sense updates, such as:

• Excavating and filling - Items no longer measured/deemed included:
o Disposal of surface water
o Earthwork support (unless not left to discretion of contractor)
o Working space
o Levelling and compacting surface of excavation
o All excavation now deemed inert unless described otherwise

Detailed measurement changes to SMM7:

• Enhanced detail required for complex items (e.g. existing services, toxic/hazardous
materials, etc.)
• Grouping of items/Movement of items (e.g. cutting off tops of piles moved to excavation)
• Requirement to state location in item description
• New items (e.g. recycling, preliminary site-work, JPKW, ground remediation, soil
stabilisation, vibro-compacted piles, trench-fill, skin of hollow walls, diaphragm walls,
shadow gap battens, etc.)
• Rules simplified (e.g. excavation depths in 2m stages as opposed to 250mm)
• Omission of common sense ‘inclusive’ labours (e.g. earthwork support)
• Composite items allowed (e.g. drainage includes excavation, beds, surrounds, back fill,
and pipe)
• Items described as horizontal or vertical in nature
• Some units amended (e.g. openings in concrete walls changed from m to nr - partitions m
to m2)
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1.77.3 NRM 3

NRM 3 links the cost analysis of the capital cost of a construction project with consideration of
whole-life-cycle costing and provides the tools to enable a seamless transfer of cost information
from the construction team to the asset management team.

1.78 SUMMARY
• There are various measurement rules for different purposes currently in use across the
industry.
• Some of these standards are used for defining what we need to measure, others are for
telling us how to measure those things.
• Current measurement rules that are used in the construction industry today include:
• RICS Property measurement, 2nd edition
• International Property Measurement Standards (IPMS)
• ICMS: Global Consistency in Presenting Construction Life Cycle Costs and Carbon
Emissions, 3rd edition
• CESMM4 - Civil Engineering Standard Method of Measurement, 4th edition
• RICS Principles of Measurement (International) for Works of Construction (POMI)
• SMM7: Standard Method of Measurement of Building Works, 7th edition
(Superseded by NRM 2)
• RICS New rules of measurement (NRM)

RICS New rules of measurement (NRM)

• Principles of measurement are largely the same.
• NRM 2 has simplified measurement and is more aligned to how work is procured.
• NRM 2 tells you what to measure, IPMS tells you how to do it.
• Simplification has removed common items that are deemed included.
• Detailed sections on preliminaries, OH&P, fees, and risks.
• QS still needs to ‘catch’ the missing information!
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Knowledge Check
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PART 2: THE QUANTIFICATION OF CONSTRUCTION WORKS

1.79 AREA MEASUREMENT DEFINITIONS AND SCHEDULE OF FLOOR AREAS

The previous module, Design Economics and Cost Planning briefly discussed the
measurement of areas (Net: Gross Efficiency Ratio).

The following section will look into the standards that define how areas are measured.

The measurement of the areas of a building and the production of a subsequent ‘schedule of floor
areas’ is one of the critical elements used within the quantification of construction works.

Building areas form the foundation of all discussions relating to cost, sales, efficiency, and design.
Indeed, as discussed in the previous module, the ‘floor area method’ is the first method of forming
an order of cost estimate.

It is therefore essential that there are a common set of definitions for what is, and what is
not, included within what is measured.
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The following table gives the most basic and widely known definitions for types of area:

Following the introduction of the IPMS standard from 1 January 2016, a new set of standard
definitions were introduced. These map to the old definitions as follows:
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These revised definitions, which were initially discussed in Module 2, Part 5, have been advanced
as follows:

The next sections will cover GEA, GIA and NIA in more detail.
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1.79.1 GROSS EXTERNAL AREA (GEA)

1.79.1.1 INCLUDING
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1.79.1.2 EXCLUDE
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1.79.2 GROSS INTERNAL AREA (GIA / GIFA)

1.79.2.1 INCLUDING
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1.79.2.2 EXCLUDING
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1.79.3 NET INTERNAL AREA

1.79.3.1 EXCLUDING
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1.79.3.2 EXCLUDING
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TOP TIP #1

As noted in module 2, always remember to check and recheck which area is being quoted, IPMS
1, 2 or 3! And remember context, as opposed to an Architect, a Sales Agent may use a totally
different area type altogether (lettable or rentable area! Please refer to module 2 for details).

TOP TIP #2
Always ensure your measurement approach is:
a) based on best practice (NRM)
b) aligned to your RIBA Stage (e.g. NRM 1 for Stages 0-3, NRM 2 for Stage 4, NRM 3 for Whole
Life Costs)
c) aligned to your procurement route (i.e. NRM 2 = Bills of quantities = Traditional procurement)

1.80 SCHEDULE OF FLOOR AREAS

The sum of this measurement results in the production of a ‘schedule of floor areas,’ as the
following diagram illustrates:

1.81 QUANTIFICATION OF CONSTRUCTION WORKS

This lesson focus on the quantification of construction works, specifically measurement using the
new rules of measurement as well as the principles of taking-off and measurement.

It is based on the essential reading for this module - Measurement: Using the New Rules of
Measurement by Ostrowski, S.D.C - which you can download below.

As discussed in the preface to the book, measurement has changed significantly in recent years
with numerous electronic tools available to assist in ‘taking-off’ quantities. It is essential that a
quantity surveyor has the ability to measure and understand the importance of building
procurement, contract practice and construction technology upon building measurement.
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1.81.1 TRADITIONAL APPROACHES AND BILLS OF QUANTITY

The historical role of a quantity surveyor would be to ‘take-off’ building quantities from
drawings for the preparation of bills of quantities, which has been the main pricing document
used in construction contracts for the last 100 years. Over the last 30 years, for a number of
reasons, practices have changed.
• Initially, the growth in popularity of the ‘Design and Build’ procurement route led to a
requirement for a different type of pricing document. Without a 100% complete design
prepared prior to tender, as with the ‘Traditional’ approach, a bill of quantities could not
be produced, and an alternative approach would be needed.
• More recently, with the improvement in computer-aided measurement software (such
as Cost X and ROSS 5D) and the increasing prevalence of BIM within the
industry, measurement has moved online.

However, the basic understanding and principles of measurement are still required,
irrespective of whether we are using a scale rule or computer software.

The next sections provide a basic understanding of the following:

• RICS New rules of Measurement
• The principles of taking-off and measurement

1.81.2 STANDARD METHODS OF MEASUREMENT AND CONTRACT DOCUMENTATION

Work through the following chapters of ‘Measurement: Using the New Rules of
Measurement’ by Sean Ostrowski.

1.82 SUMMARY

There are various measurement rules for different purposes currently in use across the industry.
Some of these standards are used for defining what we need to measure, other are for telling us
how to measure those things.

RICS property measurement is the latter; it tells us how to measure and what to include or exclude
from the different types of measurement. Following its launch in November 2014, RICS members
need to adhere to the International Property Measurement Standards.

The historical role of a quantity surveyor would be to ‘take-off’ building quantities from drawings
for the preparation of a bill of quantities, which has been the principal pricing document used in
construction contracts for the last 100 years. Over the last 30 years, for a number of reasons,
practices have changed.

Modern quantity surveyors must be fully conversant, not only in measurement, but in topics such
as procurement, law, contract, dispute avoidance, commercial implications of market forces,
sustainability, carbon economics, net zero carbon, whole life costing, team working, equality,
diversity and inclusion, to name but a few.
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PART 3: PRICING DOCUMENTS

1.83 PRICING DOCUMENTS

In this lesson, we will cover costing of construction works by methods such as tendered rates,
quotations, or dayworks.
What are pricing documents?

Pricing documents are the main result of the quantification of construction works process.

When all the works have been quantified, codified, and placed in a pricing document, that
document can then be priced to provide a detailed cost analysis of the works.

The final pricing document is one of the key components of a set of contract documents that forms
the basis of the contract sum that is agreed for the works.

Types of pricing documents

There are many different types of pricing document, including:

• Bills of quantities
• Contract sum analyses
• Priced activity schedules
• Schedules of rates

The next sections will look at each pricing document in more detail.

1.83.1 BILL OF QUANTITIES (BQ)

A bill of quantities (BQ) is the most traditional form of pricing document and its production
is at the heart of the traditional role of a quantity surveyor. It is a highly detailed analysis of
all the works required to construct the building, priced according to the measurement rules
applicable, i.e. NRM 2.
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1.83.1.1 REQUIREMENTS

In order to provide the detailed, project specific measured quantities of all the items of work
required, all of the design information must be 100% complete, i.e. production/manufacturing
quality information.

1.83.1.2 APPLICATION

A BQ is generally used on traditional forms of procurement, typically utilising a form of contract

that requires measured quantities, such as the ones included on the ‘JCT: Standard Building
Contract With Quantities’.

1.83.1.3 EXAMPLE

1.83.2 CONTRACT SUM ANALYSIS

A contract sum analysis is typically a high-level list of work activities, either in an elemental
or work package format, with a lump sum price against each activity.
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1.83.2.1 APPLICATION

A contract sum analysis is principally used in a ‘Design and Build’ form of contract (and,
importantly, for the contractor’s designed portion of a traditional contract).

It provides less detail than a traditional bill of quantities for the simple reason that it is unlikely
that the full design of the works has been completed and thus cannot be measured in the detail
required to produce a bill.

Nonetheless, depending on the stage of the design information at the time of tendering, contract
sum analyses can be produced to varying degrees of detail.

1.83.3 PRICED ACTIVITY SCHEDULE

A priced activity schedule (sometimes referred to as a ‘schedule of activities’ or ‘schedule of

works’) is typically found in the NEC form of contract (either Traditional or Design and
Build, options A and C). It is very similar in nature to a contract sum analysis, but typically
contains more detail.

A priced activity schedule, particularly under the NEC form of contract, is important for how a
contractor’s get paid for the works. Unlike other forms of contract, a contractor under NEC may
only get paid when 100% of an activity is complete, irrespective of the actual progress. This tends
to lead to a more detailed activity schedule broken down into component activities to allow for
more regular payments.

An activity schedule can also be linked to a project programme much more easily than a bill of
quantities or a contract sum analysis. This makes it much easier for a quantity surveyor to produce
a programme related cash flow forecast and also, to monitor works progress against financial
expenditure (see example below).

Both forms of pricing document are similar in nature in they represent a simplified pricing strategy
than that of a bill of quantities. Instead of a list of measured works with individual quantity,
elemental unit rates and corresponding price totals, this type of pricing document relies on fixed
price, lump sum amounts for each activity.
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1.83.3.1 EXAMPLE

If an activity schedule for ground works simply said substructure, the contractor would not get
paid for the substructure until it was 100% complete. However, if this was broken down into sub-
activities such as site clearance, excavations, disposal, fillings, membranes, piling, etc. the
contractor would get paid on completion of each of these sub-activities.

1.83.4 SCHEDULE OF RATES

A schedule of rates is a list of prices, usually on labour, plant and materials basis, for specific
items of work (typically against a given or notional quantity). Often used in measured term
contracts for works of a similar and repetitive nature where the specific items of work are
not known at the outset.
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Schedules of rates are often used in Measured Term contracts for works of a similar or repetitive
nature; examples would include maintenance contracts for the facilities management of buildings.

Further uses could be for work where the quantity is not known at the outset, but some element of
competitive pricing is required. Examples could include a cost reimbursement contract such as
NEC Option E (Module 5, Contract Practice will review forms of contract in detail).

1.83.4.1 ADVANTAGES AND DISADVANTAGES OF A SCHEDULE OF RATES

Advantages:
• Tendering is straightforward, quick, and inexpensive and can include many tenderers
• Tenderers are easily comparable to assess the best value for money
• Works can be procured on a call of basis to suit the Client’s cash flow
• Change control is much easier as variations can be priced according to agreed rates

Disadvantages:
• The work is by definition re-measurable, this means there is no cost certainty at the outset
• Re-measurable works require additional verification of final quantities to assess payment
• If the work is not adequately planned, or the client disorganised can be difficult for the
contractor to plan the works and provide continuity of labour
• Little opportunity or incentive for contractors to be efficient or demonstrate innovation.

1.84 SUMMARY

Pricing documents are the principal result of the quantification of construction works process.
When all the works have been quantified, codified, and placed in a pricing document, that
document can then be priced to provide a detailed cost analysis of the works.

The final pricing document is one of the principal components of a set of contract documents that
forms the basis of the contract sum that is agreed for the works.

There are many different types of pricing document, including:

• bills of quantities
• contract sum analyses
• priced activity schedules
• schedules of rates.
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PART 4: THE COSTING OF CONSTRUCTION WORKS

1.85 SOURCES OF COST INFORMATION

The initial part of this module looked at the rules of measurement and how measurement is
undertaken. In the previous module, Design Economics and Cost Planning, we looked at the
following sources of cost data (Lesson 6), from most to least important:

1. Quotations from the supply chain: the best, most accurate source of cost data from the
supply chain.
2. Historical ‘benchmark’ data: source that can be in a number of forms including previous
estimates, quotations, tender returns, contract sum analyses, bills of quantities, and final
accounts.
3. Star rates: unit rates for labour, plant and materials calculated from first principals.
4. Pricing books: a series of pricing books which contain pricing data for elements of
construction work
5. Trade literature: examples of pricing and/or approximate estimates created and published
by companies and trade bodies in the industry.

The information acquired from these sources of cost data is applied to valuing change, depending
on the form of contract utilised. In this part we’ll first look at what valuing change is and then in
Part 5, we’ll learn how to apply them to valuing change.

1.85.1 VALUING CHANGE

In a construction contract change can come from many different sources, such as:
• Modifications to the design of the works
• Changes in the standard of the materials
• Changes to the conditions under which the works are to be provided

The source of a change will determine how the contract treats each one. Change can arise from a
source for which the employer or contractor carries the risk. Standard construction contracts set
out detailed procedures for dealing with change that arise from an employer’s risk source. These
changes are most often referred to as a variation or compensation event.
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1.85.2 WHAT IS A VARIATION?

Building contracts generally use the term variation to describe the following types of changes
to:
• the type and/or quality of materials to be used
• the standard of workmanship
• the quantity of work to be undertaken
• the named/nominated supplier
• the specified method of working
• the specified timing or sequence of the works
• examples of variations.

1.85.3 WHAT IS A COMPENSATION EVENT?

The NEC3 standard form uses the term ‘compensation event’ when referring to sources of
change that are an employer’s risk. The majority of these events are identified in clause 60.1
and are more wide ranging than variations in the JCT contracts.

Compensation events defined in NEC 3 standard

They include:
• a change to the works information (clause 60.1(1))
• the employer failing to give the contractor access to the site on time (clause 60.1(2))
• a failure by the employer to provide something that it had a duty to provide ‘by the date for
providing it shown on the accepted programme (clause 60.1(3)
• a failure by the project manager or the supervisor to ‘reply to a communication from the
Contractor within the period required by this Contract’ (clause 60.1(6))
• the project manager withholding 'an acceptance' for a reason not stated in the contract
(clause 60.1(9))• the supervisor issuing an instruction to search for a defect, when no
defect is subsequently discovered (clause 60.1(10))
• the contractor encountering unforeseen physical conditions on the site (clause 60.1(12))
• a weather event that on average occurs less frequently than once every 10 years (clause
60.1(13))
• the project manager corrects an assumption he or she previously stated about a
compensation event (clause 60.1(17))
• a breach of contract by the employer (clause 60.1(18))
• an unforeseen event that is not one of the other compensation events and prevents the
contractor completing the works or completing them by the date he or she planned to
complete them, as shown on the accepted programme (clause 60.1(19))

Therefore, it is important, regardless of the form of contract, to distinguish between changes

that generate a process of valuation or assessment from those that don’t.

What is the key difference between a variation and a compensation event?

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The key difference between a variation and a compensation event is that variation looks at cost
only, whereas a compensation event deals with time and cost.

1.86 SUMMARY

Contractor-driven change only needs a contractual process if it requires a change to the specified
works and/or a change to a constraint under which those works are to be provided. For example, a
change voluntarily taken by the contractor in the method he or she adopts to complete the works
is not a variation unless it is imposed on the contractor by an employer’s risk change.

The employer can impose some control over changes that are his or her risks and make conscious
decisions before choosing to make such changes. Examples include an instruction to introduce a
change in scope or a constraint imposed on the contractor, such as the specified timing or sequence
of the works. Other risks are uncontrollable, like the weather, inflation and changes in the law. The
contract can allocate these uncontrollable risks to any of the parties but more commonly they are
employer’s risks.

The different standard forms of contract handle the valuation of employer’s risk change differently.
Forms such as the NEC3 use a process of assessment that aims to value variations at the time they
arise, or even in advance using a forecast, often in the form of a contractor’s quotation. Forms such
as FIDIC and JCT allow for variations to be valued retrospectively.

The processes associated with variations or compensation events included in these standard forms
all aim to ensure the affected parties are treated fairly and the balance of commercial risk between
the parties is maintained as far as possible.

TOP TIP #1
When valuing change, the main difference between a JCT and NEC contract is that JCT treats the
cost of construction works for a change or variation in isolation to its impact on time (and
subsequent impact of time on cost (i.e. loss and expense)), while NEC requires all cost and time
implications of a compensation event to be accounted for within the change

TOP TIP #2
Always consider these factors when valuing change:
1. Changes in character or conditions of the work or working area
2. The impact of preliminaries and potential for dayworks
3. Any potential exclusions or assumptions

Valuing change can be a difficult task, particularly where there is limited pricing
information, for example where a contract sum analysis has been used (such as on a Design
and Build contract). Always ensure you secure breakdowns to pricing documents, including
quantities and rates, to enable you to value change in the future.

In a construction contract change can come from many different sources, such as modifications to
the design of the works, changes in the standard of the materials and/or changes to the conditions
under which the works are to be provided.
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The source of a change will determine how the contract treats each one.

Change can arise from a source for which the employer or contractor carries the risk. Standard
construction contracts set out detailed procedures for dealing with change that arise from an
employer’s risk source. These changes are most often referred to as a variation or compensation
event.

The processes associated with variations or compensation events included in these standard forms
all aim to ensure the affected parties are treated fairly and the balance of commercial risk between
the parties is maintained as far as possible.
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PART 5: NEGOTIATING AND AGREEING THE VALUATION OF CONSTRUCTION WORKS

1.87 NEGOTIATING AND AGREEING THE VALUE OF CONSTRUCTION WORKS

1.87.1 INTRODUCTION

Throughout the construction process, it is necessary, and part of a quantity surveyor’s role,
to value, negotiate and agree the value of construction works.

The three key stages that this is completed are as follows:

• Contract Sum: At the culmination of the tender process
• Construction – Periodically during the construction period
• Final account – At the end of the construction process, following practical completion

The structure and process of valuing construction work depends on the form of contract involved;
forms of contract will be discussed further in the Contract Practice module.

1.87.2 CONTRACT SUM

Negotiating and agreeing the contract sum for a construction project represents the effective
culmination of the procurement and tendering phase (which will be discussed in detail in the
following module).

The contract sum is the amount (known as consideration) that the employer agrees to pay the
contractor for carrying out the construction work.
In the case of lump sum contracts, it is a specified sum of money written into the contract
documents.

Almost without exception, all the main forms of building contract are considered to be lump sum
contracts. However, the sum is seldom, if ever, a fixed amount but is subject to adjustment
(additions and deductions) in respect of various matters.
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The primary causes for adjustment of the contract sum for which contract conditions make
provisions are:
• The adjustment of provisional sums
• The adjustment of prime cost (pc) sums
• Variations to the design and/or the specification of the work
• Additions or reductions to the scope of the works
• Loss and expense incurred by the contractor for specified reasons
• Increases or decreases in the costs of labour and materials or in taxes, levies or
contributions imposed by the government (i.e. Fluctuations - albeit many employers will
seek to remove such provisions through amendments to the contract conditions).

The variable nature of the contract sum might, at first glance, appear to cancel out the value of
stating any sum at all. However, it does have the merit of giving the parties a good indication of
the level of cost and providing a basis for estimating the eventual out-turn cost as the construction
works progress.

1.87.3 CONSTRUCTION – INTERIM VALUATIONS

During the construction works on site, depending on the form of contract utilised, there is
usually a requirement for periodic payments (these can be either monthly or upon
completion of work items or stages).

The purpose of interim valuations is to provide advice to the certifier on a construction project for
the issue of interim certificates and payment notices. The certifier will be the contract
administrator, employer’s agent, the project manager, or the employer – depending on the contract
conditions being used.

1.87.4 FINAL ACCOUNT

The final account is the conclusion of the contract sum (including all necessary adjustments)
and signifies the agreed amount that the employer will pay the contractor. It includes any
works that are paid to the contractor through the main contract.

