Built Environment Economist - Australia and New Zealand - March 2021 edition

MARCH - MAY 2021

The text pages of this publication have been printed on paper manufactured in Australia and produced from responsibly managed forests.

14 BENEFITS OF ENGAGING QUANTITY SURVEYORS FROM THE CONCEPTUAL STAGE Q&A

38 A HIGH-LEVEL COMPARISON BETWEEN THE AUSTRALIAN AND NEW ZEALAND CONSTRUCTION MARKETS FROM AN AUSTRALIAN EXPAT QUANTITY SURVEYOR’S PERSPECTIVE

23 THE ANTIFRAGILE QUANTITY SURVEYOR

46 EMBRACING THE NEW NORMAL: DELIVERING PROJECTS DIGITALLY

CONTENTS 2 CEO Letter

28 Getting the Payment Claim Right

4 Benefits of Engaging Quantity Surveyors from the

32 Digital Twins 35 Save Money and Avoid Disputes Through Equitable

Conceptual Stage Q&A 10 The Antifragile Quantity Surveyor

Contracting

13 A High-Level Comparison Between the Australian and

36 Embracing the New Normal: Delivering Projects Digitally

New Zealand Construction Markets from an Australian

39 Buildings are Vital

Expat Quantity Surveyor’s Perspective

43 Commercial Practices for Main Contractors in the

17 Building Adaptations to Address Energy Poverty 22 Recommended Approach to Procurement of Class 2

Construction Industry 48 Approaches to Assess a Contractor’s Financial

Residential Buildings 27 2021: Retention and Recruitment

About Built Environment Economist is the flagship publication of Australian Institute of Quantity Surveyors (AIQS). Produced quarterly, Built Environment Economist seeks to provide information that is relevant for quantity surveying, cost management and construction professionals.

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Entitlement Due to Compensable Delay 56 Building Cost Index (available in print edition only)

Contribute AIQS encourages readers to submit articles relating to quantity surveying, the built environment and associated industries including; construction economics, cost estimating, cost planning, contract administration, project engineering. Contact AIQS.

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Contact at AIQS Anthony Lieberman Communications and Marketing Manager T: +61 2 8234 4009 E: marketing@aiqs.com.au

Disclaimer AIQS does not take any responsibility for the opinions expressed by any third parties involved in the writing of Built Environment Economist.

ISSN 2652-4023

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 01

CEO LETTER

ADVANCING BUILT ENVIRONMENT COST PROFESSIONALS With 2021 underway there is light at the end of the COVID-19 tunnel and we can commence transitioning to a new normal. For AIQS, this will include greater member and stakeholder engagement, and the delivery of new and improved member services and information.

In line with its strategic goals, AIQS continues its push to be the pre-eminent (built environment cost professional) brand across Australia and be seen as driving industry standards to provide greater certainty to government and asset owners throughout the delivery and management of projects.

During October and November 2020, AIQS worked with the Western Sydney

Planning Partnership (a grouping of eight local governments under the Western Sydney City Deal) to develop a guide on the ‘Categorisation of Costs in a Contributions Plan’ for local government infrastructure projects. At the same time, AIQS contributed to the NSW Retail Tenancy Guide, which has been published with the inclusion of five references to Certified Quantity Surveyors and the two references to the AIQS President nominating a Determining Quantity Surveyor.

Later in 2021, AIQS will deliver a revised Australian Cost Management Manual, an updated Australia and New Zealand Standard Method of Measurement, information papers covering lifecycle

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cost analysis, residential tax depreciation, determination of developer contributions for local government infrastructure projects (New South Wales). In addition, updates to the Replacement Cost Assessment (for insurance purposes) Information Paper, and Construction Financing Reports (Guidance Note) will also be completed.

AIQS is participating on the Infrastructure Industry Forum (IIF), which assists the New South Wales Government with the implementation of its ‘10-Point Commitment to the Construction Industry’. This commitment is focused on improving the capability and capacity of the construction sector. Late last year, we surveyed our members in relation to the value-add of each of the

CEO LETTER

FIGURE 1 VALUE-ADD RANKING PERSPECTIVE OF 10-POINT COMMITMENT The below graph depicts which points add value for each of the 10-Points (the highest number represents greater importance).

0

1

2

3

4

5

6

7

8

Point 1. Procure and manage projects in a more collaborative way Point 2. Adopt partnership-based approaches to risk allocation Point 3. Standardise contracts and procurement methods Point 4. Develop and promote a transparent pipeline of projects Point 5. Reduce the cost of bidding Point 6. Establish a consistent NSW Government policy on bid cost contributions Point 7. Monitor and reward high performance Point 8. Improve the security and timeliness of contract payments Point 9. Improve skills and training Point 10. Increase industry diversity

10-points put in place and unsurprisingly, a collaborative approach to project management and procurement, and the standardisation of contract and procurement methodology were rated as most important, with risk allocation and a transparent approach to the pipeline of projects following a close second (Note there is anecdotal evidence from across Australia that these issues are common to government projects in all states and territories). Refer to Figure 1 Preliminary research has identified how the Abrahamson Principle is often incorrectly applied to government construction projects, with the assumption that the contractor is always best positioned to carry the

risks. Perhaps the establishment of truly standardised contracts (minus the pages of exceptions and exclusions) without an adversarial approach would better serve all parties.

AIQS is working with the Australian Construction Industry Forum in the development of positioning relating to risk allocation on construction projects specifically in the areas of limitation of liability clauses in construction contracts, sub-surface conditions, and utilities.

