Construction Journal February-March 2016

Construction Journal

February/March 2016rics.org/journals

Calculated risk Assessing the contingency assessment for Phase Two of HS2

PG. 20

How well do you know your assets? Data use in dealing with uncertainty and client needs

PG. 14

No gain without pain A range of perspectives on the challenges and rewards of the APC process

PG. 10

How BCIS inflation indices can mitigate risk on construction projects PG. 6

Staying on top

OPINION

UPDATE

LEGAL HELPLINE

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RICS CONSTRUCTION JOURNAL

C O N T E N TS

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contentsCONTACTS

While every reasonable effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the opinions expressed in the journal, or by any person acting or refraining to act as a result of the material included in the journal. All rights in the journal, including full copyright or publishing right, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v1.0 for public sector information: www.nationalarchives.gov.uk/doc/open-government-licence

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The Construction Journal is the journal of the Project Management and Quantity Surveying & Construction Professional Groups

Advisory group: Emma-Kate Ryan (Faithful and Gould), Helen Brydson (Faithful and Gould), Martin Stubbington (RICS), Gerard Clohessy (EC Harris), Christopher Green (Capita Property and Infrastructure), William Hall (Lendlease), David Cohen (Amicus), Andrew McSmythurs (Sweett Group), David Reynolds, Tim Fry (Project Management Professional Group Chairman), Alan Muse (RICS)

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4Chairman’s column

5Update

6Fair shares Joe Martin explains how the BCIS inflation indices will help mitigate risk on construction projects

10No gain without pain?Karen Rogers talks to a candidate, an assessor/chairman and a counsellor about the challenges and rewards of the APC process

12Means to an endTerry Stocks explains why the end user’s aspirations for an asset should be embedded in the scheme options from the outset

14How well do you know your asset? George Mokhtar argues that a steady flow of consistent, rich and accurate data can help organisations deal with uncertainty and better understand client needs

16Beyond big data Kim van Rooyen investigates how industry-agreed standards on data use are essential to improving project performance

19On common groundTom Pugh explains why the International Property Measurement Standards will bring confidence to the market

20Calculated riskFrank Peacock-Brennan and Simon Longstaffe review the contingency assessment for Phase Two of HS2 of the UK’s high-speed rail network

23Employees performing badly?Helen Crossland sets out an employer’s guide to managing poor performers

25Legal helplineLegal experts answer common queries

Front cover: @ iStock

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C H A I R M A N ’S C O L U M N

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CHAIRMAN'S COLUMN

Black book and ICMS top agenda

Justin Sullivan looks at some of the key decisions taken at the recent RICS Governing Council meeting in Paris

II write this column having returned from the most recent RICS International Governing Council (GC) in Paris, which voted for a number of important changes that will ready our Institution for its 150th anniversary in 2018. Not least, it was voted that Council split into two groups, which are ‘oversight’ and ‘strategy’, with a combined total of 25 members, reduced from the current 57. The changes will mean we have a much more agile and strategically focused Council. These changes emerged from GC2020, and Council now turns its mind to our Professional Groups’ (PGs’) structure, whose composition and remit are being debated at PG2020.

The principal thrust of the Institution’s activities

is toward international professional standards and professional statements. RICS will lead in setting standards for our members to follow, which will ultimately also be regulated by RICS with support of the Professional Groups. This will give our members the edge in the marketplace, as RICS will be a professional body being part of the team that is creating standards, delivering them and regulating them.

Our members, with the support of RICS Professional Groups, have created the

suite of Black Book standards, and with only four left to complete the suite, they will be finished by next year. The Professional Groups are seen as the knowledge and technical centre for creating standards.

The Quantity Surveying and Construction Professional Group now turns its attention to maintaining and updating the Black Book, and, importantly, the development of International Construction Measurement Standards (ICMS). The coalition for ICMS was formed in June 2015 and has 34 member bodies, which includes all of the leading international and national QS bodies. The coalition has formed a board of trustees, chaired by Ken Creighton of RICS and a Standard-Setting Committee (SSC) of 27 professionals, many of whom are RICS members. This SSC will create the ICMS, which will affect all of us.

The SSC has started drafting the first of the standards for review in 2016, with a publishing date set for early 2017. Throughout the process review and consultation will be required from RICS members, other coalition members

and industry. Separate presentations will be made to all the relevant national and international boards. Therefore, please keep your eyes peeled for the consultation when it is issued. Feedback is important as it will shape the standards and ensure they are relevant to the marketplace.

The late, great David Bucknall OBE FRICS always strived for our profession to be relevant and to provide the best value for our customers; David wanted the QS to get the first phone call and to add value for the least cost — we now have that opportunity, so thank you David.

The RICS construction professionals are sitting at the right tables and are positively influencing our profession, so we will be in a unique position of being able to define the tools that are used to regulate us, and set the RICS member head and shoulders above the rest. b

Feedback to the committee will be important, because it will shape the standards and ensure that they are relevant to the marketplace

Justin Sullivan is Chair of the RICS Quantity Surveying and Construction Professional Group Board [email protected]


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U P DAT E

UPDATENew RICS Training catalogue now availableExplore the new RICS Training catalogue for 2016 and choose from over 200 online and face-to-face training courses, run by experienced professionals.

The courses cover all areas of surveying and assessment and include topics such as BIM, building surveying, project management, quantity surveying, construction contracts and dispute resolution. The technical content is designed to support you through the entire project life cycle. New courses this year include:

b construction – UK contract selection

b construction projects – implementing sustainability

b commercial building pathology – analysis and reports.

The catalogue also includes our bestsellers, such as:

b certificate in adjudication in construction industry

b certificate in construction project management

b quantity surveying foundation b JCT Standard Building Contract

2011 – practical training b certificate in BIM – project

management.

n The catalogue is available for download at rics.org/ 2016Catalogue. For more details, please contact our training team on 024 7686 8584 or [email protected]

TRAININGIn the Summer Budget 2015, the Chancellor announced a review of business energy tax to simplify and improve the effectiveness of the regime.

The integration of the Climate Change Levy and Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES) with other business energy efficiency policies and regulations will be considered. The government wants a single reporting tool, incentive and fiscal mechanism.

One option is for reporting obligations under CRCEES and the greenhouse gas regulation to be incorporated in an enhanced version of the Energy Savings

Business energy tax reformOpportunity Scheme (ESOS), introduced to reduce overall energy consumption and carbon emissions.

A simplified carbon tax linked to ESOS, with revenue used to fund improvements, would also help cut business energy costs. The government estimates saving around £1.6bn a year if the opportunities highlighted by ESOS audits are realised. n For details, contact Mat Lown, Partner and Head of Sustainability at Tuffin Ferraby Taylor [email protected] Twitter: @matlown

RICS APM Project Leadership Conference23 February 2016, London Join 100 project leaders from across various sectors to discuss, debate and learn how to unleash the potential of your teams, suppliers and stakeholders.

As leadership development becomes used more frequently as the best way to ensure that your project exceeds expectations, this year’s theme is people investment.n For more details or to book your place, visit www.rics.org/leadershipconference

RICS BIM Conference 201625 February 2016, London RICS Building Information Modelling (BIM) Conference 2016 sees the conversation shift from BIM theory and policy to its practice. Our expert speaker line-up and sessions, based on live case studies of BIM implementation, aims to give delegates invaluable insight into the practicalities of BIM adoption, what to expect in terms of challenges and return on investment, and the culture change necessary to ensure all potential benefits are realised. n For further details or to book a place, please see www.rics.org/BIMconference

RICS Commercial Management in Infrastructure Conference 201626 April 2016, IET, London Commercial managers are crucial to proving business cases and ensuring investment returns for any construction projects, but these skills are perhaps even more crucial when applied to the infrastructure sector. They give confidence to clients, investors and the public, and ensure that commercial structures are in place for effective delivery, while managing costs and delivering promised value.

Our Commercial Management in Infrastructure Conference examines the huge value that commercial managers bring to large-scale infrastructure projects. Key speakers and leading experts in infrastructure will address core elements of the commercial manager’s role, including risk mitigation, collaborative working, supply chain management, cost planning, dispute avoidance and the use of BIM software. In addition, delegates will also receive the latest updates on key guidance designed to inform and improve business practices in their role.