Typically, the final account includes any loss and expense associated with any extensions of time
and any other claims the contractor feels he or she is due under the contract. It also indicates the
finalisation of any disputes that may have arisen and in that sense draws a line under the financial
obligations of both parties, save in respect of defects.

When should a final account be undertaken?

Under JCT, a final account is typically agreed within 3 months of receipt of the related information
from the contractor, which in turn is required within 6 months of practical completion.

However, it is generally considered to be best practice for the employer’s and contractor’s QS to
agree a notional final account on an ongoing basis, typically at the monthly interim valuation.
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The advantage of this process is that both parties have an up to date “agreed” position throughout
the project, it manages both parties’ expectations, avoids disputes and makes financial control,
reporting and subsequent decision making more accurate.

What is reviewed and included in the final account?

The following sections are typically reviewed and ‘agreed in full and final settlement of each claim
which they may have (including but entirely without limitation claims for interest or finance
charges) arising under or for breach of contract or otherwise in respect of the carrying out or
completion of the works:’
• Measured works (typically the contract sum)
• Provisional sums
• Approximate quantities
• Prime cost sums
• Dayworks
• Variations
• Contract instructions
• Loss and expense
• Fluctuations
• Risk allowances
• Pain/gain allowances

What is not included in the final account?

The following sections are typically not included in statement of final account:
• Retention
• Liquidated Damages
• Interest of Overdue Payments
• VAT

Although, it is good practice to issue further documentation (such as an interim valuation with a
statement of retention and a statement of liquidated damages that could be applied) with the
statement of final account which may illustrate these items

Who is the final agreement of the Final Account between?

The final agreement should be made between the parties to the contract, usually the employer and
the contractor. However, this is usually based upon the statement of final account which is typically
agreed between the contractor and the employer’s quantity surveyor.

It should be remembered that other parties could affect the final account discussions as this may
affect one of the negotiating party’s positions. For example, a contractor’s QS could in some
circumstances be dependent upon their subcontractor and suppliers before any agreements can be
reached.
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Conversely, the professional quantity surveyor (PQS) may have to consult with other members of
the design team or employer team. However, to enable a swift resolution to a final account the
parties should be prepared to make decisions where they are able to and to seek permission where
necessary to act on their behalf and given appropriate delegated powers.

If there are some big items or issues that involve a third party, then the suggestion is that they are
invited in to be part of the negotiation. It is likely that they would only need to be there for the part
of the meeting that concerns them. Both parties in the negotiating process should avoid being a
‘post box.’ For a smooth negotiation, the work of discussing with upstream or downstream parties
should be done beforehand.

Just because a subcontractor or supplier has a claim or variation with the contractor it does not
necessarily mean that the contractor has a claim with the employer. The word of the contract cannot
be forgotten during the negotiating process. Each party should listen to the others point of view,
but it is not always the cast that the contractors are back-to-back.

1.88 SUMMARY

Throughout the construction process it is necessary, and part of a quantity surveyors’ role, to value,
negotiate and agree the value of construction works.

The three key stages that this is completed are as follows:

• Contract sum – At the culmination of the tender process.
• Construction interim valuations – Periodically during the construction period.
• Final account – At the end of the construction process, following Practical Completion.
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PART 6: THE CHANGING ROLE OF THE QUANTITY SURVEYOR

As we have seen in this module, the historical role of a quantity surveyor is ever changing.
Practices have changed and quantity surveyors no longer do just ‘take-off’ building
quantities from drawings.

Modern quantity surveyors must be fully conversant, not only in measurement, but in topics such
as procurement, law, contract, dispute avoidance, commercial implications of market forces,
sustainability, carbon economics, Net Zero Carbon, whole life costing, team working, equality,
diversity, and inclusion, to name but a few.

In addition to this large variety of topics and expertise, technologies continue to change and
professional surveyors have an obligation for continuing professional development (lifelong
learning) and must change with them.

THE CHANGING ROLE OF THE QUANTITY SURVEYOR

As we have seen in this module, the historical role of a quantity surveyor is ever changing.
Practices have changed and quantity surveyors no longer do just ‘take-off’ building
quantities from drawings.

Modern quantity surveyors must be fully conversant, not only in measurement, but in topics such
as procurement, law, contract, dispute avoidance, commercial implications of market forces,
sustainability, carbon economics, Net Zero Carbon, whole life costing, team working, equality,
diversity, and inclusion, to name but a few.
`

In addition to this large variety of topics and expertise, technologies continue to change and
professional surveyors have an obligation for continuing professional development (lifelong
learning) and must change with them.

Explore

Continuing Professional Development is a part of the RICS Rules of Conduct. All members must
undertake a minimum of 20 hours CPD each calendar year (January to December).

1. Of the 20 hours at least 10 hours must be formal CPD. The remainder can be informal CPD.
(For guidance, see below and download examples).
2. All members must maintain a relevant and current understanding of our professional and
ethical standards during a rolling three-year period. Any learning undertaken in order to meet
this requirement may count as formal CPD.
3. Members must record their CPD activity online by 31 January.

The Contractor QS (CQS) vs. the consultant QS (PQS)

The following video explains the key differences between a contractor QS (CQS) and
consultant QS (PQS - Professional or Private Quantity Surveyor) and it helps you
understand which of these roles best suits your career goals as a QS.

Summary

The role of the QS continues to change, and we as professional members must seek to keep abreast
of those changes and continue to learn and develop to create sustainable solutions that connect
people and technology to deliver and a better future for our planet.
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Knowledge Check
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MODULE 3 – SUMMARY

 This module covers the definition and measurement of construction works in order to
value and control costs. It aims at giving you a clear understanding of the principles of
quantification and costing of construction works as a basis for the financial management
of contracts including the use of appropriate standard methods of measurement and forms
of cost analysis.
 This module has covered the following sections:
• The various standard methods of measurement.
• The quantification of construction works (including both measurement and definition)
at the various stages of a project.
• The costing of construction works by methods such as tendered rates, quotations, or
dayworks.
• Producing pricing documents such as bills of quantities, schedules of activities/works,
schedules of rates or contract sum analyses.
• Negotiating and agreeing the valuation of construction works at various stages of the
project such as the contract sum, construction, and final account.
• The changing role of the quantity surveyor (QS).
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MODULE 4 – PROCUREMENT AND TENDERING

Hello, and welcome to module three of Foundation in Quantity Surveying. In this module, we
will be looking into Procurement and tendering.

Module structure

Module four is split into 6 parts:

• Part 1: Procurement and tendering
• Part 2: The main types of procurement used in both the public and private sectors
• Part 3: Procurement routes - selection
• Part 4: Tendering and negotiation processes involved in procurement
• Part 5: Tender documentation and reporting
• Part 6: The Official Journal of the European Union (OJEU)

Learning outcomes

At the end of this module, you will be able to:

1. Explain the difference between procurement, tendering and contract.
2. Critically appraise different procurement strategies and apply them to different situations.
3. Describe the various documents required for tendering construction works.

1.89 GLOSSARY

This glossary defines the terms used in module four.

Contract
The formal agreement between the parties which is based on the following six basic requirements:
1. offer
2. acceptance
3. consideration
4. capacity
5. the legality of the object (freedom from illegality) and
6. the intention to create legal relations.

Cost
The amount incurred in producing a product, service or building. Cost is objective, based on facts
and figures. In the context of procurement, it is typically the capital cost of construction (refer to
whole life cost for total project costs).

CROME
An acronym that stands for the following types of construction costs:
• C – Construction: The capital expenditure/investment cost of construction (CAPEX).
• R – Renewal: The cost of major repair or replacement items throughout a built assets life
cycle (forward maintenance).
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• O – Operation: The operational and occupancy costs of running the asset, energy costs,
rent, taxes, insurances, etc. (OPEX).
• M – Maintenance: Annualised maintenance costs including scheduled (planned)
preventative tasks, inspection and monitoring, cleaning costs, etc.
• E – End of life: The net cost or fee of disposing of an asset at the end of its service life or
period of interest, including costs resulting from decommissioning, deconstruction and
demolition of a building; recycling and making it environmentally safe; recovery and
disposal of components and materials; and transport and regulatory costs.

Life cycle costing (LCC)

A decision-making technique that takes into account both initial and future costs over the life of a
building.

For buildings and structures, this usually means considering not just capital costs but relevant costs
in use or operational costs as well, i.e. CROME.

Price
The amount charged for the product, service or building.
Price is objective, based on facts and figures. It is usually the cost plus a margin (profit) that can
be achieved.

Procurement
The overall act of obtaining goods and services from external sources, e.g. a building contractor,
and includes deciding the strategy on how those goods are to be acquired by reviewing the client’s
requirements (time, quality and cost) and their attitude to risk.

Procurement route
It delivers the procurement strategy. A procurement route includes the contract strategy that will
best meet the client's needs. An integrated procurement route ensures that design, construction,
operation and maintenance are considered as a whole; it also ensures that the delivery team work
together as an integrated project team.

Procurement strategy
It identifies the best way of achieving the objectives and value for money of a project, taking into
account risks and constraints, leading to decisions about the funding mechanism and asset
ownership for the project.

A procurement strategy aims to achieve the optimum balance of risk, control and funding for a
particular project.

Quality
The quality standard of a product or building in terms of function, design and specification.

Risk
An uncertain event or circumstance that, if it occurs, will affect the outcome of a project, usually
measured in terms of probability (likelihood of occurrence) and impact.
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Tendering
The bidding process to obtain a price, and how a contractor is actually appointed

Time
The length of time to complete the project from inception to completion.

Value
The perceived worth of the product, service or building. Perception is from the buyer, user or
client’s perspective. Value is subjective; it can be influenced by external factors, e.g. marketing.

Value for money (VFM)

The optimum combination of whole-life costs and quality to meet the user requirement.

Whole life cost (WLC)

The present value of the total cost of that asset over its operating life including initial capital,
maintenance and replacement, energy cost and the cost or benefit of the eventual disposal of the
asset at the end of its life. An asset can include buildings, plants and infrastructure.

PART 1: PROCUREMENT AND TENDERING

The key points in part one are:

1.90 PROCUREMENT, TENDERING AND CONTRACT

1.90.1 INTRODUCTION

In module one, Construction technology and environmental services, we looked at the RIBA
PLAN OF WORK 2020.

Under the old plan of work, procurement was loosely covered in specific stages (G - tender
documentation and H – tender action), however, it became clear, particularly with the
increasing popularity of the design and build approach, that procurement needed to be more
flexible.
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Under the new RIBA plan of work 2020, procurement is a ‘variable task bar’ that floats between
stages two and four, depending on the procurement strategy utilised.

1.90.2 EXPLAINING PROCUREMENT, TENDERING AND CONTRACT

When the client has determined that they need a new building or project (RIBA Stage 0) and
has developed their brief (RIBA Stage 1), the method in which that building or project is
procured (including how the contractor is selected), is determined by the procurement
method.

Key definitions
There is often confusion in the industry about the differences between procurement, tendering
and contract. The terms are sometimes used interchangeably (particularly the former two) without
thought given to their actual meaning. They are distinct activities in the construction process!
To be able to explain the differences, we need to first understand their differences.

Procurement: The overall act of obtaining goods and services from external sources, i.e. a
building contractor. It includes deciding the strategy on how those goods are to be acquired by
reviewing the client’s requirements (time, quality and cost) and their attitude to risk.

Tendering: An important phase in the procurement strategy but procurement involves much more
than simply obtaining a price.

Tendering is the bidding process to obtain a price, how a contractor is appointed.

Contract: The formal agreement between the parties is based on the following six basic
requirements (discussed in more detail in the Contract practice module):
1. offer
2. acceptance
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3. consideration
4. capacity
5. legality of object (freedom from illegality)
6. intention to create legal relations.

Key definitions in the procurement process

There are lots of interchangeable terms to describe the procurement process: procurement method,
procurement route, procurement strategy, etc. The best definitions of these terms can be found in
the UK Government Archives.

Take a look at the following definitions:

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As we have already seen in the Design economics and cost planning module:
Value is from the client's perspective and is subjective.
Cost is factual and objective.

Value is derived from achieving maximum benefit for minimum investment where the benefit is
specific to each client and is arrived from achieving the client’s objectives.

Good value = benefits are greater than investment.

Poor value = investment is greater than benefits.

Why is value for money important?

Value for money allows clients to review factors in a tender, other than price, including
quality, time, whole-life cost, social value, etc.

TOP TIP
Remember to ask yourself: What is the COST? What is the PRICE? What is the VALUE?
- COST = basic cost of producing the product (objective/factual).
- PRICE = cost + profit (objective/factual).
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- VALUE = the importance or worth of something for someone (subjective, based on client’s
perspective).
-
1.90.3 SUMMARY

There is often confusion in the industry about the differences between procurement, tendering and
contract.

The terms are sometimes used interchangeably (particularly the former two) without thought given
to their actual meaning.

A procurement strategy is used to achieve the client’s objectives focusing on time, cost, quality
and risk.

Tendering is the process used to appoint a contractor.

Contract is the formal delivery agreement between the client and the contractor.

Value is derived from achieving maximum benefit for minimum investment where the benefit is
specific to each client and is arrived from achieving client’s objectives.

Value for money (VFM) allows clients to review factors in a tender, other than price, including
quality, time, whole-life cost, social value, etc.
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Knowledge Check
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PART 2: MAIN TYPES OF PROCUREMENT ROUTE USED IN BOTH PUBLIC AND PRIVATE SECTIONS

The Key Points are:

1.91 PROCUREMENT OPTIONS

This section considers the available options for the procurement of a professional, competent
contractor to successfully deliver the completion of a project.

The choice of a suitable procurement route is one of the fundamental issues to be addressed
to assist in the success of any project.
`

Procurement options affect the following aspects of a project:

The relationship between time, quality and cost are explored further in the following diagram:

Figure 1: Relationship between time, performance and cost, RICS Guidance note Developing a
construction procurement strategy and selecting an appropriate route, p. 04.
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The available procurement options are set out below:

- Design and build (single and two-stage)
- Traditional
- Management contracting
- Construction management
- Public-private partnerships (PPP) and the Private finance initiative (PPI)

In the next lessons, we will carefully examine each procurement route.

1.91.1 DESIGN AND BUILD (SINGLE STAGE)

Single-stage design and build using a single contractor to act as the sole point of responsibility
to the employer for the design, management and delivery of the construction project, pre-
defined inputs or outputs.

The involvement of the principal contractor usually ends once the building has been
constructed and a defined period for rectifying any defects has expired.

The diagram below summarizes the project organisation for design and build.

Figure 2: Procurement strategy: design and build, RICS Guidance note Developing a construction
procurement strategy and selecting an appropriate route, p. 12..
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The employer's representative

To ensure the employer’s interests are protected in terms of the quality of the finished product, it
is anticipated that the employer will procure or request the services of an employer's
representative in addition to the employer's agent.

Commonly it is the services of the architect and engineer retained by the employer who acts in this
capacity. In some cases, a specific project manager with experience in insolvency salvage projects
may have more of an impact on the design and build stage, procurement route, project time, cost
and quality.
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1.91.2 DESIGN AND BUILD (TWO-STAGE)

There are many variations on the design and build theme. They are generally differentiated
by the proportion of design undertaken by the employer’s team compared with the
contractor's team.

Two-stage design and build allow for the principal contractor to be appointed earlier in the
process, than in a single stage.

The employer's agent

Again, in order to ensure the employer’s interests are protected in terms of the quality of the
finished product, it is anticipated that the employer will retain an employer’s agent to administer
the contract and to approve the outstanding design issues.
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1.91.3 TRADITIONAL

Under this form of procurement, the employer appoints a design team to complete the design
of a scheme before tenders are invited.

A contractor is then separately appointed by the employer to construct the completed

designs.

The diagram below summarises the workflow of this procurement route.

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Figure 3: Procurement strategy: traditional, RICS Guidance note Developing a construction

procurement strategy and selecting an appropriate route, p. 09.

There is little integration of the design team, employer and contractor when adopting the traditional
form of procurement. There is, however, a variation to the traditional route which enables a
contractor to be appointed whilst designs are being completed by using a "fast-track" two-stage
method. This would allow the construction planning and buildability input to start much earlier.
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1.91.4 MANAGEMENT CONTRACTING

In this type of procurement route, the employer appoints a professional team to complete the
design of the scheme. The employer then enters into a contract with a management
contractor who, in turn, enters into a series of sub-contracts with suppliers and contractors
and manages their work.

The diagram below summarises the workflow of this procurement route.

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Figure 4: Organisational structure of a management contract, RICS Guidance note Developing a

construction procurement strategy and selecting an appropriate route, p. 16.
The sub-contract packages are tendered on an open-book basis.

Recommendations for appointment are made jointly between the management contractor and the
employer’s professional team.
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1.91.5 CONSTRUCTION MANAGEMENT

The employer appoints a professional team to complete the design and also employs a
construction manager as part of that professional team to coordinate, programme, provide
the construction site welfare facilities and manage the individual works packages.

The employer contracts directly with each of the package suppliers and contractors.

The diagram below summarises the workflow of this procurement route.

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Figure 5: Organisational structure of construction management contract, RICS Guidance note

Developing a construction procurement strategy and selecting an appropriate route, p. 14.
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1.91.6 PRIVATE FINANCE INITIATIVE

A public-private partnership (PPP) is a collaboration between the public and private sectors
to procure a service (usually in the form of a building project).

Private finance is used to design, construct and run a building for a set period of period 25-
40 years in return for an annual unitary payment from the public sector client.

It is important to note that the public sector client is buying a specified level of service from the
private sector provider.

For example
The private sector provider will design, construct and run a new hospital (including low-level
staffing such as cleaning, etc.) in return for the unitary payment.

At the end of the period, the ownership of the principal asset (i.e. the building) is transferred to
the public sector client.

Historically, the most common and widely known type of public-private partnership (PPP)
is the private finance initiative (PFI).

But what is a private finance initiative?

A private finance initiative (PFI) is financing public sector projects through the private
sector.

The Office of Government Commerce (OGC) defines private finance initiative as a partnership:
where the public sector contracts to purchase quality services, with defined outputs from the
private sector on a long-term basis and including maintaining or constructing the necessary
infrastructure to take advantage of private management skills incentivised by having private
finance at risk.
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BACKGROUND OF PFI
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The focus of PFI initiatives is the provision of a service to the public sector, not the acquisition of
a capital asset.

The purpose of private finance initiative projects was to take advantage of private sector
management skills which are given added incentive by having private finance at risk.

Whilst there are numerous advantages and disadvantages of the private finance initiative, there are
essentially two primary aims of the private finance initiative, value for money and risk transfer.
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Four key elements to a PFI

Design
Finance
Build
Operate

The parties involved

A project that is being procured via the private finance initiative model has two parties:
1. The public sector client
2. The private sector supplier

The public sector client

The public sector client enters a long-term contract with the special purpose vehicle (SPV),
usually 25-40 years, and agrees to pay a sum of money to the special purpose vehicle each year
throughout the life of the contract. This regular payment is known as the unitary payment.

The private sector supplier

The private sector supplier is usually a company created for a specific private finance initiative
project and will usually be a consortium consisting of a contractor, a finance company/bank, and
a facilities management company.

The company created by the consortium to deliver the project is known as the special purpose
vehicle (SPV).

The long-term commitment

Private finance initiative contracts represent a long-term contractual commitment.

The public sector needs to consider those long-term ongoing commitments, especially as
those commitments may reduce the public sector’s future flexibility to manage its
expenditure.

The special purpose vehicle (SPV) in return agrees to provide a service to the public sector.

For example, a hospital procured through the private finance initiative route will be designed,
constructed, and then maintained throughout the period of the contract by the special purpose
vehicle.

The costs of maintaining the hospital are borne by the special purpose vehicle and are deemed to
be covered in the unitary payment paid by the public sector.

Design, construction and the building's life cycle management

The costs of maintaining the building put heavy emphasis on the link between the design and
construction of a building and the management of that building throughout the building’s lifespan.

These life-cycle or whole-life costs can include anything from maintaining the building’s envelope
to the employment of low-level, non-clinical staff such as cleaners, porters, etc.
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Failure to provide the agreed service

Should the special purpose vehicle fail to provide part of or the entire standard of service specified,
the public sector may make deductions from the unitary payment accordingly.

This test is known as unavailability.

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1.92 SUMMARY
• This part has considered the available options for the procurement of a professional,
competent contractor to successfully deliver the completion of a project.
• The choice of a suitable procurement route is one of the fundamental issues to be
addressed to assist in the success of any project.

