You are on page 1of 480

Update 15 published December 2003

Update 14 published September 2003


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

Please note: References to the masculine include, where appropriate, the feminine.

Extracts from Parry’s Valuation and Conversion Tables, A W Davidson (1989),


(Estates Gazette) reproduced by permission of the College of Estate Management
which owns the copyright.

Appendix A, Section 2.3 is reproduced from the Building Cost Information Service publication,
Standard Form of Cost Analysis: Principles, Instructions and Definitions (1969).

Published by RICS Business Services Limited


a wholly owned subsidiary of
The Royal Institution of Chartered Surveyors
under the RICS Books imprint
Surveyor Court
Westwood Business Park
Coventry CV4 8JE
UK

No responsibility for loss occasioned to any person acting or refraining from


action as a result of the material included in this publication can be accepted by the
author or publisher.

ISBN 0 85406 865 1

© RICS Business Services Limited (RBS) December 2003. Copyright in all or part
of this publication rests with RBS, and save by prior consent of RBS, no part or parts
shall be reproduced by any means electronic, mechanical, photocopying, recording or
otherwise, now known or to be devised.

Typeset and printed by Q3 Print Project Management Ltd, Loughborough.


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

The fact that our profession serves a changing world increases the need for
it to rely on well thought-out and reliable practices and procedures. Events
move at an ever-increasing pace, imposing a requirement for quicker
response times. Modern communication methods such as facsimile and now
e-mail result in the need for information to be available almost instantly.
This is made more difficult by an industry growing in complexity and which
is subject to increasing customer expectations in terms of service and
quality.

The RICS has published this Surveyors’ Construction Handbook to help


surveyors meet these needs. It is intended to become an important source of
reliable information and guidance to all Chartered Surveyors who practise in
construction. Much of the excellent information produced by the divisions
in the past has now been updated for inclusion. Other material not yet
revised will be added. The whole will be regularly reviewed and updated as
necessary. RICS practice panels are continuing to produce information for
inclusion to make it a useful construction reference document.

We hope that this Handbook will become an invaluable aid to your


day-to-day activities.

Christopher Powell, FRICS


PRESID ENT, QUANTITY SURVEYORS DIVISION, 1997–98

Trevor Mole, FRICS


PRESID ENT, BUILDING SURVEYORS DIVISIO N, 1997–98
ACKNOWLEDGEMENTS
Professor Roy Morledge, Professor of Construction Procurement at The
Nottingham Trent University, for contributing the text of Part 3, Section 1.

Major D.R. Bassett, Royal Engineers, for his contribution to the research
underpinning the construction time charts in Part 3, Section 1; Central Unit for
Procurement, HM Treasury (now Office for Government Commerce), for
permission to use CUP guides extensively in the drafting of Part 1, Section 1
and Part 3, Section 1.

Alan Turner, JP FRICS ACIArb, author of Building Procurement, for


permission to use a number of the diagrams from his text in Part 3, Section 1.
CONTENTS
Foreword
Acknowledgements
List of Abbreviations
Introduction 1
A Aim and Scope of this Handbook 1
B Arrangement of Content 1
C Status of Content 2
D Currency of References 3
E Invitation 3
F Subscription Service 3

Part 1: The Client


Section 1.1: The Client’s Requirements and Roles 1
1.1.1 Establishing the Client’s Objectives 1
1.1.2 The Role for Independent Advice 3
1.1.3 Project Brief 3
1.1.4 The Client’s Role 4
1.1.5 The Client’s Responsibilities 6
1.1.6 Appointment of Project Manager (where appropriate) 8
1.1.7 Appointment of Consultants 8
1.1.8 Appointment of Constructors 9
Appendix A: Further Reading 1
Section 1.2: Value Engineering 1
Introduction 1
1.2.1 Why Value Engineering? 2
1.2.2 Applicability 2
1.2.3 At What Stage Should Value Engineering be Carried Out? 3
1.2.4 Who Should Carry Out Value Engineering? 4
1.2.5 How Long Should It Last? 5
1.2.6 Preparing for a Value Engineering Workshop 5
1.2.7 Functional Analysis of Design Relative to the Client’s
Requirements 5
1.2.8 Pricing the FAST Diagram 8
1.2.9 Presenting a Design Solution to a Value Engineering Workshop 8
1.2.10 The Workshop 8
1.2.11 Assessing the Value of the Workshop 9
1.2.12 Implementing the Results 10
1.2.13 Feedback from Post-Occupancy Evaluation 10
Appendix A: Health Centre Value Tree 1
Appendix B: Typical Example of a Value Engineering Process 1
Appendix C: Further Reading 1

The Surveyors’ Construction Handbook Contents (12/03) Page 1


Part 2: Construction Design and Economics
Section 2.1: Pre-contract Cost Planning and Cost Management 1
Introduction 1
2.1.1 Pre-contract Cost Planning and Cost Management 2
2.1.2 Preliminary Cost Studies and Feasibility Studies 4
2.1.3 Budget 4
2.1.4 The Cost Plan at Outline Proposals Stage 8
2.1.5 The Cost Plan at Scheme Design Stage 11
2.1.6 Cost Checking 13
2.1.7 Action after Receipt of Tenders 14
Appendix A: Sources of Cost Information 1
Appendix B: Format of Budget and Cost Plans 1
Appendix C: Element Unit Quantities Generation for Hypothetical
Buildings 1
Appendix D: Further Reading 1

Section 2.2: Life Cycle Costing 1


Introduction 1
2.2.1 The Client Context 1
2.2.2 The Life Cycle Costing Calculation 5
2.2.3 Tax Allowances, Incentives and Business Rates 10
2.2.4 Data Sources 14
2.2.5 Worked Examples 15
Appendix A: Residual Values 1
Appendix B: Obsolescence 1
Appendix C: Costs And Values 1
Appendix D: Glossary of Terms for Taxation 1
Appendix E: Examples of Items of Expenditure Likely to Attract
Taxation Allowances 1
Appendix F: Further Reading 1

Section 2.3: Elements for Buildings 1


Introduction 1
2.3.1 Elements 1
2.3.2 Elemental Cost Analysis 1
2.3.3 Other Uses 2
Appendix A: BCIS Standard Elements 1

Section 2.4: Design and Build - Guidance for Employer’s Agents 1


Introduction 1
2.4.1 Background 2
2.4.2 Contract Documentation 3
2.4.3 Additional Services 3
2.4.4 Employer’s Requirements and Contractor’s Proposals
(including contract sum analysis) 5
2.4.5 Design and Build Variants 6
2.4.6 Novation 8
Appendix A: Potential Services Associated with the Role
of Employer’s Agent 1
Appendix B: Employer’s Requirements/Contractor’s Proposal Checklist 1

Page 2 Contents (12/03) The Surveyors’ Construction Handbook


Section 2.5: The Chartered Surveyor as Lead Consultant 1
Introduction 1
2.5.1 Definitions: The Difference Between a Project Manager and
Lead Consultant 1
2.5.2 Benefits of Appointing a Chartered Surveyor as Lead Consultant 2
2.5.3 Issues to Consider before Undertaking the Role 3
2.5.4 Schedule of Lead Consultant Duties 3

Section 2.6 Defining Sustainable Construction 1


Introduction 1
2.6.1 Technology Swaps 2
2.6.2 How Can the Environment and Sustainability be Valued? 3
2.6.3 How Does This Effect the Construction Industry? 4
2.6.4 Green Building Materials 7
2.6.5 Whole Building Sustainability 8
2.6.6 The Government Line 9
2.6.7 What Might the Future Hold 11
Appendix A: Embodied Energy Content of Building Material 1
Appendix B: Useful Addresses 1

Part 3: Construction Planning and Procurement


Section 3.1: Developing an Appropriate Building Procurement Strategy 1
Introduction 1
3.1.1 The Client’s Role 2
3.1.2 Procurement Strategy 12
3.1.3 Selection of Most Appropriate Procurement Strategy 25
3.1.4 Implementation 29
Appendix A: Procurement Options 1

Section 3.2: Building Services Procurement 1


Introduction 1
3.2.1 Appointing the Building Services Designer 3
3.2.2 Design Coordination 11
3.2.3 Appointing a Building Services Contractor 19
3.2.4 Tender Documents 34
Appendix A: Typical Example 1

Part 4: Construction Administration and Management


Section 4.1: The Problems of Practical Completion 1
Introduction 1
4.1.1 What Happens in Practice 1
4.1.2 Standard Form Approaches 3
4.1.3 Effects of Practical Completion 13
4.1.4 Methods for Dealing with Practical Completion 14
4.1.5 Definitions 16
4.1.6 Subsidiary Issues 20
Appendix A: General Objectives to be Achieved at Practical
Completion for Small to Medium-sized Building Projects 1
Appendix B: Table of Cases 1
Appendix C: Further Reading 1

The Surveyors’ Construction Handbook Contents (12/03) Page 3


Section 4.2: Ascertaining the Amount of Loss and
Expense Incurred in Building Projects 1
Introduction 1
4.2.1 General Principles 1
4.2.2 Definitions 4
4.2.3 Entitlement 4
4.2.4 Ascertainment 7
4.2.5 Admissible Items 9
4.2.6 Inadmissible Items 13
Appendix A: Ascertaining the Cost of Running a Site 1
Appendix B: Disruption 1
Appendix C: Ascertaining the Cost of Head Office Overheads 1
Appendix D: Checklist of Items for which Loss and/or Expense are
Allowed 1
Appendix E: Checklist of Steps Required when Considering
Submissions by Contractor 1
Appendix F: Further Reading 1
Section 4.3: The Management of Risk 1
Introduction 1
4.3.1 Definitions 2
4.3.2 The Rationale for Risk Management in the Construction Process 2
4.3.3 The Risk Management Process 5
4.3.4 Summary 14
Appendix A: Further Reading 1
Section 4.4: Valuations for Interim Certificates 1
Introduction 1
4.4.1 Valuations 1
4.4.2 Assumptions 2
4.4.3 Valuation Under a JCT Contract: Background 3
4.4.4 Recommended Action at the Start of a Contract 4
4.4.5 Communications 5
4.4.6 Approach 6
4.4.7 Content of a Valuation 8
4.4.8 Administration 15
4.4.9 Special Situations 16
4.4.10 Other Contract Terms (relative to valuations) 17
4.4.11 Valuations Under Other Forms of Contract 18
Appendix A: Further Reading 1
Appendix B: JCT Definition of ‘Reasonable Proof’ 1
Appendix C: Example of Priced Activity Schedule 1
Section 4.5: Extension of Time 1
Introduction 1
4.5.1 Extension of Time Clauses 2
4.5.2 Assumptions 2
4.5.3 Extension of Time Under a JCT Contract 3
4.5.4 Notice by the Contractor of Delay to Progress 4
4.5.5 The Award of an Extension of Time during the Contract
Period and Before the Completion Date 5
4.5.6 The Award of an Extension of Time after the Completion Date 6
4.5.7 Relevant Events 7
4.5.8 Concurrent Delays 12
4.5.9 Consequential Entitlement 13

Page 4 Contents (12/03) The Surveyors’ Construction Handbook


4.5.10 Administration 13
4.5.11 Extension of Time under an ICE Contract 14
4.5.12 Extension of Time under a GC Works Contract 14
Appendix A: Further Reading 1

Part 5: Additional Guidance and Information


Section 5.1: Surveying Safely 1
Section 5.2: Construction (Design and Management) Information 1
5.2.1 Schedule of Sources of Useful CDM Information 2
Section 5.3: Built environment group roles and information 1
Section 5.4: Building Cost Information Service 1
5.4.3 BCIS Online 1
5.4.4 Other BCIS Publications and Services 2
5.4.5 Further details 4
Section 5.5: Building Occupancy Cost Information (BMI) 1
5.5.2 BMI Quarterly Cost Briefing 1
5.5.3 Building Maintenance Price Book 1
5.5.4 Special Reports for Benchmarking 2
5.5.5 News, Digests and Reports 2
Section 5.6: Electronic document storage – legal admissibility 1
Introduction 1
5.6.1 Code of Practice – DISC PD 0008: 1999 2
5.6.2 Weight of evidence and document destruction 3
5.6.3 Authenticity 3
5.6.4 Photocopies, microfilm and image processing 4
5.6.5 Document storage 4
5.6.6 Storage and access procedures 5
5.6.7 Format of the Code of Practice 6
5.6.8 Conclusion 20
Appendix A: Specimen form for recording scanning information 1
Appendix B: Specimen form for recording retrieval 1
Appendix C: References 1

Index 1

The Surveyors’ Construction Handbook Contents (12/03) Page 5


LIST OF ABBREVIATIONS
ABE Association of Building Engineers
ABI Association of British Insurers
ACA Association of Consultant Architects
ACE Association of Consulting Engineers
AQL Acceptable quality level
BCIS Building Cost Information Service
BEC Building Employers’ Confederation
BMI Building Maintenance Information
BRE Building Research Establishment
BRECSU Building Research Energy Conservation Support Unit
BREEAM Building Research Establishment Environmental
Assessment Method
BSI Building Standards’ Institution
BSRIA Building Services Research and Information Association
BWIC Builder’s Work in Connection
CA Contract Administrator
CAWS Common Arrangement of Works Section for Building
Works
CDM Construction (Design and Management)
CD-R Compact disc recordable
CECA Civil Engineering Contractors’ Association
CIB Construction Industry Board
CIBSE Chartered Institution of Building Services Engineers
CIC Construction Industry Council
CIRIA Construction Industry Research and Information
Association
CITES Control in Trade of Endangered Species
CCT Compulsory Competitive Tendering
CSM Chartered Surveyors Monthly
DBFO Design Build Fund and Operate
DoE Department of the Environment (now known as the
DETR)
DETR Department of the Environment, Transport and the
Regions (formerly the DoE)
DMS Document Management System
DOM Domestic Sub-Contract
EC European Commission
EU European Union
FAST Functional Analysis Systems Technique
FCEC Federation of Civil Engineering Contractors
GNP Gross National Product
HBF House Builders’ Federation
HMSO Her Majesty’s Stationery Office (now known as
The Stationery Office)
HSE Health and Safety Executive
IChemE Institution of Chemical Engineers
ICE Institution of Civil Engineers
IDMA Information and Document Management Association

The Surveyors’ Construction Handbook Abbreviations (10/02) Page 1


IFC Intermediage Form of Contract
JCT Joint Contracts Tribunal
LCC Life Cycle Costing
LQ Limiting quality
M&E Mechanical and Electrical
MERA Multiple Estimate Risk Anaylsis
MW Minor Works
NEC New Engineering Contract
NEDO National Economics Development Office
NJCC National Joint Consultative Committee for Building
NSC Nominated Sub-Contract
OMR Optical Mark Reading
PFI Private Finance Initiative
PSA Property Services Agency
RIBA Royal Institute of British Architects
RICS Royal Institution of Chartered Surveyors
VAT Value Added Tax
WCD With Contractor’s Design
WORM Write-Once-Read-Many
WRC Water Research Centre

Page 2 Abbreviations (10/02) The Surveyors’ Construction Handbook


I NTRODUCTION

INTRODUCTION

A Aim and Scope of this Handbook


A1 The aim of this Handbook is to help both building and quantity surveyors to
provide construction-related professional services effectively and efficiently.
It seeks to achieve this by providing guidance which reflects what is often
good custom and practice, and relevant information (including references to
other useful material). It should be appreciated that this Handbook does not
attempt comprehensive coverage of necessary or good practice. The
Handbook is addressed to surveyors providing services to clients (as defined),
not surveyors undertaking the role of the client’s representative who gives
instructions to surveyors on behalf of the Client.

A2 ‘Construction’ in this Handbook means new construction, conversion,


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

A3 ‘Client’ in this Handbook is used to include companies and their Directors or


Officers, Trusts and their Trustees, partners, managers and employees who
may instruct a surveyor.

A4 Throughout the Handbook, it is assumed that possession and necessary access


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

A5 The document is drafted on the basis of UK law and practice, although much
of it is relevant to practice elsewhere.

B Arrangement of Content
B1 After sets of Definitions and Abbreviations which apply throughout, the
Handbook is arranged in five Parts. The first four Parts represent sequential
phases of the construction process. The last Part, Part 5, provides Additional
Guidance and Information. Each part is followed by Further Reading, to
which the numbered cross references in the Parts apply.

B2 The first four Parts are as follows:

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

The Surveyors’ Construction Handbook Introduction (4/98) Effective from 1/6/98 Page 1
I NTRODUCTION

development of construction briefs. It defines the client’s roles during the


construction process, and comments on the engagement of professionals
involved in the construction process.

Part 2: Construction Design and Economics covers development of the design


concept, feasibility studies, design and economics (including life-cycle
costing, risk assessment, and cost-value relationships), and confirmation of
the final design proposal.

Part 3 relates to Construction Planning and Procurement, i.e. to the time the
construction contract is placed.

Part 4 covers Construction Administration and Management, i.e. all


post-contract matters.

Any Appendices are situated at the end of each Part.

B3 An Index follows Part 5.

C Status of Content
C1 For convenience, Guidance and Information is integrated. Each paragraph is
prefixed with a G or an I to indicate its status.

C2 ‘Guidance’, as the word implies advice to Members of the RICS on aspects of


their profession. Where recommended for specific professional tasks,
procedures are intended to embody ‘best practice’, i.e. procedures which in
the opinion of the RICS meet a high standard of professional competence.

Members are not required to follow the advice and recommendations


contained in such paragraphs. They should, however, note the following
points.

Should an allegation of professional negligence be made against a surveyor,


the Court is likely to take account of the contents of any relevant guidance
notes published by the RICS in deciding whether or not the surveyor had acted
with reasonable competence.

In the opinion of the RICS, a Member conforming to the practices


recommended in this Note should have at least a partial defence to an
allegation of negligence by virtue of having followed those practices.
However, Members have the responsibility of deciding when it is appropriate
to follow the guidance. If the guidance has been followed in an appropriate
case, the Member will not necessarily be exonerated merely because the
recommendations were found in RICS Guidance.

Page 2 Introduction (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
INTRODUCTION

On the other hand, it does not follow that a Member will be adjudged
negligent if he has not followed the practices recommended in this Handbook.
It is the responsibility of each individual surveyor to decide on the appropriate
procedure to follow in any professional task. However, where Members
depart from any practices recommended in this Handbook, they should do so
only for good reason. In the event of litigation, the Court may require them to
explain why they decided not to adopt a recommended practice.

In addition, Guidance Notes are relevant to professional competence in that


each surveyor should be up to date and should have informed himself of
Guidance Notes within a reasonable time of their promulgation.

C3 Material classified as ‘information’ is intended to provide information and


explanations to Members of the RICS on specific topics of relevance to the
profession. The function is not to recommend or advise on professional
procedures to be followed by surveyors. It is again, however, relevant to
professional competence to the extent that a surveyor should be up to date and
should have informed himself of such information within a reasonable time of
its promulgation.

Members should note that if an allegation of professional negligence is made


against a surveyor, the Court is likely to take account of the contents of any
relevant information published by the RICS in deciding whether or not the
surveyor has acted with reasonable competence.

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

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

F Subscription Service
Any change of address should be notified to the address appearing below:

The Surveyors’ Construction Handbook Subscription Service


RICS Books
Surveyor Court
Westwood Business Park
Coventry CV4 8JE
Tel: 020 7222 7000 ext 647

The Surveyors’ Construction Handbook Introduction (revised 10/01) Effective from 1/12/01 Page 3
PART 1, SECTION 1

PART ONE: THE CLIENT

SECTION 1: THE CLIENT’S REQUIREMENTS AND


ROLES

1.1.1 Establishing the Client’s Objectives


G 1.1.1.1 Client satisfaction will be maximised if the client’s objectives as established
in the business case for the project are met. The surveyor should be able to
assist with the development of the business case and the prioritisation of
project objectives (see 3.1.1.6 and 3.1.1.9).

G 1.1.1.2 The type of client will affect the criteria which must be met if the client is to
be satisfied with the project.

I 1.1.1.3 Owner occupiers are usually primarily concerned with building


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

I 1.1.1.4 This is not to say that owner occupiers are unconcerned about time. Indeed,
certainty of completion date may be a key issue. Nor is it fair to suggest that
developers are unconcerned about building performance or cost. There are
market conditions where both of these issues may become important.

I 1.1.1.5 However, the client’s purpose in initiating a building project is usually


driven by the need for the project as a functional unit or as an investment.
There will usually be particular criteria for achievement which are critical or
important to each particular client. Possible objectives are as follows:

(a) Cost-related
• minimise capital cost
• maximise capital cost/value ratio
• maximise capital cost/worth to client ratio
• achieve necessary income cash flow profile
• minimise management costs
• minimise maintenance and insurance costs
• minimise tax liability
• respect capital cost constraint
• be energy efficient.

The Surveyors’ Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 1
PART 1, SECTION 1

(b) Marketability
• maximise prompt or future disposal (freehold or otherwise).

(c) Use-related
• optimise operational requirements of intended occupier(s)
• provide greatest flexibility in potential uses
• reflect intended occupier’s requirements/preferences/ability to afford
• meet social/management/occupier’s special needs (e.g. disabled).

(d) Environmental
• minimise health and safety risks
• choose materials which reflect sustainability
• aesthetically please (e.g. impression on occupier’s customers)
• minimise any alterations to specific features
• reflect planning authority’s brief/policies
• minimise potential opposition
• reflect corporate style or personal preferences of proposed
occupier/employees
• maximise comfort of occupants
• minimise inconvenience to others during construction.

(e) Timing
• construct within a defined period
• minimise risks of delay during construction.

G 1.1.1.6 The importance of each of these criteria will be relative to the objectives of the
client, the business case for the project and to the extent to which he/she is
able to cope with risk (see 3.1.2.9). It is important that the client seek
investment appraisal advice in respect of the project and that the appraisal
considers ‘what if’ questions to ensure that the impact of changes of key
components in the appraisal is clearly understood. A chartered surveyor will
be able to assist the client in these matters. However, the giving of advice on
some of the requirements listed above is, of course, outside the competence of
the surveyor. Where such a particular requirement is important to the client
and outside the client’s expertise, the client should be advised to seek other
professional advice.

G 1.1.1.7 Many construction projects suffer from poor definition due to inadequate time
and thought being given at an early stage1. This is often because there is a
sense of urgency fuelled by the desire for an immediate solution. Investing
time at the beginning of a project in developing a complete definition taking
account of all the requirements will reduce the likelihood of changes later. The
later that changes are made in a project, the more they are likely to cost in both
direct and knock-on effects (see 3.1.4.14 and 3.1.2.14(f) & (g)).

1
Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.

Page 2 Part 1, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 1, SECTION 1

1.1.2 The Role for Independent Advice


G 1.1.2.1 With the potential for the involvement of many consultants and/or
constructors in a project and the range of contracts associated with their
employment, all but the most experienced client may need advice. The advice
offered should be informed and unbiased and it should be based upon a logical
analysis of the needs of the client, the type and character of the project and the
range of appropriate strategies available.

G 1.1.2.2 This advice can be offered by a member of the client’s design team or can be
a separate function. It may be more difficult for a design team member to
remain impartial in carrying out this process and it is recommended that any
expert retained should be solely for this purpose. This function can be
identified as the role of the principal adviser and may encompass:

• Assistance in preparing the business case (the business case)


underpinning the project
• Identifying the needs and requirements (briefing)
of the client
• Defining the project (project definition)
• Matching needs and project characteristics (procurement strategy)
with appropriate procurement strategy
• Facilitating the associated selection and (implementation)
contractual processes and policies

I 1.1.2.3 Possible sources for the appointment of independent advisers include suitably
qualified and experienced construction professionals such as chartered
surveyors.

1.1.3 Project Brief


G 1.1.3.1 The importance of a clear project brief to the successful completion of the
project and in ensuring appropriate performance of the project cannot be over
emphasised. The inexperienced client will need professional help in the
preparation of the brief. The project brief is a comprehensive statement of the
client’s requirements for the project based on close consultation between the
client and users and based upon the parameters established (see 3.1.1.10 and
3.1.1.12).

The project brief may include:

(a) project description;

(b) how it fits into the client’s corporate plan (e.g. it may be part of a larger
planned development);

The Surveyors’ Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 3
PART 1, SECTION 1

(c) number of people that are to occupy the building, together with their space
requirements;

(d) schedule of accommodation and quality of internal environment;

(e) standards;

(f) equipment and special services/requirements;

(g) when the building needs to be available for use;

(h) quality and cost limitations;

(i) life span;

(j) site; and

(k) statutory controls.

G 1.1.3.2 This is the initial control document for the early planning of the project;
without it, little constructive work can be done. If all the information required
for the project brief is not readily available, it is better to issue it in an
incomplete form and to update it progressively1.

1.1.4 The Client’s Role


G 1.1.4.1 This section briefly explains the client’s responsibilities through the life of a
construction project. In carrying out their role, clients, depending on their
knowledge and expertise, will need help from their professional advisers,
project managers and other consultants, whose roles are also explained in this
handbook. This section aims to outline the client’s task in setting policy and
formulating strategy, and explains how it should be carried out.

G 1.1.4.2 The success of any project will depend upon the motivation given by the
client. Experienced clients may take a leading role in the procurement process;
less experienced clients will need to seek advice or to appoint advisers to
assist them. Where projects are of a large or complex nature it may be
advisable to consider the appointment of a project manager.

G 1.1.4.3 Effective management is vital in any construction project. The client’s prime
role is to establish a structure for the management of the project and to make
sure that it works. A crucial part of any effective management structure is
efficient communication. To perform effectively, all parties must have timely

1
Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.

Page 4 Part 1, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 1, SECTION 1

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

G 1.1.4.4 The client has substantial influence on the design of the project in respect both
of functional efficiency and of overall appearance, and, therefore, has to take
particular care to:

(a) understand fully the purpose of the building; ensure that the requirements
of the users are accommodated; and communicate those requirements to the
designers (see 3.1.1.10); and

(b) appoint designers with proven ability in designing buildings which satisfy
users’ requirements and harmonise with and contribute to the quality of the
built environment. The selection of the right people is emphasised as a key to
success (see 3.1.4.8).

G 1.1.4.5 The accompanying figure indicates the activities in the procurement process
and when activities are usually performed. As can be seen, the client’s role is
significant, with a wide range of activities to perform and implement before
both the design and the construction processes. In the performance of these
activities, the client can expect to be supported and advised by his/her adviser
or (if appointed) the project manager. More detail for each of these activities
can be found in the section of this handbook indicated in brackets in the
figure.

The Surveyors’ Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 5
PART 1, SECTION 1

FIGURE TO INDICATE THE ACTIVITIES IN THE P ROCUREMENT PROCESS

Pre-Design Phase Pre-Construction Phase Construction Post-Construction

Client’s Role Develop business case for Procurement strategy Design overview Commissioning
project (3.1.1.9) (3.1.1.13) (3.1.4.12) (3.1.1.17)

Appoint adviser Design overview* Cost control overview Occupation and takeover
(3.1.1.6) (3.1.4.12) (3.1.4.13) (3.1.1.18)

Define client’s Cost Control overview* Time control overview


responsibilities (3.1.1.7) (3.1.4.13) (3.1.4.14)

Project Brief Whole-life Costs Quality control overview


(3.1.1.12) (3.1.4.15) (3.1.4.18)

Appointment of PM (if Value Engineering Change control


appropriate) (3.1.4.7) (3.1.4.17) overview
(3.1.4.19)
Appointment of design and Time control overview*
cost consultants (3.1.4.8) (3.1.4.14)

Procurement strategy* Quality control overview*


(3.1.1.13) (3.1.4.18)

Value management Appointment of constructors


(3.1.4.16) (3.1.4.9)

Confirming the business


case (3.1.1.9)

Procurement Procurement strategy


Strategy development (3.1.2)

Implementation Resources (Client) Contractual arrangements Systems and controls


(3.1.4.3–5) (3.1.4.10) (3.1.4.11)

Organisational structure Systems and controls


(3.1.4.6) (3.1.4.11)

Contractual arrangements*
(3.1.4.10)

Systems and controls*


(3.1.4.11)

Implementation policy
(3.1.4.2)

* Indicates the activity will continue into the next phase


() Indicates the section of this document referring to the activity in more detail

1.1.5 The Client’s Responsibilities


G 1.1.5.1 The client should set policy and outline strategy including:

(a) setting and prioritising the project objectives within the business plan;

(b) planing to meet the objectives (the pre-design phase);

(c) implementing the plans (the pre-construction phase);

(d) controlling their implementation (the construction phase);

Page 6 Part 1, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 1, SECTION 1

(e) arbitrating between conflicting demands; and

(f) evaluating the complete project against the objectives (the


post-construction phase).

G 1.1.5.2 The client also has a dual management function:

(a) to manage the client input; to co-ordinate functional and administrative


needs; to resolve conflicts; to act as the formal point of contact for the project
(see 3.1.4.11); and

(b) to supply the technical expertise, to assess, procure, monitor and control
the external resources needed to implement the project (see 3.1.4.3–5).

G 1.1.5.3 In particular, the client should be satisfied that:

(a) the project brief is comprehensive and clear and has the full support of the
users1&2 (see 3.1.1.12);

(b) any constraints demanded by the project funder(s) are known and their
impact understood;

(c) the critical assumptions made in preparing the initial estimates and
programmes are valid, realistic and achievable (see 3.1.1.9);

(d) cost estimates are comprehensive and include all capital and resource
costs;

(e) allowances made in the feasibility and viability assessments to cover


possible risks are sufficient (contingency allowance);

(f) substantial sensitivity analysis and ‘what if’ studies have been carried out
to assess the effect of possible changed criteria on the viability of the project;
and

(g) plans are in place for adequate project management including systems for
cost, time, quality and change control.

G 1.1.5.4 The client should also co-ordinate and resolve conflicts between all interested
sections of the client organisation including (see 3.1.4.6):

(a) user groups – who will work in the building;

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

The Surveyors’ Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 7
PART 1, SECTION 1

(b) specialist groups – responsible for technical systems within the building,
e.g. communications, computers;

(c) facilities management – who will manage the completed building


including maintenance and security;

(d) finance and accounts – who will plan and control expenditure and pay bills
as they arise; and

(e) legal advisers – who will advise on and monitor the client’s formal
relationships with outside parties.

G 1.1.5.5 The client is responsible for ensuring that all necessary decisions are made on
time. Timely decisions are necessary to avoid delays and increased costs: the
decision-making process requires as much planning and management as any
other activity. This will include (see 3.1.4.11):

(a) scheduling the key decisions to be made;

(b) identifying the decision makers and their required procedures;

(c) ascertaining the time required for making decisions;

(d) establishing a formal programme for decisions;

(e) warning decision makers regarding forthcoming submissions – making


sure items are on the agenda;

(f) preparing on time fully detailed submissions and/or presentations in full


compliance with procedural requirements;

(g) following up submissions throughout the decision making process; and

(h) promptly communicating decisions made to the parties affected by


them.

1.1.6 Appointment of Project Manager (where appropriate)


(see 3.1.4.7)
G 1.1.6.1 Due to the complexity of modern buildings and the potentially large number
of parties involved in the process the client may wish to appoint a single
person to draw the process together and manage it to ensure that the overall
performance, time, cost and quality requirements are achieved. The project
manager may be a member of the client organisation who is given sole, or
predominant, responsibility for the project. Project management practices also
exist to enable appointment to be made on a consultancy basis. In this case,

Page 8 Part 1, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 1, SECTION 1

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

G 1.1.6.2 It should be emphasised that the role of the project manager should be to act
as part of the client organisation.

1.1.7 Appointment of Consultants (see 3.1.4.8)


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

1.1.8 Appointment of Constructors (see 3.1.4.9)


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

The selection of procurement strategy is a complex one and is referred to in


Part 3 section 1 of this handbook.

The Surveyors’ Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 9
PART 1, SECTION 1, APPENDIX A

Appendix A: Further Reading


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

Construction Industry Board, Partnering in the Team, Thomas Telford Publishing,


London, 1997

Construction Industry Board, Selecting Consultants for the Team: Balancing Quality
and Price, Thomas Telford Publishing, London, 1997

Construction Industry Council, The Procurement of Professional Services: Guidelines


for the Value Assessment of Competitive Tenders, CIC, London, 1997

European Construction Institute, Partnering in the Public Sector: a Toolkit for the
Implementation of Post-Award, Project Specific Partnering on Construction Projects,
ECI, Loughborough, 1997

Kelly, J., MacPherson, S., and Male, S., The Briefing Process: A Review and Critique,
RICS, Department of Building Engineering and Surveying, Heriot Watt University,
1992. This document is out of print.

The Surveyors’ Construction Handbook Part 1, Section 1 Effective from 1/3/03 Page 1
Appendix A (01/03)
PART 1, SECTION 2

PART ONE: THE CLIENT

SECTION 2: VALUE ENGINEERING

Introduction
Value management (and within it, value engineering) is a structured method
of eliminating waste from a client’s brief and from the design on a
construction project before binding commitments are made. Used to deliver
more effective and better quality buildings, for example, through taking
unnecessary costs out of designs, value management ensures a clearer
understanding of the brief by all project participants and improves team
working. According to the Construction Task Force report, ‘Rethinking
Construction’ (published by the DETR in July 1998) it is practiced by up to a
quarter of the construction industry in the UK. The report also estimates that
while the objective of value management is to increase value, it can also
reduce costs by up to 10 per cent.

Value management is the wider term used in the UK to describe the overall
structured team-based approach to a construction project. It involves clearly
defining the client’s strategic objectives, considering optimum design
solutions within the context of the client’s business objectives and deciding
which of these provides the optimum lifetime value to the client, as well as a
review of the whole process after occupancy. Value management includes
value engineering as part of this process.

Value engineering is a ‘systematic approach to delivering the required


functions to the required quality at the least cost’, i.e. a method of ensuring
that the client gets the best possible value for money in terms of safety,
performance and delivery targets. It is a structured form of consensus
decision making that compares and assesses the design solutions against the
value systems declared by the client.

This section of the handbook looks at the carrying out of a value engineering
exercise during the early design phase of a project, i.e. an evaluation of design
solutions against the client’s brief. Value engineering, as described here, can
be a stand-alone exercise (a value engineering workshop) or may be part of an
overall value management process.

In describing the value engineering process this section aims to assist


surveyors both in advising clients on the use of value engineering and taking
part in a value engineering exercise as part of the design team. It is not
intended for surveyors acting as value engineering facilitators and makes no
attempt to address the very particular skills required for this role.

The Surveyors’ Construction Handbook Part 1, Section 2 (12/99) Effective from 1/1/00 Page 1
PART 1, S ECTION 2

G 1.2.1 Why Value Engineering?


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

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

G 1.2.2 Applicability
1.2.2.1 The technique of value engineering can be employed on any project. However,
more complicated and higher value buildings are likely to benefit the most
(see figure 1). This is because it is more difficult to develop the design brief
in such instances and consequently a design solution may be adopted without
being questioned, usually because of time constraints placed upon the
designers.

Figure 1: Projects Benefiting from Value Engineering

High
Essential

Complexity

Optional
Low
Low High

Value

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

Page 2 Part 1, Section 2 (12/99) Effective from 1/1/00 The Surveyors’ Construction Handbook
PART 1, SECTION 2

as improvements and savings can be incorporated into future schemes. They


can also be tested in practice, leading to the sort of continuous improvement
recommended by the ‘Rethinking Construction’ report.

1.2.2.3 Value engineering works irrespective of the procurement route taken. It is a


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

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

1.2.3.1 The greatest benefits can be obtained by commencing the VE process at the
earliest possible stage. Once it has been established that the client’s needs will
best be met through a construction project the purpose of the first VE exercise
should be to inform the brief. When an experienced client has prepared the
brief, or a value management exercise has already examined the client’s
requirements, the value engineering exercise (which will address the proposed
design solutions) is best done towards the end of the ‘scheme design’. Several
workshops may be necessary at each of the crucial decision-making stages of
a project:

(a) A first exercise (a functional analysis of requirements), to define the


project needs and inform the brief, could be carried out as early as ‘option
appraisal’, and since this could generate the greatest benefit to the client the
timing is crucial. Carry it out too early and not enough will be known about
the problems associated with the building function, whereas too late and
minds become set on the solutions formulated by the design team.

(b) A review of the project at ‘outline design’ could be conducted to ensure


that the decisions taken earlier have been implemented or, if changed, that
they still meet the functional requirements.

(c) Another review (a functional analysis of the solutions) would then be


carried out at ‘scheme design’ to test individual building elements involving
traditional cost planning/life cycle costing techniques.

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

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

The Surveyors’ Construction Handbook Part 1, Section 2 (revised 10/01) Effective from 1/12/01 Page 3
PART 1, SECTION 2

G 1.2.4 Who Should Carry Out Value Engineering?

1.2.4.1 It is strongly recommended that a value engineering exercise is organized by


an experienced value management facilitator to ensure that the value
engineering participants retain their objectivity and that an unbiased approach
is maintained.

1.2.4.2 The value engineering participants should represent the principal stakeholders
in the project namely, the client, the building users and the design team
(designer, engineers and quantity surveyor) and also the contractor, where
applicable. It is important that each of the participants have the authority to
make decisions at the workshop. It may also be appropriate to include clients’
advisers, for example, letting agents or rating valuers.

The participants should be those who can make decisions and provide
information related to the specific aims and objectives of the workshop. These
may include:

• those people with responsibility for the needs of the business;

• those with specific responsibility for development, design and


implementation of the operation/project;

• those with responsibility for the management and/or maintenance of the


operation; and

• those who will be affected by the outcome.

Different stakeholders will be required to participate at different stages of the


project.

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

1.2.4.4 It is common practice in North America to appoint an outside team of


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

Page 4 Part 1, Section 2 (revised 10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 1, SECTION 2

G 1.2.5 How Long Should It Last?

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

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

G 1.2.6 Preparing for a Value Engineering Workshop

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

1.2.6.2 In addition to an agenda, a functional analysis of the client’s requirements


should be drawn up.

The client’s value criteria will have been developed in the first value
management workshop. With each successive workshop these criteria will be
developed further into a function diagram. This should be included in the
workshop handbook. If it is to be developed further this will take place as part
of the information stage of the workshop.

The functional analysis should always be generated by the client


representatives with the help of the other members of the workshop. It is the
role of the facilitator to facilitate this process, not to take part in it.

All participants must be prepared to propose and challenge design solutions.


The input of all participants (not just those who are experts in a particular
discipline) is one of the strengths of the VE process and should be encouraged
by the facilitator.

G 1.2.7 Functional Analysis of Design Relative to the Client’s


Requirements

1.2.7.1 It should be understood that it is not possible to find meaningful alternatives


to a technical solution without first identifying the function required of it.

1.2.7.2 Functional analysis is any technique designed to appraise value by careful


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

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

The Surveyors’ Construction Handbook Part 1, Section 2 (revised 10/01) Effective from 1/12/01 Page 5
PART 1, SECTION 2

functions ‘how are they to be fulfilled’ are identified on the right. See figure 2
for an example of a FAST diagram. It should be understood that this is a
broad-brush technique.

The objective of functional analysis is to produce a complete description of


the end purpose of the design in terms of what it must do.

Reference is sometimes made to different types of FAST diagram: Classical


FAST, Technical FAST or Customer/Task FAST.

The original FAST diagram was a presentation of the user-related and


product-related functions of a design solution. It was a technique used to
assemble the functions of a product in a hierarchy and to assess ‘why’ and
‘how’ they are delivered. This is known as a Classical FAST.

Subsequently it was recognized that all functions did not fit into the flow logic
so it was decided to separate out the functions that are always active, whether
the product is operational or not. It was also decided to separate out those
functions that only occur one time regardless of repetitiveness of the process.
This diagram describes what a product, element or component must do and is
known as a Technical FAST.

It was then recognized that, ideally, it is the customer who should determine
the value of the product and that the FAST diagram should include the
customer/user in the development of value study projects. The resulting FAST

Figure 2: FAST Diagram

Page 6 Part 1, Section 2 (revised 10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 1, SECTION 2

diagram has become known as a Customer or Task FAST. It is this concept


from which the Value Tree has developed.

All FAST diagrams should include a scope line on the left-hand side of the
diagram. The scope line limits the area of the project on which attention is
being focused. The scope is the portion of the project that is selected for the
value study.

The FAST model displays functions in a logical sequence and tests their
dependency. It does not indicate how a function should be performed.

There is no such thing as a correct FAST model, only a valid FAST model.

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

1.2.7.5 The process of setting up a FAST diagram is of matching the functional


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

1.2.7.6 VALUE TREE

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

1.2.7.7 Appendix A gives an example of part of a Value Tree and a FAST diagram for
a health centre.

Function elements (object functions) are defined in the BCIS publication,


Standard Form of Cost Analysis: Principles, Instructions and Definitions and
in Section 2.3 of this handbook.

A typical example of a value engineering process is included in Appendix B.

The Surveyors’ Construction Handbook Part 1, Section 2 (revised 10/01) Effective from 1/12/01 Page 7
PART 1, SECTION 2

G 1.2.8 Pricing the FAST Diagram

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

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

G 1.2.9 Presenting a Design Solution to a Value Engineering Workshop

1.2.9.1 Design solutions should be presented as designers normally would to any


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

G 1.2.10 The Workshop

1.2.10.1 A value engineering workshop will work through phases of information,


speculation, evaluation, development and presentation:

(a) The ‘information phase’ identifies the spaces, elements and components in
terms of the functions they fulfill. It asks the questions about what is the prime
function of an element?; what are it’s subsidiary functions?; what does it
cost?; what is it’s value? It is at this stage that the FAST diagram is developed
and it is against the background of this information that the value engineering
evaluation will be made.

(b) ‘Speculation’ is the brainstorming stage which will generate the ideas from
which solutions will be developed. It is important that each member of the
panel thinks positively. The facilitator will ensure that no one is allowed to
become overly critical of another member’s contribution in order that ideas
flow. All ideas should be logged at this stage. However, in order to encourage
idea building, they should not be analysed or rejected. It is important that the
underlying functions of suggestions for improvement are listed for evaluation
later. Design solutions should not be developed at this stage to ensure that

Page 8 Part 1, Section 2 (10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 1, SECTION 2

‘what is to be achieved’ is properly addressed. All optional solutions should


only be considered at the evaluation stage.

(c) ‘Evaluation’ is the analysis of the ideas generated by the earlier


speculation. Again, a positive feeling will be encouraged by the facilitator
with advantages/disadvantages being discussed in an even-handed manner. At
this stage some ideas will be rejected and the best taken forward. It is essential
to ensure that all the ramifications of any suggested changes should be
considered. For example, if the exercise has suggested a change to a piece of
M&E equipment, the effects on the control management systems and
structural requirements must also be considered.

Life cycle costing can be an important factor in the process when considering
optional solutions but the criticality of this aspect will hinge on the client’s
philosophy.

(d) ‘Development’ of the ideas to be taken forward will be initiated at the


meeting and a programme established for completion of this stage. Often the
detailed development including life cycle costing, if appropriate, will be
continued beyond the initial meeting and the outcome presented to a
subsequent meeting for the panel to determine which design options to adopt.

(e) ‘Presentation’ takes the form of a report prepared by the facilitator which
records in some detail all elements of the study and concludes with those
options to be incorporated in the developed design. This report is normally
presented to the client by the value engineering panel at a meeting held within
one or two weeks of the date of the workshop.

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

G 1.2.11 Assessing the Value of the Workshop

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

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

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

The Surveyors’ Construction Handbook Part 1, Section 2 (10/01) Effective from 1/12/01 Page 9
PART 1, SECTION 2

G 1.2.12 Implementing the Results

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

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

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

G 1.2.13 Feedback from Post-Occupancy Evaluation

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

Page 10 Part 1, Section 2 (10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 1, SECTION 2, APPENDIX A

Appendix A: Health Centre Value Tree

The Surveyors’ Construction Handbook Part 1, Section 2 Effective from 1/12/01 Page 1
Appendix A (revised 10/01)
PART 1, S ECTION 2, A PPENDIX B

Appendix B: Typical Example of a Value Engineering Process


B1 BACKGROUND

A retail client with a regular development programme for a series of new


stores (typical size 8,000m2) entered into a partnering agreement with key
members of the construction team for four new projects.

To encourage value engineering, the partnering contractors share in any


savings that relate to any accepted proposals.

For two of these projects the client opted for a design and build contract for
the services installations (mechanical, sprinklers and electrical).

In an effort to reduce costs and ultimately add value to the schemes, the client
set a target of reducing the costs on these projects by 10 per cent, with no
material effect on quality or health and safety.

To set a benchmark for this reduction model cost plan costs for a typical store
(derived from historical records) were modified to suit the new scheme
layouts. Allowances were included for any items that were classified as ‘site
specific’ (e.g. acoustic requirements stipulated by the district surveyor). Cost
plan figures were based on the client’s current specification.

Due to the volume of developments undertaken by the client and the repetitive
nature of the works, the savings generated by value engineering can be
incorporated in any future schemes.

B2 SPECIFIC EXAMPLE: VENTILATION TO SALES FLOOR

The original design was based on previous solutions and included ‘traditional’
ventilation.