Don’t miss this opportunity to ensure the commercial success of your projects and network with colleagues across your profession. n For further information and to book your place, please visit www.rics.org/infrastructureconference

Standards and guidance notes Alexander Aronsohn, RICS Director of Technical International Standards, has set out RICS work in developing consistent global property standards. The full article can be read in the September–October issue of the Property Journal. n www.rics.org/pjseptoct15

https://twitter.com/matlown

http://www.rics.org/leadershipconference

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I N F L AT I O N I N D I C E S

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Fair shares Joe Martin explains how the BCIS inflation indices will help mitigate risk on construction projects

Inflation is, in former US Defence Secretary Donald Rumsfeld’s term, a “known unknown”.

We know that prices tend to change over time but we do not know by how much

or when. This uncertainty is thus a risk when considering future expenditure. The magnitude of the risk will be exacerbated by the length, size and location of a project. The longer the project the greater the uncertainty; the larger the project the greater the monetary value of the risk, and in some parts of the globe prices are more volatile than in others.

The most common method of allowing for inflation is by use of indices. In the UK the most commonly used indices are the price adjustment formulae indices (PAFI) prepared by the Building Cost Information Service (BCIS) of RICS.

Over the past year BCIS has been reviewing the PAFIs used in civil engineering contracts with the industry.

A couple of notes on terminology: b inflation adjustment clauses are

referred to by different names in different contracts – fluctuations, variation of price, price adjustment for inflation etc. – I have referred to them in this article as ‘inflation adjustment clauses’

b inflation, strictly speaking, is increases in costs as distinct from deflation, which is falling prices. However, inflation adjustment clauses in contracts are designed to deal with both. Rising prices are the norm, but with recent falls in fuel and commodity prices the impact of an inflation adjustment clause would be that the client receives the benefit of the savings, rather than the contractor.

Why allow for inflationTo ensure the best price on a contract, the risk for inflation should be taken by the party best able to manage it. Inflationary risks derived from the local market can probably be managed by a

of inflation at that time. Figure 1 shows that construction costs (labour, material and plant) rose on average over 16% per annum in the period 1972 to 1980. Over the past 10 years (2006 –15) the average was less than 3%. At the moment, when some underlying costs are falling, the client might consider that it should take the risk of this benefit rather than asking contractors to build it into their prices. Figure 2 shows the recent trends in DERV, steel reinforcement, electrical goods and bricks.

b Big projects: where the impact of inflation is significant in monetary terms. ‘Big’ needs to be judged in relation to the size of the parties.

b Long contracts: the longer the contract the more difficult it is to predict the impact of inflation. This will apply both

contractor and their supply chain, but the underlying inflation caused by wider pressures from the outside construction and global markets probably cannot.

So who should take the risk of inflation on a construction contract? To quote from Crossrail’s procurement strategy:“It is considered that the achievement of best affordable value will be supported by a sensible and fair allocation of risks between the parties to the contracts. Requiring contractors to take responsibility for risks which they cannot assess or manage would be likely to result in either high risk premiums, or commercial pressures caused by insufficient provision.”

Who is best able to “assess and manage” the risk of inflation will vary from contract to contract depending on the client, the contractor and the work.

When should inflation adjustment clauses be considered?

b Periods of high or uncertain inflation: that the formulae method of price adjustment was developed in the 1970s is no surprise when you consider the levels

Figure 1BCIS General Building Cost Index (Annual percentage change)

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to projects that will take a long time and long-term contracts such as framework contracts and maintenance contracts.

b Complex contracts: where different contractors will work at different periods during the project.

How to allow for inflationBefore the introduction of the price adjustment formulae, inflation adjustment clauses attempted to reimburse contractors for the actual changes in their resource costs. Contractors were asked to list in their tender the current prices of the resources that they wanted to be adjusted.

One of the drivers for the introduction of formulae price adjustment was the cost both to contractors and clients of administering the old contracts, which, despite the level of detail involved, resulted in imprecise recovery and were open to abuse.

The formulae method of inflation adjustment was introduced due to industry demand for a speedy, yet credible, way of calculating and reimbursing fluctuations in costs.

The method relies on resource cost indices for trades and individual resources. These can be weighted to represent the resources on a particular project so that the impact of inflation can be modelled. This allows the contractor to provide the best price in their tender, confident that the inflation reimbursement will reflect their costs.

The original guide to the formulae stated: “There is a fundamental difference between calculating price adjustment

(up or down) on a range of actual costs, and calculating price adjustment by formula methods. With actual costs, price adjustment is a net amount calculated from wages sheets, invoices and the like in accordance with the contract provisions.

“Price adjustment is applied only to those materials on an agreed basic list, and there is usually no specific provision for the adjustment of overheads and profit.

Formula price adjustment is calculated from the movement in index values irrespective of the actual extra costs (or savings) incurred by the contractor. Individual costs included in the build-up of a tender are not used in the price adjustment calculation. There is no need, therefore, to specify the materials subject to adjustment, no need to submit a list of basic materials n

Figure 2Materials cost inflation – DERV, Electrical goods, Rebar, Bricks (BCIS Price Adjustment Formulae Indices – January 2010 = 100)


8 F E B R U A R Y/ M A R C H 2 0 1 6

I N F L AT I O N I N D I C E S

prices and no need to take into account future changes in wages.

“It is important that users of formula methods of calculating price adjustment should appreciate that they do not purport to reflect, with accuracy, every minor change in construction costs or resource prices. They are a method designed to compensate the contractor reasonably for increases, and reduce the delays and labour associated with traditional methods of payment.

“The quantity surveyor or engineer should not expect their task to be translated into mere mechanical activity. Professional skill and judgement are required in the use of the formula methods. The contractor can take into account any advantages or disadvantages which they foresee in using the formula methods when building up their tender.”

When the formulae method was introduced, the weightings of the indices were linked to items in the bill of quantities so that they were applied differently at each valuation. However, the alternative single index method has become the standard practice so that the weightings of the indices are set, usually by the client, at the outset of the contract and applied to all payments.

Spending time choosing the right mix of indices, and discussing it with the contractors where there is early contractor involvement or competitive dialogue, will help in ensuring that the contractors are comfortable that they are protected from underlying inflation and so offer the best current price. As Figure 2 illustrates, the cost of resources can move in very different ways.

As the practice of using indices in inflation adjustment clauses has become standard practice, the choice of indices has proliferated, but is not always made wisely. The point of the indexation is to match the indices as closely as possible to the work to be carried out.

Therefore, using a general inflation index such as the retail prices index (RPI) or applying a general construction index to specific sectors such as the use of the all-new construction output price index (COPI) to water projects, imposes a double risk for the contractor, in terms of both the inflation measured by the index and the inflation in their actual costs.

The same applies to the practice of main contractors using an all-trades index to specific subcontractors. Applying an inappropriate index or indices will never

achieve the desired effect of attracting the best prices.

BCIS has published six golden rules for choosing an index:1. Be clear about what you want to measure and how you want to apply it.2. Choose an index that is measuring the costs that most closely match rule 1.3. If you are using the index linking something in a contract or agreement, be clear that it meets your needs, particularly in respect of:

b frequency of the publication (monthly, quarterly, annual)

b updating and revisions policy.4. Understand the inputs to the index and the calculation methodology.5. Read the notes and definitions.6. Never choose an index because of its past performance.

Depending on the procurement method, the index can be applied either to the contract sum or the target cost.

PAFIsWhen the formulae method of calculating fluctuations in contracts was introduced in 1973, the PAFIs were produced to facilitate its implementation.

The indices were set up under the aegis of the National Economic Development Organisation (NEDO).

The series were devised by two committees, one for civil engineering under the chairmanship of JW Baxter and one for building under JG Osborne. As a result, the PAFIs are colloquially

Joe Martin is Executive Director of [email protected]

Related competencies include Design economics, Cost planning, Contract practice

referred to as the NEDO indices, the Baxter indices (civil engineering) and the Osborne indices (building).

The indices were initially calculated by the Property Services Agency (PSA). The responsibility for the indices followed the PSA’s successor departments that are responsible for construction price and cost indices and other statistics, latterly the Department for Business, Innovation and Skills (BIS). In 2009 BCIS took over the responsibility for the indices from BIS.

The indices are intended to represent the underlying inflationary pressures, not the actual costs on a particular project. However, the range of indices is intended to allow those underlying inflationary pressures to represent the resources used on a project.

The indices signify the movement in factory gate prices and nationally agreed wage awards and are for national (UK) application. They are not intended to represent the effect of market pressures, national or local, on prices from subcontractors, merchants, factors etc. The management of these is the commercial concern of the contractor.

The indices are currently published online as four series:

b building b specialist engineering b civil engineering b highways maintenance.