The key procurement routes are:

• Traditional - client retains design responsibility through the design team. The
design process is separate from construction, full documentation is prepared before
the contractor is invited to tender for the works.
• Design and build – the contractor is responsible for undertaking both the design and
the construction of the work in return for a lump sum fixed price.
• Management contracting - client retains design responsibility through the design
team. The contractor is responsible for defining the work packages and for managing
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those works undertaken by separate trades or works contracts. The contractor

contracts directly with the works contractors.
• Construction management - client retains design responsibility through the design
team. The contractor joins the design team to provide advice regarding the definition
of work packages and for managing those work packages. The client contracts directly
with the works contractors.
• Public/private partnerships (PPP) and the private finance initiative (PFI) - a
public-private partnership where the contracting vehicle design, constructs, and runs
a building for a set period, usually 25-40 years in return for an annual unitary payment
from the public sector client.
• The choice of procurement route should be driven by the client’s objectives for the
project, in relation to time, cost, quality and risk. The next section considers how we
do this in more detail.
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PART 3: PROCUREMENT ROUTE – SELECTION

The key points in part three are:

1.93 SELECTING A PROCUREMENT STRATEGY

The procurement strategy should be developed from an objective assessment of the client’s
needs and the project characteristics.
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1.93.1 THE CLIENT’S BRIEF

Figure 8: The process to select the appropriate procurement strategy.

Selecting the appropriate strategy

The key to the appropriate selection of a strategy is:
- The identification of the primary objectives of the client.
- The apportionment of risk.
- The decision as to who is responsible for the design.

Client's
There are 4 key drivers to consider that will influence a client’s objectives: time, price, quality and
risk.
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1.93.2 PROCUREMENT ROUTE SELECTION PROCESS

The selection of the most appropriate procurement route is a process that involves:
- Analysis
- Choice

This process must be followed to ensure that the most appropriate strategy is selected.

1.93.2.1 ANALYSIS

During analysis, you should first:

- identify the relative importance of the client’s primary objectives, and
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- the extent of the client’s attitude towards associated risk.

The assessment of the client’s primary objectives should be based on the business case for the
project which identifies the relative importance of 3 key elements:

Figure 9: The quality (performance), time and cost triangle.

These key elements are then judged against the risk of underperformance, enabling a suitable
balance to be achieved.

Figure 10: The quality (performance), time and cost triangle versus the risk of under-performance

1.93.2.2 CHOICE
When choosing the most appropriate procurement route you should consider:
- possible procurement options
- the evaluation of these options
- the identification of those strategies that are inappropriate, and the selection of the route that
provides the best fit with the analysis
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The strategy adopted by the client and project team will affect both:
- the procurement route selected
- the relationships between those engaged in the initiation, design and construction of the project.

In particular, it may affect how these participants are selected, the nature of their role and
the extent of their responsibility.
TOP TIP
- This process has been designed to establish a range of information about the client’s objectives,
and the particular project being considered and to develop this information in parallel with the
characteristics of procurement routes and associated risk. It is a process intended to inform
professional judgement, not to replace professional judgement.

- How can you reach the best-fit solution?

- By ensuring a client makes an informed decision, based on sound advice, giving due regard to the
identified criteria and the acceptable distribution of risk.
- Finally, a procurement strategy report should be produced and issued to the client.

1.93.3 PROCUREMENT SELECTION TOOL

The following table is a notional example of the use of a procurement selection tool for a
private residential development client.

Note the splits in relation to the client’s objectives. What does the table tell you about this
client’s priorities?

1.94 PROCUREMENT REPORT AND RECOMMENDATION

A procurement strategy report will need to be created to establish the most appropriate
procurement route, based on the client’s objectives.
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To create a procurement strategy report, the procurement team will need to:
- identify what the client’s attitudes and key drivers are
- state them in a way and in a language that is understood by the entire project team.

What should the report include?

1 A review of all appropriate options
2 A recommendation of which route to follow

Ensure the procurement strategy report is presented to the client.

Conclusions and recommendations must be discussed so that the client is fully aware of the
implications of time, cost, quality and risk for their project.

TOP TIP
It is recommended that any selected route is reviewed again at key times
during the progress of the project.

For example
A review is recommended when planning approval is given or before the construction contract or
contracts are let.
This is to take account of the possibility of the design failing to maintain the pace anticipated, or
for circumstances where the programme is otherwise affected by unexpected occurrences.
Alternative procurement routes may become more suitable if circumstances change.

1.94.1 CONTENTS OF THE PROCUREMENT REPORT

A typical procurement report would include the following contents:

Executive summary
A summary of the entire report, including:
• procurement strategy
• tendering approach
• form of contract
• recommendations.

Introduction
An introduction to the report, including:
• aims of the report
• client details
• project overview and
• details of the design team.

Key risks and opportunities

A summary of the key risks and opportunities of the project.

Risks: initial, high-level risk register should be produced (refer to design economics module case
study)
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Opportunities: identify and consider any potential opportunities on the project that should be
explored:
• Issues in respect of time, cost, quality and risk.
• Political, economic, social, technological, legal and environmental issues.
• If the public sector, serious consideration of social value and value for money must be
given.

1.94.2 CLIENT’S OBJECTIVES, DRIVERS AND CONSTRAINTS FOR THE CHOICE OF

PROCUREMENT ROUTE

The proposed client objectives should be analysed about:

1.94.2.1 DRIVERS

The objectives for the project are further informed by drivers, which are key characteristics and
outputs of the project needed to successfully deliver the objectives.

Bullet summary of project-specific factors that are either acting as founding principles to the client
objectives or will support achieving those objectives – see exemplar.

A client objective may be high quality and workmanship, but this is driven by a commitment to
environmental principles, sustainable design, and smart technology.

A public sector client may require cost certainty and a low price, but this is driven by a commitment
to value for money to enable restricted budgets to go as far as possible and transparency for
governance purposes.
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1.94.2.2 CONSTRAINTS

Bullet summary of project-specific factors that will act in opposition to the client objectives and
need to be addressed – note there may be duplication with key risks here, intention is to relate
directly to client objectives rather than project issues, e.g:

A client objective may be an accelerated programme, but this may be constrained by the need to
get wayleave agreements from utilities.

A client objective might be the lowest capital price, but with a requirement to deliver efficient
energy performance in use.

1.94.2.3 PROCUREMENT STRATEGY

A summary of the overall strategy:

- Key objectives for procurement – summary of client objectives
- Strategy & approach – discussion on the importance of VFM, innovation
- Contractor selection & procurement routes – traditional, D&B, CM, MC
- Tender options – open, selective, negotiated (partnering)
- Two stage form of contract – JCT, NEC, IET, PSPC
- Assessment of attitude to risk – risk transfer, single point responsibility

1.94.2.4 CONCLUSIONS AND RECOMMENDATIONS

A summary of the entire reporting, including conclusions on:

- Procurement strategy
- Tendering approach
- Form of contract
- Recommendations

1.95 SUMMARY
- The assessment of which procurement route is most appropriate should be based on the
business case for the project.
- This business case should identify the relative importance of key elements, such as performance,
price and time, as judged against the risk of under-performance, enabling a suitable balance to be
achieved.
- A best-fit solution should be looked for; it is advisable to ensure a client makes an informed decision,
based on sound advice, giving due regard to the identified criteria and the acceptable distribution
of risk.
- With best practice, commercial clients can reduce their capital and running costs and improve cost
and time certainty.
- The knowledge, skills and experience of specialists can be integrated into the project at the earliest
possible moment, helping to reduce risk, improve performance and buildability, increase
standardisation and minimise defects.
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PART 4: TENDERING AND NEGOTIATION PROCESSES INVOLVEMENT IN PROCUREMENT

The key points in part 4 are:

1.96 INTRODUCTION TO TENDERING OPTIONS

Tendering is an important phase in the procurement strategy, but procurement involves

much more than simply obtaining a price.

Tendering is:
• the bidding process
• appointing a contractor.

There are three main types of tendering strategy which are common to the construction industry,
although there may be sub-types of each.

1.97 TENDERING OPTIONS

There are three variations of the tender process:

- Open
- selective (restricted)
- negotiated (project partnering).

Let’s examine each tendering option.

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1.97.1 OPEN

Allows any organisation, following advertisement, to submit a tender.

Advertisements will give basic details of the scheme including the type of building,
programme, the form of contract and sometimes an estimated indicative value.

In the UK, this option is generally utilised in Public Sector procurement, with advertisements
published through Government and Local Government channels.

1.97.2 SELECTIVE

The client or design team identifies a shortlist of potential tenderers (usually four to six
companies) and invites them to tender for the scheme.

Selective tendering is the most common form of tendering and has two variants: single-stage and
two-stage tendering.

Single-stage tendering
The entire project is put out to tender, and the winning tender is chosen based on the tender
submission.

Two-stage tendering
This type of tendering involves two stages:

This stage consists of a competitive tender to the short-listed companies, usually

based on project preliminaries, overheads and profit and an outline programme
Stage 1
(although if early package designs are complete, for example, substructure,
these could also be included).
Following the identification of the preferred tender at stage one, the second stage
Stage 2 involves negotiation with the preferred tenderer to reach a final tender for the
entire scheme.
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1.97.3 NEGOTIATED

The client negotiates with a single contractor to arrive at an agreed tender for the project.

Negotiated tendering works best when approached in a collaborative mindset to become real
partners on the project or framework involved.

Partnering is a management approach used by two or more organisations to achieve specific

business objectives by maximising the effectiveness of each participant’s resources. The approach
is based upon mutual objectives, an agreed method of problem resolution, and an active search for
continuous measurable improvements.

Partnering is not a specific contractual arrangement, although some agreements have now been
developed (PPC2000; NEC3, PSPC).

Partnering can utilise any form of contract.

Partnering will succeed by developing an understanding based upon trust and cooperation where
all parties ‘buy’ the idea in an open way and commit to the project.

It enables collaboration to occur between constructors and designers and potentially innovation
and continuous measurable improvement.
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1.98 TENDERING CODES OF PRACTICE

It is important, when undertaking a tender process, that it is open, fair and transparent.
Tendering is a highly costly exercise, so making it efficient and fair is important.

Even the costs of unsuccessful tenders will ultimately be added to the overhead of a business and
recharged back to the client on other successful projects.

It is, therefore, in all parties’ interests to minimise these costs.

Furthermore, it is essential to ensure bidding processes are free from corruption.

This can be achieved through the use of codes of practice.

Other relevant codes of practice

- NJCC Code of Procedure for Single Stage Selective Tendering 1996
- NJCC Code of Procedure for Two Stage Selective Tendering 1996
- JCT Series 2, Practice Note 6 Main Contract Tendering 1998
- NBS Guide to Tendering: For Construction Projects 2011

1.99 SUMMARY
• Tendering is an important phase in the procurement strategy, but procurement
involves much more than simply obtaining a price.
• Tendering is the bidding process, to obtain a price, and how a contractor is appointed.
• There are three main types of tendering strategy which are common to the
construction industry: open, selective (restricted) and negotiated.
• The chosen procurement route should not affect the tendering strategy as each
tendering strategy can be used within most procurement strategies.
• There can often be confusion in the industry about the differences between
procurement, tendering and contract. The terms are sometimes used interchangeably
(particularly the former two) without thought given to their actual meaning.
• Procurement is the strategy used to achieve the client’s objectives focusing on
time, cost, quality, and risk.
• Tendering is the process used to appoint a contractor.
• Contract is the formal delivery agreement between the client and the contractor.
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PART 5: TENDERING DOCUMENTATION AND REPORTING

The key points in part 5 are:

1.100 TENDERING IN PRACTICE

The choice of procurement route and contract type will have a direct effect on how the tender
documents are compiled.
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1.101 TENDER PROCESS

A typical tender process is as follows:

The first step:

A preliminary enquiry letter including:
• a project information schedule
• a questionnaire

The next step:

The invitation to tender includes:

• a form of an invitation to tender (usually a covering letter)
• the design information (drawings, specifications, etc.)
• the pre-construction information (health and safety)
• the employer’s requirements (including preliminaries)
• a pricing document (e.g. bill of quantities or contract sum analysis)
• a form of tender.

1.102 TENDER DOCUMENTS

Several documents form part of the tender pack that is sent to the bidders:
• form of invitation to tender
• the design information: drawings, specifications, report
• the pre-construction information (health and safety)
• the employer’s requirements (er) (including preliminaries)
• a pricing document
• form of tender.

Let’s examine these documents in more detail.

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1.102.1 FORM OF INVITATION TO TENDER

1.102.2 DESIGN INFORMATION

Drawings
• architectural
• structural
• services installations (MEP)
• principal designer (usually relates to site logistics).

Specifications
• architectural NBS specification
• MEP Specification
• vertical transportation specification.

Reports
• ground/soil reports
• remediation reports
• flood risk assessments
• asbestos surveys.

1.102.3 THE PRE-CONSTRUCTION INFORMATION (HEALTH AND SAFETY)

Formerly known as the Health and Safety Plan, this document is prepared by the principal
designer.
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This is a requirement of the Construction, Design & Management Regulations 2015 (CDM) which
must be included with your tender documents if the project is notifiable under the CDM Regs.
Includes the details as follows:
- A description of the project and the planned programme for both design and construction.
- Arrangements for managing health and safety during both design and construction.
- Where work is carried out on the client’s premises, health and safety requirements relating to the
Client’s business.
- Site risks (such as logistics, neighbours, contamination).
- Health hazards, including those associated with existing structures, ground conditions and those
arising from the client’s activities.

TOP TIP
Always advise your client of their duties under the Construction (Design and Management)
Regulations 2015 (CDM), in particular, the requirement to appoint a principal designer before any
design is commenced.

Failure to follow the legislation could put your client at risk of prosecution!

1.102.4 THE EMPLOYER'S REQUIREMENTS

The employer’s requirements (ER) contain detailed knowledge about the following:
the client’s requirements
the design team (names and contact details)
a brief description of the project
novation details
planning details
rules for alternative tenders (if allowed)
a list of design information for tendering purposes
details on performance bonds, parent company guarantees and collateral warranties
contract details (including a form of contract, amendments, etc.)
detailed information on preliminaries:
- names and contact details of the parties
- site requirements/facilities
- local authority/statutory undertaker works
- materials & workmanship- programme/progress photographs- cash flow forecasts-
archaeology.

1.102.5 THE PRICING DOCUMENTS

Pricing documents are the principal result of the quantification of the construction works
process.

When all the works have been quantified, codified, and placed in a pricing document, that
document can then be priced to provide a detailed cost analysis of the works.

The final pricing document is one of the principal components of a set of Contract Documents
that forms the basis of the Contract Sum that is agreed upon for the works.
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There are many different types of pricing documents, including:

- bills of quantity
- contract sum analyses
- priced activity schedules
- schedules of rates.

This example is an extract from a bill of quantities and contract sum analysis.

1.102.6 FORM OF TENDER

Upon completion, the tenderer should complete the form of tender and return it, together
with their tender returns by the specified due date which would include all the requested
information, pricing documentation and any other relevant information.

1.103 TENDER PROCESS

In this lesson, we will cover the following steps in the tender process:
- tender submission
- tender review
- tender notification
- tender assessment
- tender recommendation.

1.103.1 TENDER SUBMISSION

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Late tenders, received after the due date and time, should be destroyed without being opened
to ensure there is no advantage or corruption within the process.

The tender period can be increased; however, all tenderers must be given the same period of
time in which to submit their tender.

To ensure fair, competitive tendering, the returns must be based on the same documentation
and not include any qualifications.

Qualified tenders
If a tender return includes qualifications, the following process should be undertaken as follows.
• The tenderer should be given the opportunity to withdraw the qualification.
• If the qualification is not withdrawn the tender should be rejected.
• Negotiation of a non-compliant tender does not allow for equal treatment and is thus unfair.

Withdrawal of tenders
The model form of the tender will state a tender validity period. It is poor practice for a tender
offer to be withdrawn during that period, however, under English law, it may be withdrawn at any
time prior to acceptance.

Lapse of tenders
At the end of the validity period, if the tender has not been accepted, it will lapse, and the offer
will be considered to have been withdrawn.

1.103.2 TENDER SUBMISSION

Following the receipt of tenders by the due date, a tender opening meeting is usually held.

The meeting will consist of the primary stakeholders in the project, usual representatives from the
client, each of the design consultants and the quantity surveyor.

The tenders are opened, the prices are recorded and the order of cost is noted. This information is
recorded in an official record of tender opening, which is then signed by the witnesses to the
tender opening.

The first task is to check each tender return against the project information schedule to ensure that
all of the requested information has been returned with the tender.

If any information is missing, then the tender should be deemed non-compliant, and no further
consideration should be given to it.

In practice, this would be difficult to implement, especially if the information has been genuinely
omitted by mistake.

Usually, and dependent upon the nature of the omission, the tenderer would be contacted to request
the missing information.
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That information should be submitted forthwith (this would not apply to pricing information; these
tenders should be discarded).

1.103.3 TENDER NOTIFICATION

Following the opening of the tenders, it is important to notify all but the three lowest (or best
value) tenderers that they have been unsuccessful.

The second and third-place tenders should be notified that they are not the most favoured tender,
but their tenders will be reviewed. On acceptance of a tender, all tenderers should be notified.

Best practice suggests that the notification should include a list of those tenders (in alphabetical
order) and a separate list of tender prices/scores (in ascending order).

The prices should not be attributable to the individual tenderers.

Any information submitted by unsuccessful tenderers should be either returned to them or

destroyed in a confidential fashion.

1.103.4 TENDER ASSESSMENT

If the tender is to be based on criteria other than cost, this should be assessed first.

As part of the tender documents, usually within the project information schedule, the assessment
criteria used to score the tenders should be given:

this is the optimum combination of whole-life costs and

Value For Money (VFM):
quality to meet the user requirement.

This is usually represented in a tender strategy by a split between cost and quality, for example:
Quality and design 60%
Cost 30%
Delivery and management 10%

Tenders should be scored accordingly to an evaluation strategy written prior to tender, on the basis
of the information submitted with the tender offer.

The results must form the basis of the final decision, to disregard assessment criteria previously
notified and decide solely on another factor, for example, which would leave the Employer open
to challenge by unsuccessful tenderers.

The primary task is a mathematical check of the pricing documents to identify errors.

Following this, more detailed checking would include:

• omitted items
• additional items
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• the rates and quantities are reasonable

• potential front-loading identified.

TOP TIP

Front loading occurs when a tenderer’s pricing for the early work on site is priced higher than
typically expected (e.g. site preparation, groundwork’s, substructure, frame).

Whereas later works are lower than typically expected (e.g. wall/floor/ceiling finishes, fixtures and
fittings, etc.).

Overall the price may be consistent, but the tenderer is illegitimately trying to increase early cash
flow on the project.

Errors in tenders
Best practice suggests that a tender offer should not be altered without proper justification.
Should a genuine error be found, there are two methods of addressing those errors: Alternative 1
and Alternative 2.

ALTERNATIVE 1
Confirm or withdraw
The tenderer is given the details of the error and can either confirm their offer (i.e. stand by the
price) or withdraw their offer.
This alternative is not consistent with a Partnering approach and is not appropriate for Two-Stage
tendering.

ALTERNATIVE 2
Confirm or amend
The tenderer is given the details of the error and can either confirm their offer (i.e. stand by the
price) or amend it to correct genuine errors.
Should this amendment result in the tender no longer being the lowest/best value, the lowest/best
value tender should then be examined.

This alternative is open to abuse if not managed properly

1.103.5 TENDER RECOMMENDATION

When the lowest/best value tender is found to be free of error, it should be recommended to
the employer for acceptance.

The employer is under no obligation to accept the lowest/best value tender; however, it is
best practice to do so.

TOP TIP
Always treat all tenderers the same, affording them the same time, information and opportunities.
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1.104 THE TENDER REPORT

Click on the activity below to learn more about the tender report.
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TOP TIP
Tendering is an important phase in the procurement strategy but procurement
involves much more than simply obtaining a price.
Remember that tendering is the bidding process, to obtain a price, and how a
contractor is actually appointed
 `

1.105 SUMMARY
• The choice of procurement route and contract type (consider in the contract practice
module) will have a direct effect on how the tender documents are compiled.
• Under a traditional contract the design information, bills of quantities/schedule of works/
schedule of rates and preliminaries will be issued, whereas under a design and build contract
the documents are compiled together in a document called the ‘employer’s requirements,
which the contractor responds to with their contractor’s proposals.
• A typical tender process includes a preliminary enquiry letter and the invitation to tender.
• There are a number of documents that form part of the tender pack that is sent to the
bidders. They are:
• form of invitation to tender
• the design information: drawings, specifications, report
• the pre-construction information (health and safety)
• the Employer’s Requirements (ER) (including preliminaries)
• a pricing document
• form of tender.

The tender process includes:

• tender submission
• tender review
• tender notification
• tender assessment and
• tender recommendation.