Once finalised, these papers will be put to the Australasia Procurement and Construction Council. AIQS will also be addressing these issues independently.

GRANT WARNER CEO Australian Institute of Quantity Surveyors

We are also working on enhancing our AIQS Academy.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 03

Q&A

HOW WILL PROJECT OWNERS, COMMUNITY, AND THE ENVIRONMENT BENEFIT FROM ENGAGING QUANTITY SURVEYORS FROM THE CONCEPTUAL STAGE? 04: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

Q&A

ANDREW NOLAN FAIQS, CQS The greatest opportunity to maximise the benefits and value for a project is early on in the design process when the form, scale, and direction of a project is usually established. The early engagement of a quantity surveyor will greatly benefit project owners, community, and the environment by utilising their skills to consider and advise on the consequences of design decisions.

This includes the effect of the use of space and selection of materials on the initial construction cost and through

the life of built assets including energy consumption, maintenance and repairs and replacement costs.

Quantity surveyors can assist with establishing the design and efficiency parameters by incorporating environmentally sustainable design provisions for projects at the conceptual stage that can be used to guide consultant teams and clients moving forward. This can provide a framework for a smooth and focused design process

that provides confidence in decision making for the project eliminating waste, creating certainty, and mitigating risk whilst respecting the architectural intent.

Buildings will become more valuable, efficient, enduring, and environmentally friendly places that enhance the wellbeing of their users and the community. Quantity surveyors will continue to play a pivotal role to achieve this.

DAVID STEWART FAIQS, CQS We are all aware of the numerous competing interests during the early design stage of most projects. A Town Planning Permit (TPP) has become the design milestone, and many developers push to obtain one without knowing what the associated costs are going to be. Without developers having a clear understanding of the costs associated with providing what they have committed to in the TPP, the project and design consultants are often burdened with expensive value management exercises and abortive design work. A lot of time and money is often wasted with many compromises along the way.

It is my strong view, that to reduce future scope, quality, time and ultimately cost stress for all involved in the project, at concept stage the key stakeholders need to know what the estimated costs of their design discussions and

decisions are likely to be. This will allow them to allocate, in a considered way, an appropriate budget for all scope including TPP requirements and more, including those items of most interest to the local community. Environmentally sustainable design falls into very much the same category. Without the key team discussing and understanding the associated costs of design options at the concept stage, and then allocating appropriate budgets, the final design is doomed to suffer the proverbial ‘death by a thousand cuts’ as the developer chases margin.

Engaging a quantity surveyor with a reasonable scope of services, as one of the first consultants to a project is therefore an obvious solution I would have thought. The quantity surveyor appointed to this role should be confident, proactive, and agile. Decisions

need to be made reasonably quickly. At concept stage, cents are not important, but getting (scope and quality) dollars in or out of the budget, is the task at hand.

Many views will be heard and considered but the quantity surveyor’s value-driven mindset must underpin their advice to provide balance. This mindset, when combined with an analytical approach, can be used to decipher sustainability strategies and options, and assist in facilitating cost benefit conversations right from the beginning.

Every project will have its own cost parameters, however, by leveraging the quantity surveyor’s skills in understanding design efficiencies and sustainability targets, the resulting design and more importantly budget will have substantial benefits for all users, including the community and the environment.

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Q&A

STACEY MENDONCA FNZIQS The other day I caught myself shouting at the television.

It was Grand Designs New Zealand. I generally enjoy watching innovative and smart kiwis build their dream homes in our beautiful country.

But the bit where I was shouting was where the host asks these otherwise smart people about cost. Sometimes they refuse to answer and sometimes they seem genuinely shocked when their costs come in at double the estimate.

Emotions often get the better of people in these circumstances. Typically, they understate the costs and overstate the benefits in pursuit of their dream.

It is the same with commercial projects.

Some projects have been based on universal historic square metre rates that are wishful thinking. Commercial projects are unique, each with unique complexities ranging from; unusual ground conditions, time related site constraints such as noisy work limitations or difficult access, adjusting to protect sensitive neighbouring structures, or the lack of resources and extra freight due to isolated locations. We see it time and again with buildings, roads, pipes where a quantity surveyor has not been involved.

An experienced quantity surveyor, engaged from the outset, can help provide accurate budgets that considers

current trends in the industry, critical cost information for the type of building with its location and special features acknowledged. Their wide range of past experiences allow for the details that cannot be documented in the early stages of design, and they can recognise the missing pieces of information beyond the building itself.

To safeguard the client over time, the quantity surveyor will look at the wholeof-life costs of a building – durable and efficient products, along with energy and waste reduction that can save money over the life of a building, even if the initial cost is high.

MARY-PAT UNDERWOOD FNZIQS The conceptual stage is the best time to engage a quantity surveyor. Without a quantity surveyor’s budget input at the early design stage you, and others, could well incur disappointment, delay, and abortive costs.

The architect has sketched up an amazing concept design scheme, it fits the criteria perfectly and looks way better than you ever envisaged it looking. You have a great design, but you need to be confident that the

scheme fits within the finite budget constraint before you get excited, show the scheme to the board, start marketing the project for sale or lease, send it out for community consultation, and commit to the time and cost of preparing tender and consent documentation.

The quantity surveyor’s advice at the conceptual stage will provide a realistic project budget based on your specific design, guide you to alternate options which may achieve a similar outcome

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for less money, suggest sustainable building alternatives that may not necessarily cost more money, consider life cycle-costs and provide contract procurement advice.