The indices used in civil engineering contracts (civil engineering, specialist engineering and highways maintenance) have undergone industry review in the past 12 months by clients, contractors, subcontractors, material suppliers, consultants, the government, the Office of National Statistics and BCIS. The new series is available early this year. b

More information >To subscribe to the PAFIs, please visit http://bit.ly/1OjXNtI

n

To advert ise contact Emma Kennedy +44(0)20 7871 2906 or [email protected]

A DV E RT I S I N G RICS CONSTRUCTIONJOURNAL

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A P C

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Karen Rogers talks to a candidate, an assessor/chair and a counsellor about the challenges and rewards of the APC process

No gain without pain?

As an assessor/chair, Michelle Bernhardt has had many candidates over the years telling her that obtaining professional membership has been the most stressful and difficult thing they have ever done. While she fully sympathises, she says that membership is something to be cherished.

“RICS has a long and established history as a professional organisation: our brand is recognised worldwide for quality and standards. To ensure that all

Image © Istock

members meet a universal level of attainment, we have a quality education system. The process may be perceived as hard or difficult, but it is important that we have such rigorous standards to uphold the future of the profession.”

Counsellor Kostas Papacharalampos agrees: “The APC process is indeed stressful and has to be taken step by step. It needs ambition, good spirit and hard work, but by becoming a chartered surveyor you put a global audience in a position to trust your skills.”

Support mechanismA common complaint she hears from candidates is that they feel they are not getting enough support from their employer, supervisor or counsellor in guiding their day-to-day work in relation to the APC. But Bernhardt says

it is down to the candidates themselves to ensure that they meet the requirement. After all, it is the candidate who sits in the room at final assessment, not their employer, she adds.

For instance, RICS helps candidates in a wide range of ways: from the basic candidate’s and pathway guides providing highly detailed information on competencies and the assessment process itself, through to specific training courses dealing with interview technique or submission preparation.

“But you would be surprised how often I see submissions that do not meet the stated criteria in the candidate’s guides,” says Bernhardt. “Case studies may be too long or in the incorrect order and may not address key issues. The guidance is there

for candidates, and as an assessor, I expect them to adhere to it.”

Then there are other, more personal, support groups: RICS Matrics, regional training advisors, mentors and the LinkedIn APC community where questions and queries can be posted online. “These networking-based groups are vital,” says Bernhardt. “The ability to talk and share concerns or worries is a very important element. I would urge all candidates to take full advantage of all elements of support available to them.”

Papacharalampos recalls his own experience. “I had good support from my employer with additional training and discussions with my supervisor, counsellor, APC specialists and colleagues. However, an element of challenge was there for me.” As a result, he

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says, he finds it important to establish an open and honest relationship with the people he is helping. “I believe there are no wrong questions on anything. With this in mind, I encourage all sorts of questions from candidates.

“The challenge is to really own the process. My aim is to establish a strong understanding of candidates’ everyday activities within their APC, both in personal, professional and technical matters. Being a bit of a mentor does help and inspire candidates.”

As the first person within his company to undertake the APC, candidate Ben Stupple says he had to be quite proactive in his approach to ensure he achieved sufficient experience under each of the competencies.

“Fortunately, both my counsellor and supervisor have been very willing to assist, meeting me regularly to ensure I am reaching the required competencies as well as providing the exposure required to obtain level 3. This has been imperative to my training, because without this input it would have

been difficult to monitor my progress appropriately.”

Advice and hintsThe key to the APC is preparation, says Bernhardt. Keeping up to date with reviewing training plans, meeting employers and obtaining appropriate professional development to address any technical or skills gaps is crucial.

“Give yourself enough time. Do not rush towards the final assessment if you do not feel ready. Do not put yourself in the position of having to compile your submissions hastily to meet a deadline. Take time to prepare your case study. Choose a topic that allows you to demonstrate your competencies to the full. Draft and redraft it, then do so again afters others have read and reviewed it.”

At final assessment it is often easy to see the candidates that have come forward too quickly, Bernhardt adds. “There are gaps in the submissions, or a lack of technical understanding to demonstrate the necessary level 3 competencies. The APC is not a race. Do it once, and do it well.”

Having submitted documents some months previously, candidates should read them again, she advises. Ensure you are fully familiar with the various cases you have outlined in your summary of experience to demonstrate your competence. “When the candidate looks blankly at you after an assessor has asked a question, it is not a good start,” she says.

She adds: “The other thing that comes up too often is the ‘we’ versus ‘I’ scenario. It is appreciated that as a trainee member there are certain things you may not be able to do. However, constant reference to ‘we’ in submissions or interview can

lead an assessment panel to doubt your experience.”

Papacharalampos reiterates this advice.“There are experienced people who are there to answer your questions during the months of training – the more you get them involved, the better. Make the APC your own personal, professional and technical commitment and seek help from RICS Matrics and APC mentors volunteering across the UK. Owning this process will give you the best rewards.”

Some recent changes in the APC have been announced by RICS after extensive consultations. Papacharalampos’ advice is to keep informed and speak to your employer and the dedicated APC teams in RICS, in order to understand where you now stand in the process and what actions, if any, you need to take to keep in good position with your submission plans.

In the meantime, he says, regularly assess your existing APC plan and actions to ensure you are prepared with your summary of experience and your case study. Is your everyday work relevant to your APC requirements? Is your manager aware of this? Aiming to have interesting and challenging projects in your work pipeline will be to your own benefit as the market is now out of recession.

From the candidate’s point of view, particularly those working for small and medium enterprises, Stupple offers some tips:

b be proactive and do not become complacent

b meet regularly with your supervisor/counsellor

b seek out opportunities that can broaden your learning

b get involved with your local RICS Matrics group – a great chance to meet people undergoing the APC and see RICS in practice.

In the longer term, professional membership will help your career advancement, and the RICS networks will offer you support and assistance as you develop in your working and personal life.

Bernhardt urges members to consider helping others going through the system once they have qualified. “I qualified in 1996 and shortly after put some time in to help as an APC doctor – now known as mentors.

“That developed, and my involvement with the APC and education has continued, which is incredibly rewarding and also beneficial to my career,” she says.

For Stupple, as he approaches his session 1 2016 deadline, there is still plenty to do. Describing his current feeling as cautiously optimistic, he is also aware that a failure to perform on assessment day could result in a resit, and so is determined to be well prepared come the final interview. b

More information > Isurv offers a range of advice and guidance for APC candidates, supervisors and counsellors: visit http://bit.ly/1QIdTPe

Karen Rogers is RICS Matrics and UK Operations [email protected]

Related competencies include APC

Image © Shutterstock


AS S E T M A N AG E M E N T

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Terry Stocks explains why the end user’s aspirations for an asset should be embedded in the scheme options from the outset

Constructors and clients alike are guilty of considering the capital cost of delivering assets as the primary concern. However, the main goal should always be an end

product or operational environment that works for the asset user, remembering that they may not always be its owner – different clients and occupants may have varying views on the ideal conditions.

The offset of capital cost against the building environment might not seem to be the most commercially advantageous, but thought leadership on the operational benefits of good design seeks to challenge this perception.

Generally, how do we go about defining the type of environment for our end user – and do we even know who our end user will be? Usually we do, and as such we can work with relevant information at the business case stage to support better decision-making and testing throughout the delivery and operational life cycle.

How is this information typically obtained? Many projects undertake a ‘lessons learned’ process and some carry out a post-occupancy evaluation, but how often are the lessons learned actually used to improve a process on a continuous basis? Post-occupancy reviews tend to be little more than recording outstanding defects. To get the best value from these reviews we need to have benchmarks, articulated and achievable targets, and stated benefits in the business case from the start so we can establish criteria to check against.

Whether for educational, retail or service buildings, good design can benefit operations. The World Green Building Council’s business case for green buildings states that with the right environment young people can gain 5%–14% higher test scores and learn 20%–26% faster, retail sales can be improved by 15%–40%, and staff in call-processing centres can be 6%–12%

Means to an end

and 3: 2014 promote best value outcomes. The PAS 1192 series is best known through its support of building information modelling (BIM). PAS 1192 – 2 and 3 introduce documents known as the operator’s information requirements (OIRs), the asset information requirements (AIRs) and the employer’s information requirements (EIRs).

In reality, the documents exist to collect a list of the data required to operate the asset (AIR) in support of

more efficient. These figures are validated and backed by major contractors, developers and the World Bank.

The question is, therefore, why are we not more demanding of the assets we specify? There is still a tendency for contract awards to be overly influenced by the capital cost, in most cases to the detriment of business outcomes and operational costs for the asset’s whole life. A project’s capital cost is an important part of any business decision to build – but can we afford for it to be the most influential? Is a focus on capital cost driving poorer outcomes on the business front line? We need to think more about this when procuring an asset.