• The tender report should be a conclusive record of all of the activities, meetings, queries,
clarifications and actions that have taken place throughout the whole tender process. It should set
out all of the advantages and disadvantages of each tender, clearly, and ultimately provide the
client with a clear recommendation on how to proceed.

MODULE SUMMARY
• This module introduced the different types of procurement and tendering commonly
used and the advantages and disadvantages of each to the parties involved.
• This module has covered the following sections:

- Procurement and tendering

- The main types of procurement used in both the public and private sectors
- Procurement routes – selection
- Tendering and negotiation processes involved in procurement
- Tender documentation and reporting
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INTRODUCTION TO OJEU

The key points in part 6 are:

Introduction

As we have seen in this module, there are many different procurement strategies. As with
the UK, the EU also has its own procurement rules.

In the public sector, in particular, any project over the threshold of €5M is subject to the
OJEU rules.

These rules require all of these contracts, in whichever member state, to be advertised.

Definition

OJEU stands for the Official Journal of the European Union (previously called OJEC - the
Official Journal of the European Community).

This is the publication in which all tenders from the public sector which are valued above a certain
financial threshold according to EU legislation, must be published.
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OJEU THRESHOLDS
Corners

The legislation covers organisations and projects that receive public money. Organisations
such as central government, local government, health trusts and educational establishments
are all covered by the legislation.

Current OJEU Thresholds are as follows:

Figure 16: OJEU Thresholds, Proactis Tenders Direct website

Procuring Public Sector Works

1.106 WHEN PROCURING PUBLIC SECTOR WORKS, IN ALL CASES:

• The aim should be to obtain at least three realistic tenders.

• Open competition by public advertisement may be supplemented by the direct
invitation of suitable firms to tender.
• Where the estimated value of the contract is higher than the thresholds in the relevant
EU directive, the advertising requirements and procedures of that directive must be
followed unless the contract is exempt from the specific directive.

1.107 WHEN PROCURING PUBLIC SECTOR WORKS, IN ALL CASES:

• Suitability of contractors, suppliers and service providers should be determined by

using normal criteria for this purpose such as the inclusion of statements of financial
and economic standing and evidence of technical capability.
`

• Under restrictive tendering, firms which do not have previous experience with
publicly funded contracts or firms that are recently established, must not be excluded
from invitation to tender without adequate grounds.
• If the total value of a contract exceeds the financial threshold in the relevant EU
directive, the contract must be open for competition across the European Union.

1.108 WHEN PROCURING PUBLIC SECTOR WORKS, IN ALL CASES:

• Opportunities must be published in OJEU which is available online in all EU

languages.
• Realistically, how competitive could a Czech company be on a UK contract unless
they have a UK base... Some French and German companies do though.

OJEU TENDERING OPTIONS AND TIMESCALES

As with general tendering procedures, there are similar options under OJEU rules:

OJEU tendering options

As with general tendering procedures, there are similar options under OJEU rules:

Open procedure
All those interested may respond to the advertisement in the OJEU by tendering for the contract.

Restricted Procedure
A selection is made of those who respond to the advertisement and only they are invited to submit
a tender for the contract. This allows purchasers to avoid having to deal with an overwhelmingly
large number of tenders.

Competitive dialogue procedure

The authority enters into a dialogue with bidders, following an OJEU notice and a selection
process, to develop one or more suitable solutions for its requirements and on which chosen bidders
will be invited to tender.

Negotiated procedure
A purchaser may select one or more persons with whom to negotiate the terms of the contract. An
advertisement in the OJEU is usually required but, in certain circumstances, as described in the
Regulations, the contract does not have to be advertised in the OJEU.

An example is when, for technical or artistic reasons or because of the protection of exclusive
rights, only a particular person can carry out the contract.

Public authorities have a free choice between open and restricted procedures.

However, there is also the competitive dialogue procedure available where the contract cannot be
awarded under an open or restricted procedure. The negotiated procedure may only be used in the
limited circumstances described in the Regulations.
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TOP TIP
The Competitive dialogue procedure should be used with caution. The EU will challenge its use
where it believes that the open or restricted procedures could have been used.

OJEU Timescales

Tendering under OJEU rules has specific timescales associated with it which are presented
below.

Figure 17: OJEU Timescales, Public procurement guidance for practitioners, European
Commission, p. 27.

TOP TIP
It is important to be aware of the timescales of the different options and the rules that surround
them. Public Sector clients are often unaware of the complexities of the rules and can often either
run out of time or fall foul of the regulations (opening the process up to challenge, lawsuits and
potential re-running of flawed processes). Don’t get caught out!

OJEU POST BREXIT

SUMMARY

• OJEU stands for the Official Journal of the European Union (previously called OJEC -
the Official Journal of the European Community). This is the publication in which all
tenders from the public sector which are valued above a certain financial threshold
according to EU legislation, must be published.
`

• It is used to provide a common, open, fair and transparent basis for all companies in the
EU to gain access to all public sector tenders for services and projects that exceed the
threshold values.
• The public procurement rules still apply in the UK and the EU for all contracts above the
threshold (€5M), but only in the public sector – They do not apply to the private sector!
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MODULE SUMMARY

 This module introduced the different types of procurement and tendering commonly used
and the advantages and disadvantages of each to the parties involved.
 This module has covered the following sections:

• Procurement and tendering

• The main types of procurement used in both the public and private sectors
• Procurement routes - selection
• Tendering and negotiation processes involved in procurement
• Tender documentation and reporting
• he Official Journal of the European Union (OJEU)
Module 5 – Contract
Hello and welcome to module five of the Foundation in Quantity
Surveying training programme.

In this module, we’ll be looking into standard forms of contract and

their mechanisms and procedures as well as other legal
documents, insurance and dispute resolution.

Contents
Module five is split into six parts:

Part 1 – Introduction to contract law

Part 2 – Standard forms of contract and contract documentation
Part 3 – Other legal documents and securities
Part 4 – Contractual mechanisms and procedures
Part 5 – Insurance
Part 6 – Dispute resolution

Learning outcomes
At the end of this module, you will be able to:
• Describe the various forms of contract available

• Select the appropriate form of contract for your chosen

procurement route
• Advise on the most applicable contractual procedure at the

various stages of a contract

Part 1 – Introduction
Acceptance
Upon receipt of an ‘Offer’ is a final unqualified expression of assent to all the
terms of an offer.
Adjudication
A 28-day decision-making process by an independent expert.
Arbitration
A private tribunal process, similar to litigation.
Bond
A financial guarantee from an independent third party.
Capacity
In law, for a contract to be legally binding, the parties to the contract must
have the capacity to enter into it.
Change control
A process to control post-contract changes.
Collateral warranties
A separate contractual document that is used to create a contractual link
between a party and a third party to a contract.
Consideration
In a construction contract, the consideration to the client is the new building
being bought; to the contractor, it is the contract sum, i.e. the money.
Contract
The formal agreement between the parties is based on the following six basic
requirements: offer, acceptance, consideration, capacity, the legality of the
object (freedom from illegality), and the intention to create legal relations.
Cost
The amount incurred in producing a product, service, or building. Cost is
objective, based on facts and figures (in the context of procurement it is
typically the capital cost of construction (refer to whole life cost for total
project costs).
Extension of time
A process which enables the completion date to be adjusted.
Form of contract
A standard form of agreement.

Intention to create legal relations

For an agreement to be legally enforceable, there must be an intention to
create legal relations.

Interim valuation
A process to enable interim payments (typically monthly) to the contractor.
The legality of an object
It is not possible to enter into a contract to do something illegal. The object of
consideration must be lawful.
Letter of intent
Used to enable work to start before the contract is signed.
Liquidated damages
A mechanism that protects the client in the event of late completion.
Litigation
A public tribunal process, going to court.
Loss and expense
A process which allows the contractor to recover the cost in association with
delay and disruption.
Mediation
A facilitated agreement utilising a third-party mediator.
Negotiation
A negotiated agreement between the parties.
Parent company guarantee
A performance guarantee from a parent company.
Offer
It is an expression of willingness to contract on certain terms with the
intention that it shall become binding as soon as it is accepted by the person
to whom it is addressed.
Partial possession (sectional completion)
A post-contract process which allows the client to take early completion of
parts of the project.
Practical completion (substantial completion – followed by the issuance of the taking
over certificate)
The completion of the project.
Price
The amount charged for the product, service, or building. Price is objective,
based on facts and figures. Price is usually the cost plus a margin (profit) that
can be achieved.
Procurement
The overall act of obtaining goods and services from external sources (i.e. a
building contract) includes deciding the strategy on how those goods are to
be acquired by reviewing the client’s requirements (i.e. time, quality, and
cost) and their attitude to risk.
Procurement route
The procurement route delivers the procurement strategy. It includes the
contract strategy that will best meet the client’s needs. An integrated
procurement route ensures that design, construction, operation, and
maintenance are considered as a whole and that the delivery team works
together as an integrated project team.
Procurement strategy
The procurement strategy identifies the best way of achieving the project's
objectives and value for money, taking account of the risks and constraints,
leading to decisions about the project's funding mechanism and asset
ownership. A procurement strategy aims to achieve the optimum balance of
risk, control, and funding for a particular project.
Quality
–
The quality standard of the product or building in terms of function, design,
and specification.
Rectification
A period of time (typically 12 months) to allow for defect rectification.
Retention
A mechanism to withhold money to ensure the rectification of defects.
Risk
An uncertain event or circumstance that, if it occurs, will affect the outcome
of a project. It is usually measured in terms of probability (likelihood of
occurrence) and impact.
Sectional completion
A pre-contract process allows the client to take early completion of parts of
the project.
Subrogation
Allows the insurer to 'stand in the shoes of the insured’ when a claim is
settled.
Tendering
The bidding process, to obtain a price; and how a contract is awarded.
Third-party rights
Are a separate contractual link between a party and a third party to a
contract.
Time
The length of time to complete the project from inception to completion.
Umberrimae fidei
A presumption of utmost good faith, i.e. all material facts affect the insurer,
and you must make complete truthful declarations
Valuation
A process to enable interim payments (typically monthly) to the contractor.
Value
The perceived worth of the product, service, or building. Perception is from
the buyer, user or client’s perspective. Value is subjective; it can be
influenced by external factors (e.g. marketing).
Value for money (VFM)
The optimum combination of whole-life costs and quality to meet the user
requirement.
Whole life cost (WLC)
The present value of the total cost of that asset over its operating life
(including initial capital cost, maintenance and replacement cost, energy cost
and the cost or benefit of the eventual disposal of the asset at the end of its
life). An asset can include buildings, plants and infrastructure.
What is a contract?

A contract is an agreement between two parties.

In construction, the primary two parties are usually:

1. The client (known as the employer)

2. the contractor

The types of contract execution

A contract can be entered into either under handed or under seal (as a deed). Let's see what each
of these contracts mean.

Under Handed

A ‘simple contract’ signed by the parties. It is statute-barred after 6 years, i.e., an action founded
on this type of contract cannot be brought after six years from the date on which the cause of the
action accrued.

Under Seal (as a deed)

A contract signed by the parties, witnessed, and made clear that it is executed as a deed. It is
statute-barred after 12 years.

Privity of contract

• Under the common law doctrine of ‘privity of contract,’ a contract cannot confer rights or
impose obligations on any person or agent except the parties to the contract.

• Other parties could include the architect, the engineer, the quantity surveyor, etc.

• The parties are known as third parties.

Elements of a law contract

There are six requirements for a legally binding contract to be put in place.

Let’s see what they are.

Letters of intent
Contract negotiations can be lengthy and detailed at the start of a project. On those
occasions where a contract cannot be signed before the start of the project, a letter of
intent can be a useful tool under which works can commence while contract
negotiations are concluded.

Letters of intent, comfort letters, consent to spend, and recognitions of contract, should
be used as a last resort where time taken to draw up and finalise a formal contract
would otherwise delay the works. They may be used to enable a supplier or contractor
to pre-order materials or to create a site establishment. If agreement is not reached on
the main contract, the client will reimburse the supplier for their expenses.

A lawyer should draft letters of intent. It is extremely important that they are worded
carefully and accurately and understood by all parties to avoid lengthy legal battles
should a contract not be agreed.

Comfort letter
A comfort letter expresses the intention of one of the parties to act in a particular way
(for example, to enter into a contract), but does not create any legal obligation on that
party actually to act in that way. The author of the letter will only be liable for deviating
from the stated intended course of action if the expressed intention was not actually
held at the time that the letter was signed.

Consent to spend
A sample consent to spend letter. Instructions to proceed with consent to spend are
sometimes referred to as 'if' contracts, and usually take the following form:

'if you commence works pending preparation of the contract documents, then we will
reimburse you your reasonable costs should the contract not be entered into.'

These agreements are legally binding contracts which pre-date and are superseded by
the principal contract when it is executed. They must be entered into by a duly
authorised representative of the party procuring the works. Consultants often make the
mistake of issuing such letters on behalf of their clients. Unless the practitioner has
authority to enter into contracts as the agent of his client, he or she should not sign such
letters, but should leave it to the client to do so.
Recognition of existence of a binding
contract
Letters recognising the existence of a binding contract between the parties may be used
to execute the contract before the formalities of copying, binding and signing the
contract have been completed.

A letter recognising the existence of a binding contract has similar effects to the
execution of the contract itself. If the contract is repudiated after such a letter is in place,
but before the contract itself has been signed, the employer will be liable for loss of
profit by the contractor on the outstanding works.

This is a sample form of letter recognising the existence of a binding contract.

Valuations for interim certificates

Under the Housing Grants, Construction and Regeneration Act 1996, a party to a
construction contract in excess of 45 days in duration is entitled to interim or stage
payments. Every construction contract should include provision for interim payments.

Interim payments are determined in accordance with the contract. This could be by such
methods as valuing the quantity of work completed at stages throughout the process.
Alternatively it could be by agreed amounts to be paid at certain dates or when a
milestone has been achieved. The process and terms should be set out in the contract.

Procedures for stage or milestone payments are becoming more common but valuing
work done on a periodic basis is still the most popular procedure.

Completion
Completion of works is an important milestone. It is a date that has a significant impact
on payment, risk and damages.

At this point the employer will usually take possession of the site and assume
responsibility for loss or damage to the works. The right to deduct damages for delay,
will come to an end and the defects liability or maintenance period will commence. This
is also the time when the final account should be concluded.

Given the significance and implications of this important milestone, there is often
some disagreement over when it has been achieved.
Construction insurance
Advice on insurance should be undertaken with caution and deferred to specialists as
often as possible. Surveyors who do provide insurance advice may find it necessary, in
the future, to be regulated as insurance intermediaries.

The insurance needs of a project are detailed in the contract, for example, the JCT’s
standard forms of contract gives three options for insuring the works. Insurance
provision should be detailed and planned for as part of the project plan.

As a contractor’s insurance is not intended to be project-specific, it should be checked

as part of this process with regard to the details of the project and reviewed throughout
the project to ensure it remains appropriate.

What type of contract is needed?

Deciding on the best contract for the particular requirements of a project will always be
a difficult decision. Contracts for construction projects must provide for a wide variety of
project data (price, time, quality requirements) plus numerous legal issues.

When referring to a construction contract, this section is referring to a contract for

construction works in the UK with the works performed by a building/engineering
contractor.

Standard form contracts are recommended, where possible. Where a standard contract
won’t do, consider making amendments to the standard contract. (See Amending
standard forms of contract.) On rare occasions a bespoke contract must be used.
Summary

There is often confusion in the industry about the differences between procurement, tendering
and contract. The terms are sometimes used interchangeably (particularly the former two)
without thought given to their actual meaning.

• Procurement is the strategy used to achieve the client’s objectives focusing on time, cost,
quality, and risk.
• Tendering is the process used to appoint a contractor.
• Contract is the formal delivery agreement between the client and the contractor.

There are six requirements for a contract to be legal:

1. Offer (from the tenderer)

2. Acceptance (from the client)
3. Consideration (the building or asset and the payment)
4. Capacity (you must understand what you’re agreeing to)
5. Intention (there must be intent to enter a contract)
6. Legality of the object (object and consideration must be legal)
Knowledge check

Question 1 of 3 Who makes the offer in a construction contract?

Select one correct option.

Question 2 of 3 In addition to the contract sum, which of the following is part of the
consideration? Select one correct option.
Question 3 of 3 When a tender is issued to 4-6 bidders, what is this called?
Select one correct option.
Key Learning Points

The key points in part two are:

1. The different types of contracts available.

2. Deciding which contract is the most appropriate based on the procurment route and the project
value.
3. The contract documents that are required in addition to the main form of the contract.

Standard Form of Contract

Introduction

In the early 20th century, the idea of standard forms of building contracts emerged – one contract
for all construction projects.

Today, standard forms of contract are widely used in the construction industry. The tried and
tested wording aims to reduce negotiation time, cost and possible disputes.

There are different forms of contract to suit most requirements and the form chosen will depend,
primarily, on the procurement route.

Below are examples of the main organisations that produce standard forms of contract:
 KEY POINT

As we have seen in the previous module, procurement options affect the time, cost, and quality
of a project.
Depending on which factor you prioritise, your choice of procurement route, thus contract, will
change.

Contracts in use

Introduction to contracts in use

Deciding on the best contract for the particular requirements of a project will always be a
difficult decision.

Contracts for construction projects must provide a wide variety of project data (price, time,
quality requirements) plus numerous legal issues.

TOP TIP

Standard forms of contract are recommended, where possible.

Where a standard contract won’t do, consider making amendments to the standard contract.

Examples of standard forms of contract

Below are some examples of standard forms of contract.

TOP TIP

The practitioner must select and tailor the construction contract for the project and not the other
way around.

It is crucial that the client’s needs in terms of construction procurement are understood, and that
the practitioner understands their abilities to set up and manage a construction contract.
Which of these forms are most used in the construction sector?

Contracts used most often.

The National Construction Contract and Law Survey (NBS) published the following charts as a
result of a 2015 survey which shows the typical contracts in use and how that use changes
depending on the value of the project.

Contracts in use: Click the i symbol for more information.

Contracts in use: As we can see, JCT and NEC are the most popular, with NEC
increasing in use over time. This change is primarily about a move toward a more
collaborative approach to construciton contracts, as NEC is grounded in the concept
of mutual trust and cooperation.

Contract use by value £ - Click the i symbol for more information.

Contract use by value £: In terms of value, JCT tends to be common on smaller projects,
with a combination of JCT and NEC for mid-value projects. FIDICS are common in
major projects due to their common use internationally, particurlarly in the Middle
East.
What are the advantages and disadvantages of using standard forms of contract?
Let’s find out.

ENGAGE

What do you think are the advantages and disadvantages of standard forms?

Drag and drop each option onto either the advantages or disadvantages square.
RECAP

TOP TIP

As we have seen, one of the disadvantages of a standard contract is the complicated nature of the
drafting.
The reason is that:

“many forms (…) are written with a mind to dissection in the event of a dispute; they are not written in a
language or in a style capable of being understood, with any justifiable confidence, by those using
them”.

Ndekugri and Rycroft (2009) The JCT 05 Standard Building Contract: Law and Administration. Oxford:
Butterworth and Heinemann. P7.

In the following lessons, we’ll provide you with an overview of the JCT and NEC
contracts.

For in-depth training on the JCT and NEC contracts, please visit rics.org to view other
training options available.
JCT contracts

The JCT forms are largely traditional construction contracts and are the most widely used
construction contracts in the UK building sector.

They have been tried and tested over a long period of time and are suitable for most
projects.

Most construction professionals will feel more confident using these forms than bespoke
ones.

The JCT produces excellent guides for most of their contracts and provides a very useful free
Contract finder tool on their home page.

The JCT provides subcontracts and collateral warranties for all its standard forms plus pre-
construction agreements, project bank account provisions and even a consultant form so provides
a comprehensive contracts service.

Figure 1: https://www.jctltd.co.uk/category
NEC contracts

NEC4 is a suite of non-traditional contracts and replaced the NEC3 suite in 2017.

NEC forms are only used in approximately 10%–15% or so of the building contract
market although many of these projects are high-profile and high-value projects (Olympics
and Cross Rail, for example) and mostly in the public sector.

The NEC forms of contract work differently from JCT. Their key attributes are:
• flexibility
• the emphasis is on proactive management and minimal if any provisions for post-contract
final accounts and paperwork.
• clear and simple contracts with an absence of legal language and
• a heavy reliance on timely procedure/response and programmes.
TOP TIP #1

Although NEC contracts are written in plain English, they can, however, be difficult to
understand and great care has to be taken as these contracts do not use traditional contract
wording and procedures such as preliminaries, provisional sums and loss and expense.