With early engagement of the quantity surveyor, you will save money and you will proceed with confidence through the design and build process knowing that your project fits the budget criteria from the outset.

Q&A

JAMES WHITE FNZIQS The building industry is starting to wake up to the need for a more sustainable approach to building projects which benefits all parties.

The quantity surveyor has a pivotal role in making this happen because they understand both the construction industry and the cost of construction and that the cheapest upfront cost is not generally the best option. The quantity surveyor can help isolate the cost of each element of the build so key decisions

can be made based on the project goals and benefits for all stakeholders and the environmental impact.

Consideration of the whole building life-cycle, including maintenance costs, should be part of those calculations.

Doing so will almost certainly improve the quality of the build and reduce the ongoing long-term costs.

For project owners, taking guidance from a quantity surveyor on cost-benefits and reviewing sustainability opportunities

early will help lock these initiatives into the project, better aligning budget and project expectations, significantly reducing or eliminating disputes or misaligned expectations, and avoid costly “tack-on” additions later.

The community and the environment benefit because the outcome will be healthier buildings for occupiers and minimisation of the impact on the environment through thoughtful material selection and use.

KIM HAYES FAIQS Engaging the quantity surveyor from the conceptual design stage will provide owners with confidence and certainty that a realistic budget has been set from day one. The quantity surveyor can assist in driving the design not just pricing the drawing. All too often the quality surveyor is engaged part of the way through design with the budget already set. These budgets can often

have little detail, basis of calculation, or substantiation behind them, leading to abortive work or waste when the project costs exceed the budget.

As more project owners and occupiers start declaring net zero targets the quantity surveyor can assist with costing the long-term impacts of decisions in terms of reducing their carbon footprint and improving the whole-of-

life performance of an asset. Decisions and value engineering are often taken in isolation without understanding the long-term impacts of these decisions.

The quantity surveyor can give clients certainty that their assets can be built sustainably and within budget, whilst reducing abortive effort, inefficient design, and waste in the process, leading to a more efficient and sustainable industry.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 07

Q&A

NATASHA CARTER FAIQS Engaging a quantity surveyor from the concept stage affords many advantages.

A key ingredient of a successful conceptual phase for any project is a robust and transparent budget. A robust budget is one that has been developed in consultation with all project stakeholders, considers all risks, and allows adequate room for contingencies, without compromising on quality or negating building, health or safety laws and regulations.

This initial budget provides a springboard from which the project team can conduct feasibility studies, assemble contract and tender documentation, and solidify project aspirations. These budget parameters enable the project owner to make datainformed, value-based decisions in allocating funding, ensuring that project goals, innovation, sustainability, and community aspirations can be achieved - all before committing to designs or applying for town planning.

A detailed, accurate conceptual estimate can help reduce abortive design, de-risk project investment, and maximise project profitability prior to planning approvals.

Accurate budget projections early on in a project eradicate the nasty surprises, wasted time and resources that come with relying on vague ‘ballpark’ figures.

the viability of the project; ensuring all scope is considered and budgeted for; assisting with the engagement of the appropriate design consultants that best suit the project, and their procurement; understanding of not only the initial cost but also life cycle costings, depreciation calculations, and sinking funds; advise on the achieving energy ratings (Green Star, Energy Star or LEED) in an economical manner; and understanding the client’s risk

profile and advising on the appropriate contractual methodology and contractual conditions.

By working with real budgets, rather than assumptions, the project team can deliver the best possible value for money, and optimised outcomes for the building owner, community, and the environment.

PETER EGGLETON FNZIQS By definition, a quantity surveyor is a cost consultant usually involved in building, engineering, and infrastructure projects.

They can be a professional consultancy or employed by a contractor or specialist contracting firm.

Project owners will benefit by engaging a quantity surveyor at an early concept stage by providing early cost estimating from benchmarking, area, or other calculations with the object to avoid rework and testing

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Both the community and environment can also benefit through a lower initial capital cost or end cost; an understanding of the energy/water and waste requirements of the project; and the quantity surveyor’s understanding of timeframes which also dovetail into the construction and contractual methodologies.

Q&A

VINCE ROBERTSON FNZIQS Working in a professional quantity surveying office, we see projects coming through of all sizes and varying stages of design or construction. New Zealand construction is different to other countries I have experienced in that we have very little repeat design. Our residential and commercial projects are most often unique to meet the varying needs of project owners, budgets, and locations.

Calling on my experience of the industry and helping guide a project from conceptual stage through to completion through the financial, contractual, and emotional elements of a project gives me the most job satisfaction.

Project owners all have varying experience of their proposed projects.

Even the most hands-on knowledgeable project owner can benefit greatly from engaging a quantity surveyor from the

conceptual stage. They don’t necessarily need to draw on as much of the quantity surveyor’s experience and time, however, will benefit from the orderly approach that a quantity surveyor takes to the overall project delivery.

In the current market, the importance of the method of funding a project is often overlooked and can cause major disruptions during delivery. Quantity surveyors have the financial side of the project at the forefront of their remit and therefore the earliest understanding of high-level cost gives ample opportunity for owners funding to be arranged.

The continuation of design can be continually analysed against the owner’s requirements to ensure the maximum benefit to the overall project process and a well targeted developed design process.

The community, as a whole, also benefit as there is less chance of any major design re-

work being required, and once the project is on track financially, the concept design can be shared with other community stakeholders with good indication of how the project will fit in rather than needing a re-think. Also, workers on site will more likely be part of a good team spirit where the financial management of the project has been well organised.