Setting criteriaTo create an asset that can provide the optimum environment for its users, we need to define criteria to be measured and checked against throughout the project, and specify who should be responsible for checking these factors through the project’s life cycle. While there has been much written about early contractor engagement within a project, early professional service provider engagement tends to fall by the wayside, and it appears this could be the answer to the question.

The RIBA Digital Plan of Works starts at Stage Zero – Strategic Definition, where the client’s professional service provider can add most value. A well-facilitated strategic business review can set the course for the whole project and the operational attainment of the asset. Why would we miss it out? The ratio of life-cycle expenditure – capital investment to energy/maintenance cost to business outcomes influenced, at 1:4:30 – suggests that the size of the prize is such that any fees spent on good advice will be recouped many times over, and early service provider engagement can facilitate this.

Additionally, the Publicly Available Specifications (PASs) 1192 – 2: 2013


F E B R U A R Y/ M A R C H 2 0 1 6 1 3

the operator’s aspirations (OIR). These are collected and included in the capital build tender documents as the EIRs. The EIRs make it clear what information is expected at what stage of a project to what level of detail and format.

The process of capital project delivery stated in PAS 1192 – 2 should help reduce capital cost delivery by limiting overproduction of data; reduce project risk via in-flight checking and validation of data; and improve stakeholder

Terry Stocks is Director – UK Head of Public Sector and Education at [email protected]

engagement through federated 3D models and collaborative delivery.

Reviewing and articulating an end user’s aspirations for an asset can be embedded in the project’s business case. Each option should have capital and whole-life costs assigned to it, which can be improved through better inclusion of the physical requirements that support improved user environment.

These requirements are included in the project EIR data requirements, and when

delivered through the PAS 1192 – 2 and 3 system will focus on achieving the stated benefits throughout the capital delivery phase. In this way, we can also establish a baseline and targets for post-project and post-occupancy evaluations.

In parallel with the above, Lean delivery techniques – which minimise waste of materials, time and effort to help generate maximum value – and adopting soft landings – a way to improve performance of buildings and meet the requirements of their users – both support improved delivery. As a large part of a project cost is time related, Lean techniques focus on improving the actual delivery process.

A slicker process will increase the reliability of a project delivery to time, help to reduce risk and ultimately support lower-cost delivery through efficiency. Soft landings serve to engage the end user and facilities management team throughout the process. Most importantly, the focus is shifted to project handover and efficient operation is maintained from project inception – which all facilitates an improved end user environment.

All of these processes form part of the toolkit that we require to innovate and deliver sustainable projects, facilitating better business outcomes and improved quality of life for all asset end users and operators. b

More information >Cost reporting 1st edition is available from the RICS shop

Capital cost is an important part of any business decision to build – but can we afford for it to be the most influential?

Related competencies include Analysis of client requirements, Development appraisals

Image © iStock


1 4 F E B R U A R Y/ M A R C H 2 0 1 6

AS S E T M A N AG E M E N T

George Mokhtar argues that a steady flow of consistent, rich and accurate data can help organisations deal with uncertainty and better understand client needs

How well do you know your asset?

Fifty-four percent of the world’s population lives in urban areas, and this is predicted to jump to 66% by 2050. Cities will become more densely populated and technology will radically change the way people live and work. The need to create an adaptable asset becomes even more pressing when the likelihood of extreme weather events and rising temperatures is considered.

Designing a highly adaptable structure is one way of hedging against the unknown, but it may not be necessary for all scenarios. An alternative and potentially less costly approach is to focus on gathering relevant data and engaging stakeholders as early as possible. The guiding principle is to track every element and how the occupants behave. Detailed, consistent data leads to greater knowledge, the bedrock on which confident decisions can be made in later decades.

Much of this knowledge can be embedded in one shared digital model, created and developed by the asset’s builders and designers, and then handed over to the client on completion.

At its simplest, building information modelling (BIM) creates an exact 3D digital design of the physical asset. More sophisticated models also contain hosted and relational information on every object inside. They archive everything from materials to appliance installation instructions and maintenance logs.

The most obvious benefit of digital models is that they aid efficient operation through the life cycle of an asset: employees are able to locate hidden pipes and power networks, know whether ceiling fans are under warranty and even understand how to dismantle sections at the decommissioning stage. A well-populated model can also be a powerful tool for forecasting operational costs, predicting spending peaks and troughs in planned maintenance and replacement schedules.

Knowing every element of your building or asset, and how it was constructed, could shave months off remediation work or retrofitting in future years. Imagine that an adhesive commonly used in building materials is suddenly discovered to be dangerous to human health. A model could not only identify the

location of every element containing the toxic matter, it would also show how it was installed and which materials surround it. Contrast that with the complex, expensive and time-consuming surveys that must be carried out when searching for asbestos in older buildings today.

The people factor As the above example illustrates, BIM offers some tangible benefits for managing assets in the short and medium term. But when combined with other technologies, it can offer far more exciting possibilities, enabling objective decision-making.

Social data, gathered from sensors or mobile phone apps (see panel, p15), can radically shift the perceptions of how people interact with assets. For example, a university recently decided to build an extension to cater better for its growing student population. This was based on the assumption that the seminar rooms were constantly full, as the timetabling system indicated.

To test this, carbon dioxide sensors were installed in every room. It quickly became apparent that many venues were booked but regularly left empty. As a result, the university could review its booking system and avoid a costly building project.

Thanks to advances in technology and cloud computing, the cost of embedding such sensors into building and asset management systems is much lower than it was 10 years ago.

Owners have the opportunity to measure everything from temperature and humidity to motion and flow of people. Sensors will become an increasingly powerful means for tracking how an asset is being used in real time: identifying common areas of wear and tear; supporting planned and even predictive maintenance; and providing true insight into capital investment planning, optimisation and portfolio management.

Sensors built into supervisory control and data acquisition (SCADA) systems can monitor and control everything from power stations to pumping in water treatment plants. They can be installed in major infrastructure assets such as tunnels to monitor ground settlement.

But they are also increasingly helping asset managers to manage the expectations of the general public: a simple example is the digitised information that tells passengers when the next train or bus will arrive.


F E B R U A R Y/ M A R C H 2 0 1 6 1 5

Right first time When considering how to futureproof an asset, it is critical to ensure that all parties are comfortable with the design in the early stages. All too often, occupants do not get to see a facility until the project is far too advanced or even completed. The later that changes are made to a project, the higher the subsequent cost in time and money.

The challenge is how, ahead of completion, to help staff, customers and end users visualise how they will interact with the asset. Hotel and retail chains often construct physical models to test the design, finishes or layout of a room, substantially adding to costs and significantly extending the project timeline.

Although physical mock-ups are unlikely to be replaced entirely, BIM provides interesting alternatives: with a data-rich 3D model, stakeholders can experience virtual interiors or enter computer-augmented virtual environments (CAVEs).

As well as facilitating feedback during early design stages, these tools are useful for staff training and helping occupants familiarise themselves with the facilities before they open. BIM

will play an increasingly important role for smooth handovers, sometimes referred to as ‘soft landings’.

BIM can also safeguard a facility against possible health and safety breaches. For example, digital modelling on a recent hospital project predicted that the airflows would be ineffective in the new operating theatres, with a risk that air could stagnate around open wounds, leaving patients vulnerable to infection. Altering the position of air vents during the design stage avoided costly delays in the construction and fit-out phases.

Conceiving a building that can successfully adapt to future needs remains a major challenge, but BIM can help to speed up decisions: certain elements of the design could be fixed in the digital model, leaving interchangeable sections that could be moved around and tested against different scenarios. This could also be carried out when anticipating future expansion strategies or kept as a record to inform a future design team, acting as an executive or pre-emptive design exemplar.

Going one step further, some forward-looking firms are now creating physical structures that can be almost as easily remodelled – or ‘hacked’ – as the virtual ones. The principle is to build modules that can be dismantled and moved about within the outer shell of the building. Thus, room sizes can change and new spaces emerge with the minimum of cost or effort. The building becomes a dynamic organism, creating an adaptive environment for an evolving community.

When planning for the long term, all we can be certain of is that the future is unpredictable. The problems that preoccupy us now may be irrelevant in a decade. New obstacles will emerge.

Consistent, rich and accurate data is our greatest tool for dealing with uncertainty. Knowing and understanding your asset, and closely tracking how occupants are using it, is essential preparation for the unseen challenges and opportunities that lie ahead. b

How social data can transform assets Developments in cloud computing are making it increasingly easy to link building control systems with data from sensors or electronic devices such as mobile phones. This creates new opportunities for asset owners to engage with customers or occupants, understanding their motivations and behaviour patterns. It can also help to build brand loyalty.