At the ‘information phase’, the functional requirement, including the need for
ventilation, was examined against the client’s desire to reduce capital costs.
This identified that a high proportion of the cost of the mechanical installation
related to the provision of ventilation to the sales floor of the store (plant,
distribution ductwork, diffusers, etc.)

At the ‘speculation phase’, the client’s engineering department worked closely


with the mechanical partnering contractor to consider alternative methods of
ventilating the sales floor of the store.

The alternative method of ventilation proposed was of the displacement type.


With displacement ventilation, air is only conditioned at the level at which
occupiers are breathing. Air is introduced at low level and at low velocity.
Natural convection currents are utilised to remove excess heat and pollutants
out of the occupied zone. There is a saving in the amount of ductwork
required, as only two runs of ductwork are needed on the sales floor. (The

The Surveyors’ Construction Handbook Part 1, Section 2 Effective from 1/1/00 Page 1
Appendix B (12/99)
PART 1, S ECTION 2, A PPENDIX B

traditional method is designed for four separate branches of ductwork.) The


new specification requires diffusers of the displacement type, with the facility
of automatically varying the air throw pattern whether in heating or cooling
mode.

Furthermore, the proposed system required ventilation to the occupied zone


only rather than the full building space. This has resulted in capital cost
savings on plant and in the likely running costs of the system.

The evaluation identified significant savings.

Summary of Value Engineering Exercise

Original installation: Traditional ventilation

Value engineering proposal: Displacement ventilation

Benefits: Saving on air handling plant size


Saving on chiller plant size
Saving on sales floor ductwork

Savings on capital cost: Air handling plant 10%


Chiller plant 5%
Ductwork and diffusers 25%

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

Page 2 Part 1, Section 2 Effective from 1/1/00 The Surveyors’ Construction Handbook
Appendix B (12/99)
PART 1, SECTION 2, APPENDIX C

Appendix C: Further Reading


British Standards Institute. Value Engineering, Value Analysis Vocabulary – Part 1:
Value Analysis and Functional Analysis, BS EN 1325–1 1997, British Standards
Institute, London, 2000.

Building Cost Information Service. Elements for Design and Build, BCIS Ltd, 1996

Building Cost Information Service. Standard Form of Cost Analysis; Principles,


Instructions and Definitions, BCIS Ltd, 1969 (Reprinted 1997)

Connaughton, John, N., Green, Stuart, D., Construction Industry Research and
Information Association. Value Management in Construction: A Client’s Guide,
CIRIA, London, 1996

Dell’isola, Alphonse. Value Engineering in the Construction Industry, Van Nostrand


Reinhold Co., New York, 1983

Dell’isola, Alphonse. Value Engineering: Practical Software Applications for Design,


Construction, Maintenance and Operations, R. S. Means & Co., Kingston, MA, 1997

Green, Stuart, D. and Popper, Peter, A. Value Engineering: The Search for
Unnecessary Cost, Chartered Institute of Building, Berkshire, 1990

Institution of Civil Engineers. Creating Value in Enginering, Thomas Telford


Publishing, London, 1996

Kelly, John and Male, Stephen. A Study of Value Management and Quantity Surveying
Practice, RICS Books, Coventry, 1988

Kelly, J.R. and Male, S.P. A Study of Value Engineering and Quantity Surveying
Practice, Heriott-Watt University, Edinburgh, 1989

Kelly, J.R. and Male, S.P., Heriot-Watt University, Department of Building


Engineering and Surveying, Royal Institution of Chartered Surveyors. The Practice of
Value Management: Enhancing Value or Cutting Cost? RICS, London, 1991

Law, Alastair, G. An Introduction to Value Engineering: A New Technique in


Technology Assessment and Evalution, Alastair G. Law, Washington DC, 1981

May, Susan, C., College of Estate Management. Value Engineering and Value
Management: A CPD Study Pack, College of Estate Management, Reading, 1994

Mole, Kelly, Fernie, Grongvist and Bowles. The Value Management Benchmark:
Good Practice Framework for Clients and Practitioners. Thomas Telford Publishing,
London 1998

Norton, Brian, R. and McElligott, William, C. Value Management in Construction: A


Practical Guide, Macmillan, Basingstoke, 1995

The Surveyors’ Construction Handbook Part 1, Section 2 Effective from 1/12/01 Page 1
Appendix C (revised 10/01)
PART 1, SECTION 2, APPENDIX C

Palmer, Angela. A Critique of Value Management, Chartered Institute of Building,


Berkshire, 1990

Royal Institution of Chartered Surveyors. Value and the Client (papers presented at a
conference held at the RICS on 29 January 1992), RICS, London, 1992

Smith, J., Jackson, N., Wyatt, R., Smyth, H., Beck, M., Chapman, K., Shirazi, A.,
Hampson, K., Royal Institution of Chartered Surveyors. Can Any Facilitator Run a
Value Engineering Workshop? RICS, London, 1998

Zimmerman, Larry, W. and Hart, Glen, D. Value Engineering: A Practical Approach


for Owners, Designers and Contractors, Van Nostrand Reinhold & Co, New York,
1982

Page 2 Part 1, Section 2 Effective from 1/12/01 The Surveyors’ Construction Handbook
Appendix C (10/01)
PART 2, SECTION 1

PART TWO: CONSTRUCTION DESIGN AND ECONOMICS

SECTION 1: PRE-CONTRACT COST PLANNING AND


COST MANAGEMENT

Introduction
This Section of the Handbook sets out procedures which enable pre-contract
cost management of building projects to be carried out from the client’s brief,
through the various design stages to the acceptance of a contractor’s tender.

Control of costs can only be achieved by the actions of the whole project team,
including the client. The quantity surveyor’s role is to facilitate the design
process by systematic application of cost criteria so as to maintain a sensible
and economic relationship between cost, quality, utility and appearance which
thus helps in achieving the client’s requirements within the agreed budget.

The information and guidance which follow are based on a traditionally


procured new-build project, but varying client requirements and different
procurement methods may prevent implementation of some aspects of the
following procedures. In practice, the design of the elements may proceed at
different speeds and the stages described here may overlap. However, the
principles of budget, cost plan, cost checks and reconciliation should be
adhered to whenever possible. (See the figure showing the outline of the cost
planning procedure.)

On projects where non-traditional procurement routes are used, the


responsibility for developing the cost plan may change but the stages
suggested here remain appropriate. For example, on Design and Build (D&B)
schemes, the client’s quantity surveyor will be responsible for the cost plan at
feasibility and outline proposal stage and the D&B contractor’s quantity
surveyor will be responsible for developing the cost plan with the contractor’s
design team to produce the tender.

The process described would apply to refurbishment or conversion schemes


and the elemental approach would be suitable even if all elements were not
required.

The procedures are not designed for use with civil engineering projects, but
should provide a framework appropriate to civil engineering needs.

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 1
PART 2, SECTION 1

2.1.1 Pre-contract Cost Planning and Cost Management


I 2.1.1.1 DEFINITION
Pre-contract cost planning is the technique by which the budget is allocated to
the various elements of an intended building project to provide the design
team with a balanced cost framework within which to produce a successful
design. It allows for the redistribution of the budget between elements as the
design develops.

Cost management is the total process which ensures that the contract sum is
within the client’s approved budget or cost limit. It is the process of helping
the design team design to a cost rather than the quantity surveyor costing a
design.

Page 2 Part 2, Section 1 (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
PART 2, SECTION 1

G 2.1.1.2 OBJECTIVES

(a) To ensure that the client obtains an economical and efficient project in
accordance with the agreed brief and budget;

(b) to make the design process more efficient, thus reducing the time needed
to produce a successful design;

(c) to ensure that all requirements arising from the client’s brief to the design
team are included in the cost planning process (e.g. the engineering services
should also be subject to the cost planning process); and

(d) to advise the client and members of the design team of cost-in-use or
life-cycle costing techniques.

G 2.1.1.3 GENERALLY

(a) A general principle applies throughout the cost planning process that any
agreed budget or cost limit is seen as the maximum cost, and the quantity
surveyor should, at all times, work with the other design team members to
satisfy the client at a lower cost if possible, whilst still maintaining the desired
objectives for quality and function.

(b) If, at any time, sums have been included in the approved budget, for
example, for abnormal site costs which subsequently are found to have been
wholly or partially unnecessary, the consequential saving should always be
notified to the client.

G 2.1.1.4 DESIGN STAGES


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

Design Stages Quantity Surveyor

Stage B: Feasibility Prepare feasibility studies and determine


the budget

Stage C: Outline Proposals Consider with client and design team


alternative strategies and prepare cost plan

Stage D: Scheme Design Carry out cost checks and update cost plan
if necessary

Stage E: Detail Design

Stage F: Production Information Carry out cost checks

Stage H: Tender Action Prepare reconciliation statement

The Surveyors’ Construction Handbook Part 2, Section 1 (05/03) Effective from 1/7/03 Page 3
PART 2, SECTION 1

I 2.1.1.5 VALUE ENGINEERING


A value engineering exercise may be carried out on all or part of the design
during the design process. (For further details see part 1, section 2 of this
handbook.)

This might affect both the client’s requirements and the chosen design
solution and changes would, therefore, affect the budget and the cost plan.

2.1.2 Preliminary cost studies and feasibility studies

G 2.1.2.1 It is recommended, as a matter of importance, that before and during the


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

2.1.3 Budget

I 2.1.3.1 DEFINITION
Budget is the total expenditure authorised by the client which is the
responsibility of the design team at the end of the feasibility stage (Design
Stage B).

G 2.1.3.2 OBJECTIVES

(a) To establish the limit of expenditure necessary to meet the client’s brief.
The client’s and project’s status with regard to VAT (Value Added Tax) will
also need to be established;

(b) to provide the client with a statement of the likely area and quality of
building, which is achievable within the limit of expenditure;

(c) to provide a statement of the recommended methods of construction and of


the contractual procedures to achieve the required occupation date; and

(d) to provide the client with alternative budgets for different occupation dates
and qualities of building, if appropriate.

G 2.1.3.3 INFORMATION REQUIREMENTS

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

Page 4 Part 2, Section 1 (05/03) Effective from 1/7/03 The Surveyors’ Construction Handbook
PART 2, SECTION 1

a particular type of building from very little information, but it is important to


clarify as many information issues as possible before such an estimate is
accepted as the budget for a particular project.

(b) Information required from the client:


• location of the site; availability of the site for commencement of
construction work;
• in conjunction with the designer, architect or building surveyor, a
schedule of accommodation;
• names of other similar buildings of broadly suitable quality if
appropriate;
• the required occupation date or phased occupation dates;
• any specific requirements relating to life-cycle costs;
• any specific requirements as to specification and/or procedures;
• requirements in respect of the treatment of inflation;
• instructions regarding Construction (Design and Management)
Regulations; and
• the client’s VAT status and any other tax matters which may affect the
overall cost of the project.

(c) Information required from the designer, architect, building surveyor, or


other source:
• approximate location of the building on the site;
• advice on necessary storey heights for any specialist areas shown on
schedule of accommodation;
• advice on statutory regulations;
• advice on routes of public sewers and the like;
• designer’s concept of building; and
• names of similar projects previously designed by the practice.

(d) Information required from the structural engineer:


• advice on probable ground conditions;
• advice on probable floor loadings; and
• any information on structural solutions.

(e) Information required from the services engineer:


• advice on areas of building which will require specialist engineering
services;
• any information on the types of systems; and
• advice on availability of public utility services.

Note: If the quantity surveyor is not responsible for cost planning the
engineering services, this should be clearly stated in the budget and cost plan.

The information from the quantity surveyor to the design team is as follows:

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 5
PART 2, SECTION 1

(An example of a format for the quantity surveyor’s report is given in


Appendix B to this Section.)

(f) Information to be provided to the client involves a report containing:


• the budget, with alternative proposals if appropriate;
• a statement of the basis of the budget calculation including any
important assumptions made;
• a statement setting out the programme for design and construction on
which the budget is based;
• an outline cash-flow forecast;
• a statement of any items not included; and
• assumptions in respect of inflation forecasts and current/future market
conditions.

(g) Information to be provided to the designer:


• a copy of the report sent to the client; and
• a more detailed statement of the quantity and quality parameters
included in the calculations.

(h) Information to be provided to other consultants:


• such quantity and quality parameters as relate to their area of design.

G 2.1.3.4 METHODS OF PREPARATION

(a) The method of preparation depends on the type of project involved.


Unusual projects, projects of great complexity and projects containing a large
element of alterations are more difficult to budget accurately at an early stage.

(b) For most types of project, it is possible to build up an elemental budget


using the parameters set out under G 2.1.3.5. This can be based on cost
information from previous projects, from the RICS Building Cost Information
Service (BCIS), other published sources, or on an appropriate cost model.

(c) The main elemental quantities of hypothetical buildings can be generated


using agreed parameters, to which rates applicable to agreed quality and
performance standards can be applied. An example of a method of calculating
hypothetical quantities is described in Appendix C to this Section.

(d) Once the budget has been established, it provides the first cost plan for the
project, and the framework for the actual design to be developed.

G 2.1.3.5 STATEMENT OF QUANTITY AND QUALITY PARAMETERS

The main parameters which should normally be incorporated in the


calculation are as follows (the list is not exhaustive):

Page 6 Part 2, Section 1 (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
PART 2, SECTION 1

(a) Quantity
• in addition to the briefed areas, a statement of the allowances (e.g.
circulation) used to calculate a gross floor area;
• the number of storeys of a possible solution;
• the storey height(s);
• the square index or wall/floor ratio (see appendix C to this section);
• the density of vertical division or partition/floor ratio (see appendix C
to this section);
• proportion of window area;
• floor loadings;
• thermal resistance values of fabric;
• air change rates;
• heating and hot-water loads;
• lighting levels;
• total electrical load;
• areas of the brief with special functions of significant cost;
• road area and number of car parking spaces;
• paved pedestrian areas; and
• length of boundary walls or fencing.

(b) Quality
• A general statement of quality and specification which relates to the
rates used for the budget calculation. This should cover specifically at
least the following: foundations, roof, external walls, floors and
vertical circulation, internal vertical division, internal finishes,
lighting and other services. External works should include roads,
paths, landscape, boundary walls and fences, and service mains,
planting and the like.

G 2.1.3.6 INFLATION

(a) The prediction of future inflation may not be necessary for some clients,
and a statement of cost at current prices may be adequate. Where an
assessment of inflation is required for more than a few months ahead, a range
of probable inflation is best provided. This can be calculated using
predictions published, for example by BCIS or the Department of Trade and
Industry. The assumptions upon which the prediction is made should be
stated.

(b) Some clients, particularly in the public sector, have their own inflation
controls. Where the client requests that a particular level of inflation be
included in the budget, the quantity surveyor should inform the client if he or
she believes it to be unrealistic.

G 2.1.3.7 COST REPORTING


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

The Surveyors’ Construction Handbook Part 2, Section 1 (05/03) Effective from 1/7/03 Page 7
PART 2, SECTION 1

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

2.1.4 The cost plan at outline proposals stage

I 2.1.4.1 DEFINITION
The cost plan at outline proposals stage is a statement of the probable cost of
the project at Design Stage C which sets out the cost targets for the main
elements of a building, together with their approximate quantity and quality
parameters.

G 2.1.4.2 OBJECTIVES

(a) To describe, together with the outline proposal drawings, the chosen
distribution of the resources within the budget to provide a balanced design to
meet the client’s needs;

(b) to set cost targets for the main elements so that, as the design develops, the
targets can be checked and adjustments made so that the overall cost of the
project is managed within the budget;

(c) to provide the design team with controls which communicate the costs,
quantity, quality and time parameters to be followed; and

(d) to provide the opportunity for consideration of life-cycle costs.

G 2.1.4.3 INFORMATION REQUIREMENTS


The basic information requirements from the members of the project team to
be provided to the quantity surveyor are as follows:

(a) Information required from the client:


• the budget. Where alternative budgets have been quoted in the budget
report, the client should state the preferred alternative;
• confirmation of the programme for design and construction times stated
in the budget report;
• confirmation of the brief;
• acceptance or variation of any other matters within the budget report;
and
• authority to proceed.

(b) Information required from the designer:


• outline drawings of the building and site works indicating alternative
solutions; and
• an indication of the preferred specification for the main elements.

(c) Information required from the structural engineer:


• outline proposals or alternative structural solutions.

Page 8 Part 2, Section 1 (05/03) Effective from 1/7/03 The Surveyors’ Construction Handbook
PART 2, SECTION 1

(d) Information required from the services engineer:


• outline proposals for installations, indicating any alternative systems;
and
• an indication of the preferred specification, after acceptance by the
designer of its visual implications.

(e) Information required from specialist consultants:


• outline proposals.

The basic information requirements from the quantity surveyor to the design
team are as follows:

(An example of a format for the quantity surveyor’s report is given in


Appendix B to this Section.)

(f) Information to be provided to the client involves a report containing:


• a statement of cost;
• a broad indication of the specification;
• a statement of floor areas;
• a request for decisions on any alternative proposals and/or procurement
routes, with advice thereon;
• an updated cash-flow forecast;
• allowances for contingencies and design reserve; and
• an update of inflation projections.

(g) Information to be provided to the designer:


• a copy of the documents sent to the client; and
• the cost plan with target costs for each element.

(h) Information to be provided to other consultants:


• such quality and quantity parameters as relate to their design
responsibilities and target costs.

G 2.1.4.4 METHODS OF PREPARATION

(a) The method of preparation should be appropriate to the level of detail


available for each element and may be:
• the measurement of approximate quantities and the application of rates
to the quantities generated;
• comparison of the requirements with analyses of previous projects of a
similar character;
• use of appropriate cost models; and/or
• a mixture of the above methods.

(b) Evaluation should be made of the alternative forms of construction, or


systems, of the ‘key’ elements, e.g. structural elements, and service
installations. The ‘key’ elements on each project will vary. However, they are
likely to be those with major financial consequences, and to include the
structural and service elements.

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 9
PART 2, SECTION 1

G 2.1.4.5 STATEMENT OF QUANTITY AND QUALITY PARAMETERS


The quantity surveyor’s statement should include the following:

(a) Quantity
Confirmation of information provided at budget stage with the addition of:
• the areas of the accommodation divided into use classification (e.g.
office/classroom space, sanitary accommodation space, plant-room
space, circulation space), totalled to give gross floor area; and
• a schedule of those items for which lump sum allowances have been
incorporated and a note on the sources of this information.

(b) Quality
• a statement of quality and specification, in a similar format to that
provided at budget stage, expanded to incorporate additional
information. The parameters should follow those included at the budget
stage, and where possible, be based upon the outline drawings and
preferred specifications.

G 2.1.4.6 DESIGN AND CONSTRUCTION PERIOD

(a) In establishing the outline cost plan, it is recommended that the quantity
surveyor take account of proposals made by the other members of the design
team and their effects upon both the design and construction programmes.

(b) If completion dates are critical, components and/or systems should be


selected with a view to the availability of acceptable alternatives so as to avoid
supply difficulties.

G 2.1.4.7 CONTROLLING CHANGES TO THE COST PLAN

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

Page 10 Part 2, Section 1 (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
PART 2, SECTION 1

• upon the determination of a proposed change, the quantity surveyor


should communicate to the client and all members of the design team,
the effects of such change and provide an updated cost plan.

G 2.1.4.8 INFLATION
Any changes in inflation forecasts should be reported periodically.

2.1.5 The Cost Plan at Scheme Design Stage


Note: If the cost plan has been produced at an earlier design stage only
updating may be required.

I 2.1.5.1 DEFINITION
The cost plan at scheme design stage is a statement of the cost of a selected
design at Design Stage D which details the cost targets for all elements of a
building, together with the quantity and quality parameters described by the
scheme drawings and specifications.

G 2.1.5.2 OBJECTIVES

(a) To set out for the design team the actual distribution of resources described
by the scheme design;

(b) To set cost targets for all the elements so that, as the detail design develops,
the targets are checked and adjustments made in order that the overall cost of
the project is managed within the budget; and

(c) To provide the whole design team with a control document which
describes, in detail, the costs, quantity, quality and time parameters which
have been adopted.

G 2.1.5.3 INFORMATION REQUIREMENTS


The information to be provided to the quantity surveyor is as follows:

(a) Information required from the client:


• confirmation or otherwise that the cost plan prepared at the outline
stage is accepted;
• confirmation of the brief;
• an indication of any preferred alternatives in a previous cost plan;
• acceptance or variation of any other matters within the previous cost
plan report; and
• authority to proceed.

(b) Information required from the designer:


• scheme drawings and scheme specifications.

(c) Information required from the structural engineer;


• scheme drawings and scheme specifications;

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 11
PART 2, SECTION 1

• confirmation of floor loadings and the like; and


• provisional indication of reinforcement weights, where appropriate.

(d) Information required from the services engineer:


• scheme drawings and scheme specifications; and
• detailed design parameters, e.g. heat loads, and electrical loads.

(e) Information required from specialist consultants:


• scheme drawings and scheme specifications.

The basic information requirements from the quantity surveyor to the design
team are as follows:

(An example of a format for the quantity surveyor’s report is given in


Appendix B to this Section.)

(f) Information to be provided to the client, involves a report containing:


• a statement of the cost;
• a statement of the specification;
• a statement of the floor areas;
• a statement of the proposed design and construction programme;
• a cash-flow forecast, where appropriate;
• a statement of the relevant life-cycle costs, where appropriate; and
• an update of inflation forecasts.

(g) Information to be provided to the designer:


• a copy of documents sent to the client; and
• the cost plan with target costs for each element.

(h) Information to be provided to the other consultants:


• such quality and quantity parameters as relate to their area of design
and their target costs.

G 2.1.5.4 METHODS OF PREPARATION

(a) The method of preparation is normally by measurement of approximate


quantities from the proposed scheme drawings. The degree of detail to be
measured should relate to the cost significance of the elements in the particular
design. The pricing should be similarly related. Some elements may still be
most suitably priced on an elemental unit rate basis, where the cost significance
is low. Major elements will normally need to be priced in greater detail.

(b) The preliminary engineering and specialist services scheme drawings and
outline specification notes will be required from the consulting engineers,
from which approximate quantities of equipment can be measured and priced
using all-in rates. Pipework and cables will normally still need to be priced on
an overall basis relating to floor area or service points at this stage. This
ensures that the likely implications of the builder’s work are understood by the
design team and the costs are taken into account.

Page 12 Part 2, Section 1 (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
PART 2, SECTION 1

G 2.1.5.5 STATEMENT OF QUANTITY AND QUALITY PARAMETERS


The quantity surveyor’s statement should include the following:

(a) Quantity
confirmation of the information provided at outline proposal stage

(b) Quality
a statement of quality and specification based on scheme drawings in
sufficient detail to provide control of the production information drawings by
the designer and consultants

(c) Life-cycle information


a statement of the likely relevant maintenance, cleaning, and running costs
which are required or implied by the scheme design proposals and the
expected life of major components.

G 2.1.5.6 CONTROLLING CHANGES TO THE COST PLAN


The principles have been described in G 2.1.4.7.

G 2.1.5.7 INFLATION
Any changes in inflation forecasts should be reported.

2.1.6 Cost Checking


I 2.1.6.1 DEFINITION
Cost checking is the process of calculating the costs of specific design
proposals and comparing them with the cost plan during the whole design
process (Design Stages D–F).

G 2.1.6.2 OBJECTIVES

(a) To confirm that as the design develops, the cost remains within the budget;
and

(b) To reduce the abortive design work and lost time caused through
proceeding too far in the design process before realisation that the budget will
be exceeded.

2.1.6.3 PRINCIPLES

(a) The methods will vary according to the stage reached in the design process.
Normally, however, this takes the form of measurement of approximate
quantities from the consultants’ drawings to provide a check on the quantity
and quality of parameters set down in the appropriate cost plan. The gross
floor area should always be the first check at any stage.

(b) The dominant considerations in deciding the priorities for cost checking
elements are as follows:

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 13
PART 2, SECTION 1

• the cost significance of an element related to the total cost of the


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

G 2.1.6.4 IDENTIFICATION AND NOTIFICATION OF EXCESS COSTS

(a) It is recommended that judgement be applied before notifying the designer


of possible excess expenditure in a particular element. If an excess revealed
during cost checking is of such significance that it is highly improbable that
compensating savings are available elsewhere, then such excess should be
reported immediately and the design team be asked to consider modification
of the cost plan. If, however, the excess (or saving) revealed in an element is
relatively small and there are still a number of elements to be checked, it is
usually more appropriate to advise the designer of the difference and to
suggest that action is held until other cost checks have been carried out.

(b) It is important for the quantity surveyor to maintain records of the cost
checking process, and to set down in summary the value of the elements cost
checked compared with the cost plan targets. Identification of the drawings
and information upon which the cost check has been based is also important.

2.1.7 Action after Receipt of Tenders


G 2.1.7.1 DEFINITION

(a) Action after receipt of tenders is that required at the tender stage (Design
Stage H) in analysing each tender and updating information for the client and
consultants.

(b) The following points should be noted:


• In most cases, sound cost planning will produce tenders within budget.
If, due to market conditions or late changes in designs and
specification, adjustments need to be made to a tender, information on
potential savings will need to be identified by the design team; and
• If there are significant changes from the initial tender documents,
consideration should be given to the need for seeking revised tenders.

G 2.1.7.2 OBJECTIVES

(a) To obtain a contract sum within the approved budget; and

(b) To provide suitable analyses for future projects.

Page 14 Part 2, Section 1 (4/98) Effective from 1/6/98 The Surveyors’ Construction Handbook
PART 2, SECTION 1

G 2.1.7.3 INFORMATION REQUIREMENTS


Information to be provided to the quantity surveyor is as follows:

(a) Information required from the client:


• acceptance of potential savings, if required;
• details in respect of any analyses required. (Where the client body is a
Public Authority or similar, where standard analyses are always
required, consideration of this matter should be given during the
preparation of the Bills of Quantities); and
• permission to submit analyses to BCIS if appropriate.

(b) Information required from the designer, architect, building surveyor and
other consultants;
• a provisional list of potential areas of saving (to be considered during
tendering period and before tender acceptance); and
• a detailed list of drawings and other sources of data from which to
determine actual savings, if required.

(c) Information required from other sources:


• indexing of the tender by BCIS to establish confirmation of tender
levels, if appropriate.

The basic information requirements from the quantity surveyor are as follows:

(d) Information to be provided to the client involves a report containing:


• a statement of the cost reconciled to the latest budget;
• any further information in respect of the construction programme; and
• an updated preliminary cash-flow forecast, where appropriate.

(e) Information to be provided to the designer:


• a copy of documents sent to the client; and
• a detailed reconciliation between the tender and the latest cost plan.

(f) Information to be provided to the other consultants:


• such information as relates to their area of design and associated costs.

The Surveyors’ Construction Handbook Part 2, Section 1 (4/98) Effective from 1/6/98 Page 15
PART 2, SECTION 1, APPENDIX A

Appendix A: Sources of cost information


A1 OBJECTIVE

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

A2 SOURCES

A2.1 Elemental cost analysis


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

A2.2 Unit rate information


• in-house priced bills of quantities;
• specialist suppliers’ quotations;
• Spon’s (E & FN Spon) – a range of price books covering most areas of
construction;
• Laxton’s – a range of price books covering most areas of construction;
• Ti Wessex – a range of price books covering most areas of construction;
• Griffiths Building Price Book;
• Building Maintenance Information’s Building Maintenance Price Book;
and
• Glenigan Cost Information Services – Material Price Guides.

Note: Current editions of price books are available from RICS Books.

A2.3 Published indices


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

A3 The use of published information

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

The Surveyors’ Construction Handbook Part 2, Section 1, Effective from 1/7/03 Page 1
Appendix A (05/03)
PART 2, SECTION 1, APPENDIX A

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

Page 2 Part 2, Section 1, Effective from 1/7/03 The Surveyors’ Construction Handbook
Appendix A (05/03)
PART 2, SECTION 1, APPENDIX B

Appendix B: Format of budget and cost plans


B1 OBJECTIVE

B1.1 To communicate clearly the basis of the budget and cost plans to the client,
designer and consultants.

B2 FORMAT

B2.1 The presentation of information to the client and design team should be of a
high standard. Budget and cost plans result from the application of a high level
of professional skill, and the format of documents should reflect the
importance that the profession attaches to this service.

B2.2 The example format included here is intended to be an example of good


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

B2.3 Additional information to be sent to the design team once the cost plan is
prepared is set out in the ‘Report to the Design Team’. The main parameters
affecting the cost targets should be clearly set out.

B2.4 The level of detail to be included in these documents should relate to the size
and complexity of projects. Simple projects may require less information than
shown in the example; complex projects significantly more.

The Surveyors’ Construction Handbook Part 2, Section 1, Effective from 1/7/03 Page 1
Appendix B (05/03)
PART 2, SECTION 1, APPENDIX B

REPORT TO CLIENT AND DESIGN TEAM (referred to in B2.2 of this appendix)

CONSTRUCTION BUDGET AND PROGRAMME


Client

Project

Location

Budget serial number:

COSTS (for basis see sheet .......)

Price base date:

New building work:

Site works:

Alterations:

Construction costs (at stated price base)

Estimate inflation to probable tender date of

Construction costs at tender

Estimated increased costs payable to


contractors during construction period

Construction costs at completion

Professional fees of all consultants


including expenses

Value Added Tax – On construction %

On fee %

Total budget of construction works and fees

Exclusions from budget

Page 2 Part 2, Section 1, Effective from 1/7/03 The Surveyors’ Construction Handbook
Appendix B (05/03)
PART 2, SECTION 1, APPENDIX B

zzz

REPORT TO CLIENT AND DESIGN TEAM (continued)

TIME
Preliminary/Final Programme (weeks)
as Budget Cost Alternative 1 Alternative 2
0 0 0
Client decision to accept budget and proceed

Final brief and scheme design approved

Receipt of first tenders

Formation of contract

Construction commencement

Client occupation: phase


phase
phase
phase

Total Cost Variation (including fees)

Contractor and/or construction implications of programme

The alternative time scales shown make the following assumptions:

Alternative 1

Alternative 2

CASH FLOW – FORECAST


Quarterly from acceptance of budget and authority to proceed (including fees)

1Q 2Q 3Q 4Q 5Q 6Q 7Q 8Q 9Q 10Q 11Q 12Q Balance Total

As Budget Cost

Alternative 1

Alternative 2

Note: All figures in thousands Construction commencement quarter indicated by ‘C


’Occupation quarter indicated by ‘O’ Balance shown normally payable during first year of occupation

The Surveyors’ Construction Handbook Part 2, Section 1 Effective from 1/6/98 Page 3
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

REPORT TO CLIENT AND DESIGN TEAM (continued)

BASIS OF BUDGET
Areas

Schedule of accommodation Area m2 Min. floor to Max. floor Comment


ceiling height (m) loadings – kN/m2

TOTAL FLOOR AREA

Quality Standards
External elevations:

Internal finishes:

Heating & ventilation:

Lighting:

Site works:

Other (specify):

Exclusions from budget:

Page 4 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

REPORT TO CLIENT AND DESIGN TEAM (continued)

Alternative standards

Alternatives Cost: Comment


extra/saving

Budget prepared by:

Signature: ____________________________________________ Date: ____________________

Firm: ____________________________________________

____________________________________________

____________________________________________

____________________________________________

The Surveyors’ Construction Handbook Part 2, Section 1, Effective from 1/7/03 Page 5
Appendix B (05/03)
PART 2, SECTION 1, APPENDIX B

REPORT TO DESIGN TEAM (referred to in B2.3 of this appendix)

TECHNICAL QUANTITY AND QUALITY PARAMETERS

Budget serial number

BUILDING

Quantity
Gross floor area m2

Maximum square index (Perimeter on plan m.)

No. of storeys Floor to ceiling heights:


lowest floor m.
intermediate floors m.
highest floor m.

Floor/roof zone m.

Calculated external wall/floor ratio Proportion of glazed external wall area %

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

Calculated partition/floor ratio

Lifts Number Type


____________________________ ____________________ _______________________________

Stairs: number of flights

Structural
Ground bearing pressure kN/m2 Ground water level

Floor loadings: Ground kN/m2 (maximum live)


Intermediate kN/m2 (maximum live)
Highest kN/m2 (maximum live)

Roof loading: kN/m2 (maximum live)

Environmental
Fabric ‘U’ values: Roof W/m2°C
Walls (average) W/m2°C
Ground floor W/m2°C

Air change rates and air temperature


(Specify spaces and rates/hour and minimum temperatures)

Heating load kW ( W/m2)

Hot water load kW

Page 6 Part 2, Section 1, Effective from 1/7/03 The Surveyors’ Construction Handbook
Appendix B (05/03)
PART 2, SECTION 1, APPENDIX B

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

TECHNICAL QUANTITY AND QUALITY PARAMETERS (continued)

Lighting levels
(Specify spaces, lux level and load in W/m2)

Total lighting load kW ( w/m2)

Total power load kW ( w/m2)

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

Other

External Works

Site area hectares

Road area m2 Car Parking: Number of spaces No.

Area m2

Pedestrian paved area m2

Boundary walls or fencing m2

Other

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

The Surveyors’ Construction Handbook Part 2, Section 1 Effective from 1/6/98 Page 7
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

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

COST PLAN Building: .....................................................................................................

Element Total cost Cost per m2 Element unit Element unit


quantity rate

1 Substructure

2A Frame
2B Upper floors
2C Roof
2D Stairs
2E External walls
2F Windows and external doors
2G Internal walls and partitions
2H Internal doors
2 Superstructure

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

4 Fittings

5A Sanitary appliances
5B Services equipment
5C Disposal installations
5D Water installations
5E Heat source
5F Space heating and air treatment
5G Ventilating systems
5H Electrical installations
5I Gas installations
5J Lift and conveyor installations
5K Protective installations
5L Communications installations
5M Special installations
5N Builder’s work in connection
5O Builder’s profit and attendance
5 Services

Building sub-total

6A Site works
6B Drainage
6C External services
6D Minor building works
6 External works

7 Preliminaries
Total (less contingencies)

8 Contingencies

Construction costs

Page 8 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

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

COST PLAN Building: .....................................................................................................

Elements Specification included in Alternatives Cost + or –


budget/cost plan

1 Substructure

2A Frame

2B Upper floors

2C Roof

2D Stairs

2E External walls

2F Windows and external doors

2G Internal walls and partitions

2H Internal doors

3A Wall finishes

3B Floor finishes

3C Ceiling finishes

4 Fittings and furnishings

5A Sanitary appliances

5B Services equipment

5C Disposal installations

Page 9 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

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

SPECIFICATION Building: ................................................................................................

Elements Specification included in Alternatives Cost + or –


budget/cost plan

5D Water installations

5E Heat source

5F Space heating and air treatment

5G Ventilating systems

5H Electrical installations

5I Gas installations

5J Lift and conveyor installations

5K Protective installations

5L Communication installations

5M Special installations

5N Builder’s work in connection with


services

5O Builder’s profit and attendance on


services

6A Site work

6B Drainage

6C External services

6D Minor building works

Page 10 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX B

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

COST TARGETS
Building: .......................................................... Price base: ............................................ 19 ...............

Elements Parameter Rate Target cost Cost per m2

Page 11 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix B (4/98)
PART 2, SECTION 1, APPENDIX C

Appendix C: Element Unit Quantities Generation for Hypothetical


Buildings
Where very little quantity information is available at the early stages of a project,
estimates of elemental quantities can be produced using standard formulae and typical
assumptions. Some of the most common formulae and some worked examples are
given here.

WALL TO FLOOR RATIO

This is a simple method of expressing the relationship of the external walls to internal
floor area. It is the ratio of the area of external walls (including windows and doors) to
the gross internal floor area.

Formula w = e where e = area of external walls including


A windows and doors
A = gross internal floor area
w = wall to floor ratio

SQUARE INDEX

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

Formula s = p where p = perimeter length on plan



4í a a = area on plan (not the gross floor area in
multi-storey buildings)
s = square index

DENSITY OF VERTICAL DIVISION

This density provides a coarse measure of the amount of partitioning, loadbearing


walls, etc. that a building contains. As the formula includes the perimeter of the
building, it takes into account the contribution to the enclosure of spaces that this
makes.

Formula d = ( 1–2 åp) + L where p = sum of the perimeter lengths of a


building measured on each floor
A
L = total length of partitions, etc. measured
over doors
A = gross internal floor area
d = density of vertical division

The Surveyors’ Construction Handbook Part 2, Section 1 Effective from 1/6/98 Page 1
Appendix C (4/98)
PART 2, SECTION 1, APPENDIX C

Example of element quantity generation for a hypothetical building


ASSUMPTIONS

From brief, gross floor area = 1350 m2 (including circulation)


Site area dictates a two storey solution = 2 storeys
Average floor to ceiling height: 2.7 m.
Assumed floor/roof zone: 0.6 m.
Square index*: 1.4
Wall to floor ratio*: 0.7
Percentage of windows and doors in external walls*: 30%
Density of vertical division*: 0.3
Area of ground floor = 675 m2

* These parameters can be based on information from typical or similar schemes.

The quantities calculated in this, or similar ways, can then be used with selected
element unit rates to calculate budgets and cost plans for projects in the earliest stages
of design, or for checking the approximate cost difference of alternative design
solutions.

† A percentage can be used to split ‘wall’ from ‘window’, e.g. window and door area
= external walls × w = 945 m2 × 30% = 284 m2.

Page 2 Part 2, Section 1 Effective from 1/6/98 The Surveyors’ Construction Handbook
Appendix C (4/98)
PART 2, SECTION 1, APPENDIX C

where A= gross floor area


n= number of storeys
a= ground floor area
s= square index
f= floor to wall ratio
d= density of vertical division
w= percentage of windows and doors in external walls.

The Surveyors’ Construction Handbook Part 2, Section 1 Effective from 1/6/98 Page 3
Appendix C (4/98)
PART 2, SECTION 1, APPENDIX D

Appendix D: Further reading


A selection of further reading is given below. Whilst not comprehensive it is
considered to be appropriate. Copies of articles and older books are available from the
RICS Library whilst current books are available from RICS Books
(www.ricsbooks.com).

BOOKS
Ahuja, H. N., Successful Construction Cost Control, John Wiley & Sons, New York,
1980
Ashworth, A. and Hogg, K., Willis’s Practice and Procedure for the Quantity
Surveyor (11th edition), Blackwell Science, Oxford, 2001
Ashworth, A., Building Economics and Cost Control: Worked Solutions,
Butterworths, London, 1983
Ashworth, A., Contractual Procedures in the Construction Industry (4th edition),
Longman, 2001
Ashworth, A., Cost Studies of Buildings (3rd edition), Longman, Harlow, 1999
Ashworth, A., Pre-Contract Studies: Development, Economics, Tendering and
Estimating (2nd edition), Blackwell, Oxford, 2002
Bathurst, P. E. and Butler, D. A., Building Cost Control Techniques and Economics
(2nd edition), Heinemann, London, 1980
Brandon, P. (ed.), Building Cost Techniques: New Directions, E & FN Spon, London,
1982
Brandon, P. S. (ed.), Building Cost Modelling and Computers, E & FN Spon, London,
1987
Buchan, R. D., Fleming, F. W. E. and Grant, F. E. K., Estimating for Builders and
Surveyors (2nd edition), Butterworth Heinemann, Oxford, 2003
Building Cost Information Service, Elements for Design and Build, BCIS, Kingston
upon Thames, 1996
Building Cost Information Service, Standard Form of Cost Analysis: Principles,
Instructions and Definitions, RICS, 1969 (reprinted August 2001)
Cartlidge, D. P. and Mehrtens, I. N., Practical Cost Planning: A Guide for Surveyors
and Architects, Hutchinson, London, 1982
Chudley, R. and Greeno, R., Building Construction Handbook (4th edition),
Butterworth Heinemann, Oxford, 2001
Ferry, D. J., Ferry, J. D. and Brandon, P. S., Cost Planning of Buildings (7th edition),
Blackwell Science, 1999
Egan, J. and Construction Task Force, Rethinking Construction, DETR, London, 1998

Gruneberg, S. L. and Weight, D. H., Feasibility Studies in Construction, Mitchell,


London, 1990

The Surveyors’ Construction Handbook Part 2, Section 1, Effective from 1/7/03 Page 1
Appendix D (05/03)
PART 2, SECTION 1, APPENDIX D

Hackett, M. et al., Pre-Contract Practice and Contract Administration for the Building
Team (9th edition), Blackwell, Oxford, 2002

Hall, F. and Greeno, R., Building Services Handbook (2nd edition), Butterworth
Heinemann, Oxford, 2003

Institution of Civil Engineers, Management of International Construction Projects,


Thomas Telford, London, 1985

Jaggar, D. et al., Building Design Cost Management, Blackwell, Oxford, 2002

Jaggar, D. and Morton, R., Design and the Economics of Building, E & FN Spon,
London, 1995

Jaggar, D. M. and Liverpool John Moores University, Civil Engineering Cost Analysis
(CECA), BCIS, Kingston upon Thames, 1997

Kelly, J. et al., Best Value in Construction, Blackwell, Oxford, 2002

Kharbanda, O. P., Stallworthy, E. A. and Williams, L. F., Project Cost Control in


Action (2nd edition), Gower Technical Press, Aldershot, 1987

Latham, M. and Department of the Environment, Constructing the Team: Joint Review
of Procurement and Contractual Arrangements in the United Kingdom Construction
Industry: Final Report July 1994, HMSO, London, 1994
Masterman, J., Introduction to Building Procurement Systems (2nd edition), Spon
Press, 2001
McCabe, S., Benchmarking in Construction, Blackwell Science, Oxford, 2001

Miller, F., Building and Civil Engineering Cost-Value Comparisons, Ruthtrek


Limited, Herne Bay, 1992

Neil, J. N., Constructing Cost Estimating for Project Control, Prentice Hall Inc., New
Jersey, 1982

Nisbet, J., Estimating and Cost Control, Batsford, London, 1961


Pilcher, R., Project Cost Control in Construction (2nd edition), Blackwell Scientific
Publications Ltd, Oxford, 1994
Royal Institution of Chartered Surveyors, Developing an Appropriate Building
Procurement Strategy (see part 3, section 1 of this handbook)

Seeley, I. H., Building Economics: Appraisal and Control of Building Design Cost and
Efficiency (4th edition), Macmillan, Basingstoke, 1996

Stone, P. A., Building Design Evaluation: Costs in Use (3rd edition), Spon, 1980

Stone, P. A., Building Economy, Design Production and Organisation (3rd edition),
Pergamon Press, Oxford, 1983

Strategic Forum for Construction, Accelerating Change, Rethinking Construction,


2002
Ward, S. A., Cost Engineering for Effective Project Control, John Wiley & Sons, New
York, 1992

Page 2 Part 2, Section 1, Effective from 1/7/03 The Surveyors’ Construction Handbook
Appendix D (05/03)
PART 2, SECTION 1, APPENDIX D

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

The Surveyors’ Construction Handbook Part 2, Section 1, Effective from 1/7/03 Page 3
Appendix D (05/03)
PART 2, SECTION 2

PART TWO: CONSTRUCTION DESIGN & ECONOMICS

I SECTION 2: LIFE CYCLE COSTING

Introduction
It is becoming increasingly important that investment appraisal uses a whole
life approach in a more systematic way than at present. Major construction
clients are now insisting upon an analysis of life cycle costs and not just
capital costs.

The life cycle cost (LCC) of an asset is defined as the present value of the total
cost of that asset over its operating life (including initial capital cost,
occupation costs, operating costs and the cost or benefit of the eventual
disposal of the asset at the end of its life).

Life cycle cost techniques can be used, for example, to:

• evaluate design options at the elemental or component level;


• evaluate total building options, for example refurbishment versus new
build;
• determine optimum maintenance strategies;
• analyse relocation strategies; and
• determine sinking fund requirements to finance planned maintenance
programmes.

Worked examples for the above are included in 2.2.5.

The objective of this Section is to inform chartered surveyors of the increasing


need to adopt life cycle costing (2.2.1) and to introduce them to the techniques
and their application.

2.2.1 The Client Context

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

2.2.1.2 VALUE ENGINEERING


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

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 1
PART 2, SECTION 2

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

2.2.1.3 THE LATHAM REPORT


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

2.2.1.4 CONSTRUCTION (DESIGN AND MANAGEMENT) REGULATIONS 1994


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

“(2) Every designer shall:

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

(i) to avoid foreseeable risks to the health and safety of any


person at work carrying out construction work or
cleaning work in or on the structure at any time, or of
any person who may be affected by the work of such a
person at work,

(ii) to combat at source risks to the health and safety of any


person at work carrying out construction work or
cleaning work in or on the structure at any time, or of
any person who may be affected by the work of such a
person at work.”

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

1
Latham, M., Sir, (1994), Constructing the Team: Joint Review of Procurement and Contractual
Arrangements in the United Kingdom Construction Industry: Final Report, HMSO London

Page 2 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

associated with fumes and vapour when cork has to be resealed. In purely
capital cost terms, the selection of the materials referred to above may be more
expensive than their traditional counterparts.

The use of life cycle costing places initial capital cost in the context of future
maintenance expenditure, and helps justify decisions which have beneficial
health and safety implications.