TOP TIP #2

The above attributes and the impact they will have on the project’s contract administration (and
the need for staff training) must be factored into the practitioner’s fee if a client is considering
using an NEC4 contract.

NEC contract options and method of pricing

The different contract options relate to the method of pricing:

• Priced activity schedule

• Bill of quantities
• Target cost
• Cost plus
• Management contract

NEC contract options

Option A Priced contract with activity schedule
 NEC contract options
Option B Priced contract with bill of quantities
Option C Target contract with activity schedule
Option D Target contract with bill of quantities
Option E Cost-reimbursable contract
Option F Management contract

TOP TIP

Most construction professionals are familiar with both JCT and NEC contracts, although JCT is
more so.

NEC can be more administratively heavy, so remember to take this into account when resourcing
your project!

Figure 2: https://www.neccontract.com/
Contracts, Project Management and Procurement | NEC Contracts
Contract documentation

In addition to the form of the contract agreement, several other documents make up a set of
contract documents.

Contract documents include:

1. The design information.

2. The pre-construction (health and safety) information.
3. The employer’s requirements.
4. The bill of quantities (or other pricing documents).

TOP TIP
The Quantity Surveyor is often responsible for compiling these documents on behalf of the
client.
Let’s examine these contract documents in detail.
The following are typical documents found in the design information:
Drawings:
• Architectural drawings
• Structural drawings
• Services installations (MEP) drawings
• Site logistics – health and safety

Example of drawings - Ostrowski, S.D.C. (2017) Measurement: Using the New Rules of
Measurement. West Sussex: Wiley Blackwell

Specifications:

• NBS architectural specification

• MEP specification
• Vertical transportation specification
• Ironmongery schedule
• Bending schedules
Reports:
• Ground/soil reports
• Remediation reports
• Flood risk assessments
• Asbestos surveys

Formerly known as the Health and Safety plan, the client is responsible for providing the pre-
construction information which must be prepared by the principal designer.

This is required under the Construction, Design and Management Regulations 2015 (CDM Regs.
2015).

• A description of the project and the planned programme for both design and construction.
• The arrangements for managing health and safety during both design and construction.
• Where work is carried out on the client’s premises, health and safety requirements relating to
the client’s business.
• Site risks such as logistics, neighbours, contamination, etc.
• Health hazards, including those associated with existing structures, ground conditions and
those arising from the client’s activities.

The two key pieces of legislation that apply are:

The Health and Safety at Work Act 1974

legislation.gov.uk

https://www.legislation.gov.uk/ukpga/1974/37/contents

The Construction (Design and Management) Regulations 2015

legislation.gov.uk

https://www.legislation.gov.uk/uksi/2015/51/contents/made
The HSWA 1974 is the primary piece of legislation covering occupational health and safety in
the UK.

The health and safety executive (HSE), with local authorities (and other enforcing authorities), is
responsible for enforcing the act and several other pieces of legislation relevant to the working
environment.

The general purpose of the act is as follows:

“All workers have a right to work in places where risks to their health and safety are properly
controlled. Health and safety are about stopping you from getting hurt at work or ill through
work. Your employer is responsible for health and safety, but you must help”.

Health and Safety Executive, 2017.

TOP TIP

The pre-construction information must be included with your tender document if the projects is
notifiable under the CDM regs.

Failure to issue this documentation could put the client at risk of prosecution.

The employer’s requirements contain detailed information about the following aspects of the
project:

• The client’s requirements – the objectives about time, cost, quality, and risk.
• The design team - names and contact details.
• A brief description of the project
• Details on performance - bonds, parent company guarantees and collateral warranties.
• Contract details - including the form of the contract, amendments, etc.
• Novation details
• Planning details
• Rules for alternative tenders (if allowed)
• A list of design information for tendering purposes
• Detailed information on preliminaries:
• names and contact details of the parties.
• site requirements/facilities
• local authority/statutory undertaker works
• materials and workmanship
• programme/progress photographs
• cash flow forecasts
• archaeology
In addition to the employer’s requirements, the quantity surveyor also provides the pricing
documents.

The pricing document is the principal result of the quantification of the construction works
process.

When all the works have been quantified, codified, and placed in a pricing document, that
document can then be priced to provide a detailed cost analysis of the works.

The final pricing document is one of the key components of a set of contract documents that
forms the basis of the contract sum that is agreed upon for the works.

Example – Page from a bill of quantities

Example – A contract sum analysis.
Always ensure your pricing document is aligned with your procurement route (covered in the
procurement module) and form of contract as shown below:

Pricing Document:
• Procurement route
• A form of contract

Bill of Quantities:
• Traditional procurement
• JCT standard form of building contract: private with quantities or
• NEC option B

Contract Sum Analysis:

• Design and Build
• JCT standard form of building contract: design and build.

Priced Activity Schedule:

• NEC option A

Schedule of Rates:
• Measured term contract.
• Cost reimbursable contract.
• JCT prime cost building contract or
• NEC option E

Bill of Quantities:
• Management contracting
• JCT management contract or
• NEC option F

TOP TIP

The Contract document will form the basis of the contract, make sure they are complete, and the
most current version of the information (for drawing revisions) they do not contain any
discrepancies.

Failure to undertake these final checks could lead to cost increases later, or worse disputes
arising.
Summary

Let’s recap what we’ve covered in Part 2: Standard forms of contract and contract
documentation.

• Standard forms of contract are widely used in the construction industry.

• There are different forms to suit most requirements and the form of contract chosen will
depend, primarily, on the procurement route.
• JCT and NEC are the most popular, with NEC increasing in use over time. This change is
primarily about a move toward a more collaborative approach to construction contracts, as
NEC is grounded in the concept of mutual trust and cooperation.
• In terms of value, JCT tends to be common on smaller projects, with a combination of JCT
and NEC for mid-value projects.

In addition to the form of the contract agreement several other documents make up a set of
contract documents, these are:

• The design information

• The pre-construction (health and safety) information
• The employer’s requirements
• The bill of quantities (or other pricing documents)
Knowledge check

Question 1 of 6: Which is the most common contract in use?

Select one correct option.

Question 2 of 6: What is considered the main advantage of the NEC contract?

Select one correct option.
Question 3 of 6: Which of the following is the main disadvantage of JCT?
Select one correct option.

Question 4 of 6: Who is responsible for provising the pre-construction information?

Select one correct option.
Question 5 of 6: Where would you find information on the ground conditions?
Select one correct option.

Question 6 of 6: Who is responsible for compiling the contract documents?

Select one correct option.
Key learning points

The key points in part three are:

Introduction to other legal documents and securities

In addition to the contract documentation, there are several other legal documents used in
construction projects.

The following section will introduce you to several contractual mechanisms and procedures,
including:

1. Letters of intent
2. Form of contract
3. Parent company guarantees.
4. Bonds
5. Collateral warranties and third-party rights

Let’s explore each of these documents.

A letter of intent is used to enable work to start before the contracts are signed.

It is a useful tool in that it allows the contractor to procure materials (especially those with long
lead times, such as lifts or cladding) or undertake site-enabling works (such as major
groundworks and infrastructure) whilst the final contract documentation is agreed upon and
pulled together.
What are the dangers of using letters of intent?

The risks inherent in such contracts are obvious, not least in that they often put the client in a
weak position vis-à-vis the conclusion of negotiations.

It is also common to find that works have proceeded under a letter of intent far beyond the
original intentions of a party, and far beyond the abilities of the letter of intent to manage the
risks and capture the intentions of the parties.
TOP TIP

Letters of Intent are inherently risky, if you’re not ready to sign the contract then perhaps your
client shouldn’t be rushing into it!

Letters of Intent are not considered good practice.

Now work through the following section on ‘Letters of intent’ on isurv.

Letters of intent
isurv

https://www.isurv.com/info/240/letters_of_intent

Forms of contract

In Part 2 of this module, we looked at standard forms of contract.

In addition to standard forms, many construction clients and contractors have their forms of
contract amendments to the standard forms.

Bespoke contracts tend to be weighted in favour of the party writing them. Thus, the standard
forms of contract split risk more equally, based on the party best able to manage a risk being
asked to bear it.

Work through the ‘Standard forms of contract and amendments’ section on isurv.

Standard forms of contract and amendments

Isurv

https://www.isurv.com/site/scripts/documents.php?categoryID=358
Parent Company Guarantees (PCG)

A PCG is typically given by a parent company to secure the performance of a subsidiary

company. It is a popular alternative to a performance bond and is usually (but not always)
provided free of charge.

In most cases, a PCG is a guarantee of actual performance rather than a financial guarantee to
meet additional costs.

It is not as secure as a performance bond (which is typically provided by an independent third

party), if one company in a group of companies fails, all the companies in the group could fall.

Work through this section on ‘Parent company guarantees (PCGs)’ on isurv.

Parent company guarantees (PCGs)

isurv

https://www.isurv.com/info/383/bonds_guarantees_warranties_and_third-
party_rights/2673/parent_company_guarantees_pcgs/2

Bonds

A bond is a written or another undertaking to answer for the performance of an obligation.

• The surety (Guarantor) guarantees to pay the beneficiary of the bond the costs incurred by
the beneficiary, typically 10% of the contract sum.
• Bonds protect the beneficiary of the bond from additional costs should the contractor fail to
carry out the works in accordance with the contract.
• Insolvency is the most common reason for performance failure.

KEY POINT

Performance bonds are not guarantees of performance, the surety does not agree to arrange the
completion of the works but to pay a specified sum to the beneficiary to cover the costs of
rectification of the failure. They are a financial guarantee.

Work through this section on ‘Bonds’ on isurv.

https://www.isurv.com/info/383/bonds_guarantees_warranties_and_third-
party_rights/2672/bonds
Collateral warranties and third-party rights

A collateral warranty (Co/Wa) is a separate contractual document that is used to create a

contractual link between a party and a third party to a contract.

Collateral warranties are normally given by contractors, certain sub-contractors, and professional
consultants in favour of one or more interested third parties.

The employer is also often a party to the warranty document to consent to the arrangement.

The following procurement diagram for a single-stage design and build has been amended to
show the contractual link created through a Co/Wa:

Adapted from: RICS (2013) Developing a Construction Procurement Strategy and Selecting an
Appropriate Route.

Warranties are given to the employer.

In some instances (usually in a Design and Build method of procurement), warranties are also
given to the employer by the professional consultants employed by the contractor.

• The consultants are often originally appointed by the employer and their appointments are
novated (or transferred) to the contractor on or before the commencement of construction.
• In this event, they will normally provide a collateral warranty to the employer.
The Co/Wa may enable the employer to pursue the sub-contractor as well as the contractor
should a problem arise on the project; this is especially useful if the contractor becomes
insolvent. It reduces the risk to the employer by providing additional parties to pursue should
problems occur.

Typical packages that include Co/Wa

Co/Wa are usually used in complex work packages, especially those including elements of
design, such as:

• piling
• steelwork (particularly connections)
• cladding
• lift installations.
• mechanical, electrical, and plumbing (MEP) installations.

Now work through this section on ‘Collateral Warranties’ on isurv.

Collateral Warranties
isurv

https://www.isurv.com/info/383/bonds_guarantees_warranties_and_third-
party_rights/2674/collateral_warranties
What are the benefits and downsides of Co/Wa?

Drag and drop each option to either the benefits or downsides square.

Recap - Benefits and downsides of Co/Wa

Benefits of Co/Wa:

• Provide additional security to beneficiaries.

• Protection in the event of insolvency.
• Provide a method of circumventing the privity the of contract.
• Can be written with specific wording.
• Specific to the parties to the Co/Wa.

Downsides of Co/Wa:

• Additional documentation to produce and complete.

• Can be difficult and take a long time to procure.
• Can be very time-consuming to produce, i.e., if the Client, Funder and Tenant all require
Co/Wa from say 5 sub-contractors = 15 Warranties, add a further Co/Wa for the architect,
engineer, and services engineer = 24 Co/Wa if two more Tenants = 40 Co/Wa, etc. All of
which must be executed by all parties.
Scenarios

Scenario 1:
Collateral warranties and third-party rights

What are the main differences between collateral warranties (Co/Wa) and third-party rights
(TPR) acquired under the Contracts (Rights of Third Parties) Act 1999?

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Scenario 1: Collateral warranties and third-party rights – Video transcript

What are the main differences between collateral warranties (Co/Wa) and third-party rights
(TPR) acquired under the Contracts (Rights of Third Parties) Act 1999?

Collateral warranties

Collateral warranties are contractual documents that were designed to give third parties a
contractual mechanism to enforce obligations and responsibilities derived through another
contract. They are required due to the doctrine of ‘privity of contract’ which prevents third
parties from having rights under a contract between the two main parties (i.e. the contractor and
the Employer).

Co/Wa is typically given to the following third parties:

• funder (f)
• purchaser and/or tenant (pandt)
• sub-contractors
• sub-consultants.

Third-party rights

The Contracts (Rights of Third Parties) Act 1999 was designed to remove the requirement for
collateral warranties. Co/Wa are often numerous, complex contractual documents that require a
lot of administration in terms of drafting and execution. The C(ROTP)A, when enacted in the
main contract, allows the potential third-party beneficiaries to be named in the main contract.
This can be either a specific person or organisation or a class of organisation (such as the
mechanical and electrical sub-contractor), to allow for future flexibility.

Which is best?

Most standard forms of construction contracts now allow for this legislation to be included. The
benefits of using this option, instead of Co/Wa, is the saving in administration, time and
associated cost. However, the construction industry tends to still rely on Co/Wa as they are more
familiar, there is legal precedent associated with them, and they can be specifically drafted to
precise terms (which may be different to the main contract).

Why not Tort?

Finally, the question occurs, in the case of negligence why not simply pursue the parties under
the Law of Tort?

The basic answer is, is that it is easier to take action under the Law of Contract. Furthermore,
only sub-consultants are liable for economic loss in tort, unlike sub-contractors who are not.
Scenario 2: Implied warranties

Shanklin Pier v Detel Products (1951)

Verbal agreements, warranty or not?

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Scenarion 2: Implied Warranties – Video transcript

Shanklin Pier v Detel Products (1951)

Verbal agreements, warranty or not?

The owners of a pier entered into a contract with a building contractor to renovate the pier, which
included repainting.

The architect specified bituminous paint.

A salesman, working for a paint manufacturer approached the architect and the pier owners
stating that his company’s paint (DMU) would be ideal for this job.

The representations of the salesman caused the architect to instruct the contract or to use the
paint produced by the salesman’s company in lieu of bituminous paint.

The paint failed.

The pier’s owners brought an action against the paint manufacturer even though there was no
contract in place between them – the paint manufacturer was a supplier to the building
contractor.

The outcome

The paint manufacturer stated in their defence, that they did not have an agreement with the pier
owners. The paint manufacturer’s contract was with the building contractor.

The court held that because the representations of the salesman had caused the architect to
change his mind and specify the defendant’s paint; a collateral contract had come into existence.

The important point here was the direct representations of the salesman, in the specific case of
the pier. Advertisements alone, for example, would not be enough to imply a warranty.

Summary

Let’s recap what we’ve covered in Part 3: Other legal documents and securities.

In addition to the contract documentation, there are several other legal documents used in
construction projects. This section introduced you to several contractual mechanisms and
procedures, including:

• Letter of intent – A Letter of Intent (LOI) is used to enable work to start before the contracts
are signed.
• Form of contract – A standard form of agreement.
• Parent company guarantees – A guarantee of actual performance from a parent company.
• Bonds – A financial guarantee from an independent third-party.
• Collateral warranties and third-party rights – a separate contractual document that is used
to create a contractual link between a party and a third party to a contract.

REVIEW TIP

Use the menu on the left to select any lesson you would like to review!
Knowledge check

Question 1 of 3: Which of the following sub-contracts is most likely to require a collateral

warranty?
Select one correct option.

Question 2 of 3: On what percentage of the contract sum is the bond typically offered?
Select one correct option.
Question 3 of 3: Which of the following is an alternative to a collateral warranty?
Select one correct option.

Key learning points

The key points in part four are:

Introduction to contractual mechanisms and procedures

Following the conclusion of the contract and the contract documents, the project moves into the
‘post-contract’ phase. The processes of design and procurement now move on to contract
administration and project financial control and reporting (discussed in the project finance
module).

In terms of contract administration, the following contractual mechanisms and procedures will be
reviewed in this part:

A change control
B interim valuations
C extension of time
D loss and expense
E liquidated damages
F partial possession and sectional completion
G practical completion
H retention and rectification.

Let’s examine each mechanism in more detail.

Change Control

Following the completion of the contract, should the client wish to make changes to the agreed
design, this requires contract instruction. It should be noted, that the later in the design and
construction process changes are made, the more the cost of change is likely to increase, as the
following diagram illustrates:

Cost of change increases as the impact of change decreases - CIOB (1996) Code of Practice for
Project Management.
This relationship is also compounded by the choice of procurement route; changes under a
design and build contract are typically likely to be more expensive than those made under a
traditional form of contract.

In the quantification and costing of construction works module, we looked at ‘valuing change.’
In this part, we will look at the contractual process related to change.

The process is different depending upon the form of the contract as you can see in the section
below:

• When the client wishes a variation on an architect’s/contract, the administrator’s

instruction must be issued to the contract, or the contractor must comply forthwith unless
there are grounds for reasonable objection.

• If the contractor becomes aware of additional works which he considers to be the result of a
variation, he should request the architect/contract administrator confirms such works on an
instruction.

• Importantly, when it becomes reasonably apparent that the works are likely to be delayed, the
contractor must notify the contract administrator. This process is discussed subsequently.

• It is important to note that JCT treats the cost of change, impact on time and consequential
costs of time separately, unlike NEC.

Interim valuations

An interim valuation is a ‘snapshot’ assessment of the value of works completed. It forms the
basis of the contractor’s payment.

An interim valuation is usually undertaken monthly.

Payment recommendation

Both the client’s quantity surveyor and the contractor’s Quantity Surveyor will walk around the
site and assess the value of works completed, usually on a percentage basis, resulting in a
payment recommendation.
The activity below illustrates a truncated valuation process.
Payment certificate

Following receipt of the payment recommendation from the client’s QS, the A/CA
(Architect/Contract Administrator) is required to formally certify the payment under the
contract.

A typical payment certificate will state the following:

• Gross valuation: the total value of the works to date

• Less retention: the amount held back by the client.

• Less advance payment: any money paid to the contract or upfront

• Less previous certificate: the amount paid in the previous month.

• Net payment: the total monthly payment due to the contract or

• VAT: Value-added tax (UK)

Figure 2 Typical Payment Certificate
Now work through the following sections of ‘Valuation for interim certificates’ on isurv:

• Methods of valuation
• Interim valuations

Valuations for interim certificates: Isurv

https://www.isurv.com/site/scripts/documents.php?categoryID=76

What happens if the contractor does not issue his Application for Payment?

If the contractor fails to make an application, the best practice is for the quantity surveyor to
continue to value the works fairly and reasonably and provide his recommendation to the
contract administrator. In practice, this may mean that the valuation is not as accurate as it could
be if the quantity surveyor does not have access to the most recent information. The contract
administrator still retains a duty to issue an interim certificate stating the sum he considers to be
due – clause 4.9.1.1.

What happens if the contract administrator does not issue his certificate for payment?

If the contract administrator fails to issue a certificate of payment, the contractor’s application
becomes due in place of clause 4.10.2.

Practical completion

At the end of the construction stage, stage 5, if the works are complete a certificate of practical
completion must be issued.

Practical completion is defined as follows:

Practical completion is a critical juncture for both parties to the contract, as their obligations and
responsibilities change as follows.

• The rectification period begins.

• End of the contractor’s obligation to insure the works.
• End of the liability of the contract or for liquidated damages.
• 50% of the retention is released.
• Time periods for interim certificates change.
• The contract administrator must review entitlement to extensions of time within 12 weeks.
• The contractor must issue a final account within 6 months.

Now work through the ‘Completion’ section on isurv.

Completion
isurv

https://www.isurv.com/site/scripts/documents.php?categoryID=79

TOP TIP

Critically, if the contract or fails to complete on time, a certificate of non-completion must be

issued.

Extension of time/adjustment to the completion date

It is important, in construction contracts, for there to be a mechanism to adjust the completion

date should the progress of the works be delayed.

In NEC, this is relatively straightforward.

Each compensation event (CE) reviews the impact on the completion date and records the
adjustments as the CEs are awarded.

If the contractor gives notice through an early warning, that the works are likely to be delayed
through an issue that does not give rise to a compensation event, then additional time would not
be awarded.

TOP TIP

It is important to note that the ethos of the contract would be for all parties to come together, in a
risk reduction workshop, to mitigate that delay.
Under JCT, the extension of time is more complicated.