For example, luxury retail and hotel chains record the habits and likes of a frequent user on a central database. So whichever hotel the guest checks into, from Boston to Beijing, the building

control system will automatically adjust the room to suit their preferences. On opening a door, their favourite radio station could be playing, and the lights dimmed to the right level. Linking social data with the building’s supervisory control and data acquisition systems creates a tailored ‘home from home’ environment for each guest.

For leisure, retail and residential complexes, the asset owner could get closer to residents and visitors by encouraging them to download an app that can enable them to control the appliances in their homes, report

problems and gain access to restricted areas as appropriate.

An app that tracks movement could also provide valuable feedback to the building’s designers. It could identify, for example, that no one in a certain block goes out onto their balconies, or that some corridors are not being used.

Ultimately, social data will play a vital role in creating smart cities, but only once data is truly standardised across municipalities and regions. This is underpinned by intelligence and information model management systems. It all starts with BIM.

Related competencies include BIM

George Mokhtar is an associate director at Turner and [email protected]


1 6 F E B R U A R Y/ M A R C H 2 0 1 6

DATA M A N AG E M E N T

Beyond big data Kim van Rooyen investigates how industry-agreed standards on data use are essential to improving project performance

Expectations about what ‘big data’ can achieve are rocketing, but if the built environment sector is to maximise the benefits, we must take collective action

to define, standardise and share its data more widely.

Change has to happen at both a micro and a macro level, within organisations and project teams, across industry groups and supply chains. It will not be easy; to be successful requires a non-adversarial culture and high level of trust. But data maturity is essential if we are to drive the next level of improvement in the way we build and manage assets.

The built environment sector needs its own route map, and professional organisations should take the lead on this by developing certification, accreditation and training.

Setting priorities With such a vast array of data potentially available on a typical project, measuring the right things is key to driving better performance.

So it is important to define your priorities and corresponding data needs, resisting the temptation to place too great an importance on the things that are easy to measure but less useful to your objectives.

Technology should not become a distraction from the bigger picture. Too much data can overwhelm and slow down decision-making; it could be as damaging to the progress of a project as too little.

This principle should also be applied to how senior management collect and look at data. Traditionally, project managers have filed progress reports at agreed intervals. Now, with real-time visibility, an international programme director can instantly access project data from any location across the world.

Improve data management capabilities Other sectors, notably retail, employ armies of data specialists to track and predict trends. The built environment sector is catching up with them slowly, with a noticeable rise in the number of data analysts or information managers being embedded into organisations and project teams. However, data management tasks are often bolted on to an already existing role – for example, a quantity surveyor. Alternatively, they are carried out by an IT specialist who may have little understanding of construction.

In coming years, data management will become so central to the success of a built environment project it should be a recognised discipline in its own right. Data analysts within the sector should have the same status as chartered surveyors, construction managers, engineers or architects.

As an industry, we should start defining what the role of construction data manager or analyst would entail. Accredited qualifications in this area are urgently needed.

Collaborate across supply chains Sharing data more widely is essential if we are to drive improvements in the

But while this can be beneficial, particularly in terms of the assurance aspects of a project, senior directors need to be disciplined about how they exercise this tool. Dipping in and out of the information risks getting too close to one aspect of a project, becoming obsessed with minutiae and failing to see the bigger picture.

Common standards Without common standards, the quality of data could be at risk at any point in a project, from the moment it is collected to the occasions when it is transferred, stored or aggregated.

Interpretations of standards can vary from project to project within a single organisation, and this can lead to a lack of confidence in the data itself. For example, the anticipated final cost (AFC) at a certain milestone of a project is critical for forecasting outcomes and making decisions. But if the AFC does not conform with a standardised measurement, it cannot be meaningfully compared with the other repeat projects that an organisation is undertaking around the world.

Adopting industry-agreed definitions for data would not only help companies improve their internal processes, it could ultimately drive up standards across the sector as a whole, as data could be shared more frequently.

Creating a common architecture that defines data is an important step. However, if data is to have longevity, it also needs to fit into a hierarchy or architecture that is recognised throughout the industry. This common coding structure would standardise the way that data on every project is captured and stored, from an oil rig to a retail outlet. It would enable organisations to compare performance on areas such as cost and schedule against their peers, or even other industries.

Image ©iStock


F E B R U A R Y/ M A R C H 2 0 1 6 1 7

way we build and manage assets. But at present, data transfer between parties can be inefficient and ineffective even within a single project.

The lack of common standards and protocols is only part of this problem. There are also commercial and cultural barriers to transparency, rooted in distrust and adversarial ways of working.

Parties in a supply chain can be reluctant to share more than the minimum of data with each other. Organisations may justify this by citing commercial confidentiality, but the real reason behind the secrecy is probably lack of trust: they fear that the data will be used against them to substantiate a claim.

To counteract this problem, common protocols should be established in the earliest phases of a project, long before work gets under way on site. Data should be shared centrally with all parties, including the client, in a common, collaborative environment.

With a critical mass of projects sharing data efficiently, the sector can move on to the next phase: specifically, sharing information horizontally, on a peer-to-peer basis. This is already happening in some sectors. Over the past two decades, for instance, oil and gas companies – which have well-established data protocols and hierarchies – have

been benchmarking project performance data anonymously through a joint industry performance forum. The initiative has enabled awareness of the rising costs in the sector to be raised.

This practice should spread to other built environment peer groups as they begin to gather and share more consistent data.

Integrated technology At present there is no standard model to define how technology should be integrated into a construction project: the systems used by project and cost managers, contractors, architects and engineers are all isolated from one another and they do not exchange information efficiently.

We need to develop best practice models for fitting this jigsaw of technology together so that data can flow efficiently between parties. This will be essential for maintaining a healthy ecosystem of interaction between the multitudes of contractors and suppliers, particularly on complex projects.

Admittedly, some built environment organisations are further ahead than

others on the data journey, but the progress is too slow and these pockets of best practice are not benefiting the industry as a whole. Clients and industry groups alike need to act strategically, and with more vision, if they are to drive genuine efficiencies.

Technology is presenting a once-in-a-generation opportunity. Failing to act and muddling along with inconsistent data will lead to loss of trust, worsening relationships and stagnating productivity. Therefore, we need to step up the pace of change. Moving faster to secure the quality of our data will accelerate improvement throughout the sector as a whole. b

Five stages of data maturity 1 Little useful data: the company cannot generate useful metrics and analytics, and does not understand, let alone anticipate, a project’s performance. It has few useful insights based on robust data with which to make confident decisions. 2 Big data: the company may be inundated with a flow of data from many sources, but does not yet have the approaches or capability to turn that data into useful information. Project teams can spend too much time trying to make sense of large volumes of data, rather than driving the project forward – often referred to as paralysis by analysis. 3 Incisive information: yhe company uses high-quality information, backed by robust data, and applies context and relevance to using the right models to drive the project forward. Common taxonomies and coding structures help standardise and explain data and its use in a meaningful way, explaining the links and interdependencies across the data.4 Predictive: the company moves beyond the simple analysis of historical or current status – it is also able to carry out predictive analysis. By using data to anticipate what is likely to happen, it can better plan for how projects are driven forward successfully.5 Data-centred: the company’s entire project delivery model is built around its analytical data-led approach. Data and its use sit at the centre of driving project performance and improvement on a sustained basis. Both predictive and historical analysis models play a key role, and more advanced data analysis techniques – such as data mining and benchmarking – become increasingly important for leading performance.

* Adapted from Big Data: Turning Data into Knowledge and Putting Knowledge to Work by Markus Sprenger

(BeyeNETWORK, 15 April 2011)

Kim van Rooyen is a director at Turner and Townsend [email protected]

Related competencies include Data management


A DV E RT I S I N G

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1 8 F E B R U A R Y/ M A R C H 2 0 1 6

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New series are now available for Civil Engineering (including Specialist Engineering) and Highways Maintenance (series 4).

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RICS BIM Conference 2016Realising the benefits of BIM in practice25 February 2016, 30 Euston Square, NW1 2FB

Timed to coincide with the Government’s 2016 BIM level 2 deadline, our BIM Conference sees the conversation shift from the theory and policy around BIM to the reality of using it in practice.

Now in its fifth year, this conference provides invaluable insight into projects where BIM is already being implemented and the experiences to date. Giving you the ability to learn from those leading the way in the BIM arena.