2.2.1.5 THE PRIVATE FINANCE INITIATIVE (PFI)


The PFI is driven by a cash flow which is achieved by the private sector
provider delivering a service to the client. This service will include the
management of a building which should be heated, cooled, lighted, cleaned,
maintained, secured, insured and renovated. This cash flow should
sufficiently cover all costs and outgoings, leaving the provider with a surplus
or profit which should be commensurate with his risk exposure.

It is therefore critical that the provider accurately predicts the cost in use of the
service or the facility over its operational life so that he can calculate the cash
flows generated by the assets over the term of the contract. Such data is vital
so as to negotiate the complexities of the contract to both parties’ satisfaction.
To assist this process some suppliers give guaranteed long-term costs, e.g. for
lifts and kitchen equipment. By reducing costs over this term it should be
financially viable for the private sector to provide a service to the public sector
and to achieve an acceptable return.

Life cycle costs and their accurate prediction, control and reduction are critical
to the successful performance of a PFI deal.

2.2.1. ENERGY EFFICIENCY ISSUES IN RELATION TO BUILDING PROJECTS


Studies by the Building Research Establishment through the BRECSU
(Building Research Energy Conservation Support Unit) ‘Best Practice
Programme’ have found that energy consumed to heat, light and service
buildings accounts for almost half of the UK’s energy bill, and there is
considerable scope to reduce it. Office buildings were found to have the
highest energy costs, especially prestigious, air conditioned property
(typically £20/m2 per year in 1991 compared to £15/m2 for the same ‘best
practice’ office).

There is common feeling that property overheads are too large, with energy
bills contributing significantly to the operating costs. Energy costs are
potentially one of the most controllable items of overheads and life cycle
costing can be used as a tool for predicting the benefits of investment in
energy efficiency. Typical investments for analysis would be economic
thickness of insulation, energy efficient services, building energy
management system installations, intelligent buildings, energy conscious
refurbishment of buildings and passive cooling techniques versus air
conditioned design. For example, a manufacturer can supply a light bulb some
ten times more expensive than a normal one, however, it lasts longer, uses less

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 3
PART 2, SECTION 2

electricity and performs better. Similarly, condensing gas boilers can save
10–20% of fossil fuel bills with pay back in five years.

It is also worth noting that oil is becoming increasingly harder to extract and
environmental concerns generally will increase in the very near future.
Sainsbury has been the first grocery retailer to produce an environmental
report and recognises that energy probably accounts for its single biggest
direct environmental impact. Significantly it is also the third largest
controllable cost in running a typical supermarket.

2.2.1.7 MECHANICAL AND ELECTRICAL BUILDING SERVICES


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

2.2.1.8 BUILDING SUSTAINABILITY


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

Buildings have not been traditionally designed for anything beyond their
immediate requirement. However, as more are being converted to alternative
uses it is probably only a matter of time before investors in property call for
properties to be constructed with a view to extending the building’s usable
life, e.g. conversion to house a growing less mobile and aged population. Such
consideration is more valid the shorter the predicted current building life, e.g.
some light industrial units for English Partnerships have been designed for a
ten-year life. Similarly, Hertfordshire County Council have housing and
nursing homes with a 20-year life expectancy.

Such a concept will require building layouts and structures to be more flexible
with maintenance, re-servicing and conversion to alternative uses being
simplified and made more economical. A cost in use study at design stage may
justify larger bay sizes, raised flooring or greater storey heights to demonstrate
continual viability for future generations.

A cost in use study would explore the economics involved of using a building
for its notional design life and for its intended use in the usual way. However,
supplementary investigations would explore potential alternative uses for the
building and the conversion cost (and possibly the cost in use for a further
notional period). If sufficient consideration were to be given at the initial
design stage for potential future uses of a building, it could be used to
demonstrate the continued asset value of the property and go a considerable

Page 4 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

way to minimising the obsolescent properties which currently dominate


certain market sectors.

2.2.2 The Life Cycle Costing Calculation


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

• the building life;


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

2.2.2.1 THE BUILDING LIFE


An essential element of life cycle costing is defining the life cycle period to be
adopted. An assessment must therefore be made of the life of the investment –
‘building life’.

Typically the relevant building life will be the period over which the
organisation, for whom the study is being conducted, will be expected to hold
an interest in the building, and would take into account the residual value.

At the end of the life of a building, the building (or component) and the land
will have a residual value. In the case of relatively short life cycles or high
value land, residual values can be very significant factors in determining the
optimum life cycle cost options. Residual values are briefly discussed in
Appendix A (and worked example 2.2.5.3 includes a residual value in the
calculation).

When the building life is assessed to be over 40 years, the precise life is not
critical for the purposes of life cycle costing (as discounting, explained below,
minimises the effect of such future payments). In cases where calculations are
based on a relatively short building life, say 20 years or less, the assessment of
the time horizons must be considered with special care.

Building life is influenced by obsolescence, the causes of which are


summarised in Appendix B.

2.2.2.2 THE DISCOUNT RATE


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

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 5
PART 2, SECTION 2

As ‘money today’ has a different value from ‘money tomorrow’ or ‘money in


ten years’ time’, a technique has to be adopted that will express future costs or
revenues in present values. The process of converting ‘future money’ to
‘present money’ is called discounting.

Discounting involves establishing the discount rate to be used. In making the


decision on a discount rate for a particular project, some judgement will need
to be made about the degree of risk return (interest) and the likely levels of
future inflation rates.

Interest rates are particular to the client and the degree of risk. It is therefore
essential to involve the client (and his accountant if appropriate) in the process
and reach agreement on the discount rate to be used.

Economists, accountants and clients will all have different views about future
levels of inflation and interest rates. Some forecasters may take the view that
as different categories of cost inflate at different rates, these differences
should be taken into account in setting discount rates. These diversities of
view ‘before the fact’ make it difficult to recommend any firm guidelines for
surveyors to adopt for selecting discount rates.

There are two main approaches to discounting:

(a) use a rate which ‘implies’ inflation of future costs and values (in this case
future costs and values will be priced at today’s prices);

(b) use a rate which requires an ‘explicit treatment’ of inflation in relation to


future costs and values, (in this case future costs and values will be priced at
today’s prices and adjusted by a factor to reflect future inflation).

It is suggested that it is easier to deal with the former situation where future
costs and values are assessed at current prices. Three approaches on the
selection of discount rates are given for guidance purposes and in each the
future costs are priced at current prices.

2.2.2.3 DISCOUNT RATE METHODS

(a) Test Discount Rate

In the absence of better information it is recommended that a test discount rate


should be used.

This recommendation is based on the assumption that when inflation rates are
reasonably low, i.e. less than 15%, there is quite a stable relationship between
inflation and the bank base interest rate, implying a real discount rate of
between 4% and 5% (i.e. the interest rate is 4 to 5% greater than inflation). It
is recommended that in the circumstances, where no better information is

Page 6 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

available, a test discount rate of 4% is used. This method is often adopted in


the public sector where minimal risk associated with the investment is
assumed.

(b) No risk return discount rate


Investment in long-term Treasury Bonds can be assumed as having no risk,
and are a good reflection of the return to be expected on other investments
where there is no risk. Therefore the discount rate can be taken as the Treasury
Bond rate less an allowance for the expected rate of inflation. On this basis the
discount rate would be assessed as:

Treasury Bond rate of return 8%


Less
Inflation 5%
——
No risk return discount rate 3%
——

(c) Average risk premium discount rate


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

Average equity rate return 16%


Less
Treasury Bond rate 8%
——–
Average risk premium discount rate 8%
——–

Therefore if construction is deemed to be half as risky as equities, the discount


rate for construction investment could be assessed as:

No risk return 3%
Construction premium risk (8% × ½) 4%
——–
Average construction risk return discount rate 7%
——–

(d) A further approach to establishing a discount rate is to analyse transactions


involving the sale of comparable properties, and to utilise the ‘all risks’ yield
as the discount rate.

In the examples of the calculation of discount rates, concurrent interest and


inflation rates have been added and subtracted in order to clarify the
methodology. This is mathematically imprecise. The actual calculation will
need to be compounded.

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 7
PART 2, SECTION 2

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

Treasury Bond rate of return 8%


Inflation rate 5%

Discount rate (i.e. Treasury Bond rate net of inflation

(1 = Treasury Bond rate)


= ——————————— – 1
(1 + Inflation rate)

1.08
= —— – 1
1.05

= 0.02857

= 2.857%

The same methodology should be adopted for actual calculations using other
methods. As an approximation however this may be ignored.

(e) In summary, the effect of future payments on an LCC calculation is in


inverse proportion to the level of discount rates i.e. the higher the discount rate
the less effect future payments have on the LCC calculation. For example, a
risk taking client is less likely to spend money on the building to reduce future
costs since he can use this money to get a higher return elsewhere.

Selection of a suitable discount rate is crucial as it can overwhelm all other


decisions.

Once the discount rate is established valuation tables can be used to convert
future payments to present value. For example, the present value of £100 to be
paid in five years’ time at a discount rate of £4% =

£100 × 0.82192 (from valuation tables at 2.2.5.7 ‘present value of £1’) =


£82.19

Such conversion of future payments to present value provides a basis for


comparing alternative expenditures.

2.2.2.4 THE COST AND FREQUENCY OF FUTURE PAYMENTS


The costs are generally dealt with using current prices (using the discount rate
to allow for inflation), with assumptions made regarding when payments will
occur in the future. 2.2.4 includes possible sources for such data.

Depending upon requirements, some calculations will be relatively


straightforward (see the option appraisal exercise for internal doors as shown

Page 8 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

in the worked examples). However, all expenditure throughout the life of the
building could be included if the total building analysis were required.

The major categories of costs are:


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

An expanded check list of costs is given in Appendix C.

Estimates for these costs will be based upon assumptions about future events
and should be clearly stated. Indeed an additional advantage of life cycle
costing is that it requires design assumptions to be stated explicitly rather than
implied.

Although current costs are generally used, it is important that future cost
assessment should reflect any expected divergence of a specific cost from the
level of inflation allowed in the discount rate. For example, it would be unwise
to assume that market conditions would remain unchanged for any extended
period when tender levels for building work are very depressed. Some
allowance should therefore be made to adjust current building prices to more
normal market conditions when pricing future building work.

The level of detail used will be dictated by the availability of information and
the requirements of the client.

The following costs for each category should be considered and where
necessary established with the client.

(a) Capital costs – include land, building, professional fees, furniture and
equipment, or permanent improvements thereto, which form assets for the
business to use in its operation, with an intended useful life of more than one
year. The significance of any tax benefits and grants should be established
with the client.

(b) Financing costs – the method of funding the project should include, inter
alia, the cost effect of alternative sources of funds, the future flexibility of
funds in terms of amounts and sources, and gearing. Consideration should also
be given to
• the accounting effect of capital employed;
• construction period finance charges and long-term finance costs; and
• the taxation implications of the various options.

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 9
PART 2, SECTION 2

(c) Operation costs – include estimates of rent, rates, energy costs, cleaning
costs, building related staffing costs and other staffing costs.

(d) Annual maintenance costs – average maintenance costs are available but
once details of design are completed, a more relevant estimate can be
produced based on information obtained from manufacturers or maintenance
managers.

(e) Intermittent maintenance, replacement and alteration costs – replacement


costs can be produced using normal cost estimating techniques.

In seeking a realistic assessment of the life of materials and components,


reference should be made to manufacturers, maintenance managers and other
sources of such data (as discussed in 2.2.4).

(f) Occupancy costs – the cost of performing the function for which the
building is intended (e.g. producing motor vehicles). Occupancy costs are
distinguished from operation costs, as they relate to costs attributable to a
specific process undertaken by the client, which may change within the life of
the building. As an example, a car manufacturer may change to the production
of heavy goods vehicles. This would impact on his occupancy costs, whereas
his building related operation costs could be relatively unchanged. Some
clients might not require the surveyor to take these costs into account, as not
relating directly to the building.

(g) Residual values and disposal costs – estimate of the resale value and the
cost of disposing of the building, plant, land and other assets after the expiry
of the life cycle. Many buildings, particularly those with an ‘open market
value’ will have a significant residual value. Care should be taken in assessing
this value as it can have a major effect on the life cycle costing calculations
(see Appendix A).

2.2.3 Tax Allowances, Incentives and Business Rates


INTRODUCTION
This Sub-section deals with the effect of taxation allowances and incentives
available for expenditure upon property and construction applicable in the
United Kingdom to date, during the life of the asset. A glossary of terms is
included in Appendix D.

Currently, legislation offers tax relief by allowing expenditure upon certain


assets to be depreciated, and to be offset against a private commercial
organisation’s taxable profits.

Tax relief is available on both capital and revenue expenditure. Capital costs
receive this relief by way of capital allowances which are deductible items
from the taxpayer’s taxation liability account. Maintenance costs are a charge
on the profit and loss account, which again reduces the tax payable.

Page 10 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

The significance of tax relief depends upon the amount of allowable


expenditure. This varies considerably, being dependent upon the type and
function of the asset, its design and sophistication (particularly in respect of
services) and whether or not the project is a new building or a refurbishment.

The impact of tax relief on the life cycle evaluation lessens proportionately
with the ratio of allowable expenditure to the total expenditure and the timing
of relief, which is dependent on the annual rate of taxation allowances. For
example, a new oil refinery will have a greater proportion of allowance than a
shop unit shell. It is also worth noting that capital allowances tend to be
greater on plant than on buildings, so making the use of efficient plant more
attractive than increasing the thermal efficiency of the building.

The impact of tax relief should be sensitively tested at the earliest possible
stage. A detailed estimate of the allowable expenditure should only be
prepared if tax relief is found to be significant.

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

Where capital
Where capital allowances are Relief given
allowances are allowed on 100% on
allowed on 50% of of capital maintenance
No relief capital expenditure expenditure 100%

£ £ £ £

Expenditure 1,000 1,000 1,000 1,000

Tax relief assuming 35% 1111 222 350


Corporation Tax

Net discounted cost after 1,000 889 778 650


tax relief

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

2.2.3.2 TYPES OF ALLOWANCES

The types of allowances and rates of depreciation often change.

Following the Finance Act 1985, capital allowances available that relate to
Real Property were as follows:

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 11
PART 2, SECTION 2

Allowable expenditure Timing or percentage per annum


Plant and machinery 25% (reducing balancing)
Industrial buildings 4% (straight line)
Agricultural buildings 4% (straight line)
Dredging 4% (straight line)
Scientific research 100%
Cemeteries and crematoria Ratio based upon grave spaces used
Dwelling houses let on assured tenancies –
only expenditure expended prior to
1 April 1987 4% (straight line)
Hotels 4% (straight line)
Enterprise zone building expenditure 100%
Mining and certain related construction works 40% plus a ratio based upon usable life

Subsequent to the Finance Act 1997 first year allowances were changed and at
the time of writing were still being finalised.

In certain circumstances allowances may be at a higher rate i.e. they relate to


specific incentives, certain assisted projects or expenditure relates to a
transitional period e.g. terms of the Finance Act 1984 (applicable until 31
March 1987).

Different types of allowances, initial, first year and writing down are
explained in the Glossary of Terms (Appendix D).

Straight line allowances are calculated as a percentage of original cost and at


4% the allowance is spread evenly over 25 years. A reducing balance
computation is achieved each year by first deducting all previous allowance
amounts from original cost and then applying the allowable percentage to the
balance, i.e. 25% in the first year, 25% of 75% in the second, and so on. While
the building itself may be subject to a 4% straight line allowance the plant and
machinery in the building will receive a 25% reducing balance.

It should be noted that the significant part of capital allowance relief on a 25%
reducing balance basis comes in the first five to seven years. This is included
in the above example where the tax relief amount is a product of the
incremental annual writing down allowance, discounted.

Regional development grants (or their Northern Ireland equivalent) may also
be available. These are not treated as taxable and may be disregarded when
assessing the capital cost upon which tax relief is calculated.

Currently the running and maintenance costs of an asset are deductible in full
(i.e. 100% allowance) against taxable profits in the year of expenditure.

2.2.3.3 VALUE ADDED TAX (VAT)


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

Page 12 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

2.2.3.4 CALCULATION OF THE EFFECT OF CAPITAL AND REVENUE ALLOWANCES


Before calculating the effect of taxation allowances, certain parameters need
to be ascertained:

(a) the Corporation Tax and allowances rate that will be current at the date of
construction of first use;

(b) the future Corporation Tax and allowance rate at the date of replacement;

(c) the Corporation Tax rate current at dates between date of construction of
first use and the date of replacement, against which revenue running costs can
be charged;

(d) whether the owner will be liable to tax during the period between the date
of construction or first use and the date of replacement, and if the owner will
have sufficient taxable profits to use the allowances generated in any one year.

(e) whether the item’s economic life will be shorter than the tax write down
period. This will either generate an added write down amount when it is
demolished, or if the item or building is to be sold at the end of its economic
life, its profit or loss on cost. These circumstances will generate a taxable
profit or loss on proceeds above or below the tax write down value and will
attract a balancing adjustment;

(f) the value of the balancing allowances, charges or taxable profits needs to
be considered against the relevant Corporation Tax rate;

(g) the impact of these adjustments therefore needs to be taken into account in
the life cycle costing assessment.

Caution is further necessary as there are specific restrictions. The recipient has
to prove to the Inland Revenue that he qualifies for allowances (i.e. the
entitlements are aimed at providing incentives for commercial organisations
and therefore expenditure upon residential property is largely excluded.
Entitlements are also restricted between connected persons).

2.2.3.5 DYNAMICS
The surveyor should therefore appreciate the variables and frequent changes
that occur in respect to the application of taxation allowances.

These arise because:

(a) the Government uses taxation to impose fiscal policy and influence the
economy and therefore statutes are introduced amending previous rates of
depreciation, regulations and entitlements;

(b) the interpretation of entitlement is affected by case law precedents.

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 13
PART 2, SECTION 2

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

2.2.3.6 APPLICATIONS
Taxation allowances provide the opportunity for innovative funding
arrangements whereby the tax relief can be ‘exported’ to a party who can
enjoy more benefit from the entitlement.

They also need to be advised during property transfers so the relevant


balancing adjustments can be calculated and the purchasers advised of their
proper entitlements.

2.2.3.7 WORKED EXAMPLES


Worked example 2.2.5.3 summarises the effect of capital and revenue
allowances. Worked example 2.2.5.6 includes a detailed calculation of the
capital and revenue allowances.

Business Rates

Large plant and machinery regarded as an integral part of the building can
attract additional rates which can be influenced by design niceties (such as how
the plant is covered over). Expert advice should be sought in such a situation.

Further reading for taxation

Tolley’s Capital Allowances, Tolley Publishing Co. Ltd – generally published


annually.

Butterworths Yellow Tax Handbook, Butterworth & Co. (Publishers) Ltd –


abstract of Statutes

Tax Statutes and Statutory Instruments, CCH Editions Ltd – incorporating


extra statutory concessions

2.2.4 Data Sources


Lack of data in a suitable format for maintenance, replacement and energy
costs is said to be a significant reason for LCC rarely being carried out at
present. Notwithstanding this, Building Surveyors and Facility Managers will
often have valuable in-house data. Furthermore, professional judgement
should not be disregarded.

LCC calculations require information regarding the durability of


materials/components, and/or energy costs. Lack of such accurate data in a
suitable format may affect the credibility of the LCC calculation. However,
while historic data is useful, reality is dependent upon individual design,
installation and usage as well as technical development.

Page 14 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

Whilst the selection of data sources given in Appendix F is not


comprehensive, it gives an indication of the level of information available.
Trade literature which is a prime source of detailed information is not
included.

2.2.5 Worked Examples


INTRODUCTION
Life cycle costing can be used in numerous situations. The intention of this
Sub-section is to give the reader an appreciation of its application, as used by
surveyors in practice, and the relative complexities of associated calculations,
ranging from a simple elemental option appraisal to complex total building
analyses.

The examples follow in order of complexity, worked examples 2.2.5.1 and


2.2.5.2 will readily convey the principles of life cycle costing including
discounting. The remainder consider more detailed scenarios.

2.2.5.1 DESIGN OPTION: INTERNAL DOORS


This example is kindly provided by Messrs Gardiner & Theobald, Chartered
Quantity Surveyors. The objective is to evaluate four comparative
specifications over a building life of 60 years using a discount rate of 4% (7%
interest rate less 3% inflation rate). The information is summarised in the table
below with an explanation of the calculation for option 1 detailed at (a) to (d)
below. Any tax implications are excluded.

(a) The present value for purchasing the doors is obviously the same as the
capital cost: £35,000

(b) For the annual running costs:


• £10.89/m2 × 20 m2 = £218
• £218 incurred every year for 60 years at 4% discount
= £218 × 22.6* = £4,927 present value

(c) For maintenance the present cost of £6,040 for new ironmongery and
repainting taking place in, say Year 12 at 4% discount
= £6,040 × 0.62459** = £3,773

(d) The replacement cost after 40 years


= £35,000 (present cost) × 0.20828** = £7,290
• The total present value of the capital cost, annual running cost,
maintenance and replacement costs
= £57,037 showing option 1 is the most expensive life cycle cost
* from valuation tables at 2.2.5.7 (year’s purchase or present value of £1
per period)
**from valuation tables at 2.2.5.7 (present value of £1)

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 15
PART 2, SECTION 2

PROJECT: Life Cycle Model SHEET NUMBER: LCCM5


ELEMENT: Internal Doors
Unit: 20 m2
OPTION 1 OPTION 2 OPTION 3 OPTION 4
PROJECT LIFE 60 Years Aluminium Glazed Hardwood Glazed Softwood Metal
Discount Rate 4.00% per annum Vision Panels
Finish Life Finish Life Finish Life Finish Life
40 Years 30 Years 20 Years 30 Years
Discount Rate 4.00% per annum
(Interest Rate (7%), Inflation (3%)) Maintenance Maintenance Maintenance Maintenance
Period Period Period Period
4 Years 4 Years 4 Years 4 Years
COSTS Estimated Present Estimated Present Estimated Present Estimated Present
Cost Value Cost Value Cost Value Cost Value

Capital Costs
Aluminium Glazed £ 1750.00 m2 35,000 35,000
Hardwood Glazed
Vision Panels £ 1000.00 m2 20,000 20,000
Softwood £ 700.00 m2 14,000 14,000
Metal £ 850.00 m2 17,000 17,000
Contingency – – – –
Total Year 1 Capital Costs 35,000 20,000 14,000 17,000
Annual Running Costs
Aluminium Glazed £ 10.89 m2 218 4,927
Hardwood Glazed
Vision Panels £ 9.99 m2 200 4,520
Softwood £ 5.90 m2 118 2,670
Metal £ 17.99 m2 360 8,140
Total Annual Running Costs 13,068 4,927 11,988 4,520 7,080 2,670 21,588 8,140
Maintenance Year Present
Cost
OPTION 1 Repaint 4 340 340 291
Repaint 8 340 340 248
New ironmongery
Repaint 12 6,040 6,040 3,773
Repaint 16 340 340 182
Repaint 20 340 340 155
New ironmongery
Repaint 24 6,040 6,040 2,356
Repaint 28 340 340 113
Repaint 32 340 340 97
New ironmongery
Repaint 36 6,040 6,040 1,472
Repaint 40 340 340 71
Repaint 44 340 340 61
New ironmongery
Repaint 48 6,040 6,040 919
Repaint 52 340 340 44
Repaint 56 340 340 38
OPTION 2 Repaint 4 300 300 256
Repaint 8 300 300 219
New ironmongery
Repaint 12 6,000 6,000 3,748
Repaint 16 300 300 160
Repaint 20 300 300 137
New ironmongery
Repaint 24 6,000 6,000 2,341
Repaint 28 300 300 100
Repaint 32 300 300 86
New ironmongery
Repaint 36 6,000 6,000 1,462
Repaint 40 300 300 62
Repaint 44 300 300 53

Page 16 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

PROJECT: Life Cycle Model (continued SHEET NUMBER: LCCM5


ELEMENT: Internal Doors
Unit: 20 m2
OPTION 1 OPTION 2 OPTION 3 OPTION 4
PROJECT LIFE 60 Years Aluminium Glazed Hardwood Glazed Softwood Metal
Discount Rate 4.00% per annum Vision Panels
Finish Life Finish Life Finish Life Finish Life
40 Years 30 Years 20 Years 30 Years
Discount Rate 4.00% per annum
(Interest Rate (7%), Inflation (3%)) Maintenance Maintenance Maintenance Maintenance
Period Period Period Period
4 Years 4 Years 4 Years 4 Years
COSTS Estimated Present Estimated Present Estimated Present Estimated Present
Cost Value Cost Value Cost Value Cost Value
Maintenance Year Present
Cost
New ironmongery
Repaint 48 6,000 6,000 913
Repaint 52 300 300 39
Repaint 56 300 300 33
OPTION 3 Repaint 4 320 320 274
Repaint 8 320 320 234
New ironmongery
Repaint 12 3,820 3,820 2,386
Repaint 16 320 320 171
Repaint 20 320 320 146
New ironmongery
Repaint 24 3,820 3,820 1,490
Repaint 28 320 320 107
Repaint 32 320 320 91
New ironmongery
Repaint 36 3,820 3,820 931
Repaint 40 320 320 67
Repaint 44 320 320 57
New ironmongery
Repaint 48 3,820 3,820 581
Repaint 52 320 320 42
Repaint 56 320 320 36
OPTION 4 Repaint 4 300 300 256
Repaint 8 300 300 219
Repaint 12 6,100 6,100 3,810
Repaint 16 300 300 160
Repaint 20 300 300 137
Repaint 24 6,100 6,100 2,380
Repaint 28 300 300 100
Repaint 32 300 300 86
Repaint 36 6,100 6,100 1,486
Repaint 40 300 300 62
Repaint 44 300 300 53
Repaint 48 6,100 6,100 928
Repaint 52 300 300 39
Repaint 56 300 300 33
Replacement Year Present 6,100 3,810
Cost
OPTION 1 40 35,000 35,000 7,290
OPTION 2 30 20,000 20,000 6,166
OPTION 3 20 14,000 14,000 6,389
40 14,000 14,000 2,916
OPTION 4 30 17,000 17,000 5,241
Total Maintenance/Replacement Costs 62,560 17,109 47,000 15,776 46,480 15,917 44,400 14,993

Total Running Costs 75,628 22,037 58,988 20,297 53,560 18,586 65,988 23,132

Total Net Present Value of Life Cycle Costs 57,037 40,297 32,586 40,132

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 17
PART 2, SECTION 2

2.2.5.2 BUILDING SERVICES DESIGN OPTION: AIR CONDITIONING AND UNDER FLOOR
TRUNKING VERSUS HOT WATER HEATING AND RING MAIN ELECTRICS

This example is again provided by Messrs Gardiner & Theobald. The


objective is to evaluate the above options for a building of 3,000 m2 floor area,
a life of 60 years and a discount rate of 4% (7% interest less 3% inflation). The
information is summarised overleaf with the methodology for the calculation
being exactly as that for the previous example. Any taxation implications are
excluded.

Page 18 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

Element: Services
Unit: 3,000 m2

OPTION 1 OPTION 2 OPTION 3 OPTION 4


PROJECT LIFE 60 Years Air Conditioning HW Heating &
Discount Rate 4% per annum U/Floor Trunking Ring Main Electrics

Finish Life Finish Life Finish Life Finish Life


15 Years 25 Years
Discount Rate 4.00% per annum
(Interest Rate (7%), Inflation (3%) Maintenance Maintenance Maintenance Maintenance
Period Period Period Period
5 Years 7 Years Years Years

COSTS Estimated Present Estimated Present Estimated Present Estimated Present


Cost Value Cost Value Cost Value Cost Value

Capital Cost
Air Conditioning U/Floor Trunking £ 250 m2 750,000 750,000
HW Heating & Ring Main Electric £ 150 m2 450,000 450,000
Contingency 5% 37,500 22,500

Total Year 1 Capital Costs 787,500 472,500

Annual Running Costs


Air Conditioning U/Floor Trunking £ 25.00 m2 75,000 1,696,762
HW Heating & Ring Main Electric £ 5.00 m2 15,000 339,352

Total Annual Costs 4,500,000 1,696,762 900,000 339,352

Maintenance Year Present


Cost
OPTION 1 5 5,000 5,000 4,110
Overhall Equipment 10 5,000 5,000 3,378
Overhall Equipment 15 5,000 5,000 2,776
Overhall Equipment 20 5,000 5,000 2,282
Overhall Equipment 25 5,000 5,000 1,876
Overhall Equipment 30 5,000 5,000 1,542
Overhall Equipment 35 5,000 5,000 1,267
Overhall Equipment 40 5,000 5,000 1,041
Overhall Equipment 45 5,000 5,000 856
Overhall Equipment 50 5,000 5,000 704
Overhall Equipment 55 5,000 5,000 578
OPTION 2 7 2,000 2,000 1,520
Genearl repaint/repair 14 2,000 2,000 1,155
Genearl repaint/repair 21 2,000 2,000 878
Genearl repaint/repair 28 2,000 2,000 667
Genearl repaint/repair 35 2,000 2,000 507
Genearl repaint/repair 42 2,000 2,000 385
Genearl repaint/repair 49 2,000 2,000 293
Genearl repaint/repair 56 2,000 2,000 222
OPTION 3
OPTION 4
Replacement Year Present
Cost
OPTION 1 15 600,000 600,000 333,159
30 600,000 600,000 184,991
45 600,000 600,000 102,719
OPTION 2 25 300,000 300,000 112,535
50 300,000 300,000 42,214
OPTION 3
OPTION 4
Total Maintenance/Replacement Costs 1,855,000 641,278 616,000 160,375

Total Running Costs 6,355,000 2,338,040 1,516,000 499,728

Total Net Present Value of Life


Cycle Cost 3,125,540 972,228

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 19
PART 2, SECTION 2

2.2.5.3 MAINTENANCE OPTION: WITH/WITHOUT CLEANING GANTRY

This example is kindly provided by Gerald Hall.

The following figure compares two options, firstly to provide the cleaning
gantry and secondly to omit the gantry. The capital cost and costs associated
with anticipated maintenance were calculated by using normal cost estimating
techniques.

Assumed criteria:

– Building Life 25 years


– VAT assumed to remain at current levels with the client
being an ‘end user’ under VAT rules 17.5%
– Gantry capital cost £30,000
– The gantry will have a residual value £2,000
– Capital cost for opening lights in lieu of gantry £5,000
– Discount rate (assuming the interest rate will average 11%
over 25 years and the inflation rate 6%) 5%
– Corporation Tax 33%

Taxation Calculation

The capital cost for plant and machinery receives a 25% reducing balance.
Maintenance and running costs receive 100% allowance.

Year 1 with gantry calculation:


£
Capital £35,250 × 25% × 33% = 2,908
Maintenance £881 × 33% = 291
——–
3,199
——–
Year 2 with gantry calculation:
£
Capital £35,250 less 25% × 25% × 33% = 2,181
Maintenance £881 × 33% = 291
——–
2,472
——–

The methodology applies for the rest of the 25 years as summarised overleaf.

The client initially considered that the gantry would pay for itself due to
savings in maintenance and cleaning cost.

However:

with gantry investment £36,510 present value


without gantry investment £26,447 present value

Page 20 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
COMPARATIVE COMPONENT LIFE CYCLE COSTING CLIENT:
PROJECT TITLE: Retail Development/Shopping Mall
JOB NO:
OPTION: Cleaning ‘with’ gantry – curtain walling to new facace
Costs TOTAL VAT 17.5% TOTAL Less tax NET TOTAL Present value PRESENT CUMULATIVE
Year Capital Financing Operation Maintenance Occupacy Disposal/ inc VAT allowance of VALUE PRESENT
residual value £1 VALUE
Annual Intermittent
@ 5%
0 30,000 – – – – – – 30,000 5,250 35,250 0 35,250 1.000 35,250 35,250
1 – – – 750 – – – 750 131 881 3,199 (2,318) 0.952 (2,207) 33,043

The Surveyors’ Construction Handbook


2 – – – 750 – – – 750 131 881 2,472 (1,591) 0.907 (1,443) 31,600
3 – – – 750 250 – – 1,000 175 1,175 2,024 (849) 0.864 (733) 30,866
4 – – – 750 – – – 750 131 881 1,518 (637) 0.823 (524) 30,343
5 – – – 750 – – – 750 131 881 1,211 (330) 0.784 (258) 30,084
6 – – – 750 1,750 – – 2,500 438 2,938 1,660 1,278 0.746 953 31,037
7 – – – 750 – – – 750 131 881 808 73 0.711 52 31,089
8 – – – 750 – – – 750 131 881 679 202 0.677 137 31,226
9 – – – 750 250 – – 1,000 175 1,175 679 496 0.645 320 31,546
10 – – – 750 – – – 750 131 881 509 372 0.614 229 31,775
11 – – – 750 – – – 750 131 881 454 427 0.585 250 32,024
12 – – – 750 1,750 – – 2,500 438 2,938 1,092 1,846 0.557 1,028 33,052
13 – – – 750 – – – 750 131 881 383 498 0.530 264 33,316

Part 2, Section 2 (4/99)


14 – – – 750 – – – 750 131 881 360 521 0.505 263 33,580
15 – – – 750 250 – – 1,000 175 1,175 440 735 0.481 354 33,933
16 – – – 750 – – – 750 131 881 330 551 0.458 253 34,186
17 – – – 750 – – – 750 131 881 320 561 0.436 245 34,431
18 – – – 750 1,750 – – 2,500 438 2,938 991 1,947 0.416 809 35,239
19 – – – 750 – – – 750 131 881 307 574 0.396 227 35,467
20 – – – 750 – – – 750 131 881 303 578 0.377 218 35,685
21 – – – 750 250 – – 1,000 175 1,175 397 778 0.359 279 35,964
22 – – – 750 – – – 750 131 881 298 583 0.342 199 36,163
23 – – – 750 – – – 750 131 881 296 585 0.326 191 36,354

Effective from 1/6/99


24 – – – 750 1,750 – – 2,500 438 2,938 973 1,965 0.310 609 36,963
25 – – – 750 – – (2,000) (1,250) 131 (1,119) 311 (1,430) 0.295 (422) 36,541

TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE 36,541


PART 2, SECTION 2

Page 21
COMPARATIVE COMPONENT LIFE CYCLE COSTING (continuation of table on page 21)

Page 22
6 Capital cost as plant and machinery with 100% tax allowance – £
FORECASTER’S ASSUMPTIONS i.e. 1st year 2,908
PART 2, SECTION 2

1 The capital cost includes allowances for preliminaries and associated builders 7 Maintenance and running costs with 100% allowance – ie 1st year 291
work. ———
total 3,199
2 Details of the maintenance requirements and cost estimates can be provided
8 Taxation allowances are subject to negotiation and agreement.
upon request.
9 Discount rate:
3 The life cycle costing is based on an agreed investment life of 25 years.
(i) Interest rate – 11% average over 25 years;

Part 2, Section 2 (4/99)


4 It is assumed that VAT will remain at around 17.5% and the client is the ‘end (ii) Inflation rate – 7% average over 25 years;
user’ under VAT rules. (1 + 11%)
—————
5 There are disposal cost advantages with this option. (1 + 7%) – 1 × 100% = 5% discount rate.

Effective from 1/6/99


The Surveyors’ Construction Handbook
COMPARATIVE COMPONENT LIFE CYCLE COSTING CLIENT:
PROJECT TITLE: Retail Development/Shopping Mall
JOB NO:
OPTION: Cleaning ‘with’ gantry – curtain walling to new facace
Costs TOTAL VAT 17.5% TOTAL Less tax NET TOTAL Present value PRESENT CUMULATIVE
Year Capital Financing Operation Maintenance Occupacy Disposal/ inc VAT allowance of VALUE PRESENT
residual value £1 VALUE
Annual Intermittent
@ 5%
0 5,000 – – – – – – 5,000 875 5,875 0 5,875 1.000 5.875 5,875
1 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.952 1,124 6,999
2 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.907 1,071 8,070
3 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.864 1,020 9,090
4 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.823 971 10,061
5 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.784 925 10,986
6 – – – 1,500 1,500 – – 3,000 263 3,525 1,163 2,362 0.746 1,763 12,749
7 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.711 839 13,587
8 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.677 799 14,386
9 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.645 761 15,147
10 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.614 725 15,872
11 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.585 690 16,562
12 – – – 1,500 – – – 6,500 1,138 7,638 2,521 5,117 0.557 2,849 19,411
13 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.530 626 20,037
14 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.505 596 20,634
15 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.481 568 21,202
16 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.458 541 21,742
17 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.436 515 22,257
18 – – – 1,500 1,500 – – 3,000 525 3,525 1,163 2,362 0.416 981 23,239
19 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.396 467 23,706
20 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.377 445 24,151
21 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.359 424 24,575
22 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.342 404 24,978
23 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.326 384 25,363
24 – – – 1,500 1,500 – – 3,000 263 3,525 1,163 2,362 0.310 732 26,095
25 – – – 1,500 – – – 1,500 263 1,763 582 1,181 0.295 349 26,444

TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE 26,444


COMPARATIVE COMPONENT LIFE CYCLE COSTING (continuation of table on page 23)

Page 24
6 Capital cost as plant and machinery with 100% tax allowance – NIL
FORECASTER’S ASSUMPTIONS
7 Maintenance and running costs with 100% allowance.
PART 2, SECTION 2

1 The capital cost includes allowances for opening lights now required, without 8 Taxation allowances are subject to negotiation and agreement.
capital allowances.
9 Discount rate:
2 Details of the maintenance requirements and cost estimates can be provided
(i) Interest rate – 11% average over 25 years;
upon request.
(ii) Inflation rate – 7% average over 25 years;
3 The life cycle costing is based on an agreed investment life of 25 years. (1 + 11%)
—————

Part 2, Section 2 (4/99)


4 It is assumed that VAT will remain at around 17.5% and the client is the ‘end (1 + 7%) – 1 × 100% = 5% discount rate.
user’ under VAT rules.

5 There are disposal cost advantages with this option.

Effective from 1/6/99


The Surveyors’ Construction Handbook
PART 2, SECTION 2

2.2.5.4 HOUSING SINKING FUND (BASED UPON COSTED PLANNED MAINTENANCE)


(a) Background
This example is kindly provided by Ian Sloan of Armour Construction
Consultants.

Housing Associations and Co-operatives in Scotland generally request that


their investment/sinking fund requirements are prepared in accordance with
the Scottish Federation of Housing Associations’ (SFHA) ‘Planned
Maintenance and Repairs (Revised), Guidance Booklet No 3’ published in
January 1997.

There are various ways of presenting the data. One method widely accepted is
shown below, on two spreadsheets, a Planned Maintenance Programme, and a
‘costed’ Planned Maintenance Programme which establishes in this case the
present value of future costs.

The spreadsheets can be ‘fine tuned’ to meet specific client requirements. In


due course they can be adapted to allow historical information to be fed into
the programme, which then allows actual costs and maintenance periods
incurred to form the basis of the life cycle costs, thereby providing a more
accurate projection.

(b) Brief
The client needed to establish the capital to be invested for a new build
housing project to cover all maintenance and repairs for the next 60 years. The
discount rate is 6%.

An example of the calculation shown overleaf is:

Year 15, total maintenance and repair expenditure at current prices

= £9,013
£9,013 × 0.41726* = £3,761

i.e. £3,761 would have to be invested now for 15 years at 6% compound


interest in order to meet the costs in Year 15 of £9,013. In summary £24,942
would have to be invested now at 6% to cover all maintenance and repairs for
the next 60 years.