A well organised project, as all aspects noted above, reduces the chance of major surprises along the way. Therefore, reducing the chance of surplus or incorrect materials being ordered and less chance of re-work leading to a contribution to the wellbeing of our environment.

If quantity surveyors are engaged during construction, it is often because there is a dispute between the owner and contractor.

Working through these disputes often uncovers a lack of good practice right from the early stage of design.

TONY LOVETT FNZIQS Quantity surveyors are an extremely important member of the team assembled to deliver a project. Significantly, they are the only member of that team with financial acumen.

A project budget is generated by the quantity surveyor, based on the client brief, utilising costs from their data base of previous like projects. For the project owner, the quantity surveyor provides estimating and cost planning advice as the design evolves. This service is

invaluable, while benchmarking to the project budget. Unless the quantity surveyor is sitting at the table for the first design meeting, the financial management of the project can be called into question.

As the quantity surveyor is independent of the design consultants, they provide an unbiased assessment of the design, as the documents evolve. The quantity surveyor has wide experience so they are able to contribute constructively

with costing advice when the design is focusing on the public realm.

Any green building initiatives, mechanical, electrical, hydraulic, roofing, and façade designs can be life-cycle costed by the quantity surveyor. As a result of this life-cycle costing, plant and equipment selections that are best for project and best for the environment, are made by the project team.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 09

OPINION

THE ANTIFRAGILE QUANTITY SURVEYOR

BY MIKAEL HEINONEN AAIQS, CQS

Quantity surveyors because of their broad knowledge across the various elements and phases of projects have the perfect skill set to step up and be the enabler leader within the construction industry.

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OPINION

WELCOME TO A NEW PARADIGM We all know it in our head and hearts that the world will never be the same again.

Any prediction of the future, with a high level of accuracy, will be futile. And the adage of “we have always done it that way” has stopped being relevant and is no longer a strong indicator of the future.

These are the key lessons that the global pandemic has shocked us into learning, and with the current conditions still Volatile, Uncertain, Complex and Ambiguous (VUCA), organisations should consider ways to not just survive but thrive under these conditions.

Nassem Taleb¹ describes this mindset as being Antifragile. Think of a spectrum where at one end you have fragile and at the other antifragile, and in the middle you have robust. Of late, many have mistaken the concept of resilience to be similar to antifragile, but resilience is about being robust and weathering a storm - survival, whereas antifragile goes beyond that. Antifragile takes the storm as an opportunity and looks to thrive and benefit from it. Antifragile is not letting a good crisis go to waste and seizing the opportunities that come with being in a VUCA world.

FRAGILE

WHY SHOULD ORGANISATIONS EMBRACE ANTIFRAGILITY? This article looks to address how organisations can embrace an antifragile mindset. But why bother? The truth is that even before the pandemic, the rate of change in our society was already accelerating. Simultaneously, the world is connected like never before with more opportunity for remote events to affect local affairs.

For the construction industry, this is especially relevant as rapid change and significant disruption is just around the corner. A recent JLL report² shows that three years of construction technology growth and adoption have occurred in only nine months due to the pandemic.

CB Insights³ estimated the investment in Contech for 2020 was in the region of $1.3 billion, a growth of 56%. So, how ready is the quantity surveying profession to be part of this disruption and how could they even expand their relevance during this pivotal time for the industry? No one can predict with any great certainty what the industry will be like five years, but organisations can choose to be antifragile. For organisations that choose not to consider this may find themselves at a precipice and no longer relevant within the industry.

ROBUST

ANTIFRAGILE

¹ Taleb, N. N. (2012). Antifragile: Things that gain from disorder (Vol. 3). Random House Incorporated. ² https://www.us.jll.com/en/trends-and-insights/research/the-state-of-construction-technology ³ https://www.cbinsights.com/research/construction-tech-funding-trends-2020/

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OPINION

HOW CAN AN ORGANISATION BE ANTIFRAGILE? Antifragile is a skill and mindset that can be taught. The following are key elements of antifragile organisations: • Antifragile organisations embrace the broader network to get things done and are humble enough to accept that it cannot all be done alone. Collaboration and networks are needed to help thrive and move beyond the zero-sum game. However, to execute this effectively, it requires large quantities of transparency and vulnerability which then are the precursor to trust.

• Antifragile organisations focus on a human-centred design approach, which seeks out empathy and alternative perspectives to drive better understanding and solutions.

Quantity surveyors who have a greater understanding of client outcomes can then better support and advise clients on ‘value for money’ decisions. To accelerate this, organisations should double down on their diversity efforts, because within a VUCA environment if everyone thinks the same as you, chances are your solutions will be limited.

• Antifragile organisations are rapid but purposeful in how they seize opportunities. They make the best guess and then make small actions that are safe to fail, then pivoting as required. The worst thing organisations can do in a VUCA world is get paralysed and not make a decision. Not making a decision means they may miss out on the opportunity.

• Antifragile organisations have a single purpose, a ‘why’, and they pivot around that. Organisations that have a legitimate purpose will be more outcome-focused rather than output making them more adaptable to change going forward. Organisations that have a well-defined purpose are also known to have greater employee engagement.

• Antifragility, at its core, is about having a continual learning and growth mindset. Antifragile organisations do not fear failure they embrace it.

They learn through experimentation and tacit knowledge and not through explicit means. Organisations should have the courage to try new things, be bold and look to integrating tacit learning to supplement their current explicit library much like Nonaka’s knowledge spiral⁴.