Register your place: rics.org/bimconference

F E B R U A R Y/ M A R C H 2 0 1 6 1 9


Over time, the International Property Measurement Standards (IPMS) will become a suite of documents covering all the main asset classes, in an attempt to bring uniformity to the way that property is measured and reported globally. The first standard released, in November 2014, was for office buildings, with the residential standard due for release in 2016. Standards for industrial, retail and mixed use will follow.

Following the release of IPMS: Office buildings, RICS has redrafted the Code of Measuring Practice (CoMP) and republished this as the professional statement RICS Property Measurement, 1st edition. The document became mandatory for all RICS members on 1 January.

Initially, it only applies to offices, with the existing code still used for other property asset classes. As the other sections of the professional statement are published, they will take over from the relevant parts of the CoMP.

Why is it needed? Recent research undertaken by JLL, comparing five measurement standards from leading property markets,

O showed a 24% variance in the same building.

The real estate sector is becoming more global in nature and it is estimated that 70% of global wealth is in property. Property transactions for the period September 2014 to June 2015 were £24.6bn in London alone, of which nearly 15% were made by foreign investors. So there is a clear need for a single property measurement standard to reduce confusion and uncertainty.

BenefitsIPMS will enable greater confidence and transparency in the global property market. Stakeholders will be able to benchmark property portfolios to a recognised standard rather than spend time and effort on bespoke standards or calibrating and translating reports based on existing standards. They will work alongside current International Financial Reporting Standards and International Valuation Standards.

The information produced for the IPMS can be used by any number of stakeholders

in a property and should not be seen as the domain of valuation surveyors alone.

The reported area of buildings will change but only because the basis on which this is measured has changed. Diagrams in the professional statement show differences between the RICS CoMP and IPMS: Office buildings.

Gross external area v IPMS1: b the only difference is the

reporting of covered galleries and balconies.

Gross internal area v IPMS2 – Offices:

b perimeter measurements are taken to the internal dominant face

b covered galleries and balconies are included in the measurement and reported

b areas can also be detailed component by component.

Net internal area v IPMS3 – Offices (occupancy)

b perimeter measurements are taken to the internal dominant face

b columns are included within the measurement

b on floors with multiple occupants the area is taken to the midpoint of the partition wall between tenancies

b covered galleries and balconies for exclusive use of one tenant are included

b standard building facilities (i.e. corridors, toilets, lifts, stairs) are excluded

b no inclusions/exclusions like those contained in the CoMP. Limited use areas to be employed to detail areas incapable of occupation (e.g. as a result of height restriction, areas occupied by heaters, columns, internal structural walls).

If the contract or lease refers to a particular measurement standard, a chartered surveyor must advise their client to adopt the professional statement and therefore IPMS. In instances where the contract or lease stipulates a particular measurement standard to follow, this must be noted because specific clauses may be affected.

It is also acknowledged that existing leases are based on measurement figures derived from an existing standard and there is no requirement to review these in the light of the release of IPMS. However, IPMS should be adopted for new leases. b

More information >For details on IPMS, visit www.rics.org/internationalstandards

On common ground

Tom Pugh explains why the International Property Measurement Standards will bring confidence to the market

I N T E R N AT I O N A L

Tom Pugh MRICS is an area referencing specialist at Malcolm [email protected]

Stakeholders will be able to benchmark their property portfolios to a recognised standard

Related competencies include Valuation measurement

http://www.rics.org/internationalstandards


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R I S K

Frank Peacock-Brennan and Simon Longstaffe review the contingency assessment for Phase Two of HS2, connecting Manchester and Leeds into the UK’s high-speed rail network

Calculated risk

One of the many discussions with stakeholders at HS2 is: “What is the right level of contingency to be included within investment appraisals?” Any such estimate recognises the uncertainty and risk that is inherent at any particular stage of a project, and provides a level of confidence that this will not be exceeded.

The source of this uncertainty and risk typically occurs in five categories: programme; quality and safety; procurement and contracts; people and behaviours; and external influences. As an organisation, HS2 Ltd recognises the financial benefits of effective management of these factors, and is committed to adopting a disciplined and rigorous approach to drive new standards of best practice for the industry.

To reflect the different stages of development of the scheme, two techniques are used to calculate a contingency allowance for Phase One and Phase Two – quantitative risk analysis (QRA) and optimism bias (OB).

HS2 Ltd has developed the application of Treasury OB guidelines to reflect the magnitude of the project. The method deployed calculates a contingency sum on an asset-by-asset basis that recognises the complexity, uniqueness and innovation incumbent in the early route design solutions. The method aims to avoid overinflating contingency sums at early stages in the development of a project, while being cognisant of the need to determine an appropriate provision within investment appraisals.

Modelling risk HS2’s risk exposure for Phase One is represented through a series of risk registers. These have been typically developed through a series of interviews, workshops and reviews, and list the threats and opportunities, with a cost impact should they occur, the likelihood of occurrence and a mitigation plan to avoid or reduce the impact and/or likelihood.

A cost QRA model is created through a stochastic method. This makes a distinction between threats and opportunities that may or may not occur, and tolerance ranges associated with the status of the price estimation and design development. Both threats and tolerances represent uncertainty to the base cost estimate, but are best modelled separately.

HS2’s risk exposure for Phase Two is calculated through the use of OB. This is an appropriate measure due to the infancy of scheme development. HS2 is working diligently to increase its knowledge base and level of information regarding route characteristics, which is enabling the development of a QRA for this phase.

The application of OB is intended to counter a demonstrated, systematic, tendency for project appraisers to be overly optimistic. The Green Book supplementary guidance on optimism bias suggests that the upper bound on optimism represents a “starting point”, and the contributory factors to the OB uplift are then assessed in terms of whether they are mitigated.

Assessment strategyHS2 is unique in size, scale and complexity, and it became clear that the way we applied OB needed to go beyond Treasury and Department for Transport (DfT) guidance for public departments, while maintaining a method that recognised the recommended approach.

Unsurprisingly, a great deal of analysis has been undertaken, such as treating the scheme as a railway in line with DfT guidance. This is something we have always debated – that it is not a railway until latter stagesof the programme where we construct andcommission railway systems.

The method developed delivered a comprehensive review of OB calculation to ensure contingency assessments are specific to the Phase Two scheme. Treasury guidelines are applied in different ways to enable comparison of contingency sums, and application of informed professional acumen.

It is helpful to outline some terminology from the Treasury guidance.

There are four project types deemed applicable to HS2: b non-standard civil engineering project: involves the

construction of facilities, in addition to buildings, requiring special design considerations due to space constraints or unusual output specifications e.g. innovative rail

b standard civil engineering project: involves the construction of facilities, in addition to buildings, not requiring special design considerations

b non-standard building project: involves the construction of buildings requiring special design considerations due to space constraints, complicated site characteristics, specialist innovative buildings or unusual output specifications

b standard building project: involves the construction of buildings not requiring special design considerations.

In addition, HS2 has defined a set of criteria that makes a project non-standard or standard. It believes that the key to appropriate categorisation is the conditions used to establish the project type. The guidance falls short of providing definitions. To remove ambiguity and ensure a consistent and transparent application across the scheme, HS2 set the following criterion – if an asset satisfies any one of these conditions, it is deemed to be non-standard:

Applying OB aims to counter a tendency for project appraisers to be overly optimistic


F E B R U A R Y/ M A R C H 2 0 1 6 2 1

n

b innovative: use of new construction methods previously not tried and tested.

b unique: one-of-a-kind construction solution that is not comparable to other solutions in any aspect of its design.

b complexity: the solution is of a complicated nature given its intricacy or complexity, determined by the construction method itself or the environment in which it is constructed.

Methodology The underlying principle for HS2’s approach is to calculate a contingency provision that protects the public purse from the inherent risks of delivering major infrastructure, while avoiding unnecessary diversion of public funds from other key public expenditure and investments through overinflation of contingency.

HS2 has designed a balanced approach to assessment for Phase Two of the programme, which is now in the early stages of project development. It has done so by deploying a three-step method for evaluating contingency provision that uses OB guidelines as a basis.

b Step one: application of Treasury guidance generically across all route sections, elements and assets using the upper bound percentages for each project type as defined in Treasury and DfT guidance; this approach took no account of specific factors, and as a benchmark, categorises all civil elements as standard civil and all building elements as standard building (see Table 1).

b Step two: building on the Treasury and DfT guidance when trying to derive an appropriate contingency provision. Application of OB under a single project type, or a combined assessment based on dominant characteristics that drive a single categorisation, is seen as inappropriate because the HS2 programme contains projects valued in the hundreds of millions, or exceeding £1bn.