The data could also be presented as an annual sinking fund e.g. the amount to
be invested for each of 15 years at 6% compound interest in order to meet the
costs in Year 15 of £9,013 is:

£9,013 × 0.04296** = £387

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


** from valuation tables at 2.2.5.7 (annual sinking fund)

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 25
PLANNED MAINTENANCE PROGRAMME KEY 1 = Inspect/Consider < = Inspect and Remedy T = Test until / = Inspect &
replacement

Page 26
EXAMPLE 1 = Renewal/Replacement < = until Replacement / = Decorate
Date Printed 02/12/98 Cumulative
CODE ELEMENT SUB-ELEMENT COMPONENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost
1.1 STRUCTURE 1.1.1. Roofs Timber < < < < < < 0
PART 2, SECTION 2

1.1.2. Floors Timber < < < < < < 0


STRUC-
1.1.3. Openings Concrete/Brick < < < < < < 0
TURE
1.2 STAIRS 1.2.1. Stairs Timber < < < < < < 0
1.2.2. Handrails etc Timber < < < < < < 0
2.1 ROOF 2.1.1. Roof Tiles etc Concrete Tiles < < < < < < < < < < < < < < < < < < < 1 < < < < < < < < < < 0
2.1.2. Flashings Lead < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
2.1.3. Gutters etc UPVC < < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < 1 0
2.2 EXTERNAL WALLS 2.2.1. Walls Facing Brick < < < < < 0

Part 2, Section 2 (4/99)


2.2.2. Rendering < < < < < < 0
2.2.3. Ventilation < < < < < < 0
EXT 2.3 WINDOWS 2.3.1. Window Op Timber/Glass < < < < < < < < < < < < < < < < < < < 1 < < < < < < < < < < 0
FABRIC 2.3.2. Pointing < < < < < < < < < < < < < < < < < < < 1 < < < < < < < < < < 0
2.3.3. Painting / / / / / / / / / / 0
2.3.4. Ironmongery < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
2.4 EXTERNAL DOORS 2.4.1. Door Operation Timber/Metal < < < < < < < < < < < < < < < < < < < < < < < < < < < < < < 0
2.4.2. Pointing < < < < < < 1 < < < 0
2.4.3. Painting / / / / / / / / / / 0
2.4.4. Ironmongery < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0

Effective from 1/6/99


3.1 INTERNAL WALLS 3.1.1. Walls & Open’s Brick/pboard < < < < < < 0
3.1.2. Wall Tiling Ceramic < < 1 < < <
3.2 CEILINGS 3.2.1. Ceilings Plasterboard < < < < < < 0
INT
3.3 FLOORS 3.3.1. Flooring Timber/Vinyl < < 1 < < 1 0
FABRIC
3.3.2. Skirtings Timber < < < < < < 0
3.4 DOORS 3.4.1. Door Operation Timber < < < < < < < < < < < < < < < < < < < < < < < < < < < < < 1 0
3.4.2. Ironmongery < < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < 1 0
FITTS 4.1 FITTINGS & FURNISH 4.1.1. Kitchen Units Units/Worktops < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
FURN 4.1.2. Grab rails etc < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
5.1 SANITARY APPLIANCES 5.1.1. Sanitary ware Wcs, baths, whbs < < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < 1 0
5.2 SERVICES EQUIPMENT 5.2.1. Kitchen sinks Stainless steel < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
5.3 WATER SUPPLY 5.3.1. Water storage < < < < < < 0
5.3.2. Water pipes etc T T T T T T 0
5.3.3. Insulation < < < < < < 0
SERVICES
5.4.1. INTERNAL DRAINAGE 5.4.2.1. Pipes & Fittns T T T T T T 0
5.4.2. DISPOSAL INST 5.4.1.1. Pipes & Fittns T T T T T T 0
5.5 HEAT SOURCE 5.5.1. Radiators/fires T T 1 T T 1 0
5.6 HEAT SYSTEM 5.6.1. Boilers/equipment < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
5.7 VENTILATION 5.7.1. Fans etc < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0

The Surveyors’ Construction Handbook


PLANNED MAINTENANCE PROGRAMME KEY 1 = Inspect/Consider < = Inspect and Remedy T = Test until / = Inspect &
EXAMPLE (Continued) 1 = Renewal/Replacement < = until Replacement replacement / = Decorate
Date Printed 02/12/98 Cumulative
CODE ELEMENT SUB-ELEMENT COMPONENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost
5.8 ELECTRICAL INST 5.8.1. Power and lighting < < 1 < < 1 0
5.8.2. Switchgear < < 1 < < 1 0
5.8.3. External Lighting Close Light < 1 < 1 < 1 0
5.9 GAS INSTALLATION 5.9.1. Equipment & supply T T T T T 1 0
SER- 5.10 LIFT INSTALLATION – 0
VICES
5.11 PROTECTIVE INST 5.11.1. TV system etc T 1 T 1 T 1 0
5.11.2. Smoke detectors < < < < 1 < < < < 1 < < < < 1 < < < < 1 < < < < 1 < < < < 1 0

The Surveyors’ Construction Handbook


5.1.2 COMMUNICATION 5.12.1. Door entry < < < < < < < < < 1 < < < < < < < < < 1 < < < < < < < < < 1 0
5.12.2 Telephones T T 1 T T 1 0
6.1.1 LANDSCAPING 6.1.1.1. Roads, footpaths < < < < < < < < < < < < < < 1 < < < < < < < < < < < < < < 1 0
6.1.1.2. Grass/planting < < < < < < < < < < < < < < < < < < < < < < < < < < < < < 1 0
6.1.2 BOUNDARIES & 6.1.2.1. Fences and gates < < / < < / < < / < < / < < 1 < < / < < / < < / < < / < < 1 0
EXT
ENCLOSURES 6.1.2.2. Walls etc < < < < < < 0
WORKS
6.1.2.3. Clothes poles / / / / 1 / / / / 1 0
6.2 DRAINAGE 6.2.1. Pipes & fittings < < < < < 1 0
6.2.2. Manholes etc < < < < < < 0
6.3 EXTERNAL SERVICES 6.3.1. Ducts & cables < < < < < 1 0
6.4 OUTBUILDINGS 6.4.1. Binstores/platts < < < < < 1 0
COST IN ,000’s of £ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Part 2, Section 2 (4/99)


Effective from 1/6/99
PART 2, SECTION 2

Page 27
PLANNED MAINTENANCE PROGRAMME (COSTED)
EXAMPLE Date Printed 02/12/98 Years Cumulative

Page 28
CODE ELEMENT SUB-ELEMENT COMPONENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost
1.1 Structure 1.1.1. Roofs Timber 50 50 50 50 50 50 300
1.1.2. Floors ) Timber ) 100 100 100 100 100 100 600
PART 2, SECTION 2

STRUC- 1.1.3. Openings ) Concrete/Brick ) 0


TURE 1.2 Stairs 1.2.1. Stairs Timber 25 25 25 25 25 25 150
1.2.2. Handrails etc Timber 140 140 0
2.1 Roof 2.1.1. Roof Tiles etc Concrete Tiles 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 2380 75 75 75 75 75 75 75 75 75 75 4,555
2.1.2. Flashings Lead 20 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 20 150 990
2.1.3. Gutters etc UPVC 20 20 20 20 20 20 20 20 20 20 20 20 20 20 220 20 20 20 20 20 20 20 20 20 20 20 20 20 20 220 1,000
2.2 External walls 2.2.1. Walls Facing Brick 20 20 20 20 20 20 120
2.2.2. Rendering inc inc inc inc inc inc 0

Part 2, Section 2 (4/99)


2.2.3. Ventilation inc inc inc inc inc inc 0
2.3 Windows 2.3.1. Window Op Timber/Glass 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 2100 10 10 10 10 10 10 10 10 10 10 2,390
EXT
FABRIC 2.3.2. Pointing 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 inc 10 10 10 10 10 10 10 10 10 10 290
2.3.3. Painting 100 100 100 100 100 100 100 100 100 100 1,000
2.3.4. Ironmongery inc inc inc inc inc inc inc inc inc 210 inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc 210 420
2.4 External doors 2.4.1 Door Operation Timber/Metal 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 400 5 5 5 5 5 5 5 5 5 5 545
2.4.2. Pointing 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 inc 5 5 5 5 5 5 5 5 5 5 145
2.4.3. Painting 60 60 60 60 60 60 inc 60 60 60 540
2.4.4. Ironmongery inc inc inc inc inc inc inc inc inc 60 inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc inc 60 120
3.1 Internal walls 3.1.1. Walls & Open’s Brick/pboard 10 10 10 10 10 10 60

Effective from 1/6/99


3.1.2. Wall Tiling Ceramic inc inc 275 inc inc 275 550
3.2 Ceilings 3.2.1. Ceilings Plasterboard 20 20 20 20 20 20 120
INT 3.3 Floors 3.3.1. Flooring Timber/Vinyl 50 50 290 50 50 290 780
FABRIC 3.3.2. Skirtings Timber inc inc inc inc inc inc 0
3.4 Doors 3.4.1. Door Operation Timber 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 1200 3,607
3.4.2. Ironmongery inc inc inc inc inc inc inc inc inc inc inc inc inc inc 480 inc inc inc inc inc inc inc inc inc inc inc inc inc inc 480 960
4.1 Fittings & Furnish 4.1.1. Kitchen Units Units/Worktops 60 60 60 60 60 60 60 60 60 800 60 60 60 60 60 60 60 60 60 800 60 60 60 60 60 60 60 60 60 800 4,020
FITTS
FURN 4.1.2. Grab rails etc 10 10 10 10 10 10 10 10 10 200 10 10 10 10 10 10 10 10 10 200 10 10 10 10 10 10 10 10 10 200 870

5.1 Sanitary Appliances 5.1.1. Sanitary ware Wcs, baths, whbs 5 5 5 5 5 5 5 5 5 5 5 5 5 5 450 5 5 5 5 5 5 5 5 5 5 5 5 5 5 450 1,040
5.2 Services Equipment 5.2.1. Kitchen sinks Stainless steel inc inc inc inc inc inc inc inc inc 160 inc inc inc inc 5 inc inc inc inc 160 inc inc inc inc inc inc inc inc inc 160 485
5.3 Water Supply 5.3.1. Water storage 125 125 125 125 125 250 875
5.3.2. Water pipes etc inc inc inc inc inc 125 125
5.3.3. Insulation inc inc inc inc inc inc 0
SER- 5.4.1 Internal drainage 5.4.2.1. Pipes & Fittns 60 60 60 60 60 60 360
VICES 5.4.2 Disposal inst 5.4.1.1. Pipes & Fittns inc inc inc inc inc inc 0
5.5 Heat source 5.1.1. Radiators/fires 20 20 650 20 20 650 1,380
5.6 Heat system 5.6.1. Boilers/equipment 40 40 40 40 40 40 40 40 40 750 40 40 40 40 40 40 40 40 40 750 40 40 40 40 40 40 40 40 40 750 3,330
5.7 Ventilation 5.7.1. Fans etc 5 5 5 5 5 5 5 5 5 200 5 5 5 5 5 5 5 5 5 200 5 5 5 5 5 5 5 5 5 200 735
5.8 Electrical inst 5.8.1. Power and lighting 100 100 1500 100 100 1500 3,400

The Surveyors’ Construction Handbook


PLANNED MAINTENANCE PROGRAMME (COSTED) (Continued)
EXAMPLE Date Printed 02/12/98 Years Cumulative

CODE ELEMENT SUB-ELEMENT COMPONENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cost


5.8.2. Switchgear inc inc inc inc inc inc 0
5.8.3. External Lighting Close Light inc 100 inc 100 inc inc 200
5.9 Gas installation 5.9.1. Equipment & supply 25 25 25 25 25 25 150
5.10 Lift installation – 0
SER-
VICES 5.11 Protective inst 5.11.1. TV system etc 25 150 25 150 25 150 525
5.11.2. Smoke detectors 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 690
5.1.2 Communication 5.12.1. Door entry n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0
5.12.2. Telephones 10 10 100 10 10 100 240 0

The Surveyors’ Construction Handbook


6.1.1 Landscaping 6.1.1.1. Roads, footpaths 50 50 50 50 50 50 50 50 50 50 50 50 50 50 500 50 50 50 50 50 50 50 50 50 50 50 50 50 50 500 2,400
6.1.1.2. Grass/planting 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 750 3,650
6.1.2 Boundaries & Enclosures 6.1.2.1. Fences and gates 10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000 10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000 10,200
6.1.2.2. Walls etc 50 50 50 50 50 50 300
EXT 6.1.2.3. Clothes poles 40 40 40 40 200 40 40 40 40 750 1,270
WORKS
6.2 Drainage 6.2.1. Pipes & fittings 100 100 100 100 100 500 1,000
6.2.2. Manholes etc inc inc inc inc inc inc 0
6.3 External services 6.3.1. Ducts & cables 25 25 25 25 25 400 525
6.4 Outbuildings 6.4.1. Binstores/platts 50 50 50 50 50 500 750
TOTAL COST PER YEAR £ 518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460 57,902 (Yrs 1–30)
PRESENT VALUE 489 461 1014 410 1082 852 344 325 715 2272 273 600 243 229 3761 204 192 423 171 2704 308 144 136 298 337 114 251 101 96 2692 21241 Yrs 1–30)
(at discount rate of 6%)
Repeat Years 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 (Yrs 31–60)

Part 2, Section 2 (4/99)


Current Cost per yr 518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460 £57902 £115804
(Current cost)
Present Value 85 80 177 71 188 148 60 57 124 395 48 105 42 40 655 36 33 74 30 471 54 25 24 52 59 20 44 18 17 469 £3701 £24942
(Present Value)

Effective from 1/6/99


PART 2, SECTION 2

Page 29
PART 2, SECTION 2

2.2.5.5 CENTRALISATION OF OFFICES STUDY


(a) Brief
This example is kindly provided by Gerald Hall.

The client wished to investigate a centralisation (of offices) strategy as a


means to improve business efficiency in an increasingly competitive market.
The offices were originally spread out over three main sites.

Three options were identified:

• do nothing, although this would require repair and refurbishment of the


existing offices;
• centralise at location A and construct additional new offices;
• centralise at location B and construct additional new offices;

(b) Capital Costs


These were calculated using traditional cost estimating and included cyclical
capital costs. The distinction between cyclical capital costs and cyclical
maintenance costs is often vague, those costs in excess of £10,000 are
included in the capital cost element under the assumption they would be part
of the capital cost programme.

Relocation costs (labour and plant required to transport office equipment,


stores, machinery, compound materials and stationery items) are included
under Year 0 on the assumption they would be complete within 12 months and
a contingency for new furniture included.

(c) Revenue Costs


• fuel: the energy manager provided existing costs which were used as the
basis for the new proposal;
• water costs were excluded (the client was a water company);
• maintenance costs under £10,000;
• rates were not provided by the client by the deadline and are therefore
excluded;
• cleaning costs are based on existing cleaning costs and judgement;
• security costs are based on existing security costs and judgement;
• operation costs for this client included waste removal, water coolers,
sanitary hire, mail collections, fire prevention, telephones, hygiene,
insurances. Again this was based on existing client data plus judgement.
Even with constant staff numbers these costs reduce with centralisation;
• staffing costs were excluded as they would remain constant.

(d) Capital Income


Options 2 and 3 will free up existing space for sale and rent which are included
as a deduction against expenditure.

(e) Discount Rates


In accordance with the client guidelines the investment horizon is 40 years and
the discount rate 8%.

Page 30 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

(f) Tax Implications


Tax allowances have been excluded on the basis that this study is a minor part
of the overall company business and assumptions are not appropriate.

However it is worth noting that:

• Value Added Tax on all capital costs would affect the financial benefits
of options 2 and 3 which require considerable capital expenditure;
• Capital Allowances would help support options 2 and 3.

(g) Renewal and Refurbishment Costs


General building refurbishment has been allowed in ten-year cycles; electrical
and mechanical plant replaced after 20 years with a refurbishment after ten
years or mid-life; felt roofs replaced after 20 years; profiled metal decking,
windows and doors after 30 years. All costs are calculated using traditional
cost estimating and included as present costs.

(h) Cost Comparison


The detailed calculation is summarised over for option 2 which is the most
cost effective over 40 years.

Year 0 Expenditure Year 40 Net Present Value


£ £
Option 1 £203,000 £1,960,950
Option 2 £1,164,900 £1,607,896
Option 3 £1,262,100 £1,843,068

(i) Sensitivity Analysis


An analysis of different discount rates and time frame confirm option 2 as the
most favourable.

Discount Life Cycle Option 1 Option 2 Option 3


Rates £ £ £
6% 0 287,900 1,164,900 1,262,100
6% 20 1,859,000 1,593,000 1,826,100
6% 40 2,444,420 1,762,522 2,047,091
8% 0 287,900 1,164,900 1,262,100
8% 20 1,614,000 1,515,000 1,721,100
8% 40 1,960,950 1,607,896 1,843,068
10% 0 287,900 1,164,900 1,262,100
10% 20 1,423,000 1,451,000 1,638,100
10% 40 1,632,562 1,506,721 1,709,146

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 31
CLIENT WATER COMPANY LIMITED
JOB TITLE CENTRALISATION OF AREA OFFICE STUDY

Page 32
JOB NO 3985
DATE 29th MARCH 1996
YEAR (SEPT 1996) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Total Value
PART 2, SECTION 2

£’000 £000
Capital Costs
Building Works 1176 0 0 0 0 0 0 0 0 0 190 0 0 0 0 0 0 0 0 0 300 0 0 0 0 0 0 0 0 0 393 0 0 0 0 0 0 0 0 0 310 2,369
Relocation Costs 15.5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 16
Furniture 8.5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9
Value 1200 0 0 0 0 0 0 0 0 0 190 0 0 0 0 0 0 0 0 0 300 0 0 0 0 0 0 0 0 0 393 0 0 0 0 0 0 0 0 0 310 2,393
Capital Income

Part 2, Section 2 (4/99)


Annual Rental -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -308
Land Sale -55 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -55
Value -62.5 -7.5 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -363
Revenue Costs
Fuel 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 57
Water 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Maintenance 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 492
Rates 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Effective from 1/6/99


Cleaning 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 70
Security 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 291
Operation Costs 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 213
Staff Costs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Value 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 1,123
Net Cash Flow 1164.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 209.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 319.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 412.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 329.9 0
Present Value of £1 @ 8% 1 0.93 0.86 0.79 0.74 0.68 0.63 0.58 0.54 0.5 0.46 0.43 0.4 0.37 0.34 0.32 0.29 0.27 0.25 0.23 0.21 0.2 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.1 0.09 0.09 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05
NET PRESENT VALUE 1165 18 17 16 15 14 13 12 11 10 97 9 8 7 7 6 6 5 5 5 69 4 4 3 3 3 3 2 2 2 41 2 2 2 1 1 1 1 1 1 15 1608
EXPENDITURE NVP£=1,607,896

The Surveyors’ Construction Handbook


PART 2, SECTION 2

2.2.5.6 TOTAL BUILDING OPTION: DEMOLISH AND REBUILD VERSUS REFURBISHMENT


(a) Brief
The life cycle cost appraisal is to evaluate the life cycle cost effects of the
following options:

• demolish existing building and rebuild to the client’s specific


requirements incorporating ‘all-air’ air conditioning systems;
• refurbish the existing building to meet, as far as practicable, the client’s
requirements, re-using existing systems wherever possible.

The appraisal is to include all taxation implications for comparative purposes.

VAT is to be included as the client is VAT-exempt.

The following costs are to be excluded:

– costs associated with the purchase of land;


– financing charges associated with the redevelopment;
– costs associated with the removal and temporary re-housing of staff
during the construction period;
– occupancy costs;
– residual values of land or buildings.

(b) Discount Rate


The building is in owner-occupation and the client’s accountants have advised
the use of a long-term government stock interest rate of 7%.

The client has been advised that an inflation rate of 3% is a reasonable


assessment.

The discount rate calculation is as follows

[(1.07) – 1]
—— × 100 = 3.88%
[(1.03) – 1]

The client has agreed that the discount rate can be rounded to 4%.

(c) Building Life


It has been agreed with the client to use a 20-year life cycle.

(d) Description of Existing Building


Late 1950s office block of multi-storey framed construction with curtain wall
cladding to front and rear. Solid party walls to both sides. Single-storey
concrete basement.

(e) Description of Existing Engineering Services


Gas-fired low pressure hot water boiler situated in basement serving perimeter
convector system with warm air ventilation to central parts of the building.
Fluorescent luminaires to all office areas and tungsten fittings to circulation.

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 33
PART 2, SECTION 2

(f) Condition of the Existing Building


The building is structurally sound with few defects; however, it is in a poor
state of decorative repair.

(g) Basic Requirements of the Redevelopment


Gross internal area 1500 m2
Ratio of net to gross internal area 70%
Number of occupants 110
Ratio of occupants to net internal floor area 9.7 m2
External wall area (excluding party walls) 700 m2

The adjacent buildings will continue to remain in use as offices during and
after the development.

The structural engineers have advised that no work is required to party walls,
other than temporary shoring.

(h) Summary
Net Present Value
£k
OPTION A
demolish existing building and rebuild to the
client’s specific requirements, incorporating
‘all air’ air conditioning systems; 3889

OPTION B
refurbish the existing building to meet as far as
practicable, the client’s requirements, re-using
systems wherever possible. 2177
———
% difference (A extra on B) 79%
———

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

The calculation of the above is detailed below.

Page 34 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
LIFE CYCLE COST SUMMARY
OPTION A 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year

Costs £k £k £k £k £k £k £k £k £k £k £k £k £k £k £1 £k £k £k £k £k £k

Capital 2154 - - - - - - - - - - - - - - - - - - - -

Financing - - - - - - - - - - - - - - - - - - - - -

Operation - 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104 104

The Surveyors’ Construction Handbook


Maintenance:

annual - 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27 27

intermittent - - - - - 6 3 - - - 62 3 21 - - 22 3 - - - 86

Occupancy - - - - - - - - - - - - - - - - - - - - -

Disposal/residual value - - - - - - - - - - - - - - - - - - - - -

Total 2154 131 131 131 131 137 134 131 131 131 193 134 152 131 131 153 134 131 131 131 217

VAT 17½% 377 23 23 23 23 24 23 23 23 23 34 23 27 23 23 27 23 23 23 23 40

Total (inc VAT) 2531 154 154 154 154 161 157 154 154 154 227 152 179 154 154 180 157 154 154 154 257

0 102 88 78 70 67 61 57 55 53 74 52 55 48 48 56 49 48 48 48 80

Part 2, Section 2 (4/99)


Less Tax allowance

NET TOTAL 2531 52 66 76 84 94 96 97 99 101 153 105 124 106 106 124 108 106 106 106 177

Present value of £1 at 4% 1 .9615 .9246 .8890 .8548 .8219 .7903 .7599 .7307 .7026 .6756 .6496 .6246 .6006 .5775 .5553 .5339 .5134 .4936 .4746 .4564

Present value 2531 50 61 68 72 77 76 74 72 71 103 68 77 64 61 69 58 54 52 50 81

TOTAL NET PRESENT VALUE £3889k

Effective from 1/6/99


PART 2, SECTION 2

Page 35
LIFE CYCLE COST SUMMARY

Page 36
OPTION B
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
PART 2, SECTION 2

Costs £k £k £k £k £k £k £k £k £k £k £k £k £k £k £1 £k £k £k £k £k £k

Capital 904 - - - - - - - - - - - - - - - - - - - -

Financing - - - - - - - - - - - - - - - - - - - - -

Operation - 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89

Maintenance:

Part 2, Section 2 (4/99)


annual - 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

intermittent - - - - - 17 3 - - - 45 3 21 - - 32 3 - - 69

Occupancy - - - - - - - - - - - - - - - - - - - - -

Disposal/residual value - - - - - - - - - - - - - - - - - - - - -

Total 904 104 104 104 104 121 107 104 104 104 149 107 125 104 104 136 107 104 104 104 173

VAT 17.5% 158 18 18 18 18 21 19 18 18 18 26 19 22 18 18 24 19 18 18 18 30

Effective from 1/6/99


Total (inc VAT) 1062 122 122 122 122 142 126 122 122 122 175 126 147 122 122 160 126 122 122 122 203

Less Tax allowance 0 75 66 59 54 56 48 44 43 42 57 41 46 38 38 50 39 38 38 38 63

NET TOTAL 1062 47 56 63 68 86 78 78 79 80 118 85 101 84 84 110 87 84 84 84 140

Present value of £1 at 4% 1 .9615 .9246 .8890 .8548 .8219 .7903 .7599 .7307 .7026 .6756 .6496 .6246 .6006 .5775 .5553 .5339 .5134 .4936 .4746 .4564

Present value 1062 45 52 56 58 71 62 59 58 56 80 55 63 50 49 61 46 43 41 40 64

TOTAL NET PRESENT VALUE £2177k

The Surveyors’ Construction Handbook


PART 2, SECTION 2

CAPITAL

OPTION A OPTION B

GFA: 1500 m2 Total cost £/m2GFA Total cost £/m2GFA


Elemental Cost Plan £k £ £k £

Demolition 70.0 47.0 14.0 9.0

Substructure 42.0 28.0 – –

Superstructure 315.0 210.0 17.5 12.0

External walls 490.0 327.0 101.0 67.0

Internal walls 14.5 10.0 54.0 36.0

Internal finishings 84.0 56.0 105.0 70.0

Fittings/fixtures 2.0 1.0 – –

Sanitary appliances 9.5 6.0 9.5 6.0

Public Health services 21.0 14.0 21.0 14.0

Mechanical services 252.0 168.0 94.5 63.0

Electrical services 147.0 98.0 126.0 84.0

Lift installation 77.0 51.0 91.0 60.0

External work 21.0 14.0 7.0 5.0

Drainage 8.5 6.0 3.0 2.0

Sub-total 1553.5 1036.0 643.5 429.0

Preliminaries 232.0 15% 96.5 15%


(% of sub-total)

Contingencies 46.5 3% 19.5 3%


(% of sub-total)

Total construction cost 1833.0 1222.0 759.5 506.0

Professional fees( 321.0 17.5% 144.5 19%


% of construction cost)

Total capital costs to 2154.0 904.0


life cycle cost summary

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 37
PART 2, SECTION 2

OPERATION

OPTION A OPTION B

£ per annum £ per annum

Energy see next page 13617 9964

Cleaning

OPTION A 10500
Budget allowance £7.00 per m2

OPTION B
Budget allowance £9.00 per m2

NB: existing building materials more 13500


labour intensive for cleaning

Rates (including water rates)

OPTION A 75000
Budget allowance £50.00 per m2

OPTION B 63000
Budget allowance £42.00 per m2

NB: air conditioned building attracts


higher rates

Insurance
Building fabric replacement

OPTION A
Budget allowance 0.2% of building cost 4308
(£2154)

OPTION B

OPTION B 1808
Budget allowance 0.2% of building cost
(£904)

Total operation costs 103425 88272

Total £k to life cycle cost summary 104 89

Page 38 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
ENERGY

SYSTEM OPTION A OPTION B

Building Diversity Unit Area Energy Area Energy


usage energy rate rate
cost

(hrs per (%) (p/kwh) m2 w/m2 kwh* £ per m2 w/m2 kwh* £ per
annum) (a) annum annum
(b) (c) (d) (e) (f) (g) (d) (e) (f) (g)

The Surveyors’ Construction Handbook


f × c/100 f × c/100

Gas

Heating – Option A 2000 50 1.076** 1500 160 240,000 2582 1500 190 285,000 3067

Electricity

Lighting 2200 80 5.50 1500 20 52,800 2904 1500 20 52,800 2904

Small Power 2200 100 5.50 1500 10 33,000 1815 1500 10 33,000 1815

Power for mechanical services 2200 60 5.50 1500 58*** 114,840 6316 1500 20 3 9,600 2178

Part 2, Section 2 (4/99)


13617 9964
Total energy costs to operation costs summary

*NB: formula for kwh = area (d) × energy rate (e) × unit energy cost (c) × building usage (a) × diversity (b)

1000

** Gas Board rate per therm 30p


1 therm = 27.8 kwh

Effective from 1/6/99


rate per kwh = 35.2/27.8 = 1.076

*** Assume cooling load 120 watts/m2


Conversion rate electricity to cooling 2.5:1
Therefore w/m2 for cooling 120/2.5 = 48 + 10 (other mechanical plant) = 58
PART 2, SECTION 2

Page 39
PART 2, SECTION 2

ANNUAL MAINTENANCE

OPTION A OPTION B

£/m2 £ per annum £/m2 £ per annum

General building maintenance 4.00 6000 4.00 6000

Engineering services maintenance 12.00* 18000 4.00 6000

Lifts – service agreement 1.50 2250 1.50 2250

Total annual maintenance costs £26,250 £14,250

Total £k to life cycle cost summary £27k £15k

* NB: full air conditioning maintenance for


Option A

Page 40 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
INTERMITTENT MAINTENANCE
OPTION A
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Costs £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k
Roof renewal – – – – – – – – – – – – – – – – – – – – 10
External decoration (fire escapes only) – – – – – 0.5 – – – – 0.5 – – – – 0.5 – – – – 0.5
Internal finishings:
carpets – – – – – – 3.0 – – – – 3.0 21 – – – 3.0 – – – 14
paintwork, etc. – – – – – 5.5 – – – – 5.5 – – – – 5.5 – – – – 5.5

The Surveyors’ Construction Handbook


Engineering services:
mechanical (equipment) – – – – – – – – – – 42 – – – – – – – – – 42
electrical (luminaires) – – – – – – – – – – 14 – – – – – – – – – 14
lifts (major overhaul) – – – – – – – – – – – – – – – 15.5 – – – – –
Totals – – – – – 6 3 – – – 62 3.0 21 – – 21.5 3.0 – – – 86
Total £k to life cycle cost summary – – – – – 6 3 – – – 62 3 21 – – 22 3 – – – 86
OPTION B
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Costs £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k

Part 2, Section 2 (4/99)


Roof renewal – – – – – – – – – – – – – – – – – – – – 10
External decoration (facades, etc.) – – – – – 11 – – – – 11 – – – – 11 – – – – 11
Internal finishings:
carpets – – – – – – 3.0 – – – – 3.0 21 – – – 3.0 – – – 14
paintwork, etc. – – – – – 5.5 – – – – 5.5 – – – – 5.5 – – – – 5.5
Engineering services:
mechanical (equipment) – – – – – – – – – – 14 – – – – – – – – – 14
electrical (luminaires) – – – – – – – – – – 14 – – – – – – – – – 14
lifts (major overhaul) – – – – – – – – – – – – – – – 15.5 – – – – –

Effective from 1/6/99


Totals – – – – – 16.5 3.0 – – – 44.5 3.0 21 – – 32 3.0 – – – 68.5
Total £k to life cycle cost summary – – – – – 17 3.0 – – – 45 3 21 – – 32 3 – – – 69
PART 2, SECTION 2

Page 41
PART 2, SECTION 2

TAX
VAT CHARGEABLE
VALUE VAT RATE OPTION A OPTION B

£k % £k £k

OPTION A Capital costs 1833 17½ 320.8


Fees 321 17½ 56.2

OPTION B Capital costs 759.5 17½ 132.9


Fees 144.5 17½ 25.3

Total VAT to 377 158.2


capital costs

Total £k to 377 158


life cycle
cost
summary

VAT is chargeable directly on all running costs items and appears on the summary.

Corporation Tax
The client currently pays corporation tax at the rate of 31%.
This percentage has been assumed for all calculations.

Tax allowance - running costs


100% tax deductible based upon total inclusive of VAT*, e.g. running cost £100
VAT £17.50

Total £117.50
Tax allowance @ 31% £36.43

Tax allowance - capital costs


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

Page 42 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
TAX ALLOWANCE
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

£k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k £k

OPTION A

Capital allowances

Total allowances see next page

£696k (inc VAT) @ 25% p.a.

The Surveyors’ Construction Handbook


reducing balance – 174 131 98 73 55 41 31 23 17 13 10 – – – – – – – – –

Running cost allowances

From LCC summary (inc VAT) 154 154 154 154 161 157 154 154 154 227 157 179 154 154 150 157 154 154 154 257

Total 328 285 252 227 216 198 185 177 171 240 167 179 154 154 180 157 154 154 154 257

Apply current tax rate 31%

Total £k to LCC summary 102 88 78 70 67 61 57 55 53 74 52 55 48 48 56 49 48 48 48 80

OPTION B

Capital allowances

Total allowances see next page

Part 2, Section 2 (4/99)


£482.1k (inc VAT) @ 25% p.a.

reducing balance – 121 90 68 51 38 29 21 16 12 9 7 – – – – – – – – –

Running cost allowances

From LCC summary (inc VAT) 122 122 122 122 142 126 122 122 122 175 126 147 122 122 160 126 122 122 122 203

Total 243 212 190 173 180 155 143 138 134 184 133 147 122 122 160 126 122 122 122 203
Apply current tax rate 31%

Total £k to LCC summary 75 66 59 54 56 48 44 43 42 57 41 46 38 38 50 39 38 38 38 63

Effective from 1/6/99


PART 2, SECTION 2

Page 43
PART 2, SECTION 2

CAPITAL ALLOWANCE Proposed capital allowance for taxation purposes


Subject to negotiation and agreement with the Inland Revenue on evidence of eventual costs
OPTION A OPTION B
GFA: 1500 m2 Total cost % tax allowable Tax allowable Total cost % tax allowable Tax Remarks
£k £k £k £k £k allowable £k
Elemental cost plan
Demolition 70 – – 14 – –
Substructure 42 – – – – –
Superstructure 315 – – 17.5 30 5.3 BWIC allowable on refurbishment
External walls 490 – – 101 – –
Internal walls 14.5 – – 54 30 16.2 BWIC allowable on refurbishment
Internal finishings 84 – – 105 – –
Fittings/fixtures 2.0 20 0.4 – – –
Sanitary appliances 9.5 100 9.5 9.5 100 9.5
Public Health services 21 – – 21 – –
Mechanical services 252 100 252.0 94.5 100 94.5
Electrical services 147 60 88.2 126 60 75.6 Office lighting and associated
switchgear not allowable
Lift installation 77 100 77.0 91 100 91.0
External work 21 – – 7 – –
Drainage 8.5 – – 3 – –
Sub-total 1553.5 27.5 427.1 634.5 45.4 292.1
Preliminaries (% of sub-total) 233 27.5 64.1 96.5 45.4 43.8 Taken on proportion of
construction costs
Contingencies (% of sub-total) 46.5 27.5 12.8 19.5 45.4 8.9
Total construction cost 1833 759.5
Professional fees 321 27.5 88.3 144.5 45.4 65.6
(% of construction cost)
VAT 377 27.5 103.7 158 45.4 71.7 Option A – Fees only
Total tax-allowable capital costs 696 482.1
to previous page

Page 44 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

2.2.5.7 A SELECTION FROM PARRY’S VALUATION AND INVESTMENT TABLES


(for full tables rewference is made to Parry’s Valuation and Investment Tables, A
W Davidson (1989), (111th Edition) (Estates Gazette)

No Income Tax YEARS’ PURCHASE Single Rate


RATE PER CENT
Years 2 3 4 5 6 7 8
1 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259
2 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833
3 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771
4 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121
5 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927
6 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229
7 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064
8 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466
9 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469
10 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101
11 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390
12 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361
13 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038
14 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442
15 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595
16 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514
17 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216
18 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719
19 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036
20 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181
21 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355 10.0168
22 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612 10.2007
23 18.2922 16.4436 14.8568 13.4886 12.3034 11.2722 10.3711
24 18.9139 16.9355 15.2470 13.7986 12.5504 11.4693 10.5288
25 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748
26 20.1210 17.8768 15.9828 14.3752 13.0032 11.8258 10.8100
27 20.7069 18.3270 16.3296 14.6430 13.2105 11.9867 10.9352
28 21.2813 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511
29 21.8444 19.1885 16.9837 15.1411 13.5907 12.2777 11.1584
30 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578
31 22.9377 20.0004 17.5885 15.5928 13.9291 12.5318 11.3498
32 23.4683 20.3888 17.8736 15.8027 14.0840 12.6466 11.4350
33 23.9886 20.7658 18.1476 16.0025 14.2302 12.7538 11.5139
34 24.4986 21.1318 18.4112 16.1929 14.3681 12.8540 11.5869
35 24.9986 21.4872 18.6646 16.3742 14.4982 12.9477 11.6546
36 25.4888 21.8323 18.9083 16.5469 14.6210 13.0352 11.7172
37 25.9695 22.1672 19.1426 16.7113 14.7368 13.1170 11.7752
38 26.4406 22.4925 19.3679 16.8679 14.8460 13.1935 11.8289
39 26.9026 22.8082 19.5845 17.0170 14.9491 13.2649 11.8786
40 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246
41 27.7995 23.4124 19.9931 17.2944 15.1380 13.3941 11.9672
42 28.2348 23.7014 20.1856 17.4232 15.2245 13.4524 12.0067
43 28.6616 23.9819 20.3708 17.5459 15.3062 13.5070 12.0432
44 29.0800 24.2543 20.5488 17.6628 15.3832 13.5579 12.0771
45 29.4902 24.5187 20.7200 17.7741 15.4558 13.6055 12.1084
46 29.8923 24.7754 20.8847 17.8801 15.5244 13.6500 12.1374
47 30.2866 25.0247 21.0429 17.9810 15.5890 13.6916 12.1643
48 30.6731 25.2667 21.1951 18.0772 15.6500 13.7305 12.1891
49 31.0521 25.5017 21.3415 18.1687 15.7076 13.7668 12.2122
50 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335
60 34.7609 27.6756 22.6235 18.9293 16.1614 14.0392 12.3766

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 45
PART 2, SECTION 2

No Income Tax PRESENT VALUE OF £1


RATE PER CENT
Years 2 3 4 5 6 7 8
1 .9803922 .9708738 .9615385 .9523810 .9433962 .9345794 .9259259
2 .9611688 .9425959 .9245562 .9070295 .8899964 .8734387 .8573388
3 .9423223 .9151417 .8889964 .8638376 .8396193 .8162979 .7938322
4 .9238454 .8884870 .8548042 .8227025 .7920937 .7628952 .7350299
5 .9057308 .8626088 .8219271 .7835262 .7472582 .7129862 .6805832
6 .8879714 .8374843 .7903145 .7462154 .7049605 .6663422 .6301696
7 .8705602 .8130915 .7599178 .7106813 .6650571 .6227497 .5834904
8 .8534904 .7894092 .7306902 .6768394 .6274124 .5820091 .5402689
9 .8367553 .7664167 .7025867 .6446089 .5918985 .5439337 .5002490
10 .8203483 .7440939 .6755642 .6139133 .5583948 .5083493 .4631935
11 .8042630 .7224213 .6495809 .5846793 .5267875 .4750928 .4288829
12 .7884932 .7013799 .6245970 .5568374 .4969694 .4440120 .3971138
13 .7730325 .6809513 .6005741 .5303214 .4688390 .4149644 .3676979
14 .7578750 .6611178 .5774751 .5050680 .4423010 .3878172 .3404610
15 .7430147 .6418619 .5552645 .4810171 .4172651 .3624460 .3152417
16 .7284458 .6231669 .5339082 .4581115 .3936463 .3387346 .2918905
17 .7141626 .6050164 .5133732 .4362967 .3713644 .3165744 .2702690
18 .7001594 .5873946 .4936281 .41552-7 .3503438 .2958639 .2502490
19 .6864308 .5702860 .4746424 .3957340 .3305130 .2765083 .2317121
20 .6729713 .5536758 .4563869 .3768895 .3118047 .2584190 .2145482
21 .6597758 .5375493 .4388336 .3589424 .2941554 .2415131 .1986557
22 .6468390 .5218925 .4219554 .3418499 .2775051 .2257132 .1839405
23 .6341559 .5066917 .4057263 .3255713 .2617973 .2109469 .1703153
24 .6217215 .4919337 .3901215 .3100679 .2469785 .1971466 .1576993
25 6095309 .4776056 .3751168 .2953028 .2329986 .1842492 .1460179
26 .5975793 .4636947 .3606892 .2812407 .2198100 .1721955 .1352018
27 .5858620 .4501891 .3468166 .2678483 .2073680 .1609304 .1251868
28 .5743746 .4370768 .3334775 .2550936 .1956301 .1504022 .1159137
29 .5631123 .4243464 .3206514 .2429463 .1845567 .1405628 .1073275
30 .5520709 .4119868 .3083187 .2313774 .1741101 .1313671 .0993773
31 .5412460 .3999871 .2964603 .2203595 .1642548 .1227730 .0920160
32 .5306333 .3883370 .2850579 .2098662 .1549574 .1147411 .0852000
33 .5202287 .3770262 .2740942 .1998725 .1461862 .1072347 .0788889
34 .5100282 .3660449 .2635521 .1903548 .1379115 .1002193 .0730453
35 .5000276 .3553834 .2534155 .1812903 .1301052 .0936629 .0676345
36 .4902232 .3450324 .2436687 .1726574 .1227408 .0875355 .0626246
37 .4806109 .3349829 .2342968 .1644356 .1157932 .0818088 .0579857
38 .4711872 .3252262 .2252854 .1566054 .1092389 .0764569 .0536905
39 .4619482 .3157535 .2166206 .1491480 .1030555 .0714550 .0497134
40 .4528904 .3065568 .2082890 .1420457 .0972222 .0667804 .0460309
41 .4440102 .2976280 .2002779 .1352816 .0917190 .0624116 .0426212
42 .4353041 .2889592 .1925749 .1288396 .0865274 .0583286 .0394641
43 .4267688 .2805429 .1851682 .1227044 .0816296 .0545127 .0365408
44 .4184007 .2723718 .1780463 .1168613 .0770091 .0509464 .0338341
45 .4101968 .2644386 .1711984 .1112965 .0726501 .0476135 .0313279
46 .4021537 .2567365 .1646139 .1059967 .0685378 .0444986 .0290073
47 .3942684 .2492588 .1582826 .1009492 .0646583 .0415875 .0268586
48 .3865376 .2419988 .1521948 .0961421 .0609984 .0388668 .0248691
49 .3789584 .2349503 .1463411 .0915639 .0575457 .0363241 .0230269
50 .3715279 .2281071 .1407126 .0872037 .0542884 .0339478 .0213212
60 .3047823 .1697331 .0950604 .0535355 .0303143 .0172573 .0098759

Page 46 Part 2, Section 2 (4/99) Effective from 1/6/99 The Surveyors’ Construction Handbook
PART 2, SECTION 2

No Income Tax ANNUAL SINKING FUND FOR THE REDEMPTION OF £1 CAPITAL INVESTED
RATE PER CENT
Years 2 3 4 5 6 7 8
1 1.0000000 1.0000000 1.0000000 1.0000000 1.0000000 1.0000000 1.0000000
2 .4950495 .4926108 .4901961 .4878049 .4854369 .4830918 .4807692
3 .3267547 .3235304 .3203485 .3172086 .3141098 .3110517 .3080335
4 .2426238 .2390270 .2354900 .2320118 .2285915 .2252281 .2219208
5 .1921584 .1883546 .1846271 .1809748 .1773964 .1738907 .1704565
6 .1585258 .1545975 .1507619 .1470175 .1433626 .1397958 .1363154
7 .1345120 .1305064 .1266096 .1228198 .1191350 .1155532 .1120724
8 .1165098 .1124564 .1085278 .1047218 .1010359 .0974678 .0940148
9 .1025154 .0984339 .0944930 .0906901 .0870222 .0834865 .0800797
10 .0913265 .0872305 .0832909 .0795046 .0758680 .0723775 .0690295
11 .0821779 .0780774 .0741490 .0703889 .0667929 .0633569 .0600763
12 .0745596 .0704621 .0665522 .0628254 .0592770 .0559020 .0526950
13 .0681184 .0640295 .0601437 .0564558 .0529601 .0496508 .0465218
14 .0622020 .0585263 .0546690 .0510240 .0475849 .0443449 .0412969
15 .0578255 .0537666 .0499411 .0463423 .0429628 .0397946 .0368295
16 .0536501 .0496108 .0458200 .0422699 .0389521 .0358576 .0329769
17 .0499698 .0459525 .0421985 .0386991 .0354448 .0324252 .0296294
18 .0467021 .0427087 .0389933 .0355462 .0323565 .0294126 .0267021
19 .0437818 .0398139 .0361386 .0327450 .0296209 .0267530 .0241276
20 .0411567 .0372157 .0335818 .0302426 .0271846 .0243929 .0218522
21 .0387848 .0348718 .0312801 .0279961 .0250045 .0222890 .0198323
22 .0366314 .0327474 .0291988 .0259705 .0230456 .0204058 .0180321
23 .0346681 .0308139 .0273091 .0241368 .0212785 .0187139 .0164222
24 .0328711 .0290474 .0255868 .0224709 .0196790 .0171890 .0149780
25 .0312204 .0274279 .0240120 .0209525 .0182267 .0158105 .0136788
26 .0296992 .0259383 .0225674 .0195643 .0169043 .0145610 .0125071
27 .0282931 .0245642 .0212385 .0182919 .0156972 .0134257 .0114481
28 .0269897 .0232932 .0200130 .0171225 .0145926 .0123919 .0104889
29 .0257784 .0221147 .0188799 .0160455 .0135796 .0114487 .0096185
30 .0246499 .0210193 .0178301 .0150514 .0126489 .0105864 .0088274
31 .0235963 .0199989 .0168554 .0141321 .0117922 .0097969 .0081073
32 .0226106 .0190466 .0159486 .0132804 .0110023 .0090729 .0074508
33 .0216865 .0181561 .0151036 .0124900 .0102729 .0084081 .0068516
34 .0208187 .0173220 .0143148 .0117554 .0095984 .0077967 .0063041
35 .0200022 .0165393 .0135773 .0110717 .0089739 .0072340 .0058033
36 .0192329 .0158038 .0128869 .0104345 .0083948 .0067153 .0053447
37 .0185068 .0151116 .0122396 .0098398 .0078574 .0062368 .0049244
38 .0178206 .0144593 .0116319 .0092842 .0073581 .0057951 .0045389
39 .0171711 .0138439 .0110608 .0087646 .0068938 .0053868 .0041851
40 .0165557 .0132824 .0105235 .0082782 .0064615 .0050091 .0038602
41 .0159719 .0127124 .0100174 .0078223 .0060589 .0046596 .0035615
42 .0154173 .0121917 .0095402 .0073947 .0056834 .0043359 .0032868
43 .0148899 .0116981 .0090899 .0069933 .0053331 .0040359 .0030341
44 .0143879 .0112298 .0086645 .0066163 .0050061 .0037577 .0028015
45 .0139096 .0107852 .0082625 .0062617 .0047005 .0034996 .0025873
46 .0134534 .0103625 .0078820 .0059282 .0044149 .0032600 .0023899
47 .0130179 .0099605 .0075219 .0056142 .0041477 .0030374 .0022080
48 .0126018 .0095778 .0071806 .0053184 .0038977 .0028307 .0020403
49 .0122040 .0092131 .0068571 .0050396 .0036636 .0026385 .0018856
50 .0118232 .0088655 .0065502 .0047767 .0034443 .0024598 .0017429
60 .0087680 .0061330 .0042018 .0028282

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

The Surveyors’ Construction Handbook Part 2, Section 2 (4/99) Effective from 1/6/99 Page 47
PART 2, SECTION 2, APPENDIX A

I Appendix A: Residual Values


A1 At the end of the life of a building, the component/building and the land will
have a residual value.

A2 There will be one of two situations. Either the building will have reached the
end of its life, with no alternative use, or the building will have reached the
end of the life for its planned purpose, but does have an alternative use.

A3 In either situation the residual value of the building and/or the land may be
significant and will need to be carefully assessed as it may have a substantial
effect on life cycle costing calculations. Residual values will be of particular
significance if the time horizon used for life cycle costing calculations is
relatively short.

A4 In considering residual values, an allowance should be made for the cost of


disposing of plant and equipment and for the demolition of buildings, if
appropriate. In assessing demolition costs, allowance should be made for the
value of any re-usable materials.

A5 Owners also need to be cognisant of taxation issues and whether these affect
their property/building decisions.

A6 There are strict guidelines for taxation adjustments that arise at disposal. If the
plant and machinery is ‘scrapped’ the remaining value is written off and a
balancing allowance brought into account. Alternatively if the building (and
the plant and machinery contained therein) is sold, the vendor should declare
whether allowances have been claimed. An adjustment to their after tax cost
will arise depending upon whether the disposal value is greater or less than the
written down value remaining on the vendor’s accounts.

A7 This area of tax advice is experiencing increased scrutiny from the Inland
Revenue and the District Valuer’s Department, as parties to property
transactions sometimes select/contract disposal values of tax relievable
components with specific tax planning objectives.

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix A (4/99)
PART 2, SECTION 2, APPENDIX B

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

• physical
• economic
• functional
• technological
• social
• legal.

B2 Buildings usually end their ‘life’ before the end of their physical life. The most
common reasons for buildings becoming obsolete are probably economic and
functional considerations. Buildings designed for a specific specialised use,
with little or no flexibility for changing their use, are therefore likely to have
shorter lives than buildings offering flexibility for the change of function of
the building.

B3 The table below gives definitions and examples of each form of obsolescence:

Types of Definition of type Basis for Examples of factors


obsolescence of obsolescence assessment of leading to
building life obsolescence

Physical Life of the building How long will the Deterioration of


to when physical building stand up? external brick walls
collapse is affecting their structural
possible. stability.

Deterioration of
suspended concrete
floors, containing high
alumina cement, in
multi-storey buildings,
affecting structural
stability.

Economic Life of the building How long will the The value of the land on
to when occupation building be which the building
is not considered to economic for the stands is more than the
be the least cost client to own or capitalised full rental
alternative of operate? value that could be
meeting a derived from letting the
particular objective. building.

The asset would


achieve a better rate of
return in the possession
of another, or in the
redevelopment or
refurbishment scheme.

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix B (4/99)
PART 2, SECTION 2, APPENDIX B

Types of Definition of type Basis for Examples of


obsolescence of obsolescence assessment of factors leading to
building life obsolescence

Functional Life of the building How long will the Cinemas converted into
to when the building be used bingo halls, village
building ceases to for the purpose for railway stations
function for the which it was built? converted into private
same purpose as houses.
that for which it
was built.

Technological Life of the building How long will the Prestige office unable
until the building is building be to accommodate
no longer technologically introduction of high
technologically superior to level of computing
superior to alternatives? facilities.
alternatives.
Storage warehouse
unable to
accommodate the
introduction of robotics
for goods handling.

Social and The life of a How long will the Timber football stand
Legal building until the building meet replaced (following
time when human human desires, Bradford Football Club
desire or legal (with the exclusion fire disaster).
requirement of economic
dictates considerations). Multi-storey flats in
replacement for inner city demolished
reasons other than (following social and
economic community problems).
considerations.