QUANTITY SURVEYORS AS ENABLING LEADERS For organisations to make this paradigm shift, it will require ‘enabling leadership’ rather than traditional hierarchical leadership. Uhl-Bien and Arena⁵ believe that ‘enabling leaders’ must be convinced enough in what they are doing to take great risks in opening adaptive space for others, and humble enough to step back so others can step forward. Enabling leaders do all this because they know the cause is bigger than them with satisfaction coming from creating adaptive responses, not personal recognition.

engage in it. This tension predominantly will be between the core business where the driver is around predictability, versus the unpredictability of seizing new opportunities. As mentioned earlier, by adopting small safe to fail actions this will support organisations in moving rapidly as conditions change.

Quantity surveyors, because of their broad knowledge across the various elements and phases of projects, have the perfect skill set to step up and be the enabler leader within the construction industry.

Quantity Surveyors have the ability and opportunity to build their relevance further as an enabler leader that brings together a range of assembled experts to successfully deliver projects.

However, to do so organisations must embrace the elements of antifragility as outlined above, which requires a paradigm shift in thinking as to what quantity surveying within the construction industry is.

So, do you think you and your organisation are ready to combat, thrive and grow from the challenges set by a VUCA world?

Mikael Heinonen is a member of the AIQS Technology and Innovation Committee; Entrepreneur in Residence at the QUT Graduate of Business; Chief Enabler at the Build Better Network and a Certified Quantity Surveyor.

In short, enabling leaders must be comfortable with tension and willing to

⁴ https://en.wikipedia.org/wiki/SECI_model_of_knowledge_dimensions ⁵ Uhl-Bien, M., & Arena, M. (2017). Complexity leadership: Enabling people and organizations for adaptability. Organizational Dynamics.

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PRICING, METHODOLOGIES, AND CONTRACTS

A HIGH-LEVEL COMPARISON BETWEEN THE AUSTRALIAN AND NEW ZEALAND CONSTRUCTION MARKETS FROM AN AUSTRALIAN EXPAT QUANTITY SURVEYOR’S PERSPECTIVE

BY JAMES CHANNELL, MNZIQS

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 13

PRICING, METHODOLOGIES, AND CONTRACTS

While working and living in New Zealand as a Quantity Surveyor 2015 – 2018, I noticed some variances between the New Zealand and Australian construction markets within pricing, mythologies, and contracts. My experiences may be of interest to quantity surveyors working in both Australia and New Zealand though identifying a non-definitive list of items that I have made through my own experiences in working as a quantity surveyor in both markets.

Having worked in Brisbane for around 10 years as a quantity surveyor, my family and I moved to Auckland, New Zealand in 2015 where I led a quantity surveying team for an international consultancy firm’s New Zealand branch of operations. During our years there, my family grew from two to four when I became the father of two lovely Kiwi children. Auckland appealed to us due to its coastal nature and proximity to Mount Ruapehu, Rotorua and the Coromandel. If you are not local to the North Island of New Zealand, I encourage you to look up these wonderful places they are truly spectacular!

Working in Brisbane as well as other parts of Australia all my career, I had a perception that construction prices in Australia were high when compared to the rest of the world. I believed Australian construction prices were expensive due to high labour costs driven by two factors: a) Australia being rather isolated from the rest of the world, and b) a highly unionised construction workforce.

I also believed that all modern high-rise construction was generally always built using reinforced concrete cast ‘in situ’, and that contractors were never paid monies for ‘unfixed materials’ unless a bank guarantee was provided.

Finally, I believed that steelwork, steelwork treatments and reinforcement were always measured per tonne, as per my Australian Standard Method of

Measurement 5th edition which I had been using my entire career.

My theories on construction pricing, methodologies and contracts were tested, challenged, and changed over the three wonderful years I lived in New Zealand. Below are summaries of the main differences I encountered between the Australian and New Zealand construction markets, during the time I spent there.

SEISMIC CONSIDERATIONS Both Australian and New Zealand buildings need to be designed for seismic events. However, except for Newcastle, seismic events seldom happen in Australia.

Most commercial and residential high-rise buildings in Australia are constructed using reinforced concrete cast ‘in situ’ and often use reinforced masonry blocks to construct loadbearing walls. These structures are generally considered cheaper to construct in Australia compared to structural steel framed buildings, due to the Australian workforce being highly skilled in the construction of the former.

from the 2010 Canterbury earthquakes.

Prior to 2010, buildings in New Zealand were still being constructed by ‘in situ’ reinforced concrete. A report titled “Reconstructing Christchurch: A Seismic Shift in Building Structural Systems, 2017

by Michael Bruneau and Greg MacRae” found that reinforced concrete was more difficult to inspect, repair and reinstate after a major seismic event compared to other materials. The same report also found that steel is easier to repair than reinforced concrete.

As a result, the report noted reinforced concrete fell out of favour as a material used in commercial buildings post 2010.

Footings systems are also engineered with a lot more reinforcement and concrete in New Zealand compared to Australia for similar sized buildings due to soil liquefaction, which occurs during an earthquake. New Zealand buildings are designed to resist liquification at the detriment of cost, i.e. more concrete and reinforcement is required to resist liquification, which adds to the size of the required substructure.

LABOUR COSTS

In contrast, most new commercial and high-rise buildings in New Zealand use structural steel with precast concrete infill to floors, and often walls. In my experience, this method of construction seemed to take longer and cost more than the methods used in Australia.