The end of stage 5 construction is marked by the issue of a certificate of practical completion.
However, should the progress of the works be delayed so that a certificate cannot be issued?

In this case, one of two things must happen:

• 1
1. either an adjustment to the completion date must be made through the award of an extension
of time or
2. a certificate of non-completion must be issued, which may lead to liquidated damages.

What needs to happen for an extension of time to be awarded?

As soon as it becomes reasonably apparent that the progress of the works is likely to be delayed,
the contractor must:

1. issue a notice of the delay to the contract administrator.

2. provide supporting evidence and crucially.
3. specify the ‘Relevant Event’ (clause 2.29) that would give rise to an award.

Here is a summarised list of relevant events under JCT contracts, clause 2.29:

• Variations • Exceptionally adverse weather

• Instructions • Loss from a specified peril such as a flood
• Delay in giving the contract or possession of the • Civil commotion or terrorism
site • National strikes
• Antiquities/archaeology • Changes in statutory requirements
• Inaccurate Approximate Quantities • Insolvency on the part of a named specialist
• Contractor suspension because of non-payment • Force majeure (such as a war or an epidemic)
• Any impediment, prevention, or default (…) by
the Employer
• Statutory undertaker’s work
Why is it important to have the ability to adjust the completion date?

It is important to be able to adjust the completion date for two main reasons:

1. First, if the completion date was not adjusted and the contractor failed to finish, he would
become liable for damages to the employer. Imagine a case where the employer delayed the
works and then applied damages for the resulting delay, this would be unfair.
2. 2
2. Second, if the contract administrator fails to assess the delay and make an award within the
contractual timescales, time becomes what is known as ‘at large.’
What happens if two events occur at the same time, one a relevant event and the other of
the contractor’s own making?

This question was considered in the case of: Walter Lilly and Company Ltd v Mackay and Anor
[2012] EWHC 1773 (TCC).

The judge concluded:

This can become more complicated depending on the circumstances and the order in which the
respective delays occur.

However, the general principle is as follows:

If the contractor is entitled to an EOT, that entitlement cannot be

removed irrespective of other events.

The only caveat to this is if the relevant event would have no impact
upon the completion date, due to it not being on the critical path of the
works.
Loss and expense

Following the award of an extension of time and adjustment to the completion date, the
programme of the works is extended.

This extension will give rise to additional costs, generally about preliminaries such as staff
and management, as well as other heads of claim.

Main heads of claim for a contractor

It can include:
• preliminaries
• labour
• materials
• plant
• inflation
• finance and interest charges
• head office overheads and profit.

Extra losses for the client

In addition to the contractor’s additional costs, however, the client also incurs extra losses.
These can typically be:
• loss of income (i.e., rent) on the building.
• loss of business
• cost of capital (interest accrued on loans/lost on capital)
• cost of alternative provision (i.e., rent on alternate space)
• additional professional fees.

Therefore, these costs must be shared between the parties equally.

The JCT contract does this through clause 4.22 ‘Relevant Matters,’ which includes:

• variations
• architects’ instructions
• antiquities/archaeology
• inaccurate approximate quantities
• any impediment, prevention, or default … by the employer.
Loss and expense

Following the award of an extension of time and adjustment to the completion date, the
programme of the works is extended.

This extension will give rise to additional costs, generally about preliminaries such as staff and
management, as well as other heads of claim.

Main heads of claim for a contractor

It can include:

• preliminaries
• labour
• materials
• plant
• inflation
• finance and interest charges
• head office overheads and profit.

Extra losses for the client

In addition to the contractor’s additional costs, however, the client also incurs extra losses.

These can typically be:

• loss of income (i.e., rent) on the building.

• loss of business
• cost of capital (interest accrued on loans/lost on capital)
• cost of alternative provision (i.e., rent on alternate space)
• additional professional fees.

Therefore, these costs must be shared between the parties equally.

The JCT contract does this through clause 4.22 ‘Relevant Matters,’ which includes:

• variations
• architects’ instructions
• antiquities/archaeology
• inaccurate approximate quantities
• any impediment, prevention, or default … by the employer.
This reflects the intention of the contract to share the costs equally between the parties.

The contractor is only entitled to loss and expense for matters (relevant matters) which are
beyond his control and generally caused by the employer (client).

The remaining relevant events, ‘exceptionally adverse weather conditions, for example, are
beyond the control of both parties.

The contractor is entitled to an extension of time to protect him from liquidated damages, but
both parties share their costs equally, the contract or his management costs, and the client his loss
of income.

Liquidated damages

Should the contractor fail to finish by the completion date defined in the contract and a certificate
of non-completion is issued, the employer is entitled to damages from the contractor.

Those damages are intended to put the employer back in the position they would have otherwise
been in, had the delay not occurred.

Types of liquidated damages

There are two types of damages, unliquidated and liquidated.

Unliquidated dadamges: An assessment of the employer’s actual loss, calculated when known
after the loss has occurred.

Liquidated damages: A ‘genuine pre-estimate of loss’ typically calculated pre-tender.

• The sum is then included within the tender and subsequent contract document.
• The contractor bases his reponse on knowing this information and therefore agreeing to pay a
defined sum, usually per week if he is delayed in completion.
It is important to recognise the phrase ‘genuine pre-estimate of losses. This is a critical statement
that means the employer cannot insert an excessive figure, either to put pressure on the
contractor to finish or to more than cover any anticipated loss.

If the contractor feels the amount is excessive and decides to challenge it in the courts, should the
courts agree, it would be deemed a ‘penalty’ and unenforceable.

The employer (client) must calculate liquidated damages, not the quantity surveyor and can
include the following potential losses:

• loss of income (i.e., rent) on the building.

• loss of business
• cost of capital (interest accrued on loans/lost on capital)
• cost of alternative provision (i.e., rent on alternate space)
• additional professional fees.

What are the advantages of liquidated over unliquidated damages?

• They are pre-agreed at the outset.

• Both parties know the level of risk they are committing to.
• The employer can deduct liquidated damages immediately, potentially from payments due,
without having to prove actual loss.
• The employer does not have to resort to the courts should the contract or dispute the level of
unliquidated damages claimed.

What happens if you insert £0.00 or nil as liquidated damages?

Nil, in the Temloc Ltd v Errill Properties Ltd (1987) case, this was interpreted to mean zero. That
is, £0.00 per week, which following a substantial delay, does not amount to much. If the
liquidated damages provision remains intact, the employer cannot claim unliquidated damages.

In Silent Vector Pty Ltd v Squarcini (2008) (an Australian case), the rate of liquidated damages
was stated to be "n/a" - not applicable. In this case, the court found that liquidated damages did
not apply, but unliquidated damages did.

TOP TIP

The best solution is to put in a “Genuine Pre-Estimate of Loss” in the event the client can’t or
won’t provide this, then the second-best solution is to delete the liquidated damages clause and
insert a further clause which states that the client reserves their right to unliquidated damages in
the event of delays to completion.
Sectional completion and partial possession

Should the employer wish to take possession of part of the build before practical completion
there are two options:

1. Sectional completion
2. Partial possession

Let’s examine these options further.

SECTIONAL COMPLETION

When completion of the works occurs to a particular section (phase) of the works.

• The sectional completion dates are defined and agreed upon before the contract.
• The sectional completion has the same effect as practical completion in respect of damages,
insurance, defects, etc.
• The preference would be for the employer to pre-determine the requirement and include
sectional completion within both the tender and contract documents.
• The contractor can then plan the programme and site logistics with this in mind. Issues such
as start, and completion dates and liquidated damages can also be pre-agreed.

PARTIAL POSSESSION

When the employer wishes to take possession of any part of the works and the contractor’s
consent has been obtained.

• The contractor’s consent shall not be unreasonably delayed or withheld so that the employer
may take such possession.
• Partial possession is by agreement after the contract is entered into, i.e., during the works.
• It also has the same effect as practical completion in respect of damages, insurance, defects,
etc.
• Partial possession is a higher-risk option for both parties, as there is less time to plan for it. In
this type of possession:
1. the employer must obtain the consent of the contractor and
2. the dates and the subsequent impact on damages must be agreed upon during the works.
• With partial possession, there is a greater opportunity that disputes may occur.

In both sectional completion and partial possession, when the employer takes possession of the
section, the liquidated damages for non-completion of the remaining sections must be reduced,
otherwise, they would become a penalty. This is undertaken differently depending on the form of
the contract.

JCT The liquidated damages reduce in direct proportion to the construction value of the section
handed over. If the employer takes possession of 25% of the value of the works (by
contract sum), the liquidated damages figure is reduced by 25%.
NEC The situation under the NEC3 contract is different.

The proportioning down mechanism in NEC3 is based upon the project manager's
assessment of 'the benefit' to the employer of taking over a part of the work.

In the case of NEC, it is the value to the employer of the work taken over that is important,
i.e. if the 25% of the project taken over delivers 75% of the employer’s rental income, then
the project manager may think it appropriate to reduce the damages by 75%.

Failure to include a proportioning down mechanism for liquidated damages

If a proportioning down mechanism for liquidated damages is not included in a contract, it can
create problems. Let’s take a look at these two cases.

Case 1:

Stanor Electric Limited v Mansell Limited (1988)

This case involved an electrical contract (one contract) for work to two houses. The contract had
a liquidated damages figure of £5,000 per week.

• The contractor completed one house on time; the other was two weeks late.
• Liquidated damages of £5,000 (£2,500 x 2 weeks) were deducted.

This doesn’t seem unreasonable, but it was held that the damages clause was a penalty clause
because the contract had no proportioning down mechanism.

Case 2:

Bramall and Ogden Limited v Sheffield City Council (1983)

In this case, Sheffield council employed Bramall to construct 123 houses. LADs were stated at
the rate of £20 per week for each uncompleted dwelling.

The damages were held to be a penalty because there was no provision for the employer to take
possession of the houses as they were completed and no provision to reduce the damages for
partial possession.
Proportioning down mechanisms can give rise to problems in projects such as mixed-use
development involving retail, offices, car parking and entertainment, where each part attracts a
different level of damage. The calculation of the reduction may not relate to the way the
liquidated damages figure was calculated.

For example

Retail units attract a much higher rental income than offices, but the construction costs per
square metre of floor area could be less than that of the offices. In this situation, the use of
sectional completion might be appropriate.

The NEC method of assessment can take account of this, whereas JCT cannot.

Retention and rectification

Retention is an agreement between the client and the contractor to deduct an amount of money
from payments due.

Under JCT SBC/Q, retention is 3% unless specified otherwise (in practice generally 3-5%,
unless a company has a particularly poor record/financial status in which case it might be
higher).

Why is this important?

 Retention is used to provide a degree of financial security to a client in case of contract or

insolvency.
 It can also be used as an incentive to make sure the contractor completes the work.
Retention is typically released to the contractor in two instalments, 50% at completion and
the remaining 50% at the end of the rectification period.

Let’s now see what rectification means.

The rectification period, typically 12 months, is a period after completion when any defects are
corrected by the contractor.

Under JCT, for the second instalment of retention to be released, a certificate of making
good defects must be issued to confirm that all defects have been actioned.

TOP TIP

It should be noted that it is usual practice in partnering and collaboration-based contracts, such as
NEC and PSPC that retention is not typically used.

Summary

 Following the conclusion of the contract and the contract documents, the project moves into
the ‘post-contract’ phase.

 The processes of design and procurement now move on to contract administration and project
financial control and reporting (discussed in the project finance module).

 In terms of contract administration, the following contractual mechanisms and procedures

were reviewed in this section:

• Change control – a process to control post-contract changes.

• Interim valuations – a process to enable interim payments (typically monthly) to the
contractor.
• Extension of time – a process which enables the completion date to be adjusted.
• Loss and expense – a process which allows the contractor to recover the cost in
association with delay and disruption.
• Liquidated damages – a mechanism that protects the client in the event of late
completion.
 • Partial possession and sectional completion – a process which allows the client to take
early completion of parts of the project.
• Practical completion – the completion of the project.
• Retention – a mechanism to withhold money to ensure the rectification of defects.
• Rectification – a period (typically 12 months) to allow for defect rectification.

REVIEW TIP

Use the menu on the left to select any lesson you would like to review!

Knowledge check

Question 1 of 3 Which process allows the client to withhold an element of payment to ensure
defect rectification? Select one correct option.

Question 2 of 3 Which process allows the contract or to recover costs in relation to delay and
disruption? Select one correct option.
Question 3 of 3 Which process signifies the completion of the project? Select one correct
option.

Key learning points

The key points in part five are:

Professional indemnity insurance (PII)

Introduction

To fully understand professional negligence, we first need to define what is a profession.

Typically, a profession has a series of traits or key factors including:

• adherence to a code of conduct

• skills and competencies based on theoretical knowledge.
• skill requires training and knowledge.
• demonstrate competence by passing a test.
• the service is for the public good.
• the profession is organised.

Examples include the RICS, RIBA, and CIOB which offer good examples of all these traits:
Professionals have a liability in the law of contract and the law of tort, and we owe our
clients a ‘duty of care for both advice we give or should give.

Contractual obligations

There are two contractual obligations:

Express Liability
Expressed in the consultant appointment document (contract).

Implied Liability
Where a lack of express terms consultants must ‘exercise reasonable skill and care when carrying
out their duties.

Liability in Tort
This type of liability also extends to individual employees who are negligent in carrying out their
duties.

Service-level agreements
Professional consultants typically enter into service-level agreements (appointment documents)
with their clients.
These agreements set out the obligations of the parties (terms and conditions), the fee and the
scope of service (deliverables).

Adapted from: RICS (2013) Developing a Construction Procurement Strategy and Selecting an
Appropriate Route
Let’s see an example:

Where terms and conditions are silent on a particular situation or quality of a deliverable, implied
terms based on ‘reasonable skill and care’ become important.

Definition

Reasonable skill and care were specifically defined as follows:

‘It is sufficient if he exercises the ordinary skill of an ordinary competent man exercising the
particular act’. Bolam v Friern Hospital (1957).

Bolam v Friern Hospital (1957) example

This case is related to a medical situation concerning electro-convulsive therapy.

• Mr Bolam received an ECT treatment at the hospital and was injured during the process.

• He sued the hospital for negligence stating that they failed to restrain and sedate him properly

• The hospital argued that the practices they used were in line with accepted medical practice
(of the day) and had not acted negligently.

It is essential to recognise the importance of the phrase ‘that particular act,’ this has the effect
of applying different standards to different acts. In this case, the judge continued to state:

‘…he is not guilty of negligence if he has acted in accordance with a practice accepted as
proper by a responsible body of medical men skilled in that art. Putting it the other way
around, a man is not negligent, if he is acting in accordance with such a practice, merely
because there is a body of opinion who would take a contrary view. At the same time,
which does not mean that a medical man can obstinately and pig-headedly carry on with
some old technique if it has been proved to be contrary to what is really substantially the
whole of informed medical opinion.’ Bolam v Friern Hospital (1957)
The ‘Bolam rule’

For a quantity surveyor, reasonable skill and care would be determined by reference to best
practice guidance issued by RICS, as illustrated in the introduction to NRM1:

The 'Bolam rule' continued

This test is often referred to as the ‘Bolam’ rule and is used to define reasonable skill and care in
cases considering professional negligence. A Professional is not negligent if he or she acted in
accordance with a practice accepted at the time as proper by a responsible body of opinion, even
if other professionals adopted a different practice.

To protect professionals from loss in the event of a negligent act, professional indemnity
insurance is available (PII).

PI insurance protects both the employer and the employee against claims of negligence. All
members (and/or firms) of the RICS must hold PI insurance, both when practising and for a
minimum of 6 years post-cessation of practice (or 12 years if handling contracts under deed).
Professional indemnity insurance PII

Professional indemnity insurance aims are as follows.

• Ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet
from its own resources.
• Protect the insured member or firm against the consequences of its liability to pay damages to
third parties for breaches of professional duty that it commits through its professional
activities.
• Ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet.

Firms will adopt different ways of meeting these aims according to their size, the risks attached
to the type of work they carry out and their resources.

Review the Professional Indemnity section of the RICS website.

Then download and read the RICS Regulation Note on UK professional indemnity insurance
requirements (April 2022).

Professional Indemnity
RICS.org

https://www.rics.org/regulation/regulatory-compliance/professional-indemnity

file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/48e142e3-2ff0-4cdd-
b0ba-d84498722bf7/9C7u7SMGYgKb6zer_EeXotJa33m4j3th2-
RICS%20Regulation%20Note%20on%20UK%20professional%20indemnity%20insurance%20r
equirements%20(April%202022)..pdf
file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/0453af6e-ca20-4243-
8a32-4a6802590c49/vwOYPafwc60VFiri_XbfX8oWozjT8Z60C-Merrett_v_Babb%20(4).pdf

What steps could Mr Babb have taken to protect himself?

It is important to ensure that when you leave an employer, or close your practice (either through
insolvency, winding up or retirement) that you hold professional indemnity cover for the period
of liability to which you are exposed.

This cover is known as ‘run-off cover.’ The period of liability may change depending on the
method of execution of the appointment you are being sued under:

• Executed under hand: period is 6 years.

• Executed as a deed: period is 12 years.
• The law of tort period is under 15 years.

RICS requires a minimum period of 6 years for a chartered surveyor.

TOP TIP

As a practising surveyor, PI insurance is typically provided on your behalf by your employer.

If you set it up on your own, you will need to take it out.

As a practising trainer for the RICS, your tutor will also hold PI insurance for education services,
for the same reasons as construction professionals hold it!

Other insurance

Introduction

In addition to professional indemnity insurance, we can also find a series of further insurance
options in construction contracts as follows.

• Contractor's all-risks or contract works insurance – insurance of the works.

• Employer's liability insurance – insurance for the protection of employees.
• Public liability insurance – insurance for the protection of the public.
• Non-negligent insurance – insurance that protects the employer in the event of damage not
incurred through a negligent act.

Insurance of the Works

Insurance is the agreement between one party (the insurer) who agrees, in return for a
consideration (the premium), to pay another person (the insured) a sum of money, or its
equivalent, upon the happening of certain specified events.

Principles to consider.

There are three important principles to consider:

JCT contracts

Construction insurance is usually required for construction contracts.

Most contracts require a policy to be taken out in joint names, which prevents the insurer,
through subrogation, from pursuing the other party to the construction contract in the event of a
claim.

The policy can be taken out by either party.

Under a JCT contract, there are three options:

The insurance must be provided to cover the full reinstatement value and an additional
percentage for fees.

Global perspective

Introduction to takaful insurance in the Malaysian construction sector –

An alternative approach

The approach to mitigating risk and including safety precautions to avoid loss and damage is a
part of the Quran. There is, however, one fundamental difference to the approach noted in the
best practice above and that is that risks are managed through “risk sharing” rather than “risk
assigning” (placing the risk in the hands of another party, as part of a transactional process).

As we have seen throughout the FQS course, construction projects are exposed to high degrees
of risk.
Differences between Takaful and Conventional Insurance - Dr Puteri Nur Farah Naadia Mohd
Fauzi MRICS, MODUS, 21 April 2022

As with UK contracts, in Malaysia, there is a requirement to provide insurance for the works
before they begin.
Specifically, clauses 18.0 (insurance of works) and 48.0 (defects after completion) of the P.W.D.
203 and 203A standard form of contract (rev1/2010) provide the protection of construction
works and the requirement to obtain insurance.

Additionally, the standard form of contract requires two additional insurances:

• Insurance against personal injury and property damage

• Worker's compensation as specified in the employees' social security act 1969 (Malaysian
SOCSO act 1969)

Both conventional and takaful options may be utilised, according to the client’s preference.
However, the takaful option has seen increased popularity in recent years, growing 20p.a. since
2018.

As Islamic finance continues to grow globally (Deloitte, 2022), the takaful insurance approach
will continue to grow and support that growth.

For the full article on “Takaful Insurance in the Malaysian Construction Sector” see below.

Takaful Insurance in the Malaysian Construction Sector

RICS.org

https://ww3.rics.org/uk/en/journals/construction-journal/takaful-insurance-malaysian-
construction-sector.html

Explore

Review the ‘Construction insurance’ section on isurv. Then read the following case: Co-
operative Retail Services Ltd v Taylor Young Partnership (2002) also on isurv.

Construction insurance
isurv

https://www.isurv.com/info/74/construction_insurance

Co-operative Retail Services Ltd v Taylor Young Partnership (2002)

Isurv

https://www.isurv.com/site/scripts/documents_info.php?documentID=6216&categoryID=52
Engage

Feedback

Contractors all risks - irrespective of who takes out the policy and pays the premiums, the
policy itself should be in the joint names of the employer, the contractor, and the sub-contractors.
This makes them all beneficiaries of the policy and prevents the insurance company from
exercising subrogation rights against them.