HS2 analyses OB application on an asset-by-asset basis to determine a reflective assessment of which project type is appropriate for each, based on known specific conditions. This approach enables targeted application of OB against those assets with the greatest level of complexity, innovation or uniqueness in their design or site conditions, to derive a

contingency provision applicable to the construction or physical design characteristics of an individual asset.

In HS2’s case, an individual asset construction cost estimate can be equal or greater than the total project costs used to inform the Treasury’s upper bound OB percentages. As such, HS2 Ltd has elected to assess the impact of a project-specific project type assessment, while still applying the upper bound OB percentages from the Green Book supplementary guidance. It is at step three that we look at how the organisation is mitigating contributory factors that underpin the Treasury’s percentages.

b Step three: Here, our methodology looks to build on our learning from Phase One of the programme where we have achieved a more advanced stage of development, and deposited a hybrid bill in Parliament.

We are critically appraising our processes for Phase Two periodically, and testing how we are mitigating the contributory factors that underpin the Treasury’s upper bound OB percentages.

To date, we have undertaken the early rounds of this process, and have applied mitigation factors in accordance with the Treasury guidance. Peer review from a range of disciplines contributed to the development of the scheme, and Table 2 summarises the impact of this process on reducing the upper bound percentages.

AnalysisIn addition to the project-specific application of OB, and the benefits derived in calculating contingency levels appropriate for the scheme, our methodology also delivers some key metrics and management information.

An analysis by value of the asset project type assessment, demonstrates that the most common asset we are building is standard civil engineering (see Table 3).

This identifies that, of the thousands of assets along the linear route for Phase Two, the majority of construction required is for standard civil engineering assets such as bridges, cuttings and embankments.

HS2 Ltd’s methodology enables us to assess and review transparently the impact of following the methodology described (see Figure 1):

Upper bound OB percentages (Treasury supplementary Green Book guidance)

Table 1

DfT WebTAG guidance development stage (NR GRIP Stage):

Non-standard civil: OB (% of present

value capex)

Standard civil: OB (% of present

value capex)

Non-standard building: OB (% of present

value capex)

Standard building: OB (% of present

value capex)

Stage 1: output definition 66% 44% 51% 24%

(It should be noted that HS2 Ltd has not undertaken an independent test or assessment of the upper bound OB percentages contained in the Treasury guidance)

Impact of mitigation assessments for each contributory factor and resultant OB percentages

Table 2

Project type Upper bound OB for capital expenditure

(Green Book guidance)

HS2 Phase 2 mitigation factor assessment

(% of upper bounds)

Resultant OB for HS2 Phase Two

Non-standard civil 66% 81% 53%

Standard civil 44% 89% 39%

Non-standard building 51% 86% 44%

Standard building 24% 86% 21%

Source: HS2


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R I S K

n b result zero: before applying the HS2 methodology outlined, we captured the impact of treating all investment components as non-standard civil in line with DfT guidance for high-speed rail

b result one: the impact of applying the Green Book upper bound OB percentages using a generic assessment of project type as ‘standard’ for buildings and civil works (step one)

b result two: the impact of applying the Phase Two specific project type assessment while still using Green Book upper bound OB percentages (step two)

b result three: the result of applying the mitigated OB percentages established by HS2 (step three) along with Phase Two’s asset-by-asset assessment of project type (step two).

Optimising Treasury OB guidance and developed methodology at HS2 enables a project heat map to be prepared, pinpointing where the perceived complexities lie in early project design and which areas drive the contingency provision (see Figure 2).

This information is enabling HS2 to provide a basis for targeted risk maturity development.

A lasting legacyAlongside the OB methodology, HS2 has been developing an anticipated final cost (AFC) model, which includes scope, uncertainty and risk. To achieve this, we are modelling identified risks using a QRA, and the uncertainties are being assessed on a sub-elemental level for the eastern and western routes.

A series of scope, cost and risk workshops has enabled a multidisciplinary contribution and a joined-up approach to risk capture. This process has ensured alignment between cost estimating assumptions and contingency provision, both in the assessment of OB and comparative QRA.

The AFC model is also founded on an asset-by-asset categorisation for risks, where applicable. This is enabling us to compare contingency provision generated by our OB methodology at a granular level, even at the early stages of development prior to full risk maturity.

We initially use this capability to improve confidence in the Phase Two contingency provision and adjust OB provisions where we have additional information. Also, by developing the maturity of our risk management early, we can move away from OB when the appropriate stage of development is reached.

The joined-up approach will enable HS2 Ltd to track contingency from early provisions through to project close, when we hope to hold informative data on risk drawdowns and against which risks contingency provisions were expended. This is a key legacy we hope to achieve and one where we feel the industry needs to improve on more generally, particularly in major public sector major projects. Delivering on this will help better inform our future contingency provisions within HS2 and future government projects, and should ensure equilibrium between protecting government from cost overrun and overcommitting finite funds to contingency pots. b

Characteristics of HS2 Phase Two split by OB project type

Table 3

Asset type % of total estimate

Non-standard civil 23%

Standard civil 67%

Non-standard building 0%

Standard building 3%

Indirect costs 7%

TOTAL of investment cost components by value (%) 100%

Source: HS2

Phase Two assets heat map

Figure 2

Phase 2 OB assessment impact on provision in Phase 2 contingency provision

Figure 1

Indirect costs (hybrid, based on standard civil)

Standard building Non-standard building

Standard civil Non-standard civil

OB p

rovi

sion

(£)

Result zero

Result one

Result two

Result three

Route Section ARoute Section BRoute Section CRoute Section DRoute Section ERoute Section FRoute Section GRoute Section HRoute Section I

Route Section JRoute Section KRoute Section L

Route Section MRoute Section NRoute Section ORoute Section PRoute Section QRoute Section RRoute Section SRoute Section TRoute Section URoute Section V

Other Route WorksStation OneStation Two

Station ThreeStation FourStation Five

Depot OneDepot Two

Depot ThreeDepot Four

Non-standard building

Non-standard civil Standard building Standard civil

Related competencies include Risk management, Cost planning

Frank Peacock-Brennan is Interim Strategy, Analysis and Planning Lead – NHS England Commercial Group [email protected]

Simon Longstaffe is Head of Estimating and Cost Management at [email protected]

F E B R U A R Y/ M A R C H 2 0 1 6 2 3


L E G A L

Employees performing badly?Helen Crossland sets out an employer’s guide to managing poor performers

Addressing poor performance is often seen to be such a time-consuming a process for employers that it is tempting not

to intervene and hope for a natural improvement or conclusion.

Yet underperforming employees can cost a business dear, and a reluctance to manage the situation can send a dangerous message that such behaviour is accepted and tolerated within the organisation. Belatedly tackling unsatisfactory performance can also see the employee challenge the action on the basis of inconsistent treatment.

LegalitiesCapability, focusing on poor performance rather than health-related absence, is a potentially fair reason for dismissal, although the overriding aim of managing unsatisfactory performance is to encourage the individual to improve.

For the employee, the process will generally involve an informal review followed, if necessary, by a formal performance management. Should an employee be dismissed on performance grounds, as with any dismissal, the employee could claim unfair dismissal at an employment tribunal if they have two or more years’ service. With a ‘capability’ dismissal, this could occur where the employee claims to have had

their contract terminated prematurely or without just cause, or if the procedure taken was unfair.

In most cases, tackling performance concerns during the probationary period – which should be extended if there are any inklings of uncertainty – will best protect the business from the commercial and management costs that follow from under-performance and the risk of claims.

However, regard should be given to other claims the employee could raise, including discrimination, for which no minimum length of service is required.

In such cases, and particularly where unsatisfactory performance may be connected to a disability, it might then be advisable to follow a formal process to show the dismissal was not for an unfair or discriminatory reason.

Contractors need not be subject to performance management, and any concerns should be reviewed in conjunction with the contract for services governing the individual’s work.

Correct proceduresPerformance issues are commonly dealt with under an organisation’s disciplinary procedure, although it is strongly n


L E G A L

Helen Crossland is a partner at Seddons [email protected]

Related competencies include Legal

advisable to keep the two issues distinct and have a separate policy for each. This will also deter any confusion as to the true reason for any dismissal.

When addressing performance issues formally the correct legal procedure to follow is the ACAS Code of Practice, or the employer’s own performance management/capability procedure, provided the measures are not less than the minimum standards set out in the ACAS Code. Taking legal advice is always recommended before proceeding, especially where there is a question mark over whether the person has a disability that may affect their performance.

Minor lapses in performance can often be remedied through informal discussions or normal day-to-day management, and it is important that where such problems arise, line managers come to the fore in highlighting any shortcomings in a fair and reasonable way.