When I first arrived in New Zealand, I was surprised at just how cheap labour was.

For example, a major New Zealand road project I was working on between 2015 – 2017 had an agreed Bill of Quantities rate for labourers at around $18.00 per hour, while the rate in Brisbane for a similar project under an enterprise bargaining agreement was in the order of $35 per hour. I also found trade unions in construction were almost non-existent in New Zealand, compared to Australia where they are still very strong. This may be a reason for the disparity in these hourly rates.

This difference in preferred materials/ methods between the two countries is perhaps a result of lessons learned

Interestingly, the actual ‘unit rates’ on the New Zealand project mentioned above were higher than I would see in

Reinforced concrete is a low ductile material, converted into high ductile material by way of steel reinforcement.

Structural steel, on the other hand, has a naturally high ductility enabling it to move in an earthquake and undergo significant deformation before failure.

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PRICING, METHODOLOGIES, AND CONTRACTS

Australia, leading me to believe that construction productivity may be slower in New Zealand in some instances. This could be due to skilled labour shortages, or possibly wet weather costs built-into the construction unit rates (as New Zealand has a lot more rain than in Australia per annum).

“The methods of dealing with payments for unfixed materials are quite different between the two countries’ primary contracts.”

EXCHANGE RATES, GST AND FUEL The New Zealand exchange rate traditionally tracks at around NZD0.91 to AUD1, which generally means imported items will cost around 9% more than their equivalents in Australia.

Also, GST in New Zealand is 15% compared to 10% in Australia meaning costs are going to be another 5% higher for items in New Zealand than for their equivalent in Australia.

Combining the two areas means that costs in New Zealand are on average 14% higher than in Australia for trade areas such as structural steelwork and reinforcement supply which are generally imported in both Australia and New Zealand from cheaper overseas manufacturers.

Another consideration on why New Zealand construction prices may be costlier than Australia is the cost of fuel. Fuel is a constant that is required all through construction for plant and delivery of goods, and the cost of fuel in New Zealand is on average 60% above that of Australia.

CONTRACTS Understanding and administering construction contracts is a core quantity surveying skill in both Australia and New Zealand. Both New Zealand and Australia use standard lump sum contracts in most major government projects - New Zealand NZS3910: 2003, and Australia AS2124: 1992 and AS4000: 1997. Both contracts are designed to be impartial to both contracted parties.

Under AS2142 Clause 42.4 Unfixed Plant and Materials, there are three alternatives for payment for all unfixed material: • Alternative 1: Payment allowed if additional securities are provided to equal value – normally in the form of a bank guarantee.

• Alternative 2: Payment allowed if the materials are on site, secure and ownership is directly pasted onto the principle.

• Alternative 3: The contractor is not entitled for payment of plant and materials not incorporated into the works.

NZS3910 clause 12.1.3 allows for Advance for Materials not yet on Site (unfixed materials) provided a schedule within the contract called Agreement for Off-Site Materials has been signed by all contracted parties. The materials that the payments are being made against are usually inspected by the quantity surveyor at the manufacturer or distributor’s premises, and the quantity surveyor needs to be satisfied they are clearly marked as the property of the principle before payments are made under this contract.

The methods of dealing with payments for unfixed materials are quite different between the two countries’ primary contracts.

Another noteworthy contractual term difference between the two countries is under the Australian Standards

Contracts, the administrator is called the “Superintendent” while in the New Zealand Standard Contracts the administrator is called the “Engineer to the Contract”. I feel the term “Superintendent” is more profession neutral, as it does not stereotype the individual administering the contract into a particular profession.

ANZSMM From 1995 – 2018, New Zealand Institute of Quantity Surveyors endorsed the NZS4202:1995 Standard Method of Measurement of Building Works. Under this method of measurement steel and reinforcement are measured in kilograms, while under the Australian Standard Method Measurement 5th and 6th editions structural steel is measured in tonnes.

Surface treatments to steelwork are measured in metres squared in NZS4202:1995, while this is measured in tonnes under the Australian Standard Method Measurement.

In 2018, NZIQS adopted the ASMM 6th addition. However, the ANZSMM version of the ASMM 6th edition includes an annexure of New Zealand specific measurement rules and their measurement methodologies. I note that structural steel, reinforcement, and surface treatments within the ANZSMM version of the ASMM are contained within a separate annexure which outlines some items that are still measured as per what was originally contained in NZS4202:1995.

I think that the annexure of differences in the ANZSMM is an important read for any Australian or New Zealand quantity surveyor completing a Bill of Quantities in the opposite country. If the reader of a Bill of Quantities in New Zealand finds structural steel, reinforcement, and surface treatments measured in tonnes, it may be because an Australian

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 15

PRICING, METHODOLOGIES, AND CONTRACTS

quantity surveyor has undertaken the Bill of Quantities without fully reading the ANZSMM 2018.

CONCLUSION Within this article, I have tried to highlight variances between both the New Zealand and Australian construction market from my own quantity surveying perspective and identify the most interesting variances I found between both markets.

I believe that while both Australia and New Zealand are close in geographical terms, they are both very different in the way they manage construction. I do not believe either is objectively better or worse. Both countries just go about things differently due to their own unique requirements.

The highlight of my career to date has been the time I spent in New Zealand.

For any Australian expat considering having an overseas experience in New Zealand, I highly recommend it.