In the Taylor Young case, the insurer exercised subrogation rights against consultants who were
not included as joint names but could not pursue a sub-contractor who was a beneficiary of the
policy. Insurers have thus far not been prepared to extend all risk policies to include consultants
as joint names.

Contractor’s liability insurance

If there is an accident on a construction site and someone is injured or killed, or property is

damaged, who is responsible? The contractor is responsible for the works, but it is the
employer’s project and land, so whom do we recover from?

Both parties are what is known as ‘joint tortfeasors’, meaning they are jointly and severally
liable for the damages. In this case, the claimant is likely to target the organisation with the most
money.

Under the JCT form of contract, the contractor must take out the contractor’s liability
insurance to indemnify the employer against these risks.
Employer’s liability insurance (non-negligent insurance)

There is a further issue, however, what happens if the contractor causes damage to neighbouring
property through the normal course of construction events, i.e., not through a negligent act?

This issue was resolved in the case of Gold v Patman and Fotheringham

1. During piling operations carried out by the contractor, an adjoining property was damaged by
vibration. The employer, as a joint tortfeasor, was sued by the adjoining owner for the cost of
making good the damage.

2. The employer then sought to recover his loss (the cost of making good the damage) from the
contractor who had taken out public liability insurance as required by the construction
contract.

3. The employer failed to recover from the contractor because the piling work had not been
carried out negligently. The employer could not therefore take advantage of the contractor's
public liability insurance because that insurance is for the benefit of the contractor.

4. The employer could not recover from the contractor under the terms and conditions of the
indemnity because the contractor had not been negligent. Buildings were damaged but the
contractor followed instructions and appropriate codes of practice. Under the contractor’s
liability, it is for the employer to prove that the contractor is negligent before the employer
can take advantage of the indemnity.

Out of this arose the requirement for employer’s liability insurance (also known as non-
negligent insurance), which would cover the employer in this type of situation.

It is important to recognise that this cover is optional, however, the employer would have to pay
additional premiums for this cover.

Explore

Now watch the following lecture on Insurance in the Construction Industry.

Please note that this video is over an hour long, so we highly recommend that you bookmark it in
your browser should you want to come back to it at a later time.

Insurance in the Construction Industry

Liverpool John Moores University,
YouTube (1h26min)

https://www.youtube.com/watch?v=lNfyBmFwrB4
Scenario 3: Liability

Scenario 3: Liability – Video Transcript

Co-operative Retail Services v Taylor Young Partnership and Others (2002).

What are the implications for construction consultants?

The case

In this case, the construction works were severely damaged by fire due to the negligence of the
contractor, sub-contractor, or architect.

• The employer, the contractor and, in this case, the sub-contractor were all named on the
project’s joint names insurance policy.
• This meant that all parties to the negligence, except the architect, were protected from the
insurer’s rights of subrogation.
• The judge found that the clauses within the JCT contract excluded the contractor and the
sub-contractor from any liability covered by the insurance policy.
• This meant that the only remaining party to the negligence, the architect, was now liable
for 100% of the loss and could not counterclaim for a contribution from the contractor the
sub-contractor.

Under the Civil Liability (Contribution) Act 1978, if more than one party is sued, the parties
can claim an apportionment of the loss based on respective responsibility for that loss.
The Taylor Young case resulted in a major precedent for professional consultants, despite only
being responsible for a minor part of the cause of the negligence they could be left with total
liability due to the construction of the contracts and insurance.

So, for example, if the architect specified an incorrect product, yet the contractor caused a fire
through negligent workmanship and the apportionment of the responsibility was 10:90
(architect/contractor), the architect could still be found liable for 100% of the liability.

The implications

One of the suggestions resulting from this case was for consultants to also be included on the
joint names insurance policies. Insurers, however, have been reluctant to facilitate this, possibly
due to the potential overlap with Professional Indemnity insurance.

The result, therefore, has been a significant increase in the use of Net Contribution Clauses.

A Net Contribution Clause, used in a consultant’s appointment, specifies that the consultant,
irrespective of the causes of negligence, will only be liable for their apportionment of the
responsibility, irrespective of the total loss suffered.

In addition to Net Contribution Clauses, most consultants will also try to insert a clause that
limits their total liability under the contract, known as the Limited Liability Clause.

Summary

Professional Indemnity insurance aims to:

• ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet from
its own resources
• protect the insured member or firm against the consequences of its liability to pay damages to
third parties for breaches of professional duty that it commits through its professional
activities and
• ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet.

Firms will adopt different ways of meeting these aims according to their size, the risks attached
to the type of work they carry out and their resources.

There are many forms of insurance in the construction industry, the main ones are listed below:
• Contractor's all-risks or contract works insurance –
insurance of the works.
E.g. Covers costs of a fire on site.

• Professional indemnity insurance (PI) –

insurance for consultant negligence.
E.g. Covers a client if the QS incorrectly measures the quantities.

• Employer's liability insurance –

insurance for the protection of employees.
E.g. Covers the costs if an employee is injured on site.

• Public liability insurance –

insurance for the protection of the public.
E.g. Covers the costs if a member of the public is injured by construction activity.

• Non-negligent insurance –
insurance that protects the employer in the event of damage not incurred through a negligent
act.
E.g. Covers the costs if a neighbouring building is damaged through vibration.

Insurances are an extremely important and complicated topic for all clients and construction
professionals. It is good practice to take legal or expert insurance advice before entering
contracts or advising on complex, or non-standard arrangements (or if you are ever uncertain).

Knowledge check
Key learning points

The key points in part six are:

Dispute resolution

Conflict Avoidance

The most effective contract to deliver successful projects is one that you never have to refer
to. When relationships do break down, there are a series of steps that can be undertaken
before going to court to resolve the dispute.

Conflict avoidance is the best and cheapest method of resolving disputes.

Negotiation

Most construction disputes are resolved by negotiation.

Negotiations may take place alongside litigation, arbitration, adjudication, or any form of
alternative dispute resolution (ADR), or before such proceedings have been instigated.

Read through the Negotiating construction disputes section on isurv:

Negotiating construction disputes

isurv

https://www.isurv.com/site/scripts/documents.php?categoryID=160

Let’s now explore some other key forms of dispute resolution.

Mediation
Read through the Mediation section on disputes on isurv:

https://www.isurv.com/site/scripts/documents.php?categoryID=1203

Adjudication
Read through the Adjudication section on disputes on isurv:

https://www.isurv.com/site/scripts/documents.php?categoryID=161

Do you think adjudication is a fair process?

Some argue that due to its short, 28-day timescale, the process can be unfair.

However, adjudication was designed to be a quick method of resolving disputes amicably, at the
point of dispute (i.e., During the works).

Whilst it is a legally binding and enforceable decision, it can be reviewed through a further
process of arbitration and or litigation at the end of the project and there it is a quick, efficient,
and simple method of solving disputes.
Arbitration
Read through the Arbitration section on disputes on isurv:

https://www.isurv.com/site/scripts/documents.php?categoryID=162

Litigation
Read through the Litigation section on disputes on isurv:

https://www.isurv.com/site/scripts/documents.php?categoryID=163

RICS Dispute Resolution Service (DRS)

RICS have been at the forefront of dispute resolution for nearly 50 years.

Watch the following video on the RICS Dispute Resolution Service (DRS).

DRS at 40 | RICS Dispute Resolution Service

YouTube (5:52)

https://www.youtube.com/watch?v=IRyYSPAHnfw

What do you think the most popular methods of dispute resolution are in the UK? Select all
that apply.

• Negotiation
• Adjudication
• Mediation
• Arbitration
• Litigation

Explore

Download the Global Construction Disputes Report 2022 by Arcadis if you would like to
explore this topic further.

file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/47797217-e945-4552-
9e38-2416140135dc/AaqJA5x-05XoWKA9_qUdBGfuEGWyF1Prl-
2022_Global_Construction_Disputes_Report.pdf
Global Perspective

Construction in the Middle East: Creating a healthier contracting environment.

During the Covid-19 outbreak, countries in the Middle East (ME) region quickly put in place
controls to allow construction to continue. However, inevitably, there were projects which
stalled because of supply chain issues and contract management issues that resulted from all the
ensuing uncertainty.

HKA CRUX Report(opens in a new tab) illustrates that the most common cause of the dispute
is changes in scope (we deal with how changes can impact the financial control of a project in
the Project Financial Control and Reporting module). This cause is both true in the ME as well as
globally.
The conclusion reached by the authors and former RICS president, Amanda Clack FRICS,
is that a return to best practice principles of good ‘clienting’, good cash flow management,
collaboration and culture will help avoid disputes in the first place.

Read the full article on "Construction in the Middle East" by clicking the button below.

Construction in the Middle East

RICS.org

https://www.rics.org/news-insights/wbef/construction-in-the-middle-east--creating-a-healthier-
contractin

TOP TIP

Disputes are always ostly, both in time, money, and relationships. Using methods such as
partnering, collaboration, mutual trust and cooperation will reduce the likelihood of disputes
occurring.

The best method to avoid disputes, however, is to ensure clear, complete, and concise
information is usilised at all stages of a project.

Summary

 Conflict avoidance is the best and cheapest method of resolving disputes.

 Most construction disputes are resolved by negotiation. Negotiations may take place
alongside litigation, arbitration, adjudication, or any form of alternative dispute resolution
(ADR), or before such proceedings have been instigated.

 The primary methods of dispute resolution are summarised as follows:

• Negotiation – a negotiated agreement between the parties.

• Mediation – a facilitated agreement utilising a third-party mediator.
• Adjudication – a 28-day decision-making process by an independent expert.
• Arbitration – a private tribunal process, like litigation.
• Litigation – a public tribunal process, going to court.

 Disputes are always costly, both in time, money, and relationships.

 Using methods such as partnering, collaboration, mutual trust and cooperation will reduce the
likelihood of disputes occurring.

 The best method to avoid disputes is to ensure clear, complete, and concise information is
utilised at all stages of a project.

REVIEW TIP

Use the menu on the left to select any lesson you would like to review!

Knowledge check
Module summary

 In Part 1, we covered the definition of contract and the six elements of law contract: offer,
acceptance, consideration, capacity, intention to create legal relations and legality of the
object. We also looked at standard forms of contract, their advantages and disadvantages as
well as an overview of JCT and NEC contracts.

 In Part 2, we looked at contract documentation at each stage of the construction project: the
design information, the pre-construction (health and safety) information, the employer’s
requirements, and the bill of quantities (or other pricing documents).

 Part 3 looked at other legal documents and securities such as letters of intent, forms of
contract, parent company guarantees, bonds, collateral warranties and third-party rights.
 In Part 4, we explored the following contractual mechanisms and procedures: change control,
interim valuations, an extension of time, loss and expense, liquidated damages, partial
possession and sectional completion, practical completion, and retention and rectification.

 Part 5 touched on the types of insurance for the parties involved in a construction project.

 Finally, on Part 6 we examined the primary methods of dispute resolution: negotiation,

mediation, adjudication, arbitration, and litigation.

REVIEW TIP

Use the menu on the left to select any lesson you would like to review!

End of module
MODULE 6 - PROJECT FINANCIAL CONTROL AND REPORTING – QSF

Introduction to the module

Hello, and welcome to module 6 of Foundation in Quantity Surveying. In this module, we will
be looking into Project financial control and reporting.

Module six is split into 6 parts:

Part 1: The reporting and forecasting of costs during the construction phase.
Part 2: The principles of provisional sums, contingencies, and risk allowances
Part 3: Using cash flows in financial management.
Part 4: Implementing change control procedures within the contract.
Part 5: Corporate strategy and business planning
Part 6: RICS Rules of conduct and ethics

Learning outcomes

At the end of this module, you will be able to:

• Review and analyse the content of a typical construction cost report.

• Describe the purpose and appropriate use of provisional sums, contingencies, and risk
allowances.
• Advise on implications for a project from the results of cash flow forecasts.
• Explain basic business planning and corporate strategy principles.
• and understand and apply the RICS Rule of conduct.

Glossary

This glossary defines the terms used in module six.

Anticipated Variation
A mechanism allowed to provide early notification of a potential change to the project.

Cash Flow
A forecast expenditure of the construction cost of a project over the life of its programme.

Change Control
A process to control post-contract changes.

Compensation event
The equivalent of an architect’s instruction under a JCT form of contract.

Contingency or risk allowance

An estimated allowance for unknowns.
Contract
The formal agreement between the parties is based on the following six basic requirements:
offer, acceptance, consideration, capacity, the legality of the object (freedom from illegality), and
the intention to create legal relations.

Corporate Strategy
The direction and scope of an organisation over the long term, which achieves advantage in a
changing environment through its configuration of resources and competencies to fulfil
stakeholder expectations.

Cost
The amount incurred in producing a product, service, or building. Cost is objective, based on
facts and figures (in the context of procurement it is typically the capital cost of construction
(refer to whole life cost for total project costs).

Cost Report
A report that will include all relevant financial information, including contract sum, anticipated
variations, instructed variations, claims and a report on the programme and corresponding works
valuation.

Defined Provisional Sum

Used where limited information is available to assess the extent of the work.

Early Warning Notice

A mechanism to advise of an anticipated variation in the NEC form of a contract.

Ethics
The moral principles that govern a person or organisation’s behaviour or the conducting of an
activity.

Extension of Time
A process which enables the completion date to be adjusted.

Form of Contract
A standard form of agreement.

Instructed Variation
The confirmation of a change to the project.

Interim Valuation
A process to enable interim payments (typically monthly) to the contractor.

Loss and Expense

A process which allows the contractor to recover the cost in association with delay and
disruption.
Price
The amount charged for the product, service, or building. Price is objective, based on facts and
figures. Price is usually the cost plus a margin (profit) that can be achieved.

Prime Cost Sum

Used for a supply-only rate for materials or goods where the precise quality of those materials
and goods are unknown.

Procurement
The overall act of obtaining goods and services from external sources (i.e. a building contractor)
and includes deciding the strategy on how those goods are to be acquired by reviewing the
client’s requirements (i.e. time, quality, and cost) and their attitude to risk.

Procurement Route
Delivers the procurement strategy. It includes the contract strategy that will best meet the client's
needs. An integrated procurement route ensures that design, construction, operation, and
maintenance are considered as a whole; it also ensures that the delivery team work together as an
integrated project team.

Procurement Strategy
Identifies the best way of achieving the objectives of the project and value for money, taking
account of the risks and constraints, leading to decisions about the funding mechanism and asset
ownership for the project. A procurement strategy aims to achieve the optimum balance of risk,
control, and funding for a particular project.

Quality
The quality standard of the product or building in terms of function, design, and specification.

Risk
An uncertain event or circumstance that, if it occurs, will affect the outcome of a project, usually
measured in terms of probability (likelihood of occurrence) and impact.

Strategy
See corporate strategy.

Tendering
The bidding process, to obtain a price; and how a contractor is appointed.

Time
The length of time to complete the project from inception to completion.

Undefined Provional Sum

Used where no information is available, so an estimated sum is allocated to that work.
Valuation
A process to enable interim payments (typically monthly) to the contractor.

Value
The perceived worth of the product, service, or building. Perception is from the buyer, user, or
client’s perspective. Value is subjective; it can be influenced by external factors (e.g.
Marketing).

Value for Money (VFM)

The optimum combination of whole-life costs and quality to meet the user requirement.

Whole Life Cost (WLC)

Defined as the present value of the total cost of that asset over its operating life (including initial
capital cost, maintenance and replacement cost, energy cost and the cost or benefit of the
eventual disposal of the asset at the end of its life). An asset can include buildings, plant, and
infrastructure.

Key learning points

The key points in part one are:

• The basic elements of a cost report.
• The importance of forecasting future costs.

The cost report

Introduction to Cost Reporting

Following the agreement of the contract sum, the construction phase, stage 5, begins.

The construction phase is known colloquially as the post-contract phase (everything before this
stage is pre-contract).

During the construction phase, the quantity surveyor has three main interlinked tasks:

1. valuation of the works (reviewed in the contract practice module)

2. cost reporting and
3. change control.

In previous modules, we have looked at valuations and valuing change. In this module, we will
look at cost reporting and the practical implementation of change control procedures.

Purpose of cost reporting

Cost reports are used to keep the client regularly updated about their current expenditure
commitments and a forecast of future commitments.
They should:

• give an estimated final account.

• provide advice based on past trends to predict future ones and
• identify and manage areas of cost risk.

Now let's explore what information a cost report contains.

TOP TIP
It is best practice for the cost report to be undertaken within seven days of the latest valuation,
and to be effectively, a forecast final account which accurately tracks the cost of the project.

The best reports are used as a management tool to effectively manage change control and are
updated daily giving an up-to-date snapshot of the current financial standing of the project.

Explore
file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/3f9bad2e-826e-468a-
b4c8-4a4ff6201be3/UBXWGb8qlPh3Grgb_ITWDm

Let’s see an example of a cost report.

Example of a cost report

It is important to provide a client with a cost report or financial statement regularly

(typically monthly).

However, a Quantity Surveyor operating best practice procedures would use the document
as a live management tool to provide a day-to-day cost status on projects.

Report

The report will include all relevant financial information, including:

• contract sum
• anticipated variations
• instructed variations.
• claims and
• a report on the programme and corresponding works valuation.

Recommendation: the report should identify any actions required that could mitigate potential
future cost risks.
Contents:

1. Executive summary: A summary of the entire report, including:

a. Project details
b. Estimated final account.
c. Remaining contingency
d. Report on the programme and
e. Report on work valuation.

2. Basis, assumptions, exclusions

- Like a cost plan, a list of information the report is based upon must be included as
follows:
a. Basis: number of instructions, extensions of time, claims, programme, and valuation
references.
b. Assumptions: any key assumptions made.
c. Exclusions: anything of note that is not included in the report.

TOP TIP
Basis, assumptions, and exclusions are extrmely important to fully inform the client and protect
the Quantity Surveyor. Ensuring everyone understands the basis of the data is key to accurate
reporting.

3. Cash Flow
A summary of the actual and forecast payments anticipated are as follows:
a. Original contract cash flow: at a contract sum.
b. Updated contract cash flow: updated cash flow at each report.
c. Actual cash flow: actual payment to date.

TOP TIP
The cash flow is one of the single most important tools in a Quantity Surveyor toolbox.

It can be used to check the progress of the project (to make sure it’s not in delay), it can be a
warning for insolvencies (where it suddenly drops without warning), and it can highlight
inaccurate valuations (by large variances from planned cash flow).

Cash flow analysis should be completed regularly as an ‘acid test’ project health check.

4. Summary of cost, prime cost, and provisional sums

a. Summary of cost – a summary of all costs within the report resulting in the estimated
final account.
b. Summary of prime cost sums – summary of adjustments to prime cost sums.
c. Summary of provisional sums – summary of adjustments to provisional sums.
d. Anticipated variations - a line-by-line report of all anticipated changes likely to occur
on the project.
e. Instructed variations - a list of all contract instructions and associated costs.
 f. Claims - a list of all potential claims for additional time and/or costs (loss and expense)
and some description of their origin and likelihood of being awarded.
g. Valuations - a summary of the current progress on site and the current valuation of the
works.

Summary

In this section, we have looked at how we manage costs following the agreement of the contract
sum, throughout the construction phase, stage 5.

This phase is known colloquially as the post-contract phase (everything before this stage is pre-
contract).

During the construction phase the quantity surveyor has three principal tasks:

1. valuation of the works (reviewed in the contract practice module).

2. cost reporting
3. change control.

Cost reports are used to keep the client regularly updated about their current expenditure
commitments and a forecast of future commitments.

A cost report will include all relevant financial information, including contract sum, anticipated
variations, instructed variations, claims and a report on the programme and corresponding works
valuation.

The report should recommend any actions required that could mitigate potential future cost risks.

The main contents of a cost report include:

1. Executive summary - a summary of the entire report.

2. Basis, assumptions, exclusions - like a cost plan, a list of information the report is based
upon must be included.
3. Cash flow - a summary of the actual and forecast payments anticipated.
4. Summary of cost, prime cost, and provisional sums.
Knowledge Check
Key Learning Points

The key points in part two are:

Provisional sums

Introduction to provisional sums

A provisional sum is used where work cannot be described and should be given in terms in
accordance with the rules in NRM.

There are two types of provisional sums:

Defined
Limited information is available to assess the extent of the work.

Undefined
No information is available, so an estimated sum is allocated to that work.

Let’s look at ‘defined provisional sums’ more closely.

Defined Provisional Sums

Whilst the work is not completely designed, certain information shall be given (limited
information) as follows:

• The nature of the construction work.