B4 Notwithstanding the difficulty of the task, the surveyor, in consultation with


the client, should make an informed assessment of the building life to be used
in any particular study. In making that assessment the surveyor will need to
take account of a number of factors which may influence the final assessment
of building life in any particular case.

B5 While the above examples relate to the whole building, obsolescence of


elements or components is also relevant, for example major refurbishment of
retail buildings at say 15-year intervals to remain attractive.

Page 2 Part 2, Section 2, Effective from 1/6/99 The Surveyors’ Construction Handbook
Appendix B (4/99)
PART 2, SECTION 2, APPENDIX C

I Appendix C: Costs And Values


The following checklist provides suggestions for cost and value categories to be
considered. This list is not exhaustive and items may need to be added or others
disregarded as applicable to any particular project.

C1 CAPITAL COSTS
C1.1 Land
C1.2 Fees on acquisition
C1.3 Design team professional fees
C1.4 Demolition and site clearance
C1.5 Construction price for building work
C1.6 Cost of statutory consents
C1.7 Development Land Tax
C1.8 Capital Gains Tax
C1.9 Value Added Tax
C1.10 Furnishings
C1.11 Other capital costs
C1.12 Commissioning expenses
C1.13 Decanting charges

C2 FINANCING COSTS
C2.1 Finance for land purchase and during construction
C2.2 Finance during period of intended occupation
C2.3 Loan charges (public sector)

C3 OPERATION COSTS
C3.1 Energy
C3.2 Cleaning
C3.3 Rates
C3.4 Insurances
C3.5 Security and Health
C3.6 Staff (related to the building)
C3.7 Management and administration of the building
C3.8 Land charges
C3.9 Energy conservation measures
C3.10 Internal planting
C3.11 Equipment associated with occupier’s occupation

C4 ANNUAL MAINTENANCE COSTS, INTERMITTENT MAINTENANCE, REPLACEMENT AND


ALTERATION COSTS
C4.1 Main structure
C4.2 External decorations
C4.3 Internal decorations
C4.4 Finishes, fixtures and fittings
C4.5 Plumbing and sanitary services
C4.6 Heat source

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix C (4/99)
PART 2, SECTION 2, APPENDIX C

C4.7 Space heating and air treatment


C4.8 Ventilating systems
C4.9 Electrical installations
C4.10 Gas installations
C4.11 Life and conveyor installation
C4.12 Communications installation
C4.13 Special and protective installations
C4.14 External works
C4.15 Gardening

C5 OCCUPANCY COSTS
C5.1 Client’s occupancy costs

C6 RESIDUAL VALUES
C6.1 Resale value – building, land and plant and equipment
C6.2 Related costs – demolition and site clearance and disposal of fees and charges
C6.3 Capital Gains Tax and balancing charges

Page 2 Part 2, Section 2, Effective from 1/6/99 The Surveyors’ Construction Handbook
Appendix C (4/99)
PART 2, SECTION 2, APPENDIX D

I Appendix D: Glossary of Terms for Taxation


D1 CAPITAL EXPENDITURE
Money expended in acquiring long life assets which includes land, buildings,
permanent improvements or additions/extensions to existing assets including
associated professional fees, furniture and equipment thereto, which are
intended for use in the carrying out of business operations. These assets
should have a useful life of more than one year.

D2 REVENUE EXPENDITURE
Expenditure incurred as a trading expense e.g. salaries, consumables,
occupancy and regular maintenance costs.

D3 TAXATION ‘DEPRECIATION’ ALLOWANCES (FOR TAXATION PURPOSES)


This is a collective term for taxation relief afforded to commercial (tax
paying) organisations to offset the cost of capital expenditure incurred upon
assets used for the purposes of their trade.

As explained in 2.2.3 there are various types of taxation allowances and the
proportion of initial expenditure which attracts tax relief is often varied by
successive Finance Acts.

This should be differentiated from the rate of depreciation adopted by


accountants/auditors when preparing company management accounts to allow
provision for replacement of assets. This is because the depreciation
allowance for taxation purposes is fixed by legislation.

When an asset is disposed of a review of the allowances received is required


and an adjustment may be necessary.

D4 INDUSTRIAL BUILDING
Industrial buildings or structures which qualify for capital allowances are
defined in the statutes CAA 1968 S7 and CAA 1990 S18. These include
factories, manufacturing, storage, docks, tunnels and mines. There are specific
rules which apply where part of the building is used for a non-qualifying
purpose.

D5 PLANT AND MACHINERY


This type of tax relief was introduced after the second world war to provide an
incentive to industry to replace equipment used in industry and commerce.

The precise definition of plant and machinery is frequently contested in the


courts. To assist clarification examples of items likely to attract taxation relief
are illustrated in Appendix E.

D6 INITIAL ALLOWANCES/FIRST YEAR ALLOWANCES


These were introduced to provide an acceleration to the standard rate of
annual tax relief (depreciation allowance) being a proportion of the original
capital expenditure.

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix D (4/99)
PART 2, SECTION 2, APPENDIX D

Governments use successive Finance Acts to vary the proportion awarded to


increase or reduce this incentive as a method of influencing or stimulating
capital investment within the commercial sector of the economy.

D7 ANNUAL ‘WRITING DOWN’ ALLOWANCE


This is the annual depreciation allowance awarded in respect to ‘qualifying
expenditure’ as a proportion of the residual balance of the initial expenditure
i.e. original cost less the amounts already calculated and benefiting from tax
relief.

D8 BALANCING ALLOWANCE
Upon disposal of an asset a comparison between its value and the written
down amount remaining on the owner’s accounts is required.

If the asset is sold for a sum in excess of the vendor’s after tax relief cost, then
a ‘profit’ has arisen which is subject to an adjustment to the depreciation
allowance (i.e. reduction of tax relief), termed a ‘balancing charge’.
Alternatively, if the asset is ‘scrapped’ or disposed of at low value (compared
with the residual amount) then an additional tax relief is awarded, termed a
‘balancing allowance’.

Page 2 Part 2, Section 2, Effective from 1/6/99 The Surveyors’ Construction Handbook
Appendix D (4/99)
PART 2, SECTION 2, APPENDIX E

I Appendix E: Examples of items of Expenditure Likely to Attract


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

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix E (4/99)
PART 2, SECTION 2, APPENDIX E

Item Plant and equipment


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

Page 2 Part 2, Section 2, Effective from 1/6/99 The Surveyors’ Construction Handbook
Appendix E (4/99)
PART 2, SECTION 2, APPENDIX F

I Appendix F: Further Reading

Ferry, D.J.O., Flanagan, R., Life Cycle Costing: A Radical Approach, Construction
Industry Research and Information Association (CIRIA Report 122), London, 1991

Flanagan, Roger, Norman, George, Furbur, J. David & Townsend, Geoffrey M., Life
Cycle Costing For Construction, Surveyors Publications, London, 1983

Flanagan, Roger, Norman, George Meadows, Justin Robinson, Graham, Life Cycle
Costing: Theory and Practice, BSP Professional Books, Oxford, 1989

HM Treasury. Guidance Note No. 35: Life Cycle Costing, Central Unit on Procurement,
HM Treasury, London, 1992

Data Sources

Bernard Williams Associates, Facilities Economics. Bernard Williams Associates,


Building Economics Bureau Ltd, Kent. Tel: 0181 460 1111, 1995. A comprehensive
study including hard costs.

BMI. Energy Consumption Study, Building Maintenance Information, 12 Great George


Street, London, SW1P 3AD, Tel: 0171 222 7000, 1996. Covers typical energy costs for
different building types.

BMI. Occupancy Cost Planning, Building Maintenance Information, contact details as


above, 1992. Includes addresses of numerous trade and professional organisations as
possible data sources.

BMI. Review of Maintenance and Occupancy Costs, Building Maintenance


Information, contact details as above, 1994

British Standard 7543: 1992 Guide to Durability of Buildings and Building Elements,
Products and Components, British Standards Institution, London, 1992

Building Research Energy Conservation Support Unit. Energy Efficiency Best Practice
Programme. Building Research Energy Conservation Support Unit, Watford, WD2
7JR. Tel: 01923 664 258. Includes numerous good practice case studies, good practice
guides and energy consumption guides for different building types including costings.

CIB. CIB W80 report 96: Prediction of Service Life of Building Materials and
Components

CIBSE. CIBSE Guide, Section B18, Owning and Operating Costs. Chartered Institute of
Building Services Engineers, London. Gives indicative details of energy consumption,
maintenance costs and rough life spans for plant (currently being updated in more
detail).

The Surveyors’ Construction Handbook Part 2, Section 2, Effective from 1/6/99 Page 1
Appendix F (4/99)
PART 2, SECTION 2, APPENDIX F

HAPM Component Life Manual. E & FN Spon. Tel: 0171 204 2481, 1985.
Comprehensive life-span assessment for over 500 housing components based on
insured life assessments.

ISO Guide to Service Life Planning of Buildings (under preparation at the time of
writing but it will include a method of estimating the durability of individual building
components).

Jones Lang Wootton. Office Service Charges Analysis 1995, Jones Lang Wootton,
London, 1995. A review of 300 buildings including unit costs.

Kirk, Stephen J., Dell’isola, Alphonse J., Life Cycle Costing For Design Professionals,
(2nd Edition), McGraw-Hill Inc, New York, 1995. Includes 45 pages of maintenance
and replacement data (in dollars) covering all elements.

NBA Construction Consultants. Maintenance Cycles and Life Expectancies of Building


Components and Elements: a guide to data and sources. NBA Construction Consultants

PSA Cost in Use Tables, 3rd Edition, London HMSO 1991. Includes elemental analysis
of cleaning, maintenance and repair costs.

RICS. Life Expectancies of Building Components. RICS Research Paper Series No 11,
1992. Preliminary results from a survey of Building Surveyors’ views.

Page 2 Part 2, Section 2, Effective from 1/6/99 The Surveyors’ Construction Handbook
Appendix F (4/99)
PART 2, SECTION 3

PART TWO: CONSTRUCTION DESIGN & ECONOMICS

SECTION 3: ELEMENTS FOR BUILDINGS

Introduction
The Building Cost Information Service (BCIS) elements were originally
produced for use in cost planning, i.e., the development of a design with a pre-
set budget and were published in the BCIS document, Standard Form of Cost
Analysis: Principles, Instructions and Definitions. However, since their
introduction elements have become widely used for structuring building
information in value engineering, specifications, contract drafting and tender
evaluation as well as for cost planning/cost analysis.

This section discusses some of the uses for elemental information and gives a
complete definition for each element. The elements are also referred to in
other sections of the handbook.

I 2.3.1 Elements
2.3.1.1 An element is a part of a building which fulfils a specific function or
functions irrespective of its design, specification or construction, for
example, the element ‘external walls’ provides the external vertical envelope
to a building, separating the internal and external environment, irrespective of
how it may be constructed.

2.3.1.2 Elements relate to the design process. Therefore, budget estimates are
normally prepared in elemental form and developing the designs are normally
described and costed in this manner.

I 2.3.2 Elemental Cost Analysis


2.3.2.1 An elemental cost analysis is prepared following the receipt and acceptance
of a tender for building work.

2.3.2.2 The tender cost is broken down into the standard BCIS elements (see
Appendix A) using the definitions to determine which items should be
included in any particular element.

2.3.2.3 The elemental cost analysis can then be used to estimate future projects of a
similar type.

2.3.2.4 For further information on the preparation of an elemental cost analysis using
the BCIS elements, please refer to the BCIS publication, Standard Form of
Cost Analysis: Principles, Instructions and Definitions.

The Surveyors’ Construction Handbook Part 2, Section 3 (10/99) Effective from 1/11/99 Page 1
PART 2, S ECTION 3

I 2.3.3 Other Uses


The standard elements can be used successfully for other purposes, as detailed
in the following subsections.

2.3.3.1 DESIGN AND BUILD

In the procurement of design and build projects there has been an increase in
the use of elements to structure both employer’s requirements and the contract
sum analysis. However, the use of non-standard elements and definitions can
be confusing. Standard elements, on the other hand, encourage a structured
thought process and produce more coherent employer’s requirements. This
helps to avoid some conflicting statements that may arise in contract
documents if standard elements are not used.

(a) Employer’s Requirements


The Joint Contracts Tribunal (JCT) practice note on the Standard Form of
Building Contract With Contractor’s Design, CD/1A states that the employer’s
requirements may be little more than a description of accommodation
required, or may be anything up to full ‘scheme design’ or further, prepared
for the employer by his own consultants or other professional advisers:
• Any design input from the employer must be embodied in the
employer’s requirements as there is no provision for design input
from the employer during the course of the contract.
• There is no set format for the employer’s requirements, but if
anything beyond basic accommodation requirements is being given,
particularly where an outline specification is being prepared, setting
it out in design elements will be helpful to both the employer and the
contractor.
• Using the element headings to structure the requirements will act as a
checklist for the employer and his representatives in producing any
design requirements they may have. It also means that the
requirements are presented to the contractor in a form that will assist
him in developing his design proposal.
• Elements are the most helpful form for structuring specifications to
be included in the employer’s requirements. Performance
specifications and outline specifications naturally fit into an
elemental format. Where a more detailed specification is required it
may be more helpful to give performance requirements in elemental
form, with the more detailed specification in trade (work sections)
form, where necessary.

Page 2 Part 2, Section 3 (10/99) Effective from 1/11/99 The Surveyors’ Construction Handbook
PART 2, S ECTION 3

(b) Contractor’s Proposals


The contractor’s proposals should follow the format of the employer’s
requirements. The preparation of the specification for materials and
workmanship in elemental form facilitates the development of the
specification alongside the design and tendering process. It also highlights
any amendments to the employer’s requirements either proposed by the
contractor or requested by the client.

(c) Contract Sum Analysis


Design and build contracts are for a lump sum price, but the standard forms
of contract provide for a contract sum analysis for assisting the employer in
assessing tenders, for checking interim payments and for valuation of
changes in the employer’s requirements. The use of standard elements to
format the contract sum analysis makes the foregoing procedures simpler
(see Section 2.3.3.1 (e)).

(d) Evaluation of Tender Proposals


On client-led design projects where tenders are based on a detailed set of
employer’s requirements and a highly developed design, the employer should
in theory be able to accept the lowest tender. Comparison of the tender with
the cost plan element by element helps in assessing the contractor’s
compliance with the employer’s design. Where alternative solutions have been
put forward for particular elements, the existence of an elemental cost plan
and an elemental contract sum analysis prove invaluable in assessing the
tender value.

Contractor’s proposals on contractor-led design projects should be


systematically checked to ensure that they meet the employer’s requirements.
The structuring of the requirements, the proposal and the contract sum
analysis in consistent elemental form greatly assists in this process. Indeed, it
is difficult to imagine any successful detailed technical check of a tender that
did not follow a design elemental form. If the contractor’s proposals were not
structured in this way, the process would be much more difficult.

Contract sum analyses presented in consistent elemental form allow


comparison both with the client’s quantity surveyor’s original cost plan and
between the competing tenders. This identifies where individual tenders have
proposed any elemental solutions with a significantly different cost.

(e) Interim Payments


The JCT Standard Form of Building Contract With Contractor’s Design 1998
(CD98) provides for the use of one of two methods for interim payments.
Alternative A is by stage payments and Alternative B is by periodic payments.

If the contract sum analysis has been set out elementally it lends itself to
Alternative A, as elements and sub-elements provide easily definable stages.

The Surveyors’ Construction Handbook Part 2, Section 3 (10/99) Effective from 1/11/99 Page 3
PART 2, S ECTION 3

With Alternative B - periodic payments - an elemental breakdown of the


contract sum analysis makes valuations relatively easy, particularly if different
design solutions within a single element are identified separately. For
example, a periodic payment for the external walls would be a simple task of
proportioning the amount of external wall completed to the total. This
overcomes some of the problems that arise in checking interim valuations
where the contract sum analysis has been prepared in trade format but no bill
of quantities or quantified schedule of rates has been provided.

2.3.3.2 ACTIVITY SCHEDULES

The JCT Standard Form of Building Contract 1998 (JCT98) contains an


option for the contractor to include an activity schedule for use in interim
payments. The activity schedule is defined as ‘the schedule of activities as
attached to the Appendix with each activity priced and with the sum of those
prices being the contract sum excluding provisional sums, prime cost sums
and any contractor’s profit thereon’. If the contractor does include an activity
schedule, it must be by agreement with the employer.

There is no standard format stipulated for the activity schedule. However,


using a BCIS standard list of elements (Appendix A) to provide an activity
schedule eliminates any problems with definitions. Furthermore, an elemental
breakdown makes valuation for interim payments simple (see Section 2.3.3.1
(e)) and overcomes some of the problems that may arise if activity schedules
have been broken down into trades.

The use of an activity schedule broken down into BCIS standard elements
would also allow an elemental cost analysis to be completed relatively easily
and would be particularly useful if projects have been procured without bills
of quantities.

Page 4 Part 2, Section 3 (10/99) Effective from 1/11/99 The Surveyors’ Construction Handbook
PART 2, S ECTION 3, A PPENDIX A

Appendix A: BCIS Standard Elements


(Please also refer to the notes which follow the definitions)

1 SUBSTRUCTURE

All work below underside of screed or where no screed exists to underside of


lowest floor finish including damp-proof membrane, together with relevant
excavations and foundations.

2 SUPERSTRUCTURE

2A Frame

Loadbearing framework of concrete, steel or timber. Main floor and roof


beams, ties and roof trusses of framed buildings. Casing to stanchions and
beams for structural or protective purposes.

2B Upper floors

Upper floors, balconies and structural screeds, suspended floors over or in


basements.

2C Roof

2C1 Roof structure


Construction, including eaves and verges, plates and ceiling joists,
trusses, gable ends, internal walls and chimneys above plate level,
parapet walls and balustrades.

2C2 Roof coverings


Roof screeds and finishings. Battening, felt, slating, tiling and the like.
Flashings and trims. Insulation. Eaves and verge treatment.

2C3 Roof drainage


Gutters where not integral with roof structure, rainwater heads and roof
outlets. (Rainwater downpipes to be included in ‘Internal drainage’
(5C1).)

2C4 Roof lights


Roof lights, opening gear, frame, kerb and glazing. Pavement lights.

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 1
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

2D Stairs

2D1 Stair structure


Construction of ramps, stairs and landings other than at floor levels.
Ladders. Escape staircases.

2D2 Stair finishes


Finishes to treads, risers, landings (other than at floor levels), ramp
surfaces, strings and soffits.

2D3 Stair balustrades and handrails


Balustrades and handrails to stairs, landings and stairwells.

2E External walls

External enclosing walls including that to basements but excluding items


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

2F Windows and external doors

2F1 Windows
Sashes, frames, linings and trims. Ironmongery and glazing. Shop
fronts. Lintels, sills, cavity damp-proof courses and work to reveals of
openings.

2F2 External doors


Doors, fanlights and sidelights. Frames, linings and trims.
Ironmongery and glazing. Lintels, thresholds, cavity damp-proof
courses and work to reveals of openings.

2G Internal walls and partitions

Internal walls, partitions and insulation. Chimneys forming part of internal


walls up to plate level. Screens, borrowed lights and glazing. Moveable space-
dividing partitions. Internal balustrades excluding items included with ‘Stair
balustrades and handrails’ (2D3).

2H Internal doors

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

Page 2 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

3 INTERNAL FINISHES

3A Wall finishes

Preparatory work and finishes to surfaces of walls internally. Picture, dado


and similar rails.

3B Floor finishes

Preparatory work, screeds, skirtings and finishes to floor surfaces excluding


items included with ‘Stair finishes’ (2D2) and structural screeds included
with ‘Upper floors’ (2B)

3C Ceiling finishes

3C1 Finishes to ceilings


Preparatory work and finishes to surfaces of soffits excluding items
included with ‘Stair finishes’ (2D2) but including sides and soffits of
beams not forming part of a wall surface. Cornices, coves.

3C2 Suspended ceilings


Construction and finishes of suspended ceilings.

4 FITTINGS AND FURNISHINGS

4A Fittings and furnishings

4A1 Fittings, fixtures and furniture


Fixed and loose fittings and furniture including shelving, cupboards,
wardrobes, benches, seating, counters and the like. Blinds, blind
boxes, curtain tracks and pelmets. Blackboards, pin-up boards, notice
boards, signs, lettering, mirrors and the like. Ironmongery, other than
to doors and windows.

4A2 Soft furnishings


Curtains, loose carpets or similar soft furnishing materials.

4A3 Works of art


Works of art if not included in a finishes element or elsewhere.

4A4 Equipment
Non-mechanical and non-electrical equipment related to the function
or need of the building (e.g. gymnasia equipment).

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 3
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

5 SERVICES

5A Sanitary appliances

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

5B Services equipment

Kitchen, laundry, hospital and dental equipment and other specialist


mechanical and electrical equipment related to the function of the building.

5C Disposal installations

5C1 Internal drainage


Waste pipes to ‘Sanitary appliances’ (5A) and ‘Services equipment’ (5B).
Soil, anti-syphonage and ventilation pipes. Rainwater downpipes. Floor
channels and gratings and drains in ground within buildings up to external
face of external walls.

5C2 Refuse disposal


Refuse ducts, waste disposal (grinding) units, chutes and bins. Local
incinerators and flues thereto. Paper shredders and incinerators.

5D Water installations

5D1 Water – mains supply


Incoming water main from external face of external wall at point of
entry into building including valves, water meters, rising main to (but
excluding) storage tanks and main taps. Insulation.

5D2 Cold water services


Storage tanks, pumps, pressure boosters, distribution pipework to
sanitary appliances and to services equipment. Valves and taps not
included with ‘Sanitary appliances’ (5A) and/or ‘Services equipment’
(5B). Insulation.

5D3 Hot water services


Hot water and/or mixed water services. Storage cylinders, pumps,
calorifiers, instantaneous water heaters, distribution pipework to
sanitary appliances and services equipment. Valves and taps not
included with ‘Sanitary appliances’ (5A) and/or ‘Services equipment’
(5B). Insulation.

5D4 Steam and condensate


Steam distribution and condensate return pipework to and from services
equipment within the building including all valves, fittings, etc.
Insulation.

Page 4 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

5E Heat source

Boilers, mounting, firing equipment, pressurising equipment, instrumentation


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

5F Space heating and air treatment

5F1 Water and/or steam (heating only)


Heat emission units (radiators, pipe coils, etc.) valves and fittings,
instrumentation and control and distribution pipework from ‘Heat
source’ (5E).

5F2 Ducted warm air (heating only)


Ductwork, grilles, fans, filters, etc., instrumentation and control.

5F3 Electricity (heating only)


Cable heating systems, off-peak heating system, including storage
radiators.

5F4 Local heating (heating only)


Fireplaces (except flues), radiant heaters, small electrical or gas
appliances, etc.

5F5 Other heating systems (heating only)

5F6 Heating with ventilation (air treated locally)


Distribution pipework ducting, grilles, heat emission units including
heating calorifiers, except those which are part of ‘Heat source’ (5E)
instrumentation and control.

5F7 Heating with ventilation (air treated centrally)


All works as detailed under 5F6 for system where air treated centrally.

5F8 Heating with cooling (air treated locally)


All work as detailed under 5F6 including chilled water systems and/or
cold or treated water feeds. The whole of the costs of the cooling plant
and distribution pipework to local cooling units shall be shown
separately.

5F9 Heating with cooling (air treated centrally)


All work detailed under 5F8 for system where air treated centrally.

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 5
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

5G Ventilating systems

Mechanical ventilating system not incorporating heating or cooling


installations including dust and fume extraction and fresh air injection, unit
extract fans, rotating ventilators and instrumentation and controls.

5H Electrical installations

5H1 Electric source and mains


All work from external face of building up to and including local
distribution boards including main switchgear, main and sub-main
cables, control gear, power factor correction equipment, stand-by
equipment, earthing, etc.

5H2 Electric power supplies


All wiring, cables, conduits, switches from local distribution boards,
etc., to and including outlet points for individual installations.

5H3 Electric lighting


All wiring, cables, conduits, switches, etc. from local distribution
boards and fittings to and including outlet points.

5H4 Electric lighting fittings


Lighting fittings including fixing.

5I Gas installations

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

5J Lift and conveyor installations

5J1 Lifts and hoists


The complete installation including gantries, trolleys, blocks, hooks and
ropes, downshop leads, pendant controls and electrical work from and
including isolator.

5J2 Escalators
As detailed under 5J1.

5J3 Conveyors
As detailed under 5J1.

5K Protective installations

5K1 Sprinkler installations


The complete sprinkler, installation and CO 2 extinguishing system.
Including tanks, control mechanism, etc.

Page 6 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

5K2 Fire-fighting installations


Hose reels, hand extinguishers, asbestos blankets, water and sand
buckets, foam inlets, dry risers (and wet risers where only serving fire-
fighting equipment).

5K3 Lightning protection


The complete lightning protection installation from finials conductor
tapes, to and including earthing.

5L Communication installation

Warning installations (fire and theft)

Burglar and security alarms


Fire alarms

Visual and audio installations

Door signals
Timed signals
Call signals
Clocks
Telephones
Public address
Radio
Television
Pneumatic message systems

5M Special installations

All other mechanical and/or electrical installations (separately identifiable) which


have not been included elsewhere, e.g. chemical gases; medical gases; vacuum
cleaning; window cleaning equipment and cradles; compressed air; treated water;
refrigerated stores.

5N Builder’s work in connection with services

Builder’s work in connection with mechanical and electrical services.

5O Builder’s profit and attendance on services

Builder’s profit and attendance in connection with mechanical and electrical


services.

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 7
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

6 EXTERNAL WORKS

6A Site works

6A1 Site preparations


Clearance and demolitions. Preparatory earth works to form new
contours.

6A2 Surface treatments


Roads and associated footways
Vehicle parks
Paths and paved areas
Playing fields
Playgrounds
Games courts
Retaining walls
Land drainage
Landscape work

6A3 Site enclosure and division


Gates and entrances. Fencing, walling and hedges.

6A4 Fittings and furniture


Notice boards, flag poles, seats, signs.

6B Drainage

Surface water drainage. Foul drainage. Sewage treatment.

6C External services

6C1 Water mains


Main from existing supply up to external face of building.

6C2 Fire mains


Main from existing supply up to external face of building; fire
hydrants.

6C3 Heating mains


Main from existing supply or heat source up to external face of
building.

6C4 Gas mains


Main from existing supply up to external face of building.

6C5 Electric mains


Main from existing supply up to external face of building.

6C6 Site lighting


Distribution, fittings and equipment.

Page 8 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

6C7 Other mains and services


Mains relating to other service installations (each shown separately).

6C8 Builder’s work in connection with external services


Builder’s work in connection with external mechanical and electrical
services: e.g. pits, trenches, ducts, etc.

6C9 Builder’s profit and attendance on external mechanical and electrical


services.

6D Minor building work

6D1 Ancillary buildings


Separate minor buildings such as sub-stations, bicycle stores,
horticultural buildings and the like, inclusive of local engineering
services.

6D2 Alterations to existing buildings


Alterations and minor additions, shoring, repair and maintenance to
existing buildings.

7 PRELIMINARIES

Priced items in preliminaries bill and summary but excluding contractors’


price adjustments. This is not classed as an element but is included for
allocation of costs.

8 EMPLOYERS CONTINGENCIES

This is not classed as an element but is included for allocation of costs.

Notes
1 Substructure
(a) Where lowest floor construction does not otherwise provide a platform, the
flooring surface shall be included with this element (e.g. if joisted floor, floor
boarding would be included here).
(b) Stanchions and columns (with relevant castings) shall be included with
‘Frame’ (2A).
(c) External enclosing walls to basements shall be included with ‘External
walls’ (2E).

2A Frame
(a) Structural walls which form an integral part of the loadbearing framework
shall be included either with ‘External walls’ (2E) or ‘Internal walls and
partitions’ (2G) as appropriate.
(b) Beams which form an integral part of a floor or roof which cannot be
segregated therefrom shall be included in the appropriate element.

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 9
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

(c) In unframed buildings roof beams and trusses and floor beams shall be
included with ‘Upper floors’ (2B) or ‘Roof structure’ (2C1) as appropriate.
(d) If the ‘Stair structure’ (2D1) has had to be included in this element it
should be noted.

2B Upper floors
(a) Where floor construction does not otherwise provide a platform the
flooring surface shall be included with this element (e.g. if joisted floor, floor
boardings would be included here).
(b) Beams which form an integral part of a floor slab shall be included with
this element.
(c) If the ‘Stair structure’ (2D1) has had to be included in this element it
should be noted.

2C1 Roof structure


(a) Trusses which form part of a whole building framework shall be included
in ‘Frame’ (2A).
(b) Beams which form an integral part of a roof shall be included with this
element.
(c) Roof housings (e.g. lift motor and plant rooms) shall be broken down into
the appropriate constituent elements.

2D1 Stair structure


(a) The cost of external escape staircases shall be shown separately.
(b) If the stair structure has had to be included in the elements ‘Frame’ (2A)
or ‘Upper floors’ (2B) this should be stated.

2E External walls
(a) If walls are self-finished on internal face, this shall be stated.

3A Wall finishes
(a) Surfaces which are self-finished (e.g. self-finished partitions, fair-faced
work) shall be included in the appropriate element.
(b) Insulation which is a wall finishing shall be included here.

3B Floor finishes
(a) Where the floor construction does not otherwise provide a platform the
flooring surface will be included either in ‘Substructure’ (1A) or ‘Upper
floors’ (2B) as appropriate. Access floors.

3C Ceiling finishes
(a) Where ceilings principally provide a source of heat, artificial lighting or
ventilation, they shall be included with the appropriate ‘Services’ element.

4A1 Fittings, fixtures and furniture


(a) Ironmongery to ‘Windows and external doors’ and ‘Internal doors’ should
be included in (2F) and (2H) respectively.

Page 10 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

4A3 Works of art


(a) Where items in this element have a significant effect on other elements a
note should be included in the appropriate element.

5B Services equipment
(a) Local incinerators shall be included with ‘Refuse disposal’ (5C2).

5C1 Internal drainage


(a) Rainwater gutters are included in ‘Roof drainage’ (2C3).

5D2 Cold water services


(a) Header tanks, cold water supplies, etc. for heating systems should be
included in ‘Heat source’ (5E).

5D4 Steam and condensate


(a) Steam and condensate pipework installed in connection with space
heating, or the like, shall be included as appropriate with ‘Heat source’ (5E)
or ‘Space heating and air treatment’ (5F).

5E Heat source
(a) Chimneys and flues which are an integral part of the structure shall be
included with the appropriate structural element.
(b) Local heat source shall be included with ‘Local heating’ (5F4).

5F Space heating and air treatment


System described as having:
(a) ‘Air treated locally’ shall be deemed to include all systems where air
treatment (heating or cooling) is performed either in or adjacent to the space
to be treated.
(b) ‘Air treated centrally’ shall be deemed to include all systems where air
treatment (heating or cooling) is performed at a central point and ducted to the
space being treated.

5F3 Space heating and air treatment - Electricity (heating only)


(a) Electrically-operated heat emission units other than storage radiators
should be included under ‘Local heating’ (5F4).

5H1 Electric source and mains


(a) Installation for electric heating (‘built-in’ systems) shall be included with
‘Space heating and air treatment’ (5F3).

5J1 Lifts and hoists


(a) Special structural work, e.g. lift walls, lift motor rooms, etc., shall be
included in the appropriate structural elements.
(b) Remaining electrical work shall be included with ‘Electrical power supplies’
(5H2).
(c) Each type of lift or hoist shall be stated separately where appropriate.

The Surveyors’ Construction Handbook Part 2, Section 3 Effective from 1/11/99 Page 11
Appendix A (10/99)
PART 2, S ECTION 3, A PPENDIX A

5K1 Sprinkler installations


(a) Electrical work shall be included with ‘Electrical power supplies’ (5H2).

5L Communication installations
(a) Each installation shall be stated separately where appropriate.
(b) The cost of the work in connection with electrical supply shall be included
with ‘Electrical power supplies’ (5H2).

5M Special installations
(a) The cost of each installation shall, where appropriate, be shown separately.
(b) Items deemed to be included under ‘Refrigerated stores’ comprises all
plant required to provide refrigerated conditions (i.e. cooling towers,
compressors, instrumentation and controls, cold room thermal insulation and
vapour sealing, cold room doors, etc.) for cold rooms, refrigerated stores and
the like other than that required for ‘Space heating and air treatment’ (5F8 and
5F9).

5N Builder’s work in connection with services


(a) Builder’s work in connection with each of the services elements shall,
where possible, be shown separately.
(b) Where tank rooms, housings and the like are included in the gross floor
area, their component parts shall be included under the appropriate elements.
Where this is not the case the items shall be included here.

5O Builder’s profit and attendance on services


(a) The profit and attendance in connection with each of the services elements
shall, where possible, be shown separately.

6B Drainage
(a) To include all drainage works (other than land drainage included with
‘Surface treatment’ (6A2)) outside the building, to and including disposal
point, connection to sewer or to treatment plants.

6C8 Builder’s work in connection with external services


(a) Builder’s work shall be stated separately for each installation where
appropriate.

6C9 Builder’s profit and attendance on external mechanical and electrical services
(a) Profit and attendances shall be stated separately for each installation
where appropriate.

Page 12 Part 2, Section 3 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix A (10/99)
PART 2, SECTION 4

PART TWO: CONSTRUCTION DESIGN & ECONOMICS

SECTION 4: DESIGN AND BUILD – GUIDANCE FOR


EMPLOYERS’ AGENTS

Introduction
This section describes some of the tasks and responsibilities that a surveyor
may be asked to undertake when appointed as an employer’s agent on a design
and build contract.

(Note: The organisation or person commissioning a building is referred to in


this section as both the client and the employer. Generally, the term ‘client’ is
used in relationship to the employer’s agent and ‘employer’ to denote the
relationship to the contractor.)

At its most basic, the role of the employer’s agent is to act on behalf of the
client in the matters specified in the contract. However, in practice there are a
wide range of tasks that a client may ask an employer’s agent to undertake.

This section is not about procurement options; it assumes that all optional
procurement strategies have been carefully considered by clients and their
advisors and that the decision has been made to adopt design and build. With
regard to procurement strategies, reference should be made to part 3, section 1
of this handbook (‘Developing an Appropriate Building Procurement
Strategy’) which provides extensive guidance on selection of the most
appropriate option for the procurement of buildings.

‘Design and build’ describes contracts whereby the contractor assumes


responsibility both for completing the design for the works and for carrying
out the construction in return for a fixed lump sum.

There are a number of ‘standard’ forms of design and build contracts, but
where specific reference is made in this section, it is to the current edition of
the Joint Contracts Tribunal (JCT) Standard Form of Building Contract With
Contractor’s Design 1998 (CD 98). This form of contract makes no provision
for a contract administrator (CA) and all matters which would have been
certified by the CA are ascribed to either the client or the contractor.

It should be noted that the prescribed duties of the employer’s agent are
restricted to ‘access to documents on site’ and ‘access to works, workshops,
etc.’. Importantly however, the contract also allows the client to delegate his
or her responsibilities under the contract and in practice this is usually what
happens.

The Surveyors’ Construction Handbook Part 2, Section 4 (09/03) Effective from 1/11/03 Page 1
PART 2, SECTION 4

The services of an employer’s agent can be provided by any one of the


construction professionals (determined by the nature of the project) but often
it is a chartered surveyor. On more complex projects the role of employer’s
agent may sometimes be provided by a team comprising the ‘lead’ consultant,
with other consultants advising on matters relative to their respective
disciplines. In such circumstances, the function of the lead consultant may not
be dissimilar to that of a project manager.

In appendix A the services which may be requested from an employer’s agent


are set out. However, the scope of the role can vary considerably depending
upon the particular circumstances of the commission. It would be unusual for
any client to require all the services listed in appendix A but they serve to
indicate the extent to which this role can be developed.

G 2.4.1 Background
2.4.1.1 Design and build is not a new concept. Many historic buildings have been
procured in this way and the technique has been used for simple industrial
shell buildings. However, in recent years the use of design and build has
extended to cover a significant number of building projects of all types.

2.4.1.2 It is thought that design and build has become more popular because clients
believed that in some circumstances the traditional route failed to deliver their
projects on time and to budget.

2.4.1.3 Proponents of design and build claim that it can deliver coordinated planning,
reduced professional fees, improved lead-in times, shorter construction
programmes and cost savings, as well as providing greater cost certainty for
clients through a single point of contact.

2.4.1.4 Responsibility for the development of the design, as well as the construction
of a project, is firmly placed with the contractor. This is perceived to clarify
any litigation or dispute between the parties to the contract.

2.4.1.5 Proponents of design and build also claim that it can allow tenderers to bring
their skills to the design which, through the competitive process, can deliver
benefits to the client in terms of buildability. Furthermore, tenderers can take
account of current availability of labour, materials and plant in their design
and pricing considerations.

I 2.4.2 Contract documentation


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

Page 2 Part 2, Section 4 (09/03) Effective from 1/11/03 The Surveyors’ Construction Handbook
PART 2, SECTION 4

2.4.2.2 Throughout its life the JCT Standard Form of Building Contract With
Contractor’s Design has been subject to many amendments to account for
changes in the law, regulations affecting building development and increasing
expectations and involvement of clients.

2.4.2.3 In England and Wales the contract documents under this form are:
• the employer’s requirements;
• the contractor’s proposals;
• the contract sum analysis; and
• the articles and conditions set out in the form including optional
supplementary provisions and appendices.

G 2.4.3 Additional services

2.4.3.1 The list in appendix A is intentionally comprehensive and involves some


duties which may be beyond a surveyor’s normal skills. Great care should be
exercised by the employer’s agent in advising on which duties to incorporate
within the commissioning contract. An inability to deliver a service could
expose the employer’s agent to claims for negligence from both the client and
the contractor.

2.4.3.2 The employer’s agent will normally be involved from the outset and will be
instrumental in producing the contract documentation, including the
employer’s requirements based on the brief developed with the client.
Thereafter, the agent can arrange or assist with the selection of tenderers and
arrange the formal tendering process. Subsequently he or she can review the
contractor’s proposals (including the developed design and the contract sum
analysis) to ensure that all aspects of the employer’s requirements have been
met with particular reference to quality, time and cost issues.

2.4.3.3 Where the employer’s agent has been delegated the authority by the client, he
or she is responsible for ensuring that the project is carried out in accordance
with the conditions of contract, employer’s requirements, contractor’s
proposals and contract sum analysis. The role will usually include monitoring
the construction process to ensure best practice, controlling expenditure and
overseeing contractor compliance with all current regulations. Typically, it
will also involve the administration of the project in terms of design and cost
by sanctioning all design issues and by instructing any changes. The
employer’s agent will be responsible for checking the contractor’s valuations
and confirming interim and final payment amounts to the client in accordance
with the contract conditions.

2.4.3.4 If a day-to-day inspection is required this should be carried out by a clerk of


works, resident engineer or quality control inspector and should be the subject
of a separate agreement outside the employer’s agent commission.

The Surveyors’ Construction Handbook Part 2, Section 4 (09/03) Effective from 1/11/03 Page 3
PART 2, SECTION 4

2.4.3.5 The role of employer’s agent is not just one of monitoring the contractor’s
performance; good practice requires an active approach to ensure that the
contractor undertakes all of his or her responsibilities under the contract.
However, the employer’s agent should not hinder or prevent the contractor
from fulfilling his or her duties.

2.4.3.6 The employer’s agent should advise the employer on those roles that are
within his or her competency, which attract a duty of care similar to that under
traditional procurement methods and advise the employer on the appointment
of any other consultants required to fulfil any additional roles.

2.4.3.7 It has been held that an employer’s agent was responsible for failure to
comment on high risk design elements of the contractor’s proposals and an
ongoing failure to approve the contractor’s design development proposals. It
would be an unusual project arrangement if these essential tasks were not
delegated by the client to the employer’s agent. On the other hand, the duty to
approve the contractor’s design development and drawing should be included
expressly or by implication in the contract between the client and the
employer’s agent.

2.4.3.8 Design and build is fundamentally about the allocation of risk and
responsibility. Therefore, it is strongly recommended that the agent’s
contractual responsibilities as delegated by the client, together with any
additional duties the agent has agreed to undertake on behalf of the client, are
clearly defined and recorded, and that the client understands the position.

G 2.4.4 Employer’s requirements and contractor’s proposals (including


contract sum analysis)
2.4.4.1 The contractor’s proposals and the employer’s requirements taken together set
out the scope of the works, so it is important that the proposals are examined
in detail and that they match the requirements. Any areas of conflict should be
resolved since the contract assumes they are compatible when it is signed. If
the employer’s requirements and the contractor’s proposals are long and/or
complicated, concern about the possibility of a conflict between the two
documents may well remain, even after thorough checks have been carried
out. In this case it may be worth consdering inserting an additional clause as
to how conflicts between the two are to be resolved.

2.4.4.2 The appointed employer’s agent has an obligation to guide the client, provide
technical and professional advice and draft the employer’s requirements in
order to protect the client and to ensure the project is completed.

2.4.4.3 The employer’s requirements can be by way of performance specification, or


on a prescriptive basis where a great deal of design may have been produced
initially.

Page 4 Part 2, Section 4 (09/03) Effective from 1/11/03 The Surveyors’ Construction Handbook
PART 2, SECTION 4

2.4.4.4 The employer’s agent and the employer should agree between them the
standard of performance and the requirements of the building. The employer’s
agent should offer guidance on the effect that this might have on the
contractor’s flexibility in design and construction. Some clients may require a
detailed level of specification. However, if the employer’s requirements
become unnecessarily prescriptive as to the contractor’s basic construction
methods, the contractor may lose sight of the client’s real requirements. The
requirements should always be sufficiently detailed to ensure the client
obtains the building he or she needs. Therefore, great care should be exercised
by the employer’s agent in advising the client on the appropriate level of detail
to be provided in the employer’s requirements and that requested in the
contractor’s proposal.

2.4.4.5 The employer’s agent should try to encourage the client to concentrate on the
purpose, performance and desired end requirements of the project and to avoid
involvement in the construction method.

2.4.4.6 It is, however, most important that the client’s input is sufficiently detailed to
enable the production of clear and concise ‘employer’s requirements’ to
achieve the client’s objectives. The requirements should also be
comprehensive enough to avoid amendments during the construction process
as these can be very costly.

2.4.4.7 All relevant parts of the client’s brief should be given in the employer’s
requirements. Additional requirements arising from meetings during the
tender process should be incorporated into the requirements by amendment.
There should be no misunderstanding as to what comprises the employer’s
requirements. Similarly, any amendments to the contractor’s proposals after
they have been submitted should be incorporated. Any ambiguity between
these two documents could give rise to conflict at a later date.

2.4.4.8 Contractors are only responsible for that which they design or specify; in turn
employers or their consultants are responsible for all that they design and/or
specify, unless there has been a pre-agreed limitation to the contract. Thus, in
order for the employer to maximise the benefit from design and build, the
extent of any designing and specifying by prescription in the employer’s
requirements should be limited to those elements in which the employer
requires such control.

2.4.4.9 The Building Cost Information Service (BCIS) publication, Elements for
Design and Build offers guidance to employer’s agents on the use of building
elements for structuring the employer’s requirements and the contractor’s
proposals/contract sum analysis. Elements for Design and Build is considered
to be important supplementary reading. The list of elements, and their
definition, is also given in section 2.3 of this handbook.

The Surveyors’ Construction Handbook Part 2, Section 4 (09/03) Effective from 1/11/03 Page 5
PART 2, SECTION 4

Note should also be made of the Code of Procedure for Selective Tendering
for Design and Build published by the National Joint Consultative Committee
for Building (NJCC) in 1995 and as amended from time to time.

Appendix B is a checklist of matters which surveyors are advised to consider


when compiling employer’s requirements and checking contractor’s
proposals. The list covers the major matters and the elements that relate to
buildings in general. It cannot be exhaustive when applied to any particular
buildings. Any chartered surveyors acting as employer’s agents are advised to
make themselves aware of all matters which are relevant to the client and the
client’s business so as to ensure that the employer’s requirements/contractor’s
proposal reflects the client’s needs.

I 2.4.5 Design and build variants


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

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

2.4.5.2 PACKAGE DEAL AND TURNKEY

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

2.4.5.3 DEVELOP AND CONSTRUCT

Develop and construct is the name given to the ‘variant’ where the client, as
part of the employer’s requirements, imposes a design and/or specification
developed to a greater degree than most (for example, listing specific
manufacturers’ products). The contractor is obliged to adopt this data and
should reflect this developed design information in the contractor’s proposals.

A fully developed preliminary design may negate many of the advantages


associated with conventional design and build. However, the client may be
happy to forego these advantages and to impose his or her own particular
design or specification in return for other benefits perceived to derive from a
design and build procurement strategy.

Page 6 Part 2, Section 4 (09/03) Effective from 1/11/03 The Surveyors’ Construction Handbook
PART 2, SECTION 4

2.4.5.4 TWO-STAGE TENDER

Two-stage tender requests seek to obtain proposals from a number of


tenderers from which one is selected. That tenderer then works up the
preferred submission in greater detail.