16: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

SUSTAINABILITY

BUILDING ADAPTATIONS TO ADDRESS ENERGY POVERTY

BY CAROLINE P. VALENTE, SARA WILKINSON AND ALAN MORRIS

Australian States and Territories are committed to climate change mitigation strategies to meet net zero emissions by 2050. Doing so while maintaining reliable energy infrastructure and affordable energy is not easy. The building sector accounts for 21% of Australia’s greenhouse gas emissions and reducing energy waste with energy efficient buildings is crucial if Australia is to meet net zero targets.

be done in housing retrofits to improve efficiency and reduce operating costs.

We highlight the important role of the quantity surveyor (QS) in identifying and costing the energy-related features of a retrofit’s capital expenses which subsequently save on operating expenses, and how the retrofit affects the building’s life-cycle.

Energy inefficient buildings are more costly to operate and may harm occupants’ health and wellbeing and contribute to energy poverty. Thus, energy efficient retrofits have a major role in the coming decades. In this article, we explain energy poverty, and what can

WHAT IS ENERGY POVERTY? Energy poverty involves restricting energy consumption to the detriment of health and wellbeing, having relatively low income, and spending a high proportion on energy and at times being

unable to pay energy bills. It affects millions of households globally and is not confined to the developing world. It is one of the biggest challenges of the 21st century for developed nations, including Australia. Estimates are that around 25% of Australian households suffer energy poverty. The primary causes are high energy prices, low incomes, and poor housing energy efficiency.

This situation is unlikely to change.

Climate change, temperature extremes, and post-COVID trend of working from home is increasing household energy consumption and expenditure. Most existing housing stock is old; built prior to the first national housing minimum energy efficiency requirements in 2003.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 17

SUSTAINABILITY

Energy poverty can have serious consequences on the physical and mental health of vulnerable households.

To cope with the price of energy, households cut their consumption of other essential and non-essential items. They tend lessen the use of their heaters in winter and air-conditioning in summer. In the context of increasing extreme weather events, this can have serious adverse impacts on public health infrastructure. It can intensify loneliness and social exclusion due to people limiting social activities to ensure they are able to pay their energy bill.

Some groups are particularly vulnerable to energy poverty, such as older people, people with a disability and/or chronic health conditions, low-income households with children, and single parents.

HOW CAN WE REDUCE OPERATING COSTS IN RETROFITS? Household energy use is highly dependent on building characteristics, climate, appliances and systems’ performance, tenure type, and occupant behaviour, which can be related to social and economic conditions. In the typical Australian home (Figure 1), energy consumption according to end-use source is approximately two thirds (63%) heating and cooling and water heating both are directly associated with climate and housing energy efficiency. The remaining third is attributed to domestic appliances, lighting and cooking.

Stand-by power Cooking Lighting

7%

4%

3%

Heating and cooling

38%

7% Fridges and freezers

16% Other appliances

25% Water heating Source: adapted from Allouhi et al. 2015; DIS 2015 Figure 1 - Average energy usage in Australian homes

18: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

SUSTAINABILITY

Australia is a very slow adopter of energy efficiency improvements, with national housing minimum standards only required from 2003. Other OECD countries, such as the UK, had introduced minimum standards (which are considerably higher) from the mid-1980s. Furthermore, Australian energy efficiency requirements have not changed since 2010. Currently, new developments and major renovations must meet a minimum 6-star NatHERS (Nationwide House Energy Rating Scheme) rating.

efficiency (i.e. move forward on the NatHERS scale) and reduce operating costs, here are some actions we can take:

Overwhelmingly, energy efficiency in most housing stock is very poor. Table 1 shows the annual average electricity costs per square metre for different star ratings. It shows that in a Melbourne 2-star property (the average Australian stock is 1.8 stars) electricity costs $24.82/ m2 pa, whereas a 10-star home costs $0.13 cents/m2 pa. The average floor size of an Australian home is 186.3m2, so, a difference of total annual electricity costs of $4,623.97 for a 2-star home and $24.22 for the 10-star home.

• installing renewable energy systems.

With respect to potential retrofit measures to improve home energy

• sealing air leaks and adding insulation.

• improving heating and cooling systems.

• sealing ductwork.

• replacing windows with secondary or double-glazed units.

• upgrading lighting, appliances, and water heating equipment.

These measures range from low cost (sealing air leaks and installing roof insulation) to high cost (replacing windows or installing renewable energy systems). Homeowners should look at costs of the measures and payback periods (i.e. how much energy/cost do they save over time). Clearly there are ‘low hanging fruit’, with the shortest pay back periods, such as wall and ceiling insulation and sealing leaks which should top the ‘to do’ list. More expensive measures, such as retrofitted secondary or double glazing, may require a loan, but

0.5 STARS LOCATION

CLIMATE MJ/m2 KWh/m2 annum annum ZONE

Electricity costs in

KWh/m2 annum

325

90.28

m2.annum 162.22

These measures are much more straightforward and easier to undertake in the owner occupier sector. The main barrier to adoption in the private rental sector (PRS) is that it requires a landlord to initiate the work. In the PRS, that accommodates just over 25% of Australian households, we experience the ‘split incentive’ - the person who pays for the energy efficient measures does not benefit directly and immediately from it.

The landlord pays and the tenant receives lowers bills. The landlord may be able to demand higher rent, experience a lower vacancy rate, and obtain a higher price when they sell, so informed landlords may conclude implementing energy efficiency is wise.

Providing cost information and advice to the client makes for informed decision-making.