• A statement of how and where the work is fixed to the building.
• A quantity or quantities which indicate the scope and extent of the work.
• Any specific NRM s1.10 limitations including design constraints, method, access, use of the
site, use/disposal of materials, the start of work, and working hours.
• Where provisional sums are given for defined work, the contractor will be deemed to have
made the following allowances programming planning and pricing of preliminaries.

What are Provisional Sum? U-Tube (1.25)

https://www.youtube.com/watch?v=DW7ca7wl9Vc

Prime cost sums

A prime cost sum (pc sum) means a sum of money included in a unit rate to be expended on
materials or goods from suppliers.

For example, ceramic wall tiles at £50.00/m or door furniture at £120.00/door. It is a

supply-only rate for materials or goods where the precise quality of those materials and
goods are unknown.
Prime cost sums exclude:
• all costs associated with fixing or installation.
• all ancillary and sundry materials and goods required for the fixing or installation of the
materials or goods.
• subcontractor’s design fees
• subcontractor’s preliminaries
• subcontractor’s overheads and profit
• main contractor’s design fees and
• preliminaries and overheads and profit.

Contingencies or risk allowances

Introduction to contingencies

Provisional and prime cost sums are used to make allowances for known works that there
is insufficient information available to accurately price.

Construction works, however, particularly those in high-risk situations, such as groundworks

(sub-structure) and existing buildings (refurbishments) will invariably result in additional works
that were unknown or unforeseen at the outset of the project. To ensure the client has adequate
provisions, both in time and cost, contingencies (risk allowances) are necessary.

Cost contingencies

When preparing a cost estimate, it is common practice for the Quantity Surveyor to include an
element of contingency for unknown or unforeseen works.

The level of contingency for unforeseen works can be calculated through two methods:
percentage addition and price risk register. Let’s understand what they mean.

Percentage Addition

A percentage addition is added to the total cost of the estimate based on the QS’ assessment of
the difficulty/level of risk likely to be incurred.

For example, a single-storey, new build office on a green field site may attract an allowance of
5%, whereas a refurbishment of Grade II listed buildings from the 1960s may attract 15%
upwards.

Priced Risk Registered

A more accurate method would be to hold a risk workshop with all members of the project team
to identify all possible risks, assess their likelihood and impact and provide a costed risk register
should they be realised.
Summary

Where there is insufficient information for works to be measured or specified, a variety of

different types of sums are used instead as follows:

• Defined provisional sum – limited information is available to assess the extent of the work.
• Undefined provisional sum – no information is available, so an estimated sum is allocated to
that work.
• Price cost sum - a supply-only rate for materials or goods where the precise quality of those
materials and goods are unknown.
• Contingency or risk allowance – estimated allowance for unknowns.

Wherever possible, always try to utilise defined provisional sums, and if necessary, spend a little
more time collating the information to make this possible.

Defined provisional sums will best protect all parties by providing clarity on the works as well as
the costs, as the Contractor can plan, price the preliminaries, and assess the impact on the
programme of these works.

Knowledge Check
Key learning points

The key points in part three are:

Cash flows

Introduction to Cash Flows

Cash flow preparation and reporting enable businesses to ensure an understanding of the
timing of cost and set out the cost in and out of the business.

TOP TIP
All stakeholders in a programme need to understand this process and accuracy is key to
managing the solvency of business and ensuring the smooth running of projects and
programmes.

Let’s take a look at how cash flows are managed.

Cash Flow Management
Important considerations

The following should also be considered:

• fixed and time-related costs in the preliminaries
• advance payments for materials or materials stored off-site
• retention and
• expenditure of contingencies.

What Is Project Cash Flow In Construction?

YouTube (4 mins)
https://www.youtube.com/watch?v=v0fWpVhqAQ0

Using an ‘s’ curve calculation

An alternative to managing cash flow using the project programme is to use an 's' curve
calculation.
An s-curve spreads the ‘cost’ of the project over a presetermined mathematical model that is
based on typical expenditure for a construction project.

Generally, this results in a graph (Figure 8) in the shape of an ‘s-curve’ which represents the
following:

• Low expenditure at the beginning when fewer trades are on site, typically ground workers.
• Increasing expenditure through the middle of the project when the highest number of trades
are on-site at the same time.
• Reducing expenditure toward the end when only the finishing trades are on site.

When cost reporting, it is important to include:

• an original forecast at the commencement of the contract
• actual expenditure incurred and
• weekly or monthly updates of the forecast (including the actual figures to date).

Should the actual/updated cash flows be different from the original, a brief commentary should
be provided including any recommendation for remedial action.

Retention in Construction | The Good, The Bad & The Alternatives

YouTube (3 min)
https://www.youtube.com/watch?v=0EcaK6gvwH4
Cash flow as a project health check tool

Cash flow can also be used as a basis for monitoring progress throughout the project,
subject to any significant change (variations, extensions of time, etc.).

Although a useful tool to overview progress, cash flow versus actual valuations should not
be relied upon as an accurate method of assessing progress. If a discrepancy between the
two is found, then the progress of the actual work element should be checked against the
programme.

Cost reporting on major programmes

iSurv
https://www.isurv.com/site/scripts/documents.php?categoryID=1411

Cash flow forecasting

iSurv
https://www.isurv.com/downloads/file/3093/archive_cash_flow_forecasting_%E2%80%93_uk_j
uly_2011%E2%80%93june_2022?restricted=true

Summary

Cash flow preparation and reporting enable projects to ensure an understanding of the timing of
cost and set out the cost in and out of the project.

All stakeholders in a project need to understand this process and accuracy is key to managing the
solvency of the project and its component businesses to ensure the smooth running of projects
and programmes.

There are numerous methods available to aid the preparation of cash flow, with a range of
software on the market. However, the basics remain the same.

• The cash flow is linked to the schedule (or programme).

• Cost is thus spread periodically over the project period – the cost anticipated to be incurred is
recorded and updated regularly to account for costs incurred and costs forecast going
forwards.

Remember, the cash flow is one of the single most important tools in a QS toolbox. It can be
used to check the progress of the project (to make sure it’s not in delay), it can be a warning for
insolvencies (where it suddenly drops without warning), and it can highlight inaccurate
valuations (by large variances from planned cash flow).

Cash flow analysis should be completed regularly as a Project ‘Health Check’.

Key learning points

The key points in part four are:

Introduction to contractual mechanisms and procedures

During this course, we have previously looked at change control and variations. In
quantification and costing of construction work, we looked at the methods of quantification
of change. In contract practice, we looked at the contractual mechanisms relating to change
control.

In this section, we will review the practical management process and procedures for
managing those changes in a live construction environment.

Change Control

Recap
Following the completion of the contract, should the client wish to make changes to the agreed
design, this requires contract instruction.

The later in the design and construction process changes are made, the more they are likely to
cost, as the following diagram illustrates:

Figure 9: Cost of change vs. Impact – CIOB (1996)

This relationship is also compounded by the choice of procurement route. For example,
changes under a design and build contract are typically likely to be more expensive than those
made under a traditional form of contract.

In module 3, quantification and costing of construction works, we looked at valuing change. In

this section, we will look at the contractual process related to change.

The process is different depending upon the form of the contract.

The following table looks at the JCT and NEC forms:

Standard forms of contract – change control

Management of process and procedures

Changes of any nature going forward on the project must be controlled to ensure that any
risks to the project budgets and programme are kept to a minimum, so that a successful
project in terms of time, cost and quality can be delivered.

Where possible, cost savings can be funded within the scheme to counteract any additional costs
realised during the finalisation of detailed design information, so that the total project cost and
available project budget are not compromised.

Management procedures can be put in place to control change as follows:

1. Proposed changes in client requirements or requests for additional work.

2. Changes which have a material effect on the value, quality, or area of the scheme.
3. Change which may influence/affect the future operation and maintenance of the scheme.

On a major project, the number and frequency of changes can be large and create a lot of
administrative tasks to ensure all changes are captured in a timely way and all parties are aware
of the potential impacts of those changes.
One method of managing this process is to implement a change control process.

Change Control Flow Chart

file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/e5355d2d-422a-43a2-
a052-f492784af613/C2fkQ5ovuUfyRLcU_SvOM7sxvHzinaKzd-
Change%20Control%20Flow%20Chart.pdf

Change Request from Template

file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/3cbbd57e-31c1-441a-
9c51-9e05f38e4681/6BUprTrnYm5BVUOp__oGiIe43oWo4zpMd-
Change%20Request%20Form%20Template.pdf

The key issue with this type of management process is time.

It is imperative that any change control process allows a request to be processed as efficiently
and in as quick a time as possible to ensure that programme and construction progress doesn’t
become affected.

This process has been based on a 10-working day turnaround and aims to process each change
from receipt of the initial request through to the final client decision within that period. The
distinct phases of the process and associated timescales, which have been assumed for this
procedure, are detailed in the ‘change control flow chart’.
It is important to stress that the noted timescales are not fixed and could flex depending on the
scale, magnitude, and value of the requested change.

Change or Design Development.

Change

Under the design and build form of a contract, change may happen that the client is not due to
pay for. This is known as design development.

The decision as to whether the item is a change or design development will be based on the
contract documents.

If the change is necessary to facilitate the original intention of the design information, the
contractor must bear the cost and time implications. Only if a new item or direct client change is
made by instruction, does this become a valid variation.

Not a Change

The following do not typically constitute a change:

1. Design development including any changes of further design information for explanation,
development and/or clarifications of the design proposals and/or the works information.
2. Anything necessary to comply with the building regulations and/or other relevant legislation
at the date of the contract.

Design Development

Design development is the process by which a design is amplified, explained, developed, and
clarified.

Design development is deemed to include anything that could have been reasonably expected or
deducible from the employers’ requirements or anything necessary to accommodate Building
Regulations or other relevant legislation.

All items must be reported to the project manager/employer’s agent (PM/EA) so status can be
assessed and agreed upon.
Summary

• Change control is a fundamental part of a QS role. In quantification and costing of

construction work, we looked at the methods of quantifying change, and then in contract
practice, we looked at the contractual mechanisms relating to instructing change.

• In this section, we have reviewed the practical management process for changes in a live
construction environment.

• Remember - following the completion of the contract, should the client wish to make
changes to the agreed design, this requires contract instruction. However, under the design
and build form of the contract, change may happen that the client is not due to pay for, this is
known as design development!

• Always read your scope of service when appointed to a new project. Some projects may pass
responsibility for change control to the project manager or even the contractor (particularly in
the management forms). Either way, the only way for a QS to monitor the forecast out-turn
cost of a project, is to have a grip on change control!

Knowledge Check
Key Learning Points

The key points in part five are:

Business planning and corporate strategy

Introduction to business planning and corporate strategy

In addition to project financial management, RICS requires those training for membership
to have a basic understanding of business planning and financial management.

Business planning is important for Quantity Surveyors building their own practices or as they
progress in their careers, particularly into more senior management.

Being able to understand how to identify opportunities to win business, ensure the companies
resources and their workforce’ skills match those opportunities is critical to running a successful
practice.

This section aims to give a brief introduction to both business planning and corporate strategy.
Business Planning
iSurv
https://www.isurv.com/info/1439/apc_mandatory_competencies/3287/business_planning

Practice Management
iSurv (archived)
https://www.isurv.com/downloads/file/190/archive_practice_management_guidelines_3rd_e
dition_october_2010?restricted=true

https://www.youtube.com/watch?v=BK6tNknggbU

By understanding what adds value to your practice and ensuring your resources (your staff and
their skill set) are aligned, you can identify your strategic direction.

This is explained further in the next section.

Strategy in Practice

Strategy – Theory

The strategic theory is a detailed and complicated field.

In summary, basic strategic theory can be summarised as follows:

A. Strategy is likely to be concerned with the long-term direction of an organisation.

B. Strategic decisions are likely to be concerned with the scope of an organisation’s activities.
C. It’s about trying to achieve some advantage for the organisation over the competition.
D. Strategy can be seen as the search for the strategic fit with the business environment… this
could mean major resource changes.
E. Can also be seen as creating opportunities by building on resources and competencies.
F. Is affected by the values and expectations of those who have power in and around the
organisation…. The stakeholders.

Those who have an interest can read more in: Johnson, G., Scholes, K., & Whittington, R (2008)
Exploring Corporate Strategy. Essex: PEL

Strategy - analysis & management

There are a series of tools available to analyse a business environment to understand the internal
and external capacity and capability of your business.
By undertaking a thorough review of your internal capabilities and understanding the external
realities of the environment in which you operate, you can make more informed choices about
the strategic direction of your business, resulting in strategic capability.

Strategy - next steps

When you understand the strategic capability of your business, you can begin to identify the
strategies and methods available to exploit your strengths and deliver your goals.

Development strategies can include the following:

Price
Utilise price as a differentiator, high prices can signal quality and prestige whereas low pricing or
being a loss leader, may develop market share.

Differentiation
What capabilities do you have that no one else does?
What’s your USP (unique selling point)?

Focus
Do you have expertise in one area, i.e., instead of providing quantity surveying, project
management and building surveying when you’re an expert in cost management, just focus all
your energies and resources on quantity surveying.

Withdrawal
The opposite of focus, if your strengths are in building commercial offices in the private sector
and you’re losing money building hospitals in the public sector, withdraw from that sector.
New Markets
Alternatively, if you’re great at building offices, why not move into a new market that can build
on those skills, private residential for example.

Innovation
New products or services – can you develop a new service or a new method of delivering an old
service that is more effective or more efficient for your clients?

Internal Development
Do you need to enhance the skills of your existing staff before you can offer that enhanced
expertise to the market?

Acquisition
Simply takeover another firm to gain additional skills or hire new staff with those skills.

Alliances
Partner with like-minded firms that offer a skill set that whilst different, is also complimentary.

Strategy - levels

Finally, in practice there are three levels of strategy:

1. Corporate strategy
• This sets the overall vision for the company.
• Outlines the objectives to achieve that vision.
• Records the overall scope of the organisation.

2. Competitive or business strategy

• These are the delivery strategies outlined above for each market needed to deliver the
corporate strategy.

3. Team or operational strategy

• Outlines the contribution of each business function or department need to deliver the
business strategies.

TOP TIP
We can ensure our business meet the challenges of the external environment by recruiting the
best people and ensuring they are fully qualified.
In the following video, we will look at some common definitions of strategy at three levels –
corporate, business, and team strategy.

Before you watch the video:

1. Reflect on your concept of strategy and note it down.

2. Then, think about your understanding of the three levels of strategy and watch the video.
3. Compare your notes with the explanation given by Mind Tools

What is Strategy?
MindTools, YouTube (2 mins)
https://www.youtube.com/watch?v=uhfFoINNEKI

Summary

Strategy is the direction and scope of an organisation over the long term, which achieves
advantage in a changing environment through its configuration of resources and competencies to
fulfil stakeholder expectations. It will be different, for different businesses at different times.

Knowledge Check
Key learning points

The key points in part six are:

RICS rules of conduct

Introduction to the rules of conduct

RICS promotes and enforces the highest professional qualifications and standards in the
development and management of land, real estate, construction, and infrastructure.

Our name promises the consistent delivery of standards – bringing confidence to the
markets we serve.

All members and aspiring members of the RICS must abide by a code of conduct, rules, and
ethics.

Now more than ever, professionalism matters. We are making it easier for clients and the public
to choose skilled experts and have confidence in what to expect when they hire an RICS
professional. As market trends change, the way RICS professionals qualify, and practice is also
evolving to deliver confidence and address real market challenges with ethical business
practices.

The RICS rules of conduct have recently been updated to help the global profession respond to
new risks and opportunities.

The new rules replace the previous version which had been in place for members and firms since
2007. We have introduced the following changes to bring our ethical standards into the once-
clear framework.

A simpler structure
Has made it easier for RICS members and firms to understand our rules, providing more
confidence for clients and the public.

Clear examples
To help support members’ professional judgement; each rule is illustrated with examples of how
members and firms can behave to comply with the rule. There are also 12 case studies showing
real-life applications of the rules.

Focusing on respect, diversity, and inclusion

Whether it’s encouraging diversity and inclusion or tackling modern slavery, respect and
courtesy underpin all our professional ethics.

Understanding evolving technology

The rules highlight the importance of understanding the evolving use of data and technology, and
the associated benefits and risks.

Tackling global challenges

The rules show that ethical practice by RICS members and firms has an important role when it
comes to global challenges, including creating sustainable development and tackling climate
change.

The five rules of conduct

The five rules of conduct are as follows:

1. Members and firms must be honest, act with integrity and comply with their professional
obligations, including obligations to RICS.

2. Members and firms must maintain their professional competence and ensure that services
are provided by competent individuals who have the necessary expertise.

3. Members and firms must provide good-quality and diligent service.

4. Members and firms must treat others with respect and encourage diversity and inclusion.
5. Members and firms must act in the public interest, take responsibility for their actions and
act to prevent harm and maintain public confidence in the profession.

Under its royal charter, RICS is required to maintain the usefulness of the profession for the
public advantage, and the practice of surveying is defined as including ‘securing the optimal use
of land and its associated resources to meet social and economic needs.'

Professional ethical practice by RICS members and firms provides a foundation for effective
markets, pioneers better places to live and work, and is a force for positive social impact.

The rules of conduct support positive change in the built and natural environments, by promoting
and enforcing the highest ethical standards in the valuation, development and management of
land, real estate, construction, and infrastructure.

Please download a copy of the RICS rules of conduct to find out more.

RICS rules of conduct

file:///C:/Users/cghabre/AppData/Local/Temp/MicrosoftEdgeDownloads/b5c2a424-32be-4db1-
ada3-167fd940629b/QqFn7qu4UFPwfLuf_owDdtM0EP-C_c65v-
RICS%20rules%20of%20conduct.pdf

Rules of conduct and ethical standards

Why do you think ethics are important?

Behaving ethically is at the heart of what it means to be a professional; it distinguishes

professionals from others in the marketplace.

We’ve created a clear and streamlined set of professional and ethical standards to guide our
members and ensure that all those we deal with have confidence in us.

Explore

Now watch the following video in which RICS experts set out their thoughts on the new RICS
Rules of Conduct. (1 hour)
Pay particular attention to the following sections:
• “Introduction to the rule” (1:58mins), and
• “Why the rules are important” (14.20mins).
RICS Rules of Conduct Video
RICS, YouTube (1 hour)
https://www.youtube.com/watch?v=BSESG3PPpT4

Engage

Professional obligations to RICS

RICS professionalism module

This module is aimed at anyone studying for RICS professional membership across all
routes and pathways.

To become a member of RICS you are required, in addition to demonstrating your

professional knowledge and skills, to show your understanding of and commitment to
RICS rules of conduct.

Explore the RICS Assessment page to find out more.

RICS Assessments
https://www.rics.org/join-rics/assessments-information
Summary

The five rules of conduct are as follows:

1. Members and firms must be honest, act with integrity and comply with their professional
obligations, including obligations to RICS.
2. Members and firms must maintain their professional competence and ensure that services
are provided by competent individuals who have the necessary expertise.
3. Members and firms must provide good-quality and diligent service.
4. Members and firms must treat others with respect and encourage diversity and inclusion.
5. Members and firms must act in the public interest, take responsibility for their actions and
act to prevent harm and maintain public confidence in the profession.

TOP TIP
If you are ever asked to do something that makes you feel uncomfortable in your role as a
Quantity Surveyor, whether that’s about your skills, experience, something you’re asked to do,
whom you’re asked to work with or whom to employ, refer to the “rules of conduct” and think
about what they truly mean.

On most occasions in your career, these rules will be able to guide you to the right answer – if
you’re still unsure – ask RICS or an RICS member.
Knowledge Check
Module Summary

This module covered the various forms of contracts used in the construction industry.

The module aimed to give an awareness of all the main standard forms of contract and a
thorough understanding of contract law, legislation, and the specific forms that they have used.

This module has covered the following sections:

1. The reporting and forecasting of costs during the construction phase.

2. The principles of provisional sums, contingencies, and risk allowances.
3. Using cash flows in financial management.
4. Implementing change control procedures within the contract.
5. Corporate strategy and business planning.
6. RICS rules of conduct and ethics.

The key learning points of this module are:

• The basic elements of a cost report.

• The importance of forecasting future costs.
• The different types of contracts available.
• The most appropriate contract based on the procurement route and project value.
• The required contract documents in addition to the main form of contracts.
• Cash flow and why it is used.
• The expenditure profile of a typical construction project.
• Cash flows used as a project health check.
• The relationship between quantification, instruction, and management of change.
• Three-step process for the management of change in construction projects.
• Procurement and contract routes and the impact on change management.
• The need for quantity surveyors to understand business planning.
• Corporate strategy and its application to business planning.
• The relationship between staff resources and market factors to determine the strategic
capability.
• The RICS rules of conduct.
• The five rules of conduct in different scenarios.
• The importance of ethics in professional advice.