2.4.5.5 JOINT VENTURE/NEGOTIATED

Joint venture/negotiated projects arise when a client is approached by a


contractor or developer with a proposal which broadly aligns with the client’s
needs. Many successful projects have been carried out using this route with
considerable benefit to the client. Clearly, the earlier the employer’s agent can
be introduced the better, since his or her involvement should help limit any
abortive design.

2.4.5.6 DESIGN BUILD FUND AND OPERATE

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

Irrespective of the design and build variant employed, the service of the
employer’s agent does not alter radically and can still be developed from the
items of service listed in appendix A.

I 2.4.6 Novation

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

The Surveyors’ Construction Handbook Part 2, Section 4 (09/03) Effective from 1/11/03 Page 7
PART 2, SECTION 4

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

Page 8 Part 2, Section 4 (09/03) Effective from 1/11/03 The Surveyors’ Construction Handbook
PART 2, SECTION 4, APPENDIX A

Appendix A: Potential services associated with the role of


employer’s agent
The services to be provided should follow the NJCC’s Code of Procedure for Selective
Tendering for Design and Build (1995).

Reference should also be made to the BCIS publication Elements for Design and Build
which provides guidance on how to structure documents for design and build contracts.

The scope of services should be fully agreed between the employer’s agent and the
client at the outset of the commission and all interested parties should be informed as to
the extent of delegated authority.

A1 INITIAL DESIGN INPUT

• Advising on the need for specialist appointments where necessary


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

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/03 Page 1
Appendix A (09/03)
PART 2, SECTION 4, APPENDIX A

A2 PRE-CONTRACT

• Advising on the need for further specialist appointments where


necessary.
• Preparing cost estimate/structured cost plan.
• Advising on need for risk analysis to include market research to
underpin financial viability.
• Advising on any possible archaeological implications for the site.
• Reviewing subsoil reports and commenting on foundation design and
contamination considerations.
• Assessing environmental impact and advising generally on
environmental issues.
• Conducting local public investigations as related to town planning,
including consultation with building occupiers prior to submitting a full
town and country planning application.
• Arranging drawings and performance specification for mechanical and
electrical services.
• Arranging design/cost audit at appropriate work stages if appropriate.
• Advising on the need for provision of Party Wall Act or Access to
Neighbouring Land Act Agreements.
• Developing project brief with client and reflecting same in the
employer’s requirements.
• Establishing with client the format of the contract sum analysis.
• Assisting with completion of formal applications in connection with
approvals relating to funding, necessary consents and other
requirements.
• Advising level of contingencies and preparing appropriate daywork
clause.
• Advising on tendering options including single- or two-stage tendering,
develop and construct or joint venture.
• Advising on optional clauses in standard forms of contract, in particular
CD 98 supplementary provisions which provide both parties with time
and cost certainty.
• Advising on dispute resolution.
• In consultation with client finalising the employer’s requirements
document and arranging for this to be formally ‘signed off’ by the client.
• Where applicable, advising (after interview if required) on the selection
of suitable tenderers including their capacity, resources, financial and
tax exemption status.
• Reviewing and reporting on tenders received for the project including
comparison with cost plan and comment on programme proposed by
each.
• Advising on all aspects of future maintenance of the completed
development.
• Advising on services installation and future maintenance to these
services including checking and commenting upon working drawings
produced by tenderers.

Page 2 Part 2, Section 4 Effective from 1/11/03 The Surveyors’ Construction Handbook
Appendix A (09/03)
PART 2, SECTION 4, APPENDIX A

• Advising on energy ratings, for example, National Housing Energy


Rating and Standard Assessment Procedure.
• Ensuring access audit is executed (to meet the requirements of the
Disability Discrimination Act).
• Auditing contractor’s proposals (including design and detailed
drawings) to ensure compliance with employer’s requirements, town
and country planning, building regulations and any further criteria
imposed upon the project by external organisations.
• Preparing cash flow forecasts.
• Advising on necessity for and wording of performance bonds and,
where applicable, parent company guarantees.
• In conjunction with the client’s broker reviewing contractor’s and
client’s insurances (including professional indemnity insurance of
designers).
• Preparing and agreeing a schedule of rates for valuation or negotiation
purposes.
• Advising both client and tenderer on any agreed amendments to the
employer’s requirements following receipt of contractor’s proposals and
other relevant inputs.
• Providing information to client in connection with post-tender
documentation for lender/funder.
• Agreeing with contractor cash flow based on stage or periodic
payments.
• Arranging for all necessary collateral warranties to be prepared and
completed by contractor, subcontractors and consultants.
• Arranging for the appointment of a clerk of works.
• Advising on assignment and subcontracting (including design).
• Advising on novation of designers’ contracts, if appropriate.
• Preparing contract documentation, agreeing documentation with both
parties and arranging execution.
• Visiting the site with the contractor and agreeing by schedule and
photographic records the existing condition of any buildings to be
retained, also, roads, footpaths, trees, shrubs and other similar items
liable to be damaged.
• Attending site with contractor and assisting in arranging closure of roads
and footpaths.

A3 CONTRACT DURATION

• Issuing letters of intent where appropriate.


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

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/03 Page 3
Appendix A (09/03)
PART 2, SECTION 4, APPENDIX A

• Attending all site meetings.


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

Page 4 Part 2, Section 4 Effective from 1/11/03 The Surveyors’ Construction Handbook
Appendix A (09/03)
PART 2, SECTION 4, APPENDIX A

• Ensuring that all snagging items are rectified before inviting client to
receive handover.
• Ensuring the provision of ‘as built’ information compiled in manual
form and supplied to the client at completion of construction process –
user’s manual and/or computer disk.
• Ensuring that all service installations are completed in accordance with
original approved design, attending final commissioning and procuring
test certificates.
• Arranging and attending handover sessions.

A4 POST-CONTRACT

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

A5 GENERAL ADDITIONAL SERVICES

• Dealing with essential items of defect that arise during maintenance


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

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/03 Page 5
Appendix A (09/03)
PART 2, S ECTION 4, A PPENDIX B

Appendix B: Employer’s Requirement/Contractor’s Proposal Checklist


B1 CONTRACT DOCUMENTATION

The contract documentation will include:


• the employer’s requirements
• the contractor’s proposal
• the contract sum analysis
• the article conditions, optional supplementary provisions and
appendices set out in the form of contract.

The employer’s requirements can be a brief statement of the client’s


accommodation requirements, an outline design or a fully worked up
design. The contractor’s proposals should be in sufficient detail to allow
the client to judge between the tenders on design as well as price.

The required level of detail will vary from client to client and contract to
contract but it is suggested that information on this checklist would be the
minimum requirement.

Where little design work has been carried out before tenders and proposals
are invited, a performance specification would be normally required.
However, where a great deal of design work has taken place a prescriptive
specification would be needed.

B2 CHECKLIST

(Note that this list is not intended to be exhaustive in total or in any section)

B2.1 General Information


• Project title
• Employer
• Employer’s agent
• List of drawings and other information accompanying documents
• Location, including a narrative on the proposed use/user of the building.
An indication of the employer’s business and overall objectives (to
provide a feel for the eventual product)
• Access to site
• Site boundary defined
• Form of contract
• Permissible modification to standard form of contract
• Details of appendices to the conditions of contract
• Form of contract sum analysis

B2.2 Building and Accommodation Outline


Outline description of the building
Accommodation schedule
• schedule of net usable areas (including definition of occupancy)
• schedule of occupancy numbers and duration of occupancy
• circulation requirements

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/99 Page 1
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

Basis of design

Conceptual design statement and drawings


• site layout
• plans
• elevations
• sections
• relevant working details
• site works and landscaping layouts
• sketch perspectives
• structural design
• services design

Design standards
• legislation or standards
• details of standards which apply (for example codes of practice)
• statement of workmanship
• tolerances
• CDM regulations

Aesthetics
• specific aesthetic needs (other than planning requirements)

Integration of components
• relationship with each other
• methods of dealing with interfaces
• method of dealing with services installations. For example, level of
concealment of services and architectural treatments to exposed
surfaces

B2.3 Form of Detailed Specification


(Note: The detailed employer’s requirements can be drafted in performance
specification terms, or in prescriptive terms (contractor delivery) by including
detailed specification and drawings, or a combination of performance and
prescriptive specification.)

The scope of work (see Section B2.4) assumes an employer’s requirement


drafted in performance specification terms and the contractor’s proposals should
convert these performance specifications into clearly defined design proposals.

The specifications and design checklist (see Section B2.5) can be used in
preparing employer’s requirements or a specification for a contractor’s
proposal.

A performance specification should be checked to ascertain that it is


feasible to design a structure with the requirements given and that there is
no conflict between performance and other prescriptive requirements given.

Page 2 Part 2, Section 4 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

B2.4 Scope of Work (Performance Requirements)


Performance specification may relate to the whole building or include
elements or both. The following are some matter which may be addressed.

Image/description of key areas


• drawings
• sketches
• statements

Flexibility
• flexibility of accommodation
• flexibility of design

Energy
• energy conservation and heat measures
• insulation values
• Building research establishment environmental assessment method
(BREEAM) certification rating
• plant room layouts

Loading requirements

Details of dead and imposed loadings

Facilities for disabled


• provision statement to comply with building regulations and current
disability legislation
• specific needs of disabled

Building configuration
• written statement and/or drawing
• relationship of accommodation
• size of accommodation
• purpose
• layout
• dimensional constraints including clear heights under slabs and beams
• natural lighting - lux levels and method of measurement
• natural ventilation
• column grid arrangement including projections from walls, etc.
• clear ceilings/soffit heights
• tolerances
• vehicle access door heights and widths
• toilet/bathroom/locker room requirements
• kitchen/catering requirements
• restaurant/vending requirements
• plant room configuration
• noise breakout between rooms

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/99 Page 3
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

• storage space, cleaners, cupboards, maintenance facilities


• access for cleaning and maintenance
• security

Means of escape

Plantrooms

External works
• car parking
• leisure facilities
• environmental considerations
• visual effects
• waste disposal
• emergency vehicle access
• water features
• loading bays
• existing site features and treatments
• function buildings within externals
• site survey

B2.5 Specifications and Design


Specification of performance, or the form of construction, kind and quality
may be given in elemental or other format. The standard elements are listed
below. (Please see Section 2.3 of this handbook or the BCIS publication,
Standard Form of Cost Analysis for definition of elements.)

1 Substructure
2 Superstructure
2A Frame
2B Upper floors
2C Roof
2C1 Roof structure
2C2 Roof coverings
2C3 Roof drainage
2C4 Roof lights
2D Stairs
2D1 Stair structure
2D2 Stair finishes
2D3 Stair balustrades and handrails
2E External walls
2F Windows and external doors
2F1 Windows
2F2 External Doors
2G Internal walls and partitions
2G1 WC cubicles
2H Internal doors
3 Internal finishes

Page 4 Part 2, Section 4 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

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

The Surveyors’ Construction Handbook Part 2, Section 4 Effective from 1/11/99 Page 5
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

5K3 Lightning protection


5L Communication installations
5M Special installations
Details of each installation
5N Builder’s work in connection with services
5O Builder’s profit and attendance on services
6 External works
6A Site works
6A1 Site preparation
6A2 Surface treatment
6A3 Site enclosure and division
6A4 Fittings and furniture
6B Drainage
6C External Services
6C1 Water mains
6C2 Fire mains
6C3 Heating mains
6C4 Gas mains
6C5 Electric mains
6C6 Site lighting
6C7 Other mains and services
6C8 Builder’s work in conjunction with external services
6C9 Builder’s profit and attendance on external mechanical and
electrical services
6D Minor building work
6D1 Ancillary buildings
6D2 Alterations to existing buildings

B2.6 Particular Requirements


Additional Responsibilities
The employer’s requirements should state who is responsible for all matters
that affect the construction of the building including such matters as:

Site investigations
• soil survey
• ground conditions
• topographical surveys
• existing services
• hazardous waste
• archaeological features

Development controls or other controls


• planning permission (including reserved matters)
• building regulations
• Water Authority
• Licensing Authority (liqour)
• Licensing Authority (entertainments)
• fire officer requirements

Page 6 Part 2, Section 4 Effective from 1/11/99 The Surveyors’ Construction Handbook
Appendix B (10/99)
PART 2, S ECTION 4, A PPENDIX B

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

Establish responsibility for fees payable in connection with above

Other legislation or provisions

Adjoining premises
• rights of access to adjoining premises

Trespass, nuisance
• contractor to acquire rights as required and absolve the employer of
responsibility

Use and maintenance of existing:


• roads
• sewers
• services

If the responsibility for any of these matters is to be with the contractor the
client should include disclaimers in any information which is provided to
the contractor.

Information requirements
The employer’s requirements should give details of all records, drawings,
etc., required to be handed over on completion including:
• record drawings
• maintenance manuals
• CAD data disks
• design calculations
• staff training requirements
• warranties and guarantees

Exclusions
Give details of items not to be designed and/or constructed by the
contractor and the requirements and responsibilities for integrating these
into the works

Future developments
Provide details of any provisions required for future developments

The Surveyors’ Construction Handbook Part 2, Section 4 (10/99) Effective from 1/11/99 Page 7
Appendix B (10/99)
PART 2, SECTION 5

PART TWO: CONSTRUCTION DESIGN AND ECONOMICS

SECTION 5: THE CHARTERED SURVEYOR AS LEAD


CONSULTANT

Introduction
Over recent years many property and construction professionals have
diversified into areas outside their core discipline. Some have become
barristers; many have become planning supervisors; but the most common
and obvious diversification has been to take on the role of lead consultant or
project manager.

In the past, this role has largely been the domain of the architect. However, in
recent years many clients have increasingly used the services of the chartered
surveyor to carry out these duties.

For those embarking on this route care must be taken to ensure that the
additional duties required by the role of lead consultant are fully understood
and considered when undertaking the project, together with the associated
professional liabilities.

This section highlights some of the issues which the chartered surveyor
should consider before undertaking this role. It also identifies some of the
benefits for both clients and projects when appointing a chartered surveyor as
lead consultant. A schedule of the additional duties that are likely to be
required in excess of the main professional duties defined in appointment
documents (such as those for building and quantity surveying) is included at
the end of the section.

I 2.5.1 Definitions: The Difference between a Project Manager and Lead


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

The Surveyors’ Construction Handbook Part 2, Section 5 (05/00) Effective from 1/7/00 Page 1
PART 2, S ECTION 5

Figure 1: Project Structure using a Project Manager

Client

Project Manager Managing &


coordination

Arch. Eng. QS Plann. Sup. etc..

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

Figure 2: Project Structure using a Lead Consultant

Client

Client’s Representative Advising &


coordination

Lead Consultant

Arch. Eng. QS Plann. Sup. etc..

I 2.5.2 Benefits of Appointing a Chartered Surveyor as Lead Consultant


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

Page 2 Part 2, Section 5 (05/00) Effective from 1/7/00 The Surveyors’ Construction Handbook
PART 2, SECTION 5

2.5.2.2 As well as simply the design of the buildings, many other skills are required
to provide a functional space for a client and the chartered surveyor is often
more conversant with these additional activities.

2.5.2.3 The chartered surveyor is frequently called upon in matters associated with
land purchase, valuation, condition survey, development potential and
building cost. This front-end advice provides the opportunity to advise clients
and add value before the appointment of the architect, or in parallel with the
concept designs. This early involvement opens the door of opportunity for the
chartered surveyor to take up the reins as lead consultant.

2.5.2.4 Other benefits to a client can be derived where the ‘project’ requires a distinct
specialism and the design process is only part of a more specialised activity,
for example farms management.

I 2.5.3 Issues to Consider before Undertaking the Role


2.5.3.1 Before taking on the role of lead consultant, careful consideration must be
taken to ensure that there is sufficient competency to undertake the additional
duties involved in the role. This level of competency will impact directly on
professional liability insurance policies and ‘competency’ under the
Construction (Design and Management) (CDM) Regulations.

2.5.3.2 Fees for these additional activities must be at the discretion of the provider.
They should take into account the level of additional time and resources
required in excess of the core professional services provided. It may be that
some of the lead consultant duties overlap with existing duties and that
economies may be obtained. However, the converse may equally apply and it
is essential that the chartered surveyor thoroughly reviews the actual
additional duties required before providing fee quotations.

2.5.3.3 With the constant changes in the way that buildings are procured and
designed, the chartered surveyor is in a prime position for providing real
added value to the process. For those individuals or practices who do not wish
to undertake the more encompassing role of project manager, but feel that
they can make a positive contribution by directing a particular project, then
the role of lead consultant fits the bill. However, care must be taken to ensure
that the necessary additional skills exist to be certain that the increased
responsibility can be taken on comfortably and to the ultimate benefit to the
client.

I 2.5.4 Schedule of Lead Consultant Duties


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

The Surveyors’ Construction Handbook Part 2, Section 5 (05/00) Effective from 1/7/00 Page 3
PART 2, S ECTION 5

building surveying and it is recommended that, wherever possible, the


surveyor refers to these when confirming the scope of service to be provided
as lead consultant.

2.5.4.2 PURPOSE

During a construction project many issues can arise on which the client may
require professional advice from his or her consultants. The lead consultant’s
role is to provide the client with comprehensive professional support to ensure
that the client’s requirements are met with regard to legislation, standards,
cost and programme.

The client nominates a lead consultant for each capital project undertaken.
The lead consultant, who may or may not be an active design member of the
project team, will liaise with the client representative and will be responsible
for the following activities.

2.5.4.3 GENERALLY

(a) Establish the client’s brief and ensure that it is agreed with the client
and communicated to all designers.

(b) Monitor the service provided by all consultants to ensure that they are
carrying out their duties to the standard required at each work stage.
Submit all reports, plans and proposals to the client with the request for
approval to proceed to the next work stage.

(c) Deal with all queries and solve problems as they arise. Seek advice
from the client where necessary, but be aware that professional
responsibility for the proper management of all aspects of the project
lies solely with the lead consultant and project team members.

(d) Ensure that all drawn and specification material is forwarded to all
other consultants in accordance with the previously agreed project team
programme. Review, coordinate and confirm design drawings of all
project team members.

(e) Regularly review the design with the client and designers and formally
minute any agreed amendments. Inform the client of the impact of
these amendments on time, cost and design.

2.5.4.4 STAGES A AND B: INCEPTION, FEASABILITY AND BRIEFING

AB/1 Establish the scope of the project and ensure that all other members of
the project team have the same understanding.

AB/2 Advise on the need for site investigations.

AB/3 Investigate planning constraints.

Page 4 Part 2, Section 5 (05/00) Effective from 1/7/00 The Surveyors’ Construction Handbook
PART 2, S ECTION 5

AB/4 Direct the activities of any supporting consultants such that the option
appraisal/feasibility study is fully investigated. Collate and prepare a
report for submission to the client. Attend presentation meetings as
required.

AB/5 Assist the client with the preparation of detailed briefing documents
with special input on technical, legal, statutory, financial and
programming requirements.

AB/6 Advise on procurement methods.

AB/7 Advise the client with regard to the general application of the CDM
Regulations and comply with Regulation 13(1).

AB/8 Agree fee with the client.

AB/9 Obtain further instructions from the client.

2.5.4.5 STAGE C: OUTLINE PROPOSALS

C1 Arrange dates and venues. Chair and minute all regular design team
meetings (at least monthly up to tender stage).

C2 Arrange to circulate a list of specific duties of each consultant to


establish roles and responsibilities. Discuss and agree a detailed design
and general construction programme with all members of the design
team.

C3 Arrange dates and venues with the architect and client representative
for brief development and presentation meetings.

C4 Arrange for surveys, investigations and consultations with statutory


bodies.

C5 Ensure compliance with Regulation 13(2) of the CDM Regulations and


liaise with the planning supervisor.

C6 Compile and submit Stage C report to the client.

C7 Request approval to proceed to Stage D.

2.5.4.6 STAGE D: SCHEME DESIGN

D1 Arrange for any site investigations and consultations which are still
necessary.

D2 Review progress, brief and the client’s decisions. With the project
team’s assistance prepare and agree a detailed design programme of
work and flow of information.

The Surveyors’ Construction Handbook Part 2, Section 5 (05/00) Effective from 1/7/00 Page 5
PART 2, S ECTION 5

D3 Prepare the initial health and safety plan (if acting as the planning
supervisor).

D4 Ensure compliance with Regulation 13(2) of the CDM Regulations and


liaise with the planning supervisor.

D5 Clarify items of fixed furniture and equipment required by the client.

D6 Compile the Stage D report from work undertaken and coordinated by


all project team members.

D7 With the architect, undertake a formal presentation (or presentations) to


the client.

D8 Request approval to proceed to Stage E.

2.5.4.7 STAGE E: DETAILED DESIGN

E1 Review the outcome of planning submission.

E2 Consider the need for pre-ordering of materials or equipment.

E3 Compile and submit the Stage E report to the client which, in addition
to the usual reports and cost plans, should comprise:
• furniture and layout drawings;
• sample boards and recommendations for selection of materials and
finishes;
• reports from advising authorities;
• phasing and site management drawing showing the effects of
disruption on the operation of the establishment; and
• schedule of areas showing the direct relation to the areas in the
brief.

E4 Ensure compliance with Regulation 13(2) of the CDM Regulations and


liaise with the planning supervisor.

E5 Advise on the form of contract.

E6 Request approval to proceed to Stage F.

2.5.4.8 STAGE F: PRODUCTION OF INFORMATION

F1 Ensure appropriate applications for approval under other applicable


statutory requirements (including negotiating waivers or relaxations).

F2 Ensure appropriate applications for approval under the building


regulations or other applicable statutory requirements (including
negotiating waivers or relaxations).

Page 6 Part 2, Section 5 (05/00) Effective from 1/7/00 The Surveyors’ Construction Handbook
PART 2, S ECTION 5

F3 Discuss any aspects of the design, construction methods or site


management that could be of concern under health and safety
legislation. Update the health and safety plan.

F4 Ensure that a list of tenderers from approved register of contractors is


obtained. Contact each contractor giving outline details of the scheme
and request that they confirm their interest in submitting a bona fide
tender.

F5 Confirm all requirements from the planning authority, fire officer,


crime prevention officer and highway authority will be incorporated in
the contract documents.

F6 Report to the client at monthly intervals on progress and cost plan


checks.

2.5.4.9 STAGE G: BILLS OF QUANTITIES

G1 Discuss with the client and project team suitable amendments to


standard contract preliminary clauses, the completion of the appendix
to the contract, performance bonds, changes to standard contract
conditions, methods of appointing subcontractors and suppliers and
insurance liabilities.

G2 Ensure that planning and building regulation approval has been achieved.

G3 Obtain pre-tender estimate from quantity surveyors. Inform the client


of readiness.

G4 On instructions to proceed to tender, instruct the quantity surveyor (if


appointed) to issue tender documents. Follow all the client’s standard
procedures for this activity.

2.5.4.10 STAGE H: TENDER ACTION

H1 Ensure that all arrangements for temporary works and client site
preparation have been undertaken. Liaise with the property
manager/client for all temporary site management and services issues.

H2 Be available to assist tenderers in the clarification or correction of data


within the tender documents.

H3 Carry out tender appraisal in conjunction with other consultants and


submit a formal tender report to the client recommending (or
otherwise) the acceptance of a single tender.

H4 If necessary, undertake redesign, and/or negotiation with tenderer(s)


and client, on reductions in tendered contract sum to meet the client’s
budget.

The Surveyors’ Construction Handbook Part 2, Section 5 (05/00) Effective from 1/7/00 Page 7
PART 2, S ECTION 5

2.5.4.11 STAGE J: PROJECT PLANNING

J1 Prepare the building contract and arrange for it to be forwarded to the


client or his or her solicitor, and signed by the contractor.

J2 Notify the client’s insurers.

J3 Arrange a pre-contract meeting with the contractor, subcontractors,


consultants, clerk of works, client and head of establishment. Advise on
arrangements for access to the site and deal with queries and concerns
on works.

J4 Ensure that all temporary and enabling works are complete.

2.5.4.12 STAGE K: OPERATIONS ON SITE

K1 Ensure that the contract is administered in accordance with its terms.


Ensure that cost control of the project is maintained.

K2 Visit the site as appropriate to inspect the progress and quality of work.

K3 Liaise and coordinate the work of all design consultants during the post-
contract period ensuring solutions are found to issues that may arise and
that the schedules for issue of later design information are met.

K4 Hold regular meetings on site with the head of establishment, client and
clerk of works to appraise them of progress and to establish and resolve
any concerns that may be arising.

K5 Attend regular site meetings with the contractor, other consultants and
clerk of works.

K6 Give a short general report at appropriate intervals during the course of


the contract on progress, site relationships, quality of workmanship and
any other pertinent matter. Monitor contractor’s health and safety plan
and records.

K7 Ensure that certificates are issued for interim payments on the RIBA
standard form to the client. Produce short financial reports on a
cumulative basis (cash flow predictions are required to be attached to
each valuation certificate). Produce a detailed financial report showing
the value of all actual and expected variations to be issued at three
monthly intervals throughout the construction process.

K8 Ensure that all the client’s handover procedures have been followed
before accepting the building from the contractor.

K9 Notify the client’s insurers that work is complete and arrange for
release of bonds.

Page 8 Part 2, Section 5 (05/00) Effective from 1/7/00 The Surveyors’ Construction Handbook
PART 2, S ECTION 5

2.5.4.13 STAGE L: COMPLETION

L1 Check making good of all outstanding patent defects. Resolve any


issues relating to emergency latent defects over the defects period. On
completion of all making good, agreed with the head of establishment
in writing, issue certificate of making good defects.

L2 Ensure that the terms of the contract, in relation to completion of the


works, are administered.

L3 Continue to produce a financial report at three monthly intervals.

L4 Ensure that the quantity surveyor completes the final account to an


auditable standard. Send to the client with the request for approval to
issue final certificate.

L5 Ensure that the issue of final certificate is made and that all consultants
complete construction certificate.

L6 Complete quality assurance questionnaire on performance of the client,


contractor and other consultants.

L7 Resolve any issues relating to emergency latent defects after the patent
defects period.

L8 Resolve contractual claims and provide any necessary reports to the


client.

L9 Ensure that the health and safety file is completed and handed to the
client.

L10 Ensure that all fire safety certificates, building control certificates,
licenses, etc. are obtained and handed to the client.

L11 Review the project from start to finish and report findings to the client,
complete with observations on successes and failures. Ensure that all
parties involved are sent a copy of the report.

The Surveyors’ Construction Handbook Part 2, Section 5 (05/00) Effective from 1/7/00 Page 9
PART 2, SECTION 6

PART TWO: CONSTRUCTION DESIGN & ECONOMICS


SECTION 6: DEFINING SUSTAINABLE CONSTRUCTION

Introduction

The term ‘sustainable’ was first used in the construction industry when it was
applied to sources of timber. At that time timber was declared to come from
‘sustainable sources’. Today, timber from ‘sustainable sources’ has been
replaced with the expression ‘well managed’ or even ‘managed’ sources
implying that there is a difference between being sustainable and being well
managed.

But what is this difference?

The definition of sustainability that seems to have achieved almost universal


acceptance is that put forward by the World Commission on Environment and
Development in 1987, often referred to as the Brundtland definition:

‘Humanity has the ability to make development sustainable – to ensure that it


meets the needs of the present without compromising the ability of future
generations to meet their own needs.’

This definition appears quite clear in its meaning: we are charged with the
responsibility of ensuring that our activities do not damage the legacy which
we are passing on to our successors. Development can be taken in any context,
from the economic development of a nation to the construction of a simple
building. It confers upon us the responsibility to consider the impact of our
activity now and the legacy that we are leaving behind us. This can be
regarded as the principal of ‘common inheritance’ or, alternatively, ‘inter-
generational equity’.

The time frame element is therefore the difference between something which
is well managed and something which is sustainable. A source of supply for
timber may be well managed, but may only be so for 20, 30, 40 or 50 years.
Something which is sustainable has, theoretically, an infinite timescale and
therefore has inter-generational equity (where the term equity can mean a
resource stock, capital stock or a stock of technologies).

In the construction industry a resource stock can either be land, the


availability of raw materials or the buildings from which the raw materials
have been constructed. Unless purely organic materials, which are capable of
self-regeneration, are used, then in-organic materials are used such as stone,
clay and minerals which are deposits available in finite quantities and cannot
be regenerated.

The Surveyors’ Construction Handbook Part 2, Section 6 (10/00) Effective from 1/12/00 Page 1
PART 2, S ECTION 6

The mineral resources that are used are therefore not sustainable in
themselves, and in order to demonstrate a sustainable, or at least a ‘more’
sustainable construction industry it is the industry’s responsibility, under the
definition, to ensure that the buildings being constructed from the finite raw
material resources are capable of inter-generation usage.

To summarize, the construction industry cannot be considered to be


sustainable in terms of resource usage because raw materials, which are only
available in finite quantities, are being extracted and processed into building
products for incorporation into a building where the building itself is only
designed for a finite life. For the industry to be seen to act in a sustainable
manner it needs to provide a building stock that demonstrates appropriate
investment of these raw materials such that the swap is an equitable one. To
ensure that this takes place, the industry has a responsibility to consider the
design, detailing and construction methods as well as the cost in use to show
that a valuable legacy has been left to future generations.

I 2.6.1 Technology Swaps


Sustainability can be demonstrated, and the consumption of finite raw
materials justified, if a technology is produced that is a substitute for the
original raw material resource once this is exhausted. The best demonstration
of this, and probably the first major challenge that will face humankind, is the
exhaustion of fossil fuels.

Today, development, economic and political stability depend entirely upon the
availability of oil as a fuel and a raw materials source. Although estimates of
available economic oil reserves continually extend, and we are likely to enjoy
the benefits of it for at least another 100 years or so, it is universally agreed
that human activity will have to change and the reliance upon oil will have to
decline as the availability diminishes and it becomes more costly to extract.
The development of an alternative renewable, sustainable, pollution-free
energy source is therefore vital to the sustainability of human development.

Oil provides a very good example of non-sustainability in practice. However,


if the revenues generated from the use of oil were diverted to the research and
development of alternative, sustainable energy sources, this would be an
example of sustainability in practice in the form of a technology swap. In this
instance, the result of using one resource has been the production of an
alternative technology which is a direct substitute for the resource that has
been exhausted. The definition of sustainability has therefore been satisfied
in that the activities of one generation in achieving their goals has not
prevented future generations from achieving their goals.

The inter-generational equity principal is therefore a mechanism by which the


total available resource to future generations is maintained at a constant level.

Page 2 Part 2, Section 6 (10/00) Effective from 1/12/00 The Surveyors’ Construction Handbook
PART 2, SECTION 6

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

I 2.6.2 How Can the Environment and Sustainability be Valued?


At present the only method that has been developed for assessing the impact
of human activities has been to put a financial value on everything. In the
fullness of time it is to be hoped that we will devise different methods of
quantifying value.

An example of a technology advance resulting in huge potential


environmental damage is the CFC gases that have been identified as being
largely responsible for the depletion of the ozone layer. But how do we value
the environmental damage and possibly attempt to justify it in terms that are
economically acceptable? It has been suggested that the only way that ozone
layer depletion could be argued and justified as economically acceptable is if
there was a way of reinstating it at an acceptable cost. In other words, a
technology advance has been made for economic gain but at an environmental
cost. This environmental cost cannot be quantified in economic terms because
no cost yardstick has been devised for attributing economic value to our
environmental stock. This could, however, be quantified if there was a
technology to replace the ozone layer which would itself carry the missing
cost element within the equation.

This leads to the conclusion that acts which damage the environment do carry
a penalty for future generations and therefore to ignore them is a risk. This risk
may not necessarily be a risk for the present generation, but one that is being
imposed on future generations. Under a philosophy of sustainability it is the
responsibility of the present generation to hand on to the next generation the
same total stock as it itself inherited so as to ensure the same overall balance
of advantages for future development as originally inherited. Providing that
each generation adheres to these principals, the element of timescale
judgement is removed as each successive generation looks after the next.

Under these criteria, knowledge and technical advances will still be made and
future generations will still be at least as well off as the present generations;
but the likely loser will be the industrialized economy which will have to alter
the way in which the indicators of economic development are measured. At
present, industrialized nations generally consider economic development to
mean an increase in Gross National Product (GNP) per capita. However, GNP
assumes all matters relating to the environment have zero value. If economic
values are attributed to environmental functions in relation to economic
development, the national economic balance sheets would take on a
considerably different complexion.

The Surveyors’ Construction Handbook Part 2, Section 6 (10/01) Effective from 1/12/01 Page 3
PART 2, SECTION 6

I 2.6.3 How Does This Affect the Construction Industry?


2.6.3.1 MATERIALS

Most construction materials are a finite resource and will eventually be


exhausted. Many already are. Local British sources of Portland stone, which
has been used as a cladding material for many years, have been exhausted or
the quarries closed and it now has to be obtained from the Continent. Certain
colours of terrazzo marble, once popular in the 1960s, are no longer available
as entire mountains in Italy have been levelled. The use of terrazzo has now
been superseded by the increased use in solid marble and granite although it
will only be a matter of time before these sources are similarly exhausted.

Even organic materials are not immune. Brazilian Rio Rosewood, which was
very popular for making high-quality furniture in the 1960s, is now so
endangered that it appears on the Control in Trade of Endangered Species
(CITES) list as being illegal for fear of extinction. Mahogany is also on the
fringes of being listed and it is widely reported that there are no longer any
legal sources for the supply of the true Swietenia mahogany.

An example closer to home is the UK’s reliance upon imported timber having
used up its own supply. The history of timber production in the UK is an
interesting one which has seen the rapid depletion of forests from
approximately 90 per cent forest coverage at the time the Romans arrived to a
low point of less than 5 per cent of land coverage at the early part of this
century. Timber was first imported after the Great Fire of London and in 1668
it became necessary for Acts of Parliament to be passed to create forest
reserves like the New Forest in Hampshire to try to arrest the situation. World
War I saw timber in short supply again and resulted in the birth of the Forestry
Commission as a Government Agency in 1919. World War II resulted in
timber shortages again and the emergency created the major post-war
plantation of quick-growing conifers.

Humankind has a history of failing to adequately consider the impact that its
activities are having on the resource base and examples are easy to find.

2.6.3.2 BENCH MARKING ENVIRONMENTAL IMPACTS

In order to be able to assess the effect that we are having upon the environment
as a result of our activities a scientifically rigorous and consistent method of
analysis and bench marking is required. Such a method would have to
attribute units of measurement to each environmental impact and in turn to
relate these back to a datum to render the results meaningful on a human scale.

The Building Research Establishment (BRE) has undertaken more work than
most in this area. It has developed Envest, an environmental estimating
software tool which attributes Ecopoints to environmental impacts, with 100
Ecopoints being equivalent to the environmental impact of the average UK
citizen. Using a variety of comparison models and mathematical techniques
Ecopoint values have been attributed to building materials and systems, and it

Page 4 Part 2, Section 6 (revised 10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 2, SECTION 6

is now possible, via the software package, to calculate the total Ecopoints
score for building types, building operations, refurbishment and custom use.
From this data one form of construction can be analysed against another. It is
also possible to quantify the decision-making process using environmental
criteria, not only by building type and the method of construction that should
be used but also the decision whether to build new or to refurbish.

Environmental Impacts
In undertaking the assessment of environmental impacts and attributing
Ecopoints values to various activities and products, the following must be
considered carefully:

• climate change;
• fossil fuel depletion;
• ozone depletion;
• human toxicity to air and water;
• waste disposal;
• water extraction;
• acid deposition;
• eutrophication (or over enrichment of water courses);
• ecotoxicity;
• low-level ozone creation (summer smog); and
• mineral extraction.

All these factors have been considered, quantified, compared and weighted in
relation to the impact associated with a typical UK citizen and are shown in
table 1.
Table 1: Environmental Impact of UK Citizens

Issue % weighting Characterized impact


associated with a typical
UK citizen
Climate change 37.8 12300 kg CO2 eq. (100yr)
Fossil fuel depletion 12.0 4.09 tonnes oil eq.
Ozone depletion 8.2 0.286 kg CFC11 eq.
Human toxicity to air 7.0 90.7 kg toxicity
Waste disposal 6.1 7.19 tonnes
Water extraction 5.4 418000 litres
Acid deposition 5.1 58.9 kg SO2 eq.
Eutrophication 4.3 8.01 kg PO4 eq
Ecotoxicity 4.3 178000 m3 toxicity
Photochemical ozone creation 3.8 32.2 kg ethene eq.
Mineral extraction 3.5 5.04 tonnes
Human toxicity to water 2.6 0.0275 kg toxicity
% may not add up to 100% due to rounding

The Surveyors’ Construction Handbook Part 2, Section 6 (revised 10/01) Effective from 1/12/01 Page 5
PART 2, SECTION 6

So for example, to calculate the Ecopoints for 1 tonne of mineral extraction:

Characterized impact = 1 tonne mineral extraction


Characterized impact for 1 typical UK citizen = 5.04 tonnes mineral extraction
Normalized impact = 1 divided by 5.04 = 0.198
Weighting = 3.5%
Ecopoints = 0.198 multipled by 3.5 = 0.693 Ecopoints

2.6.3.3 EMBODIED ENERGY

As materials can be extracted in any part of the world and either processed into
building components locally or transported as raw materials, it is virtually
impossible to examine all of the possible environmental impacts that the
various activities are likely to have because the variables are just so great.
Perhaps the only constant method there may be in the winning and working of
materials, their transportation and processing into building components up to
the point when they are assembled into completed buildings is the energy
requirements of the various processes. The actual monetary value of energy
can also be different from country to country, therefore it is not possible to use
monetary value of energy as a unit of measure. However, the unit of energy
input itself can be used.

As energy is required to be consumed at every stage of the production process,


from extraction of the raw material to its incorporation into a construction, and
eventually to demolition and possible reprocessing, the sum total of these
energy inputs can be termed as the embodied energy of that product. It should
therefore be scientifically possible to establish a method of calculating the
quantity of embodied energy that is required to make a building component,
be it a cubic metre of concrete, a single brick, a square metre of glass or a sheet
of plasterboard.

Appendix A shows a comparison of embodied energy values for some


common materials. From this it can be appreciated just how energy intensive
some processes are and therefore how relatively good and bad some
components are. If materials have to be imported or are chosen to be imported
on the grounds of economic cost these will, by definition, carry a larger
embodied energy by virtue of the cost of global transportation. Conversely,
economies may be derived by local energy consumption and waste disposal
which can also be incorporated into the equation.

Embodied energy impacts associated with materials have also been assessed
quantitively by the BRE using Envest (see 2.6.3.2) which can also take
account of the building form and fabric typical replacement intervals and
other data held by the Centre for Sustainable Construction. The results
generated are quoted in Ecopoints per m² of element and factors such as
replacement intervals can also be factored in as part of a full cost and use
study.

A fundamental difference in environmental terms between refurbishment and


redevelopment is the saving of embodied environmental impact and energy if
refurbishment is undertaken in preference to demolition and redevelopment.

Page 6 Part 2, Section 6 (revised 10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 2, SECTION 6

2.6.3.4 LEGISLATIVE CHANGES

Armed with bench-marking data it would be possible for systems of


regulation to be built into the existing regulations. With the increasing
emphasis on energy conservation within the building regulations (which
currently concentrate on energy consumed in use) it would be a simple
extension of these regulations to lay down embodied energy maxima per
square metre for various building types.

A major criticism that could be levelled at such a system is that it would starve
the construction industry of design flexibility. However, this could be
overcome by introducing a scale of energy taxation. This would enable those
that wish to exceed the design criteria of the regulations to do so, but they
would have to pay for the privilege. Conversely, those who produce buildings
and achieve significant savings beneath the bench mark could receive aid in
the form of grants as recognition for their efforts and ingenuity.

I 2.6.4 Green Building Materials


Timber is undoubtedly the material most favoured by green designers. As well
as having a relatively low embodied energy content, it absorbs and stores
carbon from CO2 when growing, and is strong, insulating and easy to work.
Ideally, timber should be sourced in the UK but the supply is severely limited.
When sourcing imported timbers designers should ensure that the material
originates from a suitable source. The Forest Stewardship Council and the
Timber Trades Federation both supply lists of suppliers of timber from good
UK sources (see Appendix B).

Some species of timber are better than others at resisting rot and decay. In
particular, Western Red Cedar and Douglas Fir, which are again being
considered as a viable alternative to PVC-u or aluminium.

Note: specifiers should exercise care with regards to the source of timber as all
is not always as it seems.

Masonry construction can be considered green, especially if lime mortars are


specified, because this enables the bricks to be used again in the future. Brick
manufacturers are now keen to promote their products which use low energy
kilns.

Another form of construction finding favour is a solid block or concrete wall


with insulation and render externally. Dense concrete blocks are preferred to
lightweight aerated blocks which use more energy in production. Pulverized
fuel ash blocks contain over 50 per cent fuel ash which is a waste product from
power stations.

It is also now possible to obtain plaster and plasterboard made from waste
gypsum which is a by-product from fuel gas de-sulphurization.

The Surveyors’ Construction Handbook Part 2, Section 6 (revised 10/01) Effective from 1/12/01 Page 7
PART 2, SECTION 6

Insulation boards made from polyurethane, extruded polystyrene and phenolic


foams have given way to mineral wool, glass fibre, expanded polystyrene, and
in some cases foam glass or cork. Recycled cellulose fibre (newspaper print)
is now being specified more for loft insulation and wall insulation in timber
frame construction. One such product is known as ‘warm cell’ and is available
from Excel Industries (see Appendix B).

These are just a few examples of alternative material resources now available.
It is of course interesting to consider that as these materials gain popularity
and become specified as a matter of course, this will cause problems in
sourcing adequate quantities to satisfy demands.

There is a logic to the use of recycled materials (where the embodied energy
can be utilized again) as being perhaps the greenest contribution to be made.
Second-hand bricks, timber, roofing materials and assorted ironwork are
already available, unfortunately at premium prices.

I 2.6.5 Whole Building Sustainability


The matters discussed above help us to use resources and raw materials wisely
and to produce better buildings in terms of energy consumed in construction
and use. However, this in itself is not sustainable construction, although it is
certainly a vital component in the process. Sustainable construction would
only be achieved when the finished product can demonstrate usefulness and
serviceability on an inter-generation basis, rather than being constructed for a
single use and then rendered redundant when there is no longer a requirement
for the original purpose.

An example of such practice is the current trend for the conversion of


redundant 1960s office buildings into residential accommodation, as well as
warehouses and barns, which have for many years been seen as suitable
residential conversion opportunities. The uses to which these buildings are
now being put were never originally envisaged at the time of their planning,
design and construction, but suitable alternative uses have been found.

One of the key issues in building sustainability is to ensure that what is


originally constructed from the resources becomes a similar resource for the
future generations. In order to achieve this, attention must be turned to wise
material usage and reduction of waste as well as to producing a building of the
highest possible quality and with maximum adaptability. The building created
must continue to serve future generations well for whatever purpose they wish
to put it to, with the minimum of additional cost in terms of energy and raw
material resource input in order to convert and use it for their own purposes.

There are many buildings of over 200 years of age that have found suitable
alternative purposes beyond that for which they were originally designed. It is
therefore possible to establish with a reasonable degree of certainty what the
vital component parts are in ensuring the success of a building for say a 200,
or even a 300 year design life.

Page 8 Part 2, Section 6 (revised 10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 2, SECTION 6

The methods of funding and, in particular, the timescale over which a building
is considered a viable proposition would need to be reviewed and an
alternative method of valuing the asset would need to be established. This
would reflect not just the economic value, but also the environmental resource
value invested in the construction, and the social impact and benefits that the
construction is likely to have for future generations.

The planning process could be slightly extended such that alternative uses are
identified and documented and form an integral part of the planning process.
This would require the procurers and designers of the building to demonstrate
how it could be used for identified alternative purposes and to ensure that the
design, as proposed, is sufficiently flexible for the alternative uses to be
achieved with minimal additional input.

The other components to ensure that a building is suitable for inter-generation


use is to get the detailing, product selection and construction quality right such
that the building does not wear out before the inter-generation uses can be
realised.

Whilst some technologies have changed very significantly the base skills have
not and nor have the materials. It may be necessary for us to re-learn some old
skills in order to produce buildings of a long life expectancy but it is now
necessary for us to change from being a disposal society to a considerate and
conserving one.

I 2.6.6 The Government Line

In May 1999 the Department of Environment, Transport and the Regions


(DETR) published A Better Quality of Life – A Strategy for Sustainable
Development for the United Kingdom. This document endeavoured to set out
a framework and priorities for achieving sustainable development which
included:

• more investment in people and equipment for a competitive economy;

• achieving higher growth whilst reducing pollution and reuse of


resources;

• sharing the benefits of growth more widely and more fairly;

• improving towns and cities and protecting the quality of the countryside;
and

• contributing to sustainable development internationally.

The Government also felt that the construction industry can contribute to
achieving the sustainable development aims by:

The Surveyors’ Construction Handbook Part 2, Section 6 (10/01) Effective from 1/12/01 Page 9
PART 2, SECTION 6

• being more profitable and more competitive;

• delivering buildings and structures that provide greater satisfaction,


well-being and value to customers and users;

• respecting and treating its stakeholders more fairly;

• enhancing and better protecting the natural environment; and

• minimizing its impact on the consumption of energy (especially


carbon-based energy) and natural resources.