If the performance concerns are not resolved in this way or prove to be more serious, then the following process should be adopted: 1. undertake a reasonable assessment of the employee’s performance with evidence gathered.2. write to the employee setting out the concerns regarding their performance, also enclosing the evidence compiled and inviting them to attend a formal capability meeting3. hold a formal capability meeting at which you:

b clarify the required standards the employee has failed to meet and examine the evidence in this respect

b allow the employee to ask questions and respond to the evidence presented to establish any reasons for the poor performance

b identify what can be done to assist the employee, such as additional training or supervision

b set agreed targets for improvement and a time scale for review. Any formal improvement plan should involve regular review meetings between the employee and relevant manager at which the employee’s progress is appraised, and they are advised of any aspects of their work that still warrant concern4. write to the employee after the meeting with your decision, advising them of any sanction you have chosen to apply (see below), and offering the right of appeal.

Employees must be advised in any letters inviting them to a formal capability or appeal meeting of their right to be

accompanied by a fellow employee or a trade union representative.

SanctionsOnce the formal capability meeting has taken place, the appropriate outcome can be decided. If concerns remain, the standard scenario would be to issue a written warning, followed later by a final written warning if problems persist.

However, if the individual’s performance has fallen seriously below standard, a first and final written warning may be justified. It would be risky and unusual to terminate an employee on performance grounds without a warning having been given first.

Formal warnings should be in writing and specify:

b the areas in which the employee’s performance has fallen below required standards

b targets for improvement and the review period in which improvement is required, e.g. eight weeks

b any measures the employer will take to assist the employee in improving their performance, such as additional training or supervision

b the regularity of meetings during the review period at which progress is examined, e.g. weekly

b the possible consequences of insufficient improvement by the end of the review period

b how long the warning will remain on file e.g. a fixed term or indefinitely

b the employee’s right of appeal. If, after a warning being issued, performance improves to the required standard, no further action need be taken.

Only once the employer is satisfied that it has made reasonable use of sanctions

and is confident no further measures can be taken to assist the employee should they consider termination. A further capability meeting will normally be necessary after a written or even a final written warning before the employee can be dismissed.

ConclusionPerformance issues highlight the need for good, consistent management, whereby employees know what is expected of them and managers understand their responsibilities. Probationary periods and appraisals are useful arenas for assessment, but are purposeful only if managers are honest about the employee’s standing and then document and act on any concerns.

Often, there is a desire to avoid a difficult conversation, or to overstate an employee’s performance in the belief this will encourage improvement. Other work demands may also intervene. While such factors are valid and understandable, they could lead to missed opportunities to tackle problems early on, when a formal procedure might not be required, and unnecessarily draw out or undermine any process that might then be needed to manage the performance of an employee on a formal basis. b

n

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L E G A L H E L P L I N E

LegalChallenging liquidated damages

Q When we signed the contract we were given an amount to insert as the weekly rate of liquidated damages for

delay beyond the completion date. This is an office building development in the north of England, and my feeling is that the amount we agreed is much higher than the sum the employer may lose if we are late, especially as the rental market there is very slow. Can I challenge the amount on that basis?

> Shy Jackson

A The general rule has been that liquidated and ascertained damages (LADs) were unenforceable if they amounted to

a penalty but could not be challenged if they were a genuine pre-estimate of the loss the employer may suffer in the event of delay. This test has been considered recently by the Supreme Court, but it is worth going through some of the underlying principles first.

The benefit of LADs for an employer is that they do not need to put forward evidence of the actual losses caused by the delay, and can claim the agreed amount regardless. LADs also protect the contractor, as they fix the liability for delay when the actual losses may be higher than the agreed amount.

Whether LADs are enforceable is a question that is determined based on the position when the contract was agreed. It is not possible to take account of post-contract events. Employers will, therefore, often record in a note the basis for the LADs and how they have been calculated, to show that the amount is a genuine pre-estimate of loss at the time the contract was made.

LADs can, however, be affected by substantial changes to the contract. In Unaoil Ltd v Leighton Offshore Pte Ltd [2014] EWHC 2965 (Comm), the LADs were agreed when the contract value was $75m, and remained unchanged when the contract was varied to omit substantial parts of the works, reducing its value to $55m. It was concluded that as the LADs remained unchanged at the time of the variation they were not a genuine pre-estimate of loss.

Underlying principlesThe courts, however, have traditionally been reluctant to find that LADs are a penalty and unenforceable. This approach and the underlying principles were considered in detail by the Supreme

Jeremy Ferris is Senior Associate at Furley Page [email protected]

+info

Q&A

Shy Jackson is a Partner at Pinsent Masons [email protected]

+info

Court in the combined decision in Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67.

The court reviewed the basis for the rule and how it has been applied. It held that the test is not just about whether the amount is a genuine pre-estimate of the loss. Similarly, it was not enough to say the clause is a deterrent because this can be a legitimate clause intended to affect how a party behaves.

The test is thus based on whether a clause is unconscionable or extravagant, but the court will respect the parties’ freedom to agree contractual terms. The strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision relating to the consequences of breach.

It was held that the true test is whether the LADs clause is a secondary obligation, which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. For Barry Beavis, this meant having to pay the £85 fine for overstaying the two-hour limit in the car park, as the majority of the judges held the car park operator had a “legitimate interest” in charging those who overstayed the time limits even if this extended beyond the recovery of any loss.

In practical terms, this decision may make it more difficult to challenge LADs clauses in construction contracts. It will not always be easy to identify what is a legitimate interest and when a clause will be regarded as unconscionable and being out of all proportion. It is still, however, important to ensure that thought is given to the basis for any LADs agreement and to what extent they reflect the likely loss in the event of delay.

Returning to the question, the issue of whether the LADs are enforceable will be looked at in the context of the circumstances when the contract was agreed, so it will not be possible to take account of subsequent changes in the market. The court will be reluctant to interfere in what the parties agreed, unless the amount is seen to go beyond the employer’s legitimate interest in seeking to avoid delay. b

Related competencies include Legal contract practice

mailto:[email protected]

Recruitment – Search & Selection – Market Intelligence – Benchmarking www.carriera.co.uk

If you are interested in one of these opportunities please contact Elliot Wright or one of the team on 0203 817 0000

or email [email protected]. If one of these roles does not meet your brief, please still get in touch as we have other opportunities.

Specialists in Recruitment and Search & Selection Focused on the Construction and Property industry, here are

a few of the key roles that we are working on.

Partner

Cost ManagementCity, London

• Salary and package c. £120k - £150k

• Well recognised and regarded Partnership

• Business winning Partner/Director sought to strengthen/drive service line

• Demonstrable experience and strong client relationships expected

• No limit to progression

• Equity position

Associate/Partner

Cost ManagementWoking

• Salary £60k - £80k, healthcare + bonus (work won and fees delivered)

• Multi-disciplined practice that has long-standing and signifi cant relationships

• Driven, experienced Quantity Surveyor sought to be next generation of Partner

• Diverse sector experience required and ability to off er QS and PM services

• Potential of Equity from 6 months service based upon value added

Associate/Partner

Project Monitoring/ConsultancyCity of London

• Salary £70k - £80k + extensive package

• You will more than likely be a MRICS Quantity Surveyor

• Must have relationships with funders and/or developers

• Used to winning and delivering work

• Want to be a lead within a small business unit that is part of a prolifi c partnership

• Excellent bonus based upon salary multiplier

Project Manager & Senior PM

ConsultancyOxford

• Excellent compensation and benefi ts

• Ideal for experienced professionals

• You will work in Commercial, Education, Leisure and Sports

• Projects are all within 2 hours of Oxford

• Projects values up to £80 million

• You will ideally be professional qualifi ed although experience is more important.

• Great ability to progress.

Director

Head of Cost ManagementLondon

• Executive package with share options

• Leading the service line and in charge of a 40 strong team

• Must have demonstrable experience in the London market

• You will be a fi gure head in your current business

• It is expected that you will have a strong client following

• Would suit someone with Commercial, Leisure and Residential contacts

Senior Quantity Surveyor/s

ConsultancyOxford

• Solid basic and benefi ts package

• Leading consultancy seeks the next generation of Directors

• Diverse portfolio of clients

• You will ideally be professional qualifi ed (MRICS)

• Working within Building sector - Education, Health, Pharmaceutical, and Life Sciences

• Would suit someone wanting good work/life balance and enjoys working on signifi cant projects

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Construction Journal February-March 2016

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Transcript of Construction Journal February-March 2016