6 STARS

2 STARS MJ/m2 annum

should translate into higher capital value, as well as lower operating costs.

Electricity costs in

MJ/m2 annum

KWh/m2 annum

MJ/m2 annum

KWh/m2 annum

96

26.67

3

0.83

m2.annum 33.96

10 STARS Electricity costs in

Electricity costs in m2.annum

m2.annum

Adelaide

16

584

Brisbane

10

245

68.06

139

38.61

9.09

43

11.94

10

2.78

Canberra

24

957

265.83

547

151.94

41.88

165

45.83

2

0.56

Melbourne

21

676

187.78

384

106.67

24.82

114

31.67

2

0.56

Sydney

17

286

79.44

148

41.11

11.33

39

10.83

6

1.67

0.65

Source: authors with information from Canstar Blue 2019; NaTHERS National Administrator 2012 Table 1 – Electricity costs by star rating in Australian cities

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 19

SUSTAINABILITY

THE QS'S ROLE AND WHERE TO MAKE A DIFFERENCE Significantly, QSs provide professional advice and guidance at critical points in the building life-cycle. It is at these points that QSs can provide clients with the cost information that demonstrates the business case for energy efficiency.

There is the difference between the commercial and public sector and, whether the intention of the client is to hold and manage the property or to sell on completion. Where the client maintains an interest in the property, there is a strong argument to integrate measures and features that reduce maintenance and lower operating costs. Examples would be in housing development to exceed minimum energy efficiency standards in Part J of the BCA in the building envelope and to adopt designs that reduce heat gain

such as using lighter colours on roofs and external walls. This reduces heat loss in winter and heat gain in summer.

Providing cost information and advice to the client makes for informed decision making.

The second opportunity occurs during planned maintenance. Here there are easy wins. For example, replacing light fittings with LED or other low energy fittings. These measures typically are lower cost with fast payback times; that is the cost of implementing the measure is quickly recouped through energy savings. Further planning for major planned maintenance measures, can present opportunities to undertake works such as upgrade and replacement of heating and/or cooling plant and equipment or, installation of secondary glazing or double-glazed windows.

20: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

At all stages, QS’s can raise these opportunities with their clients, and provide the evidence to make the financial case for the measures.

Finally, there is a major opportunity during retrofit and adaptive reuse projects to introduce measures that reduce operational energy use.

Depending on the scale of the retrofit, that is from minor to major, opportunities include installation of insulation in roofs and walls, replacement or upgrade of windows and doors, installation of

SUSTAINABILITY

shading and heat reflective materials, and low energy services for heating, cooling, and lighting. As time progresses the opportunities for smart technology will increase. These technologies optimise consumption in buildings. At all stages, QSs can raise these opportunities with their clients, and provide the evidence to make the financial case for the measures.

For those clients who will sell the property on completion, QSs should be aware that buyers may pay a premium for property with lower operating costs and energy efficient features. This is because these properties, all other things being equal, are cheaper to run and experience higher increases in value over time.

WAYS QS’S CAN COST IN ‘ENERGY-RELATED’ FEATURES INTO CAPEX WHICH SAVE ON OPEX Capital expenditure (CAPEX) occurs during construction, maintenance, retrofit and operational expenditure (OPEX) occurs throughout the building lifecycle. There is also the ‘split incentive’

to contend with, which occurs where the party incurring CAPEX does not pay the OPEX. Therefore, the argument has been, why spend more to lower operating costs when you are not the party paying the operating costs? Clearly where the client is responsible for the OPEX, an energy efficient retrofit is easier to argue for. Here, consideration of the whole life-cycle costs (WLC) can demonstrate a clear case for adoption of money saving measures which also reduce the environmental impact of the building and lower its greenhouse gas emissions.

Where the property will be sold, the argument can be made it is in the client’s interest to have the property rated using one or more of the Green Building or Energy rating tools (such as NABERS, Green Star). Ratings signify the level of sustainability and energy efficiency incorporated into the design which lower operating costs and emissions. There is evidence that buyers pay a premium for such stock and this may justify inclusion of these measures, as well as giving the client a positive reputation in the market sustainable energy efficient buildings.

CONCLUSIONS It is not surprising that 25% of Australian households experience energy poverty.

Energy prices have increased dramatically over the last two decades, wages are stagnant, and poorly designed and built housing stock is deteriorating. It is highly likely energy poverty will increase as a result of the economic situation and the pandemic. It does not have to be this way. We have highlighted that there are measures that can be taken, from low to high cost, at all stages of the building life-cycle. A QS with knowledge on housing energy efficiency can assist clients and households in identifying and costing suitable options. Professional advice relating to CAPEX on a retrofit can make a huge difference. It can save on operating expenses, reduce energy bills, and ensure comfortable living or working environments. For households, it can lessen or alleviate energy poverty.

Moreover, if we are smart, we can use stimulus packages for energy efficiency to reinvigorate economic activity postCOVID and reduce greenhouse gas emissions to meet our much-needed target of net zero emissions by 2050.

References Allouhi, A., El Fouih, Y., Kousksou, T., Jamil, A., Zeraouli, Y., and Mourad, Y. (2015). “Energy consumption and efficiency in buildings: current status and future trends.” Journal of Cleaner Production, 109, 118–130.

Canstar Blue. (2019). “Electricity Costs Per kWh | QLD, SA, VIC, NSW Rates – Canstar Blue.” <https://www.canstarblue.com.au/electricity/ electricity-costs-kwh/> (Sep. 13, 2019).

ClimateWorks