In April 2000 the DETR published Building a Better Quality of Life – A


Strategy for More Sustainable Construction. (It should be noted that the
inclusion of the word ‘more’ is now associated with a sustainable
development strategy which perhaps indicates a slight rethink of absolutes.)
This document shows that the Government now feels that the main themes for
action in achieving ‘more’ sustainable construction can best be served by
adopting the following action points:

• reuse existing built assets – meeting functional requirements may not


require new buildings and refurbishment and renovation may work
better;

• design for minimum waste – specify materials with care, think about
using recycled materials, design out waste at all phases in the
construction and occupation process and involve the supply chain;

• aim for lean construction – aim for continuous improvement, waste


elimination, customer focus, value for money, high quality management
of the projects and supply chain and good communication;

• minimize energy in construction – be aware of embodied energies and


transportation of construction projects. Adopt ‘green’ travel policies;

• minimize energy in use – consider more energy efficient solutions and


energy production from renewable sources;

• do not pollute – understand environmental impacts;

• preserve and enhance bio-diversity – look for opportunities throughout


the construction process to provide and protect habitats;

• conserve water resources – design for increased water efficiency in


building services and within the built environment;

• respect people and their local environment – be responsive to the


community and consider your workforce; and

• set targets – measure and compare your performance with others and set
targets for continuous improvement.

Page 10 Part 2, Section 6 (10/01) Effective from 1/12/01 The Surveyors’ Construction Handbook
PART 2, SECTION 6

I 2.6.7 What Might the Future Hold


If sustainability is going to be the way forward in the next millennium many
existing conceptions of development have to be reviewed and overhauled. The
way the environment and resources are valued, and how they are used, have to
be re-examined and justified against a policy of sustainability. The materials
and resources that are used in construction activities and the buildings that are
created will require fresh justification against sustainability objectives.

This will require an overhaul of the planning process and regulatory


frameworks within which the construction industry operates, requiring
funders, building users, material technologists, material manufacturers and
suppliers to re-examine and justify their methods.

The sourcing of the materials and the methods employed in conversion and
production of building products must be the first priority in making progress
towards sustainable constructions. The way in which raw materials are
extracted and processed at source can have the most direct impact upon the
environment and must be closely examined as well as the actual material
manufacturers themselves.

The second area for examination would have to be the philosophy behind
procuring buildings and meeting user requirements, the method by which
buildings are funded, the method of valuation and justification, together with
the demands for greater longevity and flexibility.

Thirdly, the professions responsible for the design and construction of


buildings to meet the requirements of funders and users must respond to the
challenge of sustainability in order to deliver the required product. This would
require new demands and disciplines in relation to the construction form and
the standard of construction itself. New materials and techniques would need
to be developed and adapted into sustainable construction. The professionals
would have to put new demands upon the material producers in the production
of more sustainable materials, but above all they must build for longevity and
flexibility with minimum re-investment by way of adaptation and
maintenance if the goals and targets are to be met.

Finally, the contribution that those actually constructing the building have to
make would need to be considered. The sustainable building should be a piece
of procession engineering, simply constructed but to the very highest of quality
standards with good detailing and nothing left to chance. The finished product
would have to be a monument to sustainable construction and inter-generational
equity making the optimum use of the energy and materials invested.

In other words the principles of sustainability must be fully embraced by every


participant from the supplier of the raw material, through the material
manufacturing process, the procurement and design functions right up to the
occupation of the completed building where the responsibility passes to the
occupiers, the facilities managers and the future owners, occupiers and
managers of the building to each play their part in making the most of what we
have.

The Surveyors’ Construction Handbook Part 2, Section 6 (10/01) Effective from 1/12/01 Page 11
Appendix A: Embodied Energy Content of Building Material

Lightweight 417
blocks

Concrete 625

The Surveyors’ Construction Handbook


Timber 694

Lightweight 833
concrete

Bricks 1222

Material
Plaster 1806

Part 2, Section 6
Appendix A (10/00)
Plastic 9300

Glass 15000

Steel 63000

Aluminium 195000

Effective from 1/12/00


0 5000 10000 15000

kWh/m3

Page 1
PART 2, S ECTION 6, A PPENDIX A

Source: The Architects Handbook 8 June 1995


PART 2, SECTION 6, APPENDIX B

Appendix B: Useful Addresses


Timber Trade Federation
Clareville House
22/27 Oxenden Street
London SW1Y 4EL

Centre for Sustainable Construction


Building Research Establishment
Garston
Watford WD2 7JR

Department of Transport, Local Government and Regions


(formerly Department of Environment, Transport and Regions)
Sustainable Construction Team
Eland House
Bressenden Place
London SW1E 5DU

The Forest Stewardship Council


Unit D
Station Building
Llanidloes
Powys SY18 6EB

Excel Industries
13 Rassau Industrial Estate
Ebbw Vale
Monmouthshire NP3 5SD

Construction Resources
16 Great Guildford Street
London SE1 0HS

The Building Centre


26 Store Street
London WC1

The Environment Information Service


PO Box 197
Cawston
Norwich NR10 4BH

The Surveyors’ Construction Handbook Part 2, Section 6 Effective from 1/12/01 Page 1
Appendix B (revised 10/01)
PART 3, SECTION 1

PART THREE: CONSTRUCTION PLANNING AND


PROCUREMENT

SECTION 1: DEVELOPING AN APPROPRIATE


BUILDING PROCUREMENT STRATEGY

Introduction

This section is intended to provide both clients and their advisers with
procedures which will assist them in the selection of an appropriate
procurement strategy for a building project.

The strategy developed for the purpose of project procurement should result
from an objective assessment of client needs and project characteristics, since
it is considered that there will be no single procurement strategy suitable for
all projects and all clients. Choice of an inappropriate strategy can, however,
result in a failure to meet client objectives, disappointment and potential
litigation.

The selection process should, therefore, provide a best-fit solution based on


good judgement and which is acceptable in terms of the identified criteria and
the acceptable distribution of risk.

The selection of an appropriate procurement strategy is identified as a key


decision in terms of achieving client objectives. Conversely, an inappropriate
choice can be a key factor in performance failure, resulting in cost and time
overruns and poor building performance. This section looks at the client’s
role (3.1.1), the development of procurement strategies (3.1.2), the selection
of the most appropriate procurement route (3.1.3), and the implementation
process (3.1.4).

3.1.1 informs clients as to their involvement as it relates to key stages in the


process. It also stresses the importance of appropriate professional advice.

In 3.1.2–3, the key issues are addressed together with the characteristics of a
variety of procurement strategies: the aim is to match client needs, the
particular project’s criteria and the chosen strategy.

The implementation of strategies is considered in 3.1.4 where reference is also


made to standard contracts for the designer, consultant or constructor
appointment.

Appendix A outlines procurement options.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 1
PART 3, SECTION 1

EFFECT OF CLIENT TYPE ON SATISFACTION CRITERIA

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

Owner-occupiers are usually primarily concerned with building performance


in terms of functionality and costs in use. They may also be concerned with
image and building style. In this sense, value for money is a key criterion.

Developers, on the other hand, may be driven by market conditions which


enable the project to be let or sold at maximum advantage. They may be
predominantly concerned with speed rather than performance.

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

Attempts to categorise clients in various ways may be helpful in the early


stages of developing procurement strategy. However, each client is unique
and will be more or less experienced in the process of building procurement
depending on company size and stage of development.

It is important to consider those factors which will affect client satisfaction as


well as the level of knowledge and experience of the client in the process of
building procurement. These factors should have a major influence on
procurement strategy and whether the client should take an active role in the
procurement process.

This Section addresses these issues and provides, through the form of a
checklist, a process to aid selection.

SCOPE

The section and the processes included should be used as a prompt and a focus
for the issues to be addressed during the development of procurement strategy.
It is not intended that the section will be used as a substitute for judgement.

3.1.1 The Client’s Role


(It is recommended that this be read in conjunction with Part 1, Section 1)

G 3.1.1.1 INTRODUCTION

G 3.1.1.1 This subsection explains the client’s responsibilities through the life of a
project. Although it is written for building projects, much of the advice is
applicable to other types of project. In carrying out their role, clients,
depending on their knowledge and expertise, will need help from their

Page 2 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

consultants, project managers and other advisers, whose roles are also
explained in this section. It is advisable, wherever possible, that clients obtain
advice from an objective and independent adviser who will then not be
involved as a consultant on the project.

This subsection aims to assist both current and future clients in setting policy
and formulating strategy. It outlines their task and explains how it should be
carried out. It has been written with the lay client in mind, but will also assist
experienced clients and their advisers.

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

G 3.1.1.2 A building project represents a discrete piece of work with clear start and
finish dates, providing specified benefits at accepted cost. It is unlike any
other manufactured product because it has:

• a unique demand – the client’s specific need for accommodation (but


future adaptability and possible disposal must not be ignored);
• a unique location – the site available for the building;
• unique constraints – the cost and time parameters for the project; and
• a unique end product – the finished building.

G 3.1.1.3 It has three other particular characteristics:

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

G 3.1.1.4 (a) Effective management is vital in any construction project. The client’s
prime role is to define the project and to establish a structure for the
management of the project to make sure that it works.

(b) A crucial part of any effective management structure is effective


communication. To perform effectively all parties should have timely access
to all information relevant to their tasks and the project’s objectives and status.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 3
PART 3, SECTION 1

(c) The client can have substantial influence on the design of the project in
respect of both functional efficiency and of overall appearance, and, therefore,
has to take particular care to:
• develop a business case for the project identifying primary needs and
analysing costs and benefits
• understand fully the purpose of the building; ensure that the
requirements of the users are accommodated; and communicate those
requirements to the designers;
• appoint architects and engineers with the proven ability of designing
buildings which satisfy users’ requirements and harmonise with and
contribute to the quality of the built environment. The selection of the
right people is emphasised as a key to success.

(d) This subsection sets out the role and responsibilities of the client through
all stages of the project.

(e) The diagram on the next page indicates the primary activities in the
procurement process and when activities are performed. As can be seen the
client’s role is significant with a wide range of activities to perform and
implement before both the design and the construction processes. In the
performance of these activities clients can expect to be supported and advised
by their advisers or (if appointed) the project manager.

Page 4 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
G 3.1.1.5 PRIMARY ACTIVITIES IN THE PROCUREMENT PROCESS

Pre-design phase Pre-construction phase Construction Post-construction

Client’s role Appoint adviser (3.1.1.6) Procurement strategy (3.1.1.13) Design overview (3.1.4.12) Commissioning (3.1.1.17)
Develop the business case for the Design overview* (3.1.4.12) Cost control overview (3.1.4.13) Occupation and takeover
project* (3.1.1.9) Cost control overview* (3.1.4.13) Time control overview (3.1.4.14) (3.1.1.18)
Define client’s responsibilities Whole-life costs (3.1.4.15) Quality control overview (3.1.4.18)
(3.1.1.7) Value engineering (3.1.4.17) Change control overview
Project definition (3.1.1.10) Time control overview* (3.1.4.14) (3.1.4.19)

The Surveyors’ Construction Handbook


Project briefing (3.1.1.12) Quality control overview*
Appointment of PM (if appropriate) (3.1.4.18)
(3.1.4.7) Appointment of constructors
Appointment of design and cost (3.1.4.9)
consultants (3.1.4.8) Confirming the business case
Procurement strategy* (3.1.1.13) (3.1.1.9)
Value management (3.1.4.16)

Procurement Procurement strategy


strategy development (3.1.2)

Part 3, Section 1 (01/03)


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

Diagram to indicate the activities in the Procurement Process

Effective from 1/3/03


* Indicates the activity will continue into the next phase
( ) Indicates the subsection of this document referring to the activity
PART 3, SECTION 1

Page 5
PART 3, SECTION 1

G 3.1.1.6 INDEPENDENT CLIENT ADVICE

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

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

• Assistance in preparing the business case (the business case)


underpinning the project
• Identifying the needs and requirements of the (briefing)
client
• Defining the project (project definition)
• Matching needs and project characteristics (procurement strategy)
with appropriate procurement strategy
• Facilitating the associated selection and (implementation)
contractual processes and policies

(c) The decision as to which procurement strategy to select should be based


upon information from the client and information about the project.

(d) A best practice guide is available to assist in this process1.

(e) Possible sources for independent client advice include a suitably


qualified and experienced construction professional such as a chartered
surveyor.

G 3.1.1.7 CLIENT’S RESPONSIBILITIES

(a) The client should set policy and outline strategy including:
• setting and prioritising the project objectives;
• clarifying client attitude to project risk;
• establishing procurement strategy;
• arbitrating between conflicting demands; and
• evaluating the completed project against the objectives.

1
Construction Industry Board, Briefing the Team, Thomas Telford Publishing, London, 1997.

Page 6 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

(b) The client also has a threefold management function:


• to provide financial resources and land for the project;
• to manage the client input; to co-ordinate functional and administrative
needs; to make decisions when needed; to resolve conflicts; to act as the
formal point of contract for the project; and
• to supply the technical expertise, to assess, procure, monitor and
control the external resources need to implement the project
(throughout the procurement process).

(c) In particular the client should be satisfied, as far as possible, that:


• the project brief is clearly defined as far as possible and linked back to
the client’s business case for the project;
• the project brief is comprehensive and clear and has the full support of
the users;
• any constraints demanded by the project funder(s) are known and their
impact understood;
• the critical assumptions made in preparing the initial estimates and
programmes are valid, realistic and achievable;
• advisers have developed cost estimates which are comprehensive and
include all capital and resources costs;
• allowances made in the feasibility and viability assessments to cover
possible risks are sufficient (contingency allowance);
• an adequate risk analysis has been completed;
• substantial sensitivity analysis and ‘what if’ studies have been carried
out to assess the effect of possible changed criteria on the viability of
the project;
• plans are in place for adequate project management including systems
for cost, time and change control, and that health and safety has been
adequately addressed;
• land will be purchased and available for the commencement of the
work.

(d) The client should also co-ordinate and resolve conflicts between all
interested sections of the client organisation including:
• user groups – who will work in the building;
• specialist groups – responsible for technical systems within the
building, e.g. communications, computers;
• facilities management – who will manage the completed building
including maintenance and security;
• finance and accounts – who will plan and control expenditure and pay
bills as they arise;
• legal advisers – who will advise on and monitor the client’s formal
relationships with outside parties.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 7
PART 3, SECTION 1

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

G 3.1.1.8 KEY CLIENT ACTIVITIES

Notwithstanding overall responsibility for the whole of the project, the client
will have an active personal involvement in the key activities explained in the
following subsections.

G 3.1.1.9 DEVELOPING THE BUSINESS CASE FOR THE PROJECT

(a) The client’s purpose in initiating a building project may be driven by the
need for the project as a functional unit or long-term investment.

(b) The client will need to review project feasibility in terms of time and cost
against benefits which will stem from the proposed project. In doing so he/she
will have to consider the returns expected, the value (in use) of the projected
asset against projected land costs, construction costs, cost of fees, fitting out
and commissioning costs, operating and maintenance costs and the
opportunity cost of money.

(c) The importance of each of these issues will be relative to the objectives of
the client and to the extent to which the client is able to cope with risk.

(d) Further influences in the case of a development project may include likely
annual rental, period between rent reviews, and growth of rental value. In
terms of the project development, total development time and taxation issues
may also be influential on the decision process.

(e) It is important that the client seeks advice in terms of investment appraisal
of the planned project and that any appraisal considers ‘what if’ questions to
ensure that the impact of changes of key components in the appraisal are
clearly understood. A chartered surveyor will be able to assist the client in
these matters.

Page 8 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

G 3.1.1.10 PROJECT DEFINITION

The importance of a clear project definition to the successful completion of the


project and in ensuring appropriate performance of the project cannot be over
emphasised. The inexperienced client will need professional help from the
advisers or design team in the preparation of the definition. The project definition
is a comprehensive statement of the client’s objectives and parameters for the
project based on close consultation between the client and users covering:

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

G 3.1.1.11 ESTABLISHING PRIMARY OBJECTIVES

(a) In establishing the primary objectives for the project it is necessary to


prioritise these objectives to ensure that when developing a procurement
strategy appropriate emphasis is given to the most important objectives.

(b) Since there can be a tension between the long-term objectives set for the
project in the business plan and the short-term objectives set for the project by
the project team, the identification of priorities is very important.

(c) One way to achieve this is to consider ‘what if’ scenarios to establish the
importance of key factors:
• what if the project does not meet its functional requirements?
• what if the project is delivered late?
• what if the cost of the project exceeds the budget?

(d) By carrying out an analysis in this way relative importance can be given to
each aspect by weighting that aspect against a total.
For example:
%
Function 50 Each of these can be subdivided to produce clarity, e.g.
Completion 20 cost can be divided into capital and running costs, time
Cost 30 into speed or reliability of delivery date and function into
100 layout, environmental quality and specification.

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

G 3.1.1.12 BRIEFING

(a) Once the project definition has been completed the briefing process will be
carried out. This is when the design team and cost consultants are able to flesh out

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 9
PART 3, SECTION 1

the project prior to extensive design work. The process commences with concept
design building upon project definition and progresses through to a project brief
which should encompass the client’s aesthetic, spatial and service requirements.

(b) While it may be difficult for inexperienced construction clients to


visualise the descriptions outlined during the briefing process it is worth
spending time seeking consensus on its content to avoid waste in the later
design process.

(c) The Construction Industry Board (1997) have produced an excellent guide
called Briefing the Team which summarises the processes involved.1

(d) Following the development of the brief for the project the design process
will commence (see 3.1.4 – Implementation).

G 3.1.1.13 DEVELOPMENT OF PROCUREMENT STRATEGY

The client is responsible for selecting the procurement strategy most suited to
the project and deciding how it is to be administered. The client may need to
take consultant advice on which strategy is most appropriate considering the
prioritised objectives and attitude to risk. This is a three-stage process which
may be key to project success:

• selecting the strategy;


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

The processes of procurement strategy selection and implementation are dealt


with in 3.1.3 and 3.1.4.

G 3.1.1.14 (a) Strategies may include:


• traditional – design by consultants completed before lump sum tenders
are obtained;
• design and build – detailed design and construction by the contractor
for lump sum; design and construction may overlap. Where a concept
design is produced by the consultants before the contractor is
appointed, the strategy is called develop and construct;
• management contract – design by consultants; management
contractor appointed early and work package contracts let
progressively in the contractor’s name; design and construction
overlap;
• design and manage – outline design by the consultants; as
‘management contract’ but detailed design by the management
contractor; design and construction overlap; and
• construction management – design by consultants; construction
manager appointed early to produce and manage trade package contracts
made directly with the client; design and construction overlap.

Page 10 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

G 3.1.1.15 (a) The extent of collaboration possible between those who design the project
and those responsible for delivery will vary with the strategy adopted.

(b) Selection strategies may include selection by competition for price; on the
basis of the quality of the bid as well as price alone; or by negotiation. In some
cases a high level of collaboration is possible enabling those responsible for
delivery to adopt a ‘Partnering’ approach to project delivery.

(c) Partnering is not so much a contract strategy as a way by which the project
team can be drawn together for their mutual benefit. Partnering is usually most
advantageous where the client has a range of projects to procure but can be
adopted for single projects.

(d) The principles associated with Partnering are based on inclusiveness and
depend upon a trust being established within the team. There is also a focus on
achieving the best outcome for the client as well as a satisfactory outcome for
each participant. The primary principles include developing mutual
objectives, simple approaches to dealing with disputes and a focus on
continuous improvement which can be measured.

(e) This approach represents a change in the culture traditionally adopted by


the UK construction industry which has previously been based on price-bid
approaches and will need to be carefully managed. However, evidence is
beginning to emerge of real all-round benefits being achieved particularly by
regular and experienced construction clients.

(f) The Construction Industry Board have published a most useful guide to
partnering1.

(g) The number and style of contract documents will depend on the contract
strategy selected.

G 3.1.1.16 (a) Where direct consultant appointments are made each will be subject to a
separate form of contract, but where a design and build strategy is selected,
designers may be appointed by the contractor. In the case of construction
management, the client will be required to enter into many individual trade
contracts.

(b) Contract implementation can be complex and may encompass the


additional appointment of consultant advisers or the novation of designers
from the client to the contractor. In addition, forms of warranty and collateral
contracts may be involved. The consultant advisers can assist the client in the
selection of appropriate contracts and the documentation associated with
them.

1
Construction Industry Board, Partnering in the Team, Thomas Telford Publishing, London, 1997.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 11
PART 3, SECTION 1

(c) The responsibility for contract administration will depend upon the
procurement strategy selected, and may fall upon the design team, the project
manager, a contract administrator, or the client him/herself. The client should
seek advice to ensure that the administration process is appropriately planned
and delegated.

(d) Guidance on the appointment of consultants and contractors is included in


3.1.4 (Implementation).

G 3.1.1.17 COMMISSIONING

(a) Once the building work is complete the systems which will support comfort
must be commissioned to ensure they are working effectively and reliably.

(b) In relatively simple buildings the client can insist that this is a function
which the contractor must perform. Where buildings have sophisticated
systems controlling the internal environment or facilitating staff movement or
safety, commissioning can be established as an independent activity carried
out by specialists.

(c) However commissioning is facilitated, it must be achieved before any


building can function effectively.

G 3.1.1.18 OCCUPATION AND TAKE-OVER

(a) The client is responsible for addressing the issues of occupation, staffing
and subsequent operation and maintenance of the building. This activity is
separate from the design and construction process, although it will affect it,
and will have its own time, resource and cost implications which should be
incorporated into the overall project plan.

(b) For large projects, the client may wish to arrange for the nomination of a
member of the department to act as occupation manager to manage this
activity or may appoint a facilities manager. Occupation plans should be
established during the design stages of the project and should cover:
• the operation of the building on a regular on-going basis;
• the hand-over and acceptance of the building from the contractor(s);
• the progressive final fitting-out (if any) and physical occupation of the
building with minimum disruption to the client’s operations.

3.1.2 Procurement Strategy


G 3.1.2.1 Designing and constructing a new building is rarely straightforward. It is
subject to a series of risks and uncertainties and involves a number of
organisations especially assembled for the project. The way in which the
client and the various designers, contractors and suppliers work together as a
team is determined by the procurement strategy and forms of contract entered

Page 12 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

into between the project participants and the client. The procurement strategy
should be consistent with the objectives of the project and should enable the
risks to be controlled to achieve a successful outcome.

G 3.1.2.2 Procurement strategy is the outcome of a series of decisions which are made
during the early stages of a project. It is one of the most important decisions
facing the client. The chosen strategy influences the allocation of risk, the
design strategy and the method of employment of consultants and
contractors. Risks are also allocated by means of the associated contracts.
Procurement strategy has a major impact on the timescale and ultimate cost
of the project.

G 3.1.2.3 Generally, clients can choose from several different strategies. A successful
strategy is one which leads to a completed building which meets the client’s
objectives. The preferred aim is for contributing parties to work together for a
quality result rather than competing against each other.

G 3.1.2.4 Where the development of design does not maintain the pace anticipated, or
the programme is otherwise affected by unexpected occurrences, the selected
strategy must be reviewed. It is most important that the strategy is
reconsidered at key times in the progress of the project such as when planning
approval is given, before contract strategy is decided and before construction
contracts are let.

G 3.1.2.5 DEFINITION OF TERMS

Different procurement strategies provide different ways of allocating risk and


responsibility to the organisation contributing to the project. They can either
integrate the design and construction processes or segregate them.
Approaches to the selection of processes enabling collaboration are referred to
in 3.1.4 (Implementation).

The main types of procurement strategy are summarised below (they are
covered in more detail in Appendix A).

• traditional: design by consultants is completed before contractors tender


for, then carry out, construction;
• construction management: design by the client’s consultants and
construction overlap. A fee-earning construction manager defines and
manages the work packages. All contracts are between the client and the
trade contractors. The final cost of the project may only be accurately
forecast when all packages have been let;
• management contracting: design by the client’s consultant and
construction overlap. A management contractor is appointed early to let
elements of work progressively by trade or package contracts (called
‘works packages’). The contracts are between the management contractor
and the works contractors. As with construction management, the final
cost can only be accurately forecast when the last package has been let;

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 13
PART 3, SECTION 1

• design and manage: similar to the management contract, with the


contractor also being responsible either for detailed design or for
managing the detailed design process; and
• design and build: detailed design and construction are both undertaken by
a single contractor is return for a lump sum price. Where a concept design
is prepared before the contractor is appointed, the strategy is called
develop and construct.

G 3.1.2.6 On some projects it may be necessary to use more than one strategy to meet
the project’s objectives. For example, a traditional approach may be used for
completing the building structurally with main services installed. This is
known as a shell and core contract. A separate strategy, for example,
construction management, may be used to fit out the building with ceilings,
raised floors, carpets, partitions and electrical fittings. The use of two
strategies allows the client more time to finalise the user’s detailed
requirements, without delaying the start of construction.

G 3.1.2.7 When the choice of procurement strategy has been made, the resultant
contract strategy and forms of contract should be chosen (i.e. the terms and
conditions of the contract). To avoid the need for fresh legal drafting each
time, various standard forms of contract are available, both for the
appointment of consultants and contractors. Construction professionals re
usually experienced in understanding these contracts and can advise on the
implications of their adoption. The range of contracts available is referred to
in 3.1.4 (Implementation).

G 3.1.2.8 PROJECT OBJECTIVES

(a) Construction (and refurbishment) projects are often complex with potential
for cost and time overruns or the finished building performing less well than
planned. To minimise such risks the client should select the procurement
strategy which matches the objectives of the project. These must be clearly
established and prioritised before any design or other work begins (see
3.1.1.10–11 – Project Definition, Establishing Primary Objectives).

(b) The client must decide the relative importance of the three main types of
criteria – time, cost and performance:
• time: earlier completion can be achieved if construction is started
before design is finished. The greater the overlap between the two, the
less time will be required to complete the project;
• cost: with the exception of simple ‘standard’ buildings and certain
‘design and build’ strategies, a final construction contract sum cannot
be established until the design is complete. Any overlap between design
and construction means that construction starts before the cost is fixed.
This increases the importance of accurate cost forecasting and the risk
to the client; and

Page 14 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

• performance (design): the quality and performance characteristics


required from the completed building determine both the project time
and cost. Some strategies reduce the client’s ability to control and make
changes to the detailed building specification after the contracts have
been let.

(c) Performance includes the function of the building, its quality and
appearance and other factors such as durability, cost in use and flexibility. The
relative importance of each objective must be given careful consideration
because decisions throughout the project will be based on balances between
the other objectives (see Figure 1).

In any project these three criteria will be interdependent and decisions


affecting one will affect one or both of the other criteria. The appropriate
procurement strategy will recognise this interrelationship and reflect the
client’s objectives and the characteristics of the project. It is uncommon for a
project simply to emphasise one criterion alone and most projects would
emphasise time and cost, time and performance or cost and performance. The
project strategies most commonly adopted reflect this characteristic.

The strategy should also reflect the client’s technical ability and resources and
the amount of control over the process which he/she wishes to exert directly
or through the project manager (if appointed).

FIGURE 1
THE RELATIONSHIP BE TWEEN P RIMARY CRITERIA

Time aspects (speed to completion,


programme certainty)

As the emphasis on one


or two of these criteria increases
the other(s) will be affected

Cost Issues Performance Issues


(level of price, certainty of price) (quality, functionality, design)

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 15
PART 3, SECTION 1

G 3.1.2.9 RISK AND RESPONSIBILITY

(a) There is a finite amount of risk and responsibility associated with any
project and this should be an influencing factor on the selection of the
procurement strategy. The uncertainties of time, cost and performance are the
three main risks that are present in every project. Risks are usually considered
as uncertain future events, which may have significant effects, e.g. extra cost,
delay or damage to the performance of the finished project. Having set the
priorities for the project’s objectives, the client should consider the effect of
those objectives not being met and the resulting risks to which he/she could be
exposed.

Although the project is subject to a wide variety of risks, it is important to note


that only a few have a major effect. This is a powerful argument for
concentrating attention during cost estimating and management
decision-making on the few largest sources of uncertainty and risk and for
developing strategies for managing out risk and for setting up contracts in
such a way that the allocation of the major risks is clear.

(b) The risks which are considered to have potentially the greatest impact on
construction projects include:
• a project which will not function in accordance with the client’s
needs;
• a project which is of inadequate quality;
• a project which is completed later than required deadlines; and
• a project which costs more than the client’s budget or ability to pay.

In each case, the strategy can be to transfer the whole risk to another through
the medium of contract. This is possible but will attract high price premiums
or will expose the transferee to risks which they may not be able to ‘own’ or
insure and therefore the party transferring the risk will remain exposed.

Risk may alternatively be retained in part by the client, or reduced by adequate


pre-design or pre-price investigation.

(c) As has been already suggested, an adequate brief will reduce risk and
ensure functionality and quality standards. Equally, adequacy of programme
will reduce the risk of overrun and adequacy of cost estimates should ensure a
resultant cost which is within budget. Both construction time and construction
cost estimates depend upon sufficient design development, which itself will
depend upon an adequate brief and parallel investigation of ground conditions
and the particular requirements of statutory controls. In ensuring that the brief
is adequate, and that design is appropriately developed, the client can
successfully reduce some risk in a way that will not result in high price
premiums.

(d) Ideally, risk and responsibility should go together, so that the party
responsible for performing a task is accountable. Each risk should be allocated

Page 16 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

to the party with the greatest ability to own the risk and to manage its effects.
If, for example, the client considers it critical that the price for the building is
fixed before construction commences, the risk of meeting that objective could
be passed to contractors, making them contractually responsible for
completion to an agreed design and specification for a lump sum price.

G 3.1.2.10 PASSING ON RISK

(a) Responsibility for risk and the ability to control a project interact. The
more the client chooses to allocate risk to other parties, the less control the
client has over the way in which the project is executed. In the example above,
if the contractor has to meet the agreed specification within the budget and
time, the client has little influence over the way in which these objectives are
met. In practice, risk allocation is determined by the chosen strategy and
allocated by means of contracts between the client and those responsible for
managing, designing or constructing the project. The way in which risk and
responsibility are allocated by different contract strategies is indicated below
and shown in Appendix A.

(b) In all cases where risks are transferred in contractual terms, it is necessary
to ensure the ability of the transferee to own the risk. In the case of design
failure, for example, this is usually passed to the design team including the
architect and engineering consultants. Because of the nature of their
professions they should have insurances of sufficient capacity to meet the
maximum possible cost of correcting the design failure. The client should
ensure that such insurances are in place, adequate and paid for; where a project
manager or consultant adviser has been appointed, this is a role that may be
performed by him/her.

(c) Some design work may be carried out by subcontractors who may or may
not continue to pay design liability insurance premiums and usually will have
limited liability status. Liability for their design work is commonly passed by
warranties but these are less secure.

Equally, where time risks are passed to contractors their attempts to transfer
them to small subcontractors may fail where the capacity to own or accept the
risk is limited.

In situations such as these it may be possible to pass risks contractually but the
lack of security associated with the transfer may result in the risk being borne
by the party attempting to pass it. It is difficult to allocate blame in team
situations. The client should be aware of this weakness in terms of risk
allocation.

(d) While the transfer of risk provides an incentive for the receiving party to
minimise its impact, the client should avoid transferring risks when the
receiving party has no control over them or no capacity to absorb them.
Generally, the more the risk of cost and time slippage is allocated to other

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 17
PART 3, SECTION 1

parties, the higher the tendered cost. In pricing the project, tenderers may
over-estimate the size of the risk or add a high safety margin to an accurate
estimate and thereby increase the project’s costs unnecessarily.

G 3.1.2.11 RISK AND PROCUREMENT STRATEGY

(a) Risks are inherent in the data used by the client in the preparation of the
brief, they are inherent in the characteristics of the project, and they are
inherent in the procurement strategy which is selected.

The identification of primary risks and an analysis of the client’s ability to be


a risk taker, or need to be risk averse, should affect procurement strategy.

With this information in mind steps should be taken:

• to inform the client of the extent of the risks involved; and


• to prepare a strategy for managing risk.

Since the latter will have a cost the client should also be advised of the
expense of managing risk.

(b) Appendix A refers to the characteristics of each procurement strategy and


indicates the levels of risk associated with time, cost and performance in each
case on the assumption that the procurement strategy is properly utilised and
in no way abused. (Thus, for example, in relation to the traditional system it
has been assumed that design completion is achieved before measurement and
documentation is carried out.)

These primary risks are summarised (by simple examples in Figure 2) by


procurement method in the categories time, cost and performance.

Where design is by the client’s consultant, design risk is placed by the


appointment agreement. Where design is by the contractor, design risk is
placed by the building contract agreement.

Where lump sum price is fixed by the contract the responsibility rests with the
contractor. Where a contract sets standards of specification, meeting these
standards is the contractor’s responsibility (risk).

Thus by contractual agreement primary risks can be distributed between


client, designer and constructor. It is impossible to dispose of all risk inherent
in construction projects and some will inevitably remain with the client. For
example, the risks listed here tend to be client risks and although they may be
of varying likelihood they should be understood.

Page 18 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

FIGURE 2
S U M M A R I S I N G T H E P R I M A RY R I S K S , B Y E X A M P L E

Time Cost Performance

Traditional Fixed but extension Fixed but subject to Designed by client’s


of time possible due change where consultant. Quality
to client and design changes are set by contract
designer initiated made, where inflation documents
changes occurs or where
contractor is alleged
to have grounds for
contractual claims

Design and Build As traditional As traditional Design by contractor


Contractor but with varying
levels of input by
client – quality set in
same way

Separate Time not fixed by Cost not fixed before As traditional


management contract commencement
function

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

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

G 3.1.2.12 SUMMARY (RISK)

Risk can be reduced, retained, transferred or distributed. To transfer risk


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

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 19
PART 3, SECTION 1

Thus, for example, attempting to enforce large scale liquidated damages for
late completion on a small-sized domestic subcontractor may fail for lack of
financial capacity within the small company.

Procurement strategy should therefore reflect the ability to place risk, and
where possible risk should be managed out.

G 3.1.2.13 PROCUREMENT STRATEGY AND THE PROJECT CYCLE

The development of procurement strategy follows the stages in the life of a


project. Initially, a preliminary strategy is determined. It is based on a broad
definition of objectives and is an essential step in establishing the way forward
for the project. It encourages the client to consider strategy early. The
preliminary procurement strategy is usually developed with help from the
client’s adviser and possibly other consultants.

Procurement strategy development has three components:

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

During strategy preparation, it may be necessary to seek specialist advice from


other consultants, for example, in relation to expected costs for the project.
The adviser should advise the client on this. Specialist advice should be
sought when developing the strategy for novel or especially difficult projects.

Until construction contracts are let, the client, with help from his adviser, must
systematically ensure that the strategy is on course to meet the project’s
established objectives. This is important because objectives sometimes
change.

G 3.1.2.14 IMPORTANT CONSIDERATIONS

The factors listed below should be considered in analysing project objectives,


requirements and their relative priorities (each is then considered in detail)
and may have an effect on the choice of procurement strategy:

• factors outside the control of the project team;


• client resources;
• project characteristics;
• ability to make changes;
• risk management;
• cost issues;
• timing; and
• quality and performance.

Page 20 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

Inevitably, some of these requirements will be in conflict and priorities need


to be decided. The choice of strategy should ensure that control is maintained
over those factors which are of most importance to the client. The way in
which this choice can be made is covered below and in 3.1.4.

(a) Factors outside the control of the project team

Consideration should be given to economic, technological, social, political and


legal factors which influence the client and the project team or are likely to do
so during the lifetime of the project. These may include forecast and actual:

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

(b) Client resources

The client’s knowledge and experience of the company’s organisation and the
environment in which it operates are vital in assessing the appropriate
procurement strategy. Project objectives are influenced by the nature and
culture of the company, external influences and the expectations of
individuals affected by the project. The extent to which the client is prepared
to take a full and active role is a major consideration.

(c) Project characteristics

The size, complexity and location of the project should be carefully


considered and particular attention given to projects with novel elements. For
example, if the building is especially large or complex there may be a bigger
risk of cost or time overrun. Novel projects present special risks. The novelty
potential factor means that estimates of time, cost and performance are all
subject to greater error with an increased probability of one or more of the
project’s objectives failing.

(d) Ability to make changes

It is preferable to identify the total needs of the project during the early stages
but this is not always possible. Rapidly changing technology often means late
changes. Changes in the scope of the project very often result in increased
costs, especially if they arise during construction. Changes introduced after the
design is well advanced or construction has commenced often have a
disproportionate effect on the project, in terms of cost, delay and disruption,
compared with the change itself. The design process goes through a progressive

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 21
PART 3, SECTION 1

series of ‘freezes’ as it develops but the client should set a final design freeze
date after which no significant changes to requirements or design are allowed.

Some procurement strategies such as construction management are better than


others at handling the introduction of changes later in the project without
having to pay some form of specific premium.

(e) Cost issues

Price certainty – influences the project timing and the procurement strategy
which should be used. Generally, design should be complete if price certainty
is required before construction commences.

Cost of changes – if cost certainty is to be maintained during the course of


construction changes should be avoided. Changes often have cost and time
implications on the project well in excess of the change itself. It is therefore
important for the client to fix a date after which no significant changes should
be introduced.

(f) Timing

The programme of the project is influenced by many of the above factors. A


particularly large and/or complex project is likely to require more time for
design, specification and construction than would be required for a simple
small building.

It is of vital importance to allow for adequate design time in terms of the total
project. If design is required to be complete before construction commences
(where perhaps cost certainty is required) this is particularly the case.

In the process of the appointment of the design team assurances should be


obtained about resource levels and the ability to meet key dates or
programmes. It is not usual to impose contractual dates upon designers,
although their progress is probably the key to the overall completion date.

Decisions to progress with a project may be influenced by the gaining of


planning approval, by the successful operation of compulsory purchase order,
by land purchase or by some other non-specific but critical factor (such as
obtaining funding approval). Depending on whether these factors occur earlier
or later, they may be an influence upon the planned or desired time available
for design.

Procurement strategies such as management contracting, construction


management, and design and build provide an overlap between the design and
construction stages, so construction can start earlier than sequential strategies
and offer the potential for earlier completion.

It may be necessary to review planned procurement strategy in the light of


design progress at the point where restraints to constructions are removed,
bearing in mind the stage of design and the consequence in terms of risk.

Page 22 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

F IGURE 3
CON STRUCT ION T IME S

The following times are based upon historical data and are only a guide. Projects of
relatively simple design may be constructed more quickly and more complex
designs may take longer.

New purpose built Retail facilities New speculative Retail facilities


cost (£millions) weeks cost (£millions) weeks

30 90 30 100

25 80 25 95

20 75 20 90

15 70 15 85

10 65 10 80

5 55 5 70

New purpose built Office facilities New speculative Office facilities


cost (£millions) weeks cost (£millions) weeks

30 120 30 135

25 110 25 130

20 100 20 120

15 90 15 110

10 85 10 100

5 70 5 85

(g) Construction times

Total construction time is a consequence of design. Insufficient time


allowance can result in apparent delay when in fact the targets were
unachievable. Design is a time-consuming process and often will take as long
as construction itself (sometimes longer). More complex structures will take
longer given the same cost or size, and may require more resources. Although
it is possible to work on site for extensive hours or to increase resources, it is
not always possible to achieve directly resulting productivity. The law of
diminishing returns will have an influence because of the limited space and
the nature of traditional construction methods (such as concreting and
bricklaying).

Indications of construction times are shown in Figure 3. These are only a


general guide and should not be relied on without careful review. The data on
which these are based was available only for commercial and industrial
projects. This data was used to confirm, enhance and update that published by
NEDO (1988), Faster Building for Commerce and the construction costs have
been updated by index to the year 2002. If possible (as in the case of

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 23
PART 3, SECTION 1

management contracting and construction management) those who will be


involved in the construction process should also be involved in the planning
process, as they are more likely to be aware of the logistical consequences of
particular designs. Other projects are likely, in most cases, to be more
complex and may therefore take longer.

(h) Design times

There is no reliable data available to indicate the time to be allowed for design.
As a general rule it will take between two thirds of construction time to one
and a half times construction time to design a building. The impact that this
will have on the overall programme will depend upon the choice of
procurement strategy and whether any overlap of design and construction is
allowed.

(i) Performance

The required performance of the project measured both in terms of its


response to the needs of the client and the quality of individual elements must
be clearly identified. If performance is over-specified, a premium will be paid
for exceeding actual requirements, thereby affecting the cost objective.
Over-specification will also lead to time overruns. Conversely, failure to
recognise the true performance objective leads to an unsatisfactory product.

If quality and performance are particularly important the client will probably
want to keep direct control over the development of the design. This can be
achieved by employing the design team directly.

G 3.1.2.15 PROCUREMENT OPTIONS

When all the factors influencing the project have been identified and the
project requirements analysed, the final strategy for the project must be
developed.

It is likely that there will be more than one way to achieve the requirements of
the project. It is important to consider carefully each option, as each will
address the various influencing factors to a different extent. In developing
strategies, a potential danger is that only the most obvious course of action
may be considered – this is not necessarily the best in the longer term.

G 3.1.2.16 Common strategies differ from each other in relation to:

• the financial risk that the client is exposed to;


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

Page 24 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

• the organisational arrangements which distribute responsibility and


accountability; and
• the sequential nature of the process.

G 3.1.2.17 In Appendix A each of the most commonly used procurement strategies is


described and is also illustrated by diagram. Each diagram has a consistent
format to indicate:

• the contractual relationships (showing administrative responsibility in


most cases);
• the advantages and disadvantages;
• the sequential nature of the process; and
• the dominant risks categorised broadly (as high, medium or low).

3.1.3 Selection of Most Appropriate Procurement Strategy


G 3.1.3.1 The ultimate responsibility for selection of appropriate procurement strategy
will rest with the client, based upon advice from the project team and principal
adviser.

The selected strategy should be:

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

Professional judgement is a reliable way of selecting an appropriate


procurement strategy although some procurement strategies can be
inappropriately adopted because of individual preference.

A procurement selection checklist is provided here to assist the client and


advisers in the identification of an appropriate strategy.

G 3.1.3.2 PROCUREMENT SELECTION CHECKLIST

This process has been designed to establish a range of information about client
needs and about the particular project being considered, and to develop this
information in parallel with the characteristics of procurement strategies and
associated risk.

It is intended to inform judgement, not to replace judgement.

The relative importance of time, cost and performance (design) forms a key
criterion in the selection mechanism as does inherent risk and its
apportionment.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 25
PART 3, SECTION 1

G 3.1.3.3 METHOD

Checklists 1, 2 and 3 should be carefully completed in consultation with the


client.

The resultant information should then be transferred to Checklist 4 which will


enable the information to be analysed and evaluated. The analysis can then be
compared with the characteristics of each procurement method, and the
associated risk so that an informed decision can finally be made.

CHECKLIST 1: TIME

The following should be considered:

1.1 Is completion needed by a specific date?


1.2 Is completion needed in the shortest possible time?
1.3 Is the client prepared to pay more for earlier completion?

2. Does the answer to question 1.1 suggest a faster than ‘normal’ total project
time in the judgement of the adviser?

3. How long is it in months from the date of completion of this protocol until
the desired ‘move in’ date?

4. Define the reason for the identified completion or ‘move in’ date:
4.1 end of lease
4.2 sale of premises
4.3 new business opportunities
4.4 unsuitability of present premises
4.5 company restructuring
4.6 other.

5.1 Is the need for completion by a specific date or within a specific time more
important than certainty of construction cost before work starts?

5.2 Is the need for completion by a specific date or within a specific time more
important than spending an extended time on design?

6. What is the approximate value, in sterling, to the client of the building or


facility in terms of contribution, rental or cost savings per month?

7. If the building is completed later than the specified or desired time will the
client:
7.1 stay in existing premises?
7.2 find temporary accommodation?
7.3 close down?
7.4 don’t know.

Page 26 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

Upon the completion of this part, the following information should have been
established and should be transferred to Checklist 4:

1(a) specified completion time;


1(b) reason for completion time;
1(c) whether required completion time is relatively fast;
1(d) whether time is seen as the predominant client need;
1(e) the potential financial implication of earlier or later completion; and
1(f) what action the client may take if the dates are not achieved.

CHECKLIST 2: DESIGN/PERFORMANCE

1. Has the client clear ideas about building functionality and its desired
design?

2. Does the site (if selected) pose any particular problems for the designer in
respect of:
2.1 shape or topography?
2.2 access?
2.3 storage space?

3. Does the building type suggest relative design complexity?

4. Does the building type suggest emphasis upon functionality?

5. Does the building type suggest highly complex mechanical, electrical or


engineering installations?

6. Is it anticipated that extensive changes to design may be required during the


construction phase?

7. Does the client wish to particularly emphasise low running costs?

8. Does the client wish to particularly emphasise low maintenance costs?

9. Does the client wish to particularly emphasise product quality at a higher


potential cost?

Upon the completion of this part of the process, the following information
should have been established and should be transferred to Checklist 4:

2(a) whether the client has clear ideas about his/her needs;
2(b) whether the site poses complex design problems;
2(c) whether the building design is complex;
2(d) whether functionality is particularly important; and
2(e) whether the client has a long-term view about the cost of the building.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 27
PART 3, SECTION 1

CHECKLIST 3: COST

1. What is the client’s maximum budget?

2. Can the budget be allocated as below?


2.1 land purchase and fees
2.2 construction, including fees
2.3 fittings and plant
2.4 contingencies
2.5 other (define).

3. Will the client need to have a fixed contract price for the construction
element of his budget or will a reasonably accurate budget be adequate?

Upon the completion of this part of the process, the following information
should have been established and should be transferred to Checklist 4:

3(a) total maximum spending capacity;


3(b) total construction spending capacity; and
3(c) need for pre-construction cost certainty.

CHECKLIST 4: ANALYSIS

• As an overview, is the project feasible in terms of time and viable in terms


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

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

Page 28 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

Some fast-track solutions will enable the design process to be extended


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

G 3.1.3.4 CHECKLIST SUMMARY

Having established whether the project is both feasible and viable, the
importance of time, cost and design has now been reviewed.

There is always an interrelationship between these three primary criteria and


procurement systems selected should reflect this.

Projects can probably be broadly categorised into those which will be


design-led and those which will be production-led. Design-led projects
usually reflect the characteristics of procurement systems where the client
appoints his/her own design team; whereas production-led projects enable the
constructor to take on some or all of the design function.

Design-led projects have the greater capacity for cost and time overrun,
whereas the potential capacity for design shortcomings may rest with
production-led systems.

System selection should consider whether the project is design or


production-led but should also consider the client’s need to manage and/or
distribute risk.

3.1.4 Implementation
G 3.1.4.1 Having selected a procurement strategy for a project, the strategy should be
successfully implemented. The client should implement the strategy but may
do this with the advice of consultants or a project manager. In many cases they
will carry out most or all of the necessary functions in achieving
implementation and the client’s role will be to formally approve their actions.

Notwithstanding the role of consultants or a project manager, the client should


ensure that he/she puts in place the necessary resources, organisational
structure, contractual arrangements, systems and controls necessary for a
successful project outcome.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 29
PART 3, SECTION 1

G 3.1.4.2 IMPLEMENTATION POLICY

Implementation of procurement strategy is a key role for the team and


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

G 3.1.4.3 FINANCIAL RESOURCES

(a) In this section, the funding function has been assumed to be a matter for the
client. It is a vital function and by the time the procurement strategy is set,
sufficient funding should be available at appropriate times in the
pre-construction and construction process.

(b) Funding requirements are usually a consequence of contractual


agreements, whether they be agreements to purchase land, to design or to
construct. It is possible to take account of each contractual agreement and to
plan expenditure in the form of a cash flow. Useful advice in this context can
be provided by the project manager or the project cost consultant. Both of
these team members should be in place at an appropriate time to ensure that
funding arrangements are appropriate.

G 3.1.4.4 HUMAN RESOURCES

In terms of client organisation, the client should be prepared to allocate


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

G 3.1.4.5 PHYSICAL RESOURCES

(a) Where physical resources such as land, plant and machinery have to be
provided by the client, it is self-evident that the client should ensure their
availability in a suitable form at the right time. Where alternative
accommodation is required, or where specific arrangements for decanting are
necessary, this is a matter for the client and/or the client’s organisation
although these are matters which can be handled by a project manager.

(b) Design and construction resources must also be appropriately selected and
in place at the right time.

(c) The criteria for the selection of the design team are outlined below and are
based upon the factors of capability, competence, staff and cost, with value for
money, rather than cost being the major influence in selection.

Page 30 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

(d) The criteria for the selection of contractors are referred to below and are
broadly the same, but this tends to be a much more complex process and the
criteria are dependent upon the procurement strategy selected.

The basis for selection of constructors can be price competition, based upon a
fixed design and specification or can, in the case of design and build options,
be based upon competition for design solutions too. Selection can also be by
negotiation with one or two constructors, or can be based upon a two-stage
process. Suitable documentation for the selection process must be prepared
and the client should seek the advice of consultants or the project manager
who may also be required to manage the process.

(e) A number of Codes of Procedure for the selection process are available and
are referred to in sections 3.1.4.8 and 3.1.4.9.

G 3.1.4.6 ORGANISATIONAL STRUCTURE

(a) The client has a dual management role, part of which is to manage the
client input; to co-ordinate functional and administrative needs; to resolve
conflicts; as well as to act as the formal point of contact for the project.

(b) This will require the creation of an organisational structure for the life of
the project to enable communication to occur and to facilitate effective
decision-making.

(c) The organisational structure created may be headed by a key member of


the client organisation or may be headed by an imported project manager.
Whichever choice is made, the designated member must have sole authority
to communicate decisions to the project design and/or construction team.
Where more than one individual is empowered to instruct, or to require
changes, extreme confusion can take place.

(d) Building users, specialists, facilities managers, maintenance staff, finance


and accounts personnel, legal advisers and security personnel can all have
input to the project through the created organisational structure by invitation,
or right, and, as appropriate, can meet with designers or constructors to ensure
effective communication; but decisions are reserved to the in-house executive
or the project manager.

G 3.1.4.7 APPOINTMENT OF A PROJECT MANAGER (WHERE APPROPRIATE)

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

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 31
PART 3, SECTION 1

should be based upon resources, reputation and price, and duties should be
clearly identified.

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

(c) The client’s role upon the appointment of a project manager should
include:
• explaining the project objectives and their priorities, defining the
project and outlining parameters associated with time, cost,
performance and risk;
• defining the criteria for control and management of the project;
• managing the project manager’s performance of delegated
responsibilities;
• monitoring the implementation by the project manager of control and
management systems;
• ensuring that the project manager receives decisions on time;
• assisting the project manager in the resolution of problems;
• receiving and reviewing detailed reports on the project from the project
manager;
• establishing with the project manager a common approach to major
issues which arise; and
• maintaining with the project manager at all times an overview of the
project status in relation to the established objectives.

(d) The client’s relationship with a project manager will be crucial to the
success of the project and will require careful development and nurturing
within the following guidelines:
• the client, though taking the project manager’s advice should lead, not
follow;
• no matter how much responsibility is delegated to the project manager,
the client will retain ultimate authority and therefore must have
adequate knowledge and information about the project to be able to
exercise the authority properly;
• the client should agree with the project manager the precise extent of
any delegated authority together with those decisions reserved for the
client;
• where a project manager has been appointed the client should not
formally communicate directly with consultants and contractors
employed on the project – such communications will always be routed
through the project manager, although the contracts will be direct with
the client;
• no matter what may be said in private, the client should publicly
support the project manager and avoid any actions which could
undermine that manager’s authority over the consultants and
contractors.

Page 32 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

G 3.1.4.8 APPOINTMENT OF CONSULTANTS

(a) The process of selecting and appointing the design team and the cost
consultant is carried out by the client but he/she may seek the advice of his/her
adviser. The terms and conditions of these appointments are governed by the
procurement strategy adopted for the project. (The client is also required
under the Construction (Design and Management) Regulations 1994 to
appoint a competent planning supervisor to ensure that the design team have
met their responsibilities under these regulations and to advise the client and
the constructors how they can comply.)

(b) The following alternatives exist in selecting the design team:


• single appointment – either of a multi-discipline firm which can itself
provide the full range of architectural and engineering design services
required, or of a lead consultant, normally the architect on building
projects, who will subcontract design of other disciplines to
independent professional firms and be responsible for their work and its
co-ordination; or
• separate appointments – for each of the design disciplines required,
one firm being appointed design team leader with the responsibility for
co-ordinating the work carried out by the others.

The former has the benefit of administrative simplicity and of single source
responsibility for design. The latter offers the chance of selecting the best firm
in each discipline but makes communication more difficult. The final
selection will depend on the particular features of the project.

(c) The selection of the design team and the cost consultant (and other
consultants as appropriate) will require the client to make a balanced
judgement on the following factors:
• capability – the experience of the firm in projects of similar size and
function and the availability within the firm of sufficient uncommitted
resources for it to meet the demands of the project; the demands of the
project programme may be particularly important;
• competence – the performance of the firm on past projects, to be
ascertained by detailed, confidential references from past clients;
efficient performance by design consultants cannot be taken for
granted;
• staff – the personal capability and experience of the key staff whom the
firm proposes to employ on the project; and
• the cost – quoted by the firm, unless large differences exist between
offers from competing firms this should not be critical.

(d) Value for money, not lowest price, should be the aim in the selection of
design team members.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 33
PART 3, SECTION 1

(e) Guidelines for the value assessment of competitive tenders in the


procurement of professional services are available1.

(f) Fees payable to professional consultants may be expressed in one of the


following ways:
• as a percentage of the construction cost of the project;
• as a lump sum;
• on a time charge basis; or
• a permutation of all three.

(g) Percentage fees based on the out-turn construction cost are not generally
recommended as they increase when cost overruns occur.

(h) Lump sum fees may be the most satisfactory form of remuneration
provided only that the scope, value and timescale of the project can be
established with reasonable accuracy before the appointments are made
and that the services to be provided by the consultants can be accurately
defined. Where lump sum fees are to be paid, the client will need to
establish systems for monitoring the consultants’ performance to ensure
that they provide the full, specified service and do not skimp their services
to save money.

(i) Where time charge fees are to be paid, the final amount of fees payable is
not fixed and there is a substantial risk that this amount may exceed initial
estimates.

G 3.1.4.9 APPOINTMENT OF CONSTRUCTORS

(a) The client is responsible under the Construction (Design and


Management) Regulations 1994 to be reasonably satisfied that the
constructors appointed are competent and have adequate resources.

(b) The timing of the need to appoint constructors (whether contractors or


trade contractors) will be dependent upon the procurement strategy which is
selected, but the client will have a formal role in this process. The client’s role
will include selecting those constructors with whom he will negotiate or who
will be invited to tender. In the case of the latter, it will be the client who
formally selects the constructor(s) to carry out the work and then contracts
with this company.

(c) Assistance with the selection, documentation for tender and advice in
relation to contract issues can be obtained by the client from professional
advisers and particularly the principal adviser. There are a number of codes of
procedure to assist in this process, of particular assistance is the Code of
Practice for the Selection of Main Contractors2 which has been approved by
the National Audit Office. In broad terms, the factors which affect the

1
Construction Industry Board, Selecting Consultants for the Team: balancing quality and price, Thomas Telford
Publishing, London, 1996.
2 Construction Industry Board, Code of Practice for the Selection of Main Contractors, Thomas Telford Publishing,

London, 1997.

Page 34 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

selection of design and cost consultants shown above (capability, competence,


staffing and cost) will affect the choice of constructors, but the documents on
which selection is made (particularly for cost) can be extensive and very
complex.

(d) European Union legislation has an effect on the procurement of public


works and the supply of services in the public sector. Usually this relates to
projects over about ¤5 million and requires appropriate tender advertising and
selection. Clients from the public sector must be aware of the existence of and
the procedures demanded by such regulations.

(e) As with the selection of design and cost consultants, value for money,
rather than lowest price should be the aim in the selection of constructors.
Where clients regularly build, there may be a case for considering a special
arrangement with a construction firm as indicated in 3.1.1.15.

G 3.1.4.10 CONTRACTUAL ARRANGEMENTS

(a) Having selected an appropriate procurement strategy and methods of


consultant and constructor selection, this strategy should be implemented by a
range of contractual arrangements.

Many of these arrangements will be based upon standard forms of agreement


in common use in the construction industry. The distribution of major project
risks results from the wording of the contract selected. Most clients will need
specialist advice on contract selection. This is outside the remit of this
handbook.

G 3.1.4.11 SYSTEMS AND CONTROLS

(a) Once resources, organisational and contractual arrangements are in place,


the client should see that systems are put in place to ensure that the
procurement process can be implemented in fact.

(b) These systems should include:


• financial systems to ensure that payments are made in accordance with
contract agreements;
• decision systems to ensure that decisions made are communicated at
the appropriate time and with appropriate authority;
• design change systems to implement and monitor change as it becomes
necessary; and
• cost and time monitoring systems to inform the client of the current
position at any point in time.
This may mean delegating elements of the process to the project manager (if
appointed) or ensuring that existing company systems are specifically
adapted.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 35
PART 3, SECTION 1

(c) Controls are also important to ensure that cost is controlled within budget,
pace is controlled within programme, quality is controlled within standards
set, and systems are properly employed.

(d) Cost control can be achieved by ensuring appropriate pre-construction cost


planning and an adequate system of regular cost reporting. These services can
be provided by the cost consultant.

(e) Pace can be monitored against a programme or time plan and can be
controlled by the imposition of contract completion dates. Programming can
be provided by a project manager or developed with the advice of the principal
adviser.

(f) Quality can be controlled through the provision of a sound contractual


specification. It may be appropriate to appoint a clerk of works to inspect the
works during progress and to ensure that work is satisfactory and matches the
specification.

(g) Controlling the client systems to ensure that they are appropriately applied
and not abused is a matter for the client’s management team – perhaps this is
the key management input from the client.

G 3.1.4.12 DESIGN OVERVIEW

(a) While responsibility for achieving a successful design solution to the


client’s requirements lies chiefly with the designer, the responsibility rests
with the client both for ensuring that his/her needs are met and for the impact
of such development on the local environment. The blame for a poor building
is likely to be ascribed to the client as well as to the designer. Equally, a
well-designed building reflects credit on those who commissioned it as well as
on the designers who conceived it.

(b) Design is an important factor in ensuring good working conditions for staff
and convenience for members of the public who need to visit the building. A
well-designed building is a good investment. Good design can contribute to
economy and efficiency – by efficient layout and economical use of space, by
energy efficiency (in heating, insulation, mechanical services, etc.) by low
maintenance costs, and by ensuring flexibility to meet changing requirements.

(c) No one person has all the design skills for any but the very simplest project
and therefore the collaboration of many designers will be necessary. This is
particularly the case in specialist buildings or buildings which have
sophisticated mechanical and/or electrical installations.

(d) The formulation of an accurate design brief and the development of design
in strict accordance with that brief are key processes for the client (or the
project manager) to oversee. In practical terms, the client will require:

Page 36 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

• close collaboration between users and the design team in the


development of the design;
• formal checking that the developed design meets, but does not exceed,
the requirements of the design brief; and
• formal presentation of developed designs to the users and formal
sign-off by the client.

(e) It will also prove valuable for the client to indicate clearly his/her
intentions in respect of the programme and for the design team to respond in
terms of their strategy for meeting this programme. Methods for updating
progress should also be sought by the client.

(f) As the majority of users, and indeed the client, are likely to find the reading
and interpretation of design drawings a difficult task, it is important to ensure
that the design team present their proposals in a form that can be readily
understood. (Computer aided design [CAD] may enable three dimensional
presentation.) The setting of the design and not just the design in isolation
should be taken into account. The client should feel able to say ‘no’ and ‘try
again’ and to expect alternatives within the fee.

G 3.1.4.13 COST CONTROL OVERVIEW


(It is recommended that this be read in conjunction with Part 1, Section 1.)

(a) It is essential that the client understands the difference between:


• estimating – giving an informed opinion at a particular time of what
the final cost of the project is likely to be; and
• cost control – managing the consequences of the design and
construction processes so as to achieve value for money and ensure that
the final cost does not exceed the budget.

Estimates cannot be expected to be proved accurate unless they are based


upon reliable data and cost control is exercised.

(b) The techniques used to produce estimates vary according to the type and
level of data available when they are prepared. The general level of estimating
accuracy improves as the design of a project develops. Notwithstanding this
progressive improvement in accuracy, provided that cost control is being
exercised, the general level of accuracy of early estimates can be stated with
sufficient precision for them to be valid parameters for decision making and
for the management of the project.

(c) For estimates to be effective, the client should require that all estimates are
supported by:
• a risk analysis – an assessment of the potential risks, their probability
and the associated time and cost consequences if they should occur; and
• a sensitivity analysis – a statement of the comparative effects on the
total estimate of changes to principal data and assumptions on which
the estimate is based.

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 37
PART 3, SECTION 1

(d) The amount included in estimates to cover the uncertain cost of risks based
on the analyses described above is known as the contingency. It is important
that contingencies are sufficient to cover risks and are not eroded to facilitate
any lack of cost control.

(e) A primary concern may be the cost of running and maintaining the
building. The term ‘cost-in-use’ is used to describe how these costs can be
estimated, enabling the client to take these matters into account when
considering total project costs and building design. In some cases higher
initial costs will result in lower running or maintenance costs during the life of
the building.

(f) The earlier cost control procedures are instituted, the more effective they
will be. By way of simplistic illustration:
• cost varies with (but not in direct proportion to) size: once the size of a
building is fixed, so is the general level of cost;
• the selection of the most economical design for basic elements such as
foundations, structural frame, external cladding and roofing, is of far
greater cost significance than the types of finishings; and
• the overall cost of mechanical and electrical systems and the
effectiveness of the cost control procedures which can be applied to
them is largely governed by early decisions as to the type of system
selected.

(g) The methods used for cost control differ radically between the
pre-construction and construction stages of a project. Cost control during the
former depends partly on formulating an appropriate procurement strategy but
more on controlling the design process within that strategy; during the latter it
is a function of effective management and avoidance of change after
commitment.

(h) Pre-construction cost control, in simple terms, comprises:


• preparing a cost plan – an allocation of the control budget into cost
centres which match readily identifiable elements of expenditure, with
allowances for contingencies, reserves for changes in market prices and
the like; and
• cost checking each element as it is designed against its allowance in the
cost plan.

If the cost of an element as designed exceeds its allowance in the cost plan, the
excess can only be corrected by:
• redesigning the element to reduce its cost; or
• transferring money into that element from contingencies or from
another element yet to be designed.

Page 38 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

If neither is done, the control budget will be exceeded.

(i) Successful cost control during the construction stage depends on:
• ensuring that all design work is completed and fully co-ordinated
before any commitment to construct is made (this applies in a
progressive way when design and construction overlap);
• administering the contract efficiently and promptly in strict accordance
with its terms and conditions; and
• minimising changes to the design, for any reason, after construction has
started.

(j) Regular cost reports can be produced throughout the construction stage
from which potential overspending can be identified before it occurs with the
intent that corrective action should be possible. The client should, however,
recognise that such corrective action is not always beneficial, since:
• cost savings can be made only by reductions in standards or by
omissions of part of the work remaining to be finalised, that is largely
in the visible finishings and fittings, with the resultant possibility that
the requirements of the brief will not be met; and
• late cost savings are inefficient as any amount saved will be reduced or
may be negated by the costs of disruption inherent in making the
changes needed to generate the savings.

(k) All estimates and cost control procedures should take account of inflation,
i.e. the increase in construction cost from the date when the estimate is
prepared to the date when the work will be carried out. It is essential for
effective cost control that:
• allowances should be made for inflation in all estimates and that the
assumptions on which such allowances were calculated be stated;
• these allowances for inflation should be clearly identified within the
estimates and not be allowed to be used to correct other overspending;
• the assumptions on which inflation allowances are calculated be
reviewed as each new estimate is prepared and the allowances
corrected in accordance with such reviews; and
• a clear policy and method for drawing down inflation reserves be
established and observed.

(l) The client should distinguish between inflation and the effect on
construction prices of market conditions at the time of tender. In simple terms,
contractors adjust their tender prices by reducing or increasing their target
profit margins in accordance with their need to obtain new work. It is unwise
to base early estimates on an assumption of favourable market conditions at
the time of tender as the construction industry is subject to wide,
comparatively swift, changes in workload in accordance with economic
conditions.

(m) Things will go wrong on the project. The unexpected will happen. Such
unforeseen happenings are covered in the cost control system by the

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 39
PART 3, SECTION 1

contingency. The client should develop a policy for management of


contingency funds to ensure that, at all times in the project, the remaining
contingencies match the remaining risks. The client may also establish and
control a client reserve, not disclosed to the consultants or the contractors, to
cover late changes in user requirements and unforeseeable third party
events.

G 3.1.4.14 TIME CONTROL OVERVIEW

(a) The overall programme of activities which will constitute the project
should be developed at a very early stage in the procurement cycle. This
programme will form the time framework within which the designers and the
constructors should complete their activities, and within which other key
stages, such as land purchase, funding and planning permission should be
completed.

(b) The programme of activities should be feasible and realistic. Insufficient


design time will have an effect upon client risk as will insufficient time
allowed for construction.

(c) The client should be aware of those tasks which are vital to completion on
time and those tasks where some flexibility may be available. Time for the
approval processes should be included as specific activities in the time plan
for the project. These are invariably vital as the need to obtain approval is
likely to be a prerequisite to further work on the project proceeding.

(d) The process of time control is in many ways analogous to that of cost
control. Thus a time control system can embrace:
• time budget – the overall project duration as fixed either by specific
constraints or by the selected procurement strategy; the period which,
once fixed, becomes a key parameter for management of the project;
• time plan – the division of total time into inter-linked time allowances
for readily identifiable activities with definable start and finish points;
the overall project programme; and
• time checking – monitoring closely actual time spent on each activity
against the allowance in the time plan; reporting divergence as soon as
it is observed.

(e) If the time taken for an activity exceeds its time allowance there are
essentially only two forms of corrective action available:
• the re-sequencing of later activities, which may involve abandoning
low priority restraints and/or phased transitions from earlier activities
to later activities logically following them; or
• shortening the time allowance for future activities by increasing the
resources to be made available for them.

Page 40 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

If neither is done, the overall time budget will be exceeded and the project will
finish late.

(f) The client should recognise that time control is as important during the
design stages of the project as the construction stage. Designers should work
to a series of deadlines at which different elements of the design should be
agreed (i.e. frozen) if costs and the overall programme are to be kept under
control.

(g) The client should consider developing (with the help of the project
manager if appointed) a time contingency (reserve), with strict procedures for
allocating the reserve to specific events. This concept is essential on projects
which are subject to external time constraints, for example, where a building
has to be available for occupation before the lease on another building expires.

(h) The client should take account at all times of fundamental relationships
between time, quality and cost:
• any extension of the overall timescale for a project always generates
additional costs to either constructor or client; every project contains
time-related costs whether these are openly stated or not. Who carries
such additional costs depends on the detailed contractual arrangements
between the parties; it is likely that some of them will be borne by the
client; and
• making up lost time by re-sequencing later activities may be achievable
but often only at the risk of compromising quality or cost control.

G 3.1.4.15 WHOLE-LIFE COSTS

(a) In addition to considering project cost purely in terms of initial capital


costs the client may wish to consider costs over the projected life of the
building. Such considerations may review higher initial costs against lower
running costs or longer life to replacement or maintenance. This may be of
particular impact where shorter-life inherent assets, such as mechanical or
electrical equipment, or where planned maintenance or energy consumption,
are being considered.

(b) The techniques associated with whole-life costing are often complex and
predictive. The project manager or project cost consultant will be able to
advise the client of the availability of their application in each case.

G 3.1.4.16 VALUE MANAGEMENT

(a) Value management is usually reserved for relatively complex projects


where value for money is important and concerned with defining what ‘value’
means to the client in meeting a particular need. In general, any project seeks
to satisfy the differing requirements of several parties. Value management
provides a structured framework for the examination and discussion of these
requirements to reach a consensus before the project brief is finalised. It is

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 41
PART 3, SECTION 1

used to ensure that the need for and scope of any construction is thoroughly
analysed before any further commitment to proceed is made. The aim is to
establish a clear statement of a project’s objectives matched to their relative
values.

(b) Value management is usually carried out at the concept and feasibility
stages of a project. The aim is to ensure that:
• a project is commissioned in response to a careful analysis of balance
of needs;
• a wide range of options and alternatives to meet that need is considered;
and
• the project objectives are made explicit and are commonly understood
by all parties.

(c) The client may wish to appoint a professional adviser experienced in these
techniques and who will provide support in writing the objectives and
subsequent brief.

G 3.1.4.17 VALUE ENGINEERING

(a) This occurs later in the development of the project and is concerned with
how value is achieved rather than what the relative values are as defined in the
project brief and objectives.

(b) Value engineering studies are pre-planned, formal reviews of the design
philosophy and the detailed solutions at one or more stages of the design
development. They are sometimes carried out by firms or individuals not
connected with or employed on the project and are short exercises intended to
review the detailed design solutions against the objectives and to establish
whether they can be achieved in a more cost effective manner.

G 3.1.4.18 QUALITY CONTROL OVERVIEW

(a) The final quality of the project is governed, progressively, by:


• the project brief – a clear statement of the standards of quality
required; great care is needed to ensure that this standard is
unambiguous, such phrases as ‘the highest quality attainable within the
control budget’ should be avoided;
• the original design – the adequacy of the components selected for the
building; the interface between related components and systems; the
integration of mechanical and electrical systems into the overall design;
the completeness of design before construction starts;
• specification – the conversion of the quality standard demanded by the
project brief into precise requirements for both the supply and the
installation of materials, components and systems; the setting out of
criteria against which the standard of the finished work will be judged,
e.g. by reference to standards, codes of practice or the like;

Page 42 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1

• quality control – setting up control mechanisms to apply to the


execution of the work on site; the detailed, on-going supervision by the
contractor; the programmes for testing; the procedures for rectifying
any defective work; and
• inspection – the independent inspection and verification of the
contractor’s work by the design team; procedures for witnessing tests,
for commissioning plant and systems, for pre-completion inspection for
defects lists and defect rectification and for final hand over.

(b) The client may choose to appoint a clerk of works whose function is to act
as an inspector of work done to ensure quality, but who should recognise that
inspection and verification is the last line of defence. The key to quality
control on site is to specify clearly, and to monitor closely, the quality control
activities carried out by the contractor while work is being done.

(c) Many construction companies and firms of consultants within the building
industry have adopted, or are in the process of adopting, formal quality
assurance systems for their own work or services in accordance with ISO 9000
or equivalent standard.

G 3.1.4.19 CHANGE CONTROL OVERVIEW

(a) Clients should aim to make no changes once a particular design feature has
been decided because these are one of the more significant causes of cost and
time overruns in construction projects. The avoidance of change should be a
prime objective of the project strategy. If changes are unavoidable, they
should be dealt with as described in the paragraphs below.

(b) Client changes (as distinct from design development) are changes which
are made either by:
• the design team, with the approval of the client, to a design feature
which, it has been decided, should be frozen, or ‘improved’, or altered
to overcome design errors and inconsistencies; or
• the client after the design brief has been agreed. The most significant of
these are changes to the scope of the works.

(c) Client changes can be relatively minor, such as adding a few extra power
points, or can have major cost implications, such as the addition of an extra
storey.

(d) The cost of client changes depends on when they are made:
• before the construction contract has been let, the cost can be contained
to that of the changed feature itself, and perhaps some relatively small
resource cost; and
• after the construction contract has been let, the cost will be
disproportionate to the value of the change, it can disrupt the
contractor’s work and invariably gives rise to a higher cost than if the
change had been included in the contract as let. Many minor changes

The Surveyors’ Construction Handbook Part 3, Section 1 (01/03) Effective from 1/3/03 Page 43
PART 3, SECTION 1

can have a cumulative and serious effect. Disruption claims caused by


a large number of small changes are common.

(e) Some client changes are unavoidable. Examples of such changes are:
• compliance with changes in legislation;
• requirements of the health and safety or fire prevention authorities;
• those required by unforeseen ground conditions; and
• previously unforeseen users’ requirements.

(f) The contingency in the project budget should be sufficient to take account
of the likelihood of such changes based on risk assessments.

(g) Changes proposed prior to construction may either be unavoidable or


optional. If they are unavoidable, the client, if satisfied that they are, should
authorise a transfer from the contingency in the budget to cover them. If they
are optional they should be approved if it can be demonstrated that they offer
good value for money (or a saving) and that there are sufficient funds
available to pay for them.

(h) Changes proposed after the construction contract has been let can have
major time and cost implications and should be avoided if at all possible. If
they are not essential they should be deferred until the project is complete and
then reviewed to see if they are necessary and economically justified.

(i) The need for changes should be minimised by:


• ensuring, with the assistance of an experienced project team and
designers, that the project brief is as comprehensive as possible and the
users have ‘signed it off’;
• taking into account any proposed new legislation;
• having early discussions with outside authorities so as to anticipate
their requirements;
• undertaking adequate site investigation or condition surveys1 if
existing buildings are to be renovated;
• ensuring that designs are fully developed and co-ordinated before
construction contracts are committed; and
• imposing discipline on users to finalise and sign off their requirements
in strict accordance with the project programme.

(j) When changes do occur, the client should call for:


• the reasons for the change;
• the source of the change;
• the full cost and time consequence of the change;
• proposals for avoiding or mitigating time overrun; and
• source of funding of any cost overrun, e.g. contingencies, client cost
reserves, compensating savings elsewhere.

1
Stock Condition Surveys, RICS Guidance Note, RICS Books, Coventry, 1997.

Page 44 Part 3, Section 1 (01/03) Effective from 1/3/03 The Surveyors’ Construction Handbook
PART 3, SECTION 1, APPENDIX A

Appendix A: Procurement Options


A1 TRADITIONAL (SEQUENTIAL)

(a) Under a traditional procurement strategy, design should be completed


before tenders are invited and before the main construction contract is let.
As a result, and assuming no changes are introduced, construction costs can be
determined with reasonable certainty before construction starts and a
completion date can be fixed. In most cases the price is established on the
basis of tender documentation, often including a bill of quantities which
describes the extent of work to be done.

(b) The contractor assumes responsibility and financial risks for the building
works as described whilst the client takes the responsibility and risk for design
team performance. Therefore, if the contractor’s works are delayed by the
failure of the design team to meet their obligations, the contractor may claim
against the client for additional costs and/or time to complete the project. In
turn, the client could possibly seek to recover these costs from the design team
members responsible, if negligence can be proven.

(c) Clients are able to influence the development of the design to meet their
requirements because they have direct contractual relationships with the
design team. When construction begins, they usually have a single contractual
relationship with a main contractor and are therefore able to influence (but not
control) the construction process through a single point of contact.

(d) The strategy is unfortunately open to a level of abuse if any attempt is


made to let the work before the design is complete. Such action may result in
many post-contract changes which could delay the progress of the works and
increase the costs. Where a traditional strategy is chosen because of its
particular advantages, the temptation to let the work begin before the design is
complete should be strongly resisted.

(e) It is possible to have an accelerated traditional procurement strategy where


some design overlaps construction. This can be achieved by letting a separate,
advance works contract, for example, by allowing ground works (site clearance,
piling and foundations) to proceed to construction whilst the design for the rest
of the building is completed, and the construction tendered separately. This
reduces the total time to complete the project at the risk of losing certainty of
cost before construction starts. More importantly, a substantial risk is created in
that the contractor who builds the superstructure will take no responsibility for
the foundation works carried out by another contractor.

(f) Another alternative is to let the work by a two-stage process or by


negotiation thus reducing the pre-construction time involved and enabling the
contractor to have some (limited) involvement in the design and planning
stage.

The Surveyors’ Construction Handbook Part 3, Section 1 Effective from 1/3/03 Page 1
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

FIGURE A1
PROCUREMENT ARRANGE MENT – TRADITIONAL

CONTRACTUAL RELATIONSHIP

CLIENT

CONSULTANTS
(fee contracts)

MAIN CONTRACTOR ARCHITECT


(standard lump sum contract) (fee contract)

SUPPLIERS
(various contracts)

SUBCONTRACTORS
(standard lump sum)

administrative responsibility on behalf of the client

ADVANTAGES DISADVANTAGES
competitive fairness slow to start on site (no parallel working)
satisfactory public accountability open to abuse where design incomplete
procedures well known (resulting in less certainty)
changes reasonably easily arranged contractor not involved in design or planning
and valued (no buildability)
adversarial potential
SEQUENCE

brief design competition construction

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

(g) The organisational structure of a traditional strategy is shown in Figure A1.


Standard forms of contract are available.

(h) The main advantages of a traditional contract strategy are:


• competitive fairness;
• design-led, facilitating high level of quality in design;
• reasonable price certainty at contract award based upon market forces;
• the strategy is satisfactory in terms of public accountability;
• the procedure is well known; and
• changes are reasonably easy to arrange and value.

Page 2 Part 3, Section 1 Effective from 1/3/03 The Surveyors’ Construction Handbook
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

(i) The main disadvantages are:


• the strategy is open to abuse, resulting in less certainty;
• the overall programme may be longer than for other strategies as there
is no parallel working;
• no ‘buildability’ input by contractor; and
• the strategy often results in adversarial relationships developing.

A2 MEASUREMENT CONTRACTS

Measurement contracts are used when the work required cannot be accurately
measured for the tender bill of quantities. The contract sum is only established
with certainty on completion of construction, when re-measurement of the
quantities of work actually carried out takes place and is then valued on an
agreed basis. Measurement contracts are sometimes referred to as
re-measurement contracts and are based upon the prices tendered by the
contractor. The most effective use of a measurement contract is where the
work has been substantially designed but final detail has not been completed.
Here, a tender based on drawings and a bill of approximate quantities will be
satisfactory. Measurement contracts allow a client to shorten the overall
programme for design, tendering and construction but usually with the result
of some lack of price certainty at contract stage because the approximate
quantities reflect the lack of information on exactly what is to be built at
tender stage. The scope of the work, the approximate price and a programme
should be clear at contract stage. Measurement contracts provide more risk
than lump sum contracts for the client but probably with programme
advantages. They are typically used with civil engineering works where there
can be significant uncertainty about ground conditions.

(b) The organisational structure of a measurement contract strategy is shown


in Figure A2. Standard forms of contract are available for this strategy.

(c) The main advantages of the measurement contract strategy include:


• pre-construction time-saving potential;
• competitive prices;
• average public accountability;
• the procedure is well known;
• the strategy enables changes to be made easily; and
• there is some parallel working possible.

(d) The main disadvantages of the strategy are:


• the strategy offers poor certainty of price;
• there is no contractor involvement in the planning or design stage; and
• there is a potential for adversarial relationships to develop.

The Surveyors’ Construction Handbook Part 3, Section 1 Effective from 1/3/03 Page 3
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

FIGURE A2
PROCUREMENT ARRANGE MENT – ME ASUREME NT

CONTRACTUAL ARRANGEMENT

CLIENT

CONSULTANTS
(fee contracts)

MAIN CONTRACTOR ARCHITECT


(standard measurement contract)

SUPPLIERS
(various contracts)

SUBCONTRACTORS
(standard contracts)

administrative responsibility on behalf of the client

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

SEQUENCE

brief design

competition construction

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

A3 CONSTRUCTION MANAGEMENT

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

Page 4 Part 3, Section 1 Effective from 1/3/03 The Surveyors’ Construction Handbook
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

design team or the trade contractors, provides professional construction


management expertise without assuming financial risk, and is liable only for
negligence by failing to perform the role with reasonable skill and care, unless
some greater liability is incorporated into the contract.

(b) On appointment, the construction manager will take over any preliminary
schedule and costing information already prepared and draw up a detailed
programme of pre-construction activities. Key dates are normally inserted at
which client decisions will be required. In adopting the construction
management system, the client will be closely involved in each stage of design
and construction. The client should have administrative or project
management staff with the time and ability to assess the recommendations of
the construction manager and take the necessary action. The client needs to
maintain a strong presence through a project management team that is
technically and commercially astute. This strategy is not, therefore, suitable
for the inexpert or inexperienced client.

(c) With this contract strategy, design and construction can overlap. As this
speeds up the project, construction management is known as a ‘fast track’
strategy. Although the time for completion can be reduced, price certainty is
not achieved until the design and construction have advanced to the extent that
all the construction work (trade) packages have been let. Also, design
development of later packages can affect construction work already completed.
The construction manager should therefore have a good track record in cost
forecasting and cost management. A package is made up of work for which one
of the trade contractors is responsible, e.g. foundations, concrete, electrical
installation or decorating. These packages are tendered individually, for a lump
sum price, usually on the basis of drawings and specification.

(d) The Latham Review1 recognised that construction management has been
used predominantly for large and/or complex projects, but suggested that
there is no intrinsic reason for this. Indeed, it is particularly recommended for
projects where there is a high degree of design innovation, where the client
wants ‘hands on’ involvement.

(e) The organisational structure of a construction management strategy is


shown in Figure A3.

(f) The main advantages of a construction management strategy are:


• the strategy offers time-saving potential for overall project time due to
the overlapping of procedures;
• buildability potential is inherent;
• the breakdown of traditional adversarial barriers;
• parallel working is an inherent feature;
• clarity of roles, risks, and relationships for all participants;

1
Latham, M., Sir, Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the United
Kingdom Construction Industry: Final Report, HMSO, London, 1994.

The Surveyors’ Construction Handbook Part 3, Section 1 Effective from 1/3/03 Page 5
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

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

CONTRACTUAL ARRANGEMENT

CLIENT

Fee contracts

CONSULTANTS
including
Lump sum contracts CONSTRUCTION MANAGER

WORK or TRADE
CONTRACTORS

ADVANTAGES DISADVANTAGES
time saving potential for overall project time no cost certainty at outset
trade packages let competitively needs informed client, able to take an
buildability potential active part
breaks down traditional adversarial barriers needs a good quality brief
parallel working inherent relies on a good quality team
clarity of roles, risks and relationships for needs time and information control
all participants
late changes easily accommodated

SEQUENCE

brief design

construction

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

• changes in design can be accommodated later than some other


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

Page 6 Part 3, Section 1 Effective from 1/3/03 The Surveyors’ Construction Handbook
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

(g) The disadvantages are:


• price certainty is not achieved until the last trade packages have been let;
• an informed, proactive client is required in order to operate such a
strategy;
• the client must provide a good quality brief;
• the strategy relies upon the client having a good quality team; and
• time and information control is required.

A4 MANAGEMENT CONTRACTING

(a) With this contract strategy, a management contractor is engaged by the


client to manage the building process and is paid a fee. The management
contractor is responsible for all the construction works and has direct
contractual links with all the works contractors. The management contractor
therefore bears the responsibility for the construction works without actually
carrying out any of that work. The management contractor may provide some
of the common services on site, such as office accommodation, tower cranes,
hoists and security, which are shared by the works contractors. The client
employs the design team and therefore bears the risk of the design team
delaying construction for reasons other than negligence.

(b) Management contracting is a ‘fast track’ strategy. All design work will not
be complete before the first works contractors start work although the design
necessary for those packages must be complete. As design is completed
subsequent packages of work are tendered and let. Cost certainty is thus not
achieved until all works contractors have been appointed. A high level of cost
management is therefore required.

(c) With the agreement of the client, the management contractor selects works
contractors by competitive tender to undertake sections of the construction
work. The client reimburses the cost of these work packages to the
management contractor who, in turn, pays the works contractors. The
management contractor co-ordinates the release of information from the
design team to the works contractors.

(d) Where the management construction team is not of the highest quality, or
where this fee is inadequate, the management contractor can be less than
proactive and the system can become a reactive ‘postbox’ approach. It is
therefore vital to select the management contractor carefully and to ensure that
the fee is appropriate bearing in mind market conditions. Similarly, resistance
to works contractors’ claims can be affected by the same circumstances.

(e) The organisational structure of a management contract is shown in


Figure A4.

(f) The main advantages of a management contracting strategy are:


• time-saving potential for overall project time;
• buildability potential;

The Surveyors’ Construction Handbook Part 3, Section 1 Effective from 1/3/03 Page 7
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

FIGURE A4
PROCUREMENT ARR ANGEMEN T – MA NAGEMENT C ON TRAC TING

CONTRACTUAL ARRANGEMENT

CLIENT

MAIN CONTRACTOR
(standard fee contract)

CONSULTANTS
(fee contracts)

WORKS CONTRACTORS
(standard lump sum contracts)

ADVANTAGES DISADVANTAGES
time saving potential for overall project time need for good quality brief
buildability potential poor certainty of price
breaks down traditional adversarial barriers relies on a good quality team
parallel working inherent may become no more than a ‘postbox’
late changes easily accommodated system in certain circumstances
work packages let competitively removes resistance to works contractors’
claims

SEQUENCE

brief design

construction

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

• breaks down traditional adversarial barriers;


• parallel working is inherent;
• changes can be accommodated provided packages affected have not
been let and there is little or no impact on those already let; and
• works packages are let competitively.

(g) The disadvantages are:


• need for a good quality brief;
• poor certainty of price is offered;

Page 8 Part 3, Section 1 Effective from 1/3/03 The Surveyors’ Construction Handbook
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

• relies on a good quality team;


• it may become no more than a ‘postbox’ system in certain
circumstances; and
• removes resistance to works contractors’ claims.

A5 DESIGN AND MANAGE

(a) A design and manage strategy is similar to management contracting. Under a


design and manage contract, the contractor is paid a fee to manage and assume
responsibility, not only for the works contractors, but also for the design team.

(b) The main advantages of a design and manage strategy are:


• early completion is possible because of overlapping activities;
• the client deals with one firm only;
• it can be applied to a complex building; and
• the contractor assumes the risk and responsibility for the integration of
the design with construction.

(c) The disadvantages are:


• price certainty is not achieved until the last work package has been let;
• the client loses direct control over the design quality; and
• the client has no direct contractual relationship with the works
contractors or the design team and it is therefore difficult for the client
to recover costs if they fail to meet their obligations.

A6 DESIGN AND BUILD

(a) Under a design and build strategy, a single contractor assumes the risk and
responsibility for designing and building the project, in return for a fixed-price
lump sum.

(b) A variant, known as ‘develop and construct’, describes the strategy when
the client appoints designers to prepare the concept design before the
contractor assumes responsibility for completing the detailed design and
constructing the works. Often this strategy is associated with a process where
the contractor takes over the client’s designer (architect) contract in a form of
‘contract switch’ or novation. The designer is then employed for the rest of the
contract by the contractor who is usually responsible for all of the design
including that done prior to the switch.

(c) Design and build is a fast-track strategy. Construction can start before all
the detailed design is completed, but at the contractor’s risk.

(d) As explained in 3.1.1, by transferring risk to the contractor, the client loses
some control over the project. Any client requirement which is not directly
specified in the tender documents will constitute a change or variation to the
contract. Changes are usually more expensive to introduce after the contract
has been let, compared with other types of strategy.

The Surveyors’ Construction Handbook Part 3, Section 1 Effective from 1/3/03 Page 9
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

(e) It is very important, therefore, that the brief and performance/quality


specifications for important requirements in the project are fully and
unambiguously defined before entering into this type of contract. If
requirements are not specific, the client should provide contractors with a
performance specification at tender stage.

(f) The contractor develops the design from the specification submitting
detailed proposals to the client to establish that they are in accordance with the
requirements of the specification. Clients are, therefore, in a strong position to
ensure that their interpretation of the specification takes preference over the
contractor’s.

(g) Specification is a dangerous area for inexperienced clients:


over-specification can cut out useful specialist experience; under-specification
can be exploited.

(h) The client will often employ a design team to carry out some preliminary
design and prepare the project brief and other tender documents. Sometimes
the successful contractor will assume responsibility for this design team and
use them to produce the detailed design. If a design and build strategy is
identified as a possibility at an early stage, then the basis of the appointment
of the design team should reflect this possibility. If it does not, the client may
have to pay a termination fee to the design team. The client may wish to retain
the independent services of a cost consultant throughout the contract for early
cost advice involvement in the bidding process and cost reporting during
construction.

(i) Consideration may need to be given to the inclusion of a special clause in


design, or design and build, type contracts to ensure that the responsibility
for design performance is properly shared. Such a clause should identify
specific obligations that are absolute, that do not require the designer to be
an expert in the client’s business and, as a consequence, are reasonably
insurable.

(j) Current forms of contract for design and build vary their treatment of design
liability.

(k) To be effective, the client’s requirements will need to be stated clearly and
accurately and delivered on time.

(l) The imposition on contractors of fitness for purpose in design is usually


expressly excluded in standard forms of contract and it is a matter of
judgement for clients and their professional advisers, even though tenderers in
recessionary markets are likely to agree to undertake such risks.

(m) Non-availability of insurance to cover a higher than normal risk should


be weighed against the financial ability of contractors to meet design
default claims. It will normally be preferable and represent better value for

Page 10 Part 3, Section 1 Effective from 1/3/03 The Surveyors’ Construction Handbook
Appendix A (01/03)
PART 3, SECTION 1, APPENDIX A

money to impose a lesser, yet insurable, liability, which will be the subject
of an insurance payout in the event of a design fault, rather than an
insurance fitness for purpose requirement on a contractor of limited
financial assets.

Most importantly the client should ensure that adequate design liability
insurance is in place and maintained for the period of liability.

(n) Increasingly, collateral warranties are being used to place additional


responsibility on designers or subcontractors. In addition, the client may take
out insurance to cover post-construction liability, but this will be at a cost.
This is a matter for specialist advice.

(o) A range of options is available as illustrated in Figure A5. These range


from a package deal or turnkey where the client has little involvement in the
design development or building procurement process (effectively, a
complete hands off approach), to develop and construct where the client
appoints designers to develop the brief to a level of sophistication which will
leave the design and build contractor to develop detail or specialist design
elements.

FIGURE A5
P ROCUREMENT ARRANGEMENT – DESIGN AND BUILD

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

Turnkey

Package deal

Design and build


(competitive)
Design and build
(negotiated)
Develop and construct

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

Client involvement

Contractor involvement

The Surveyors’ Construction Handbook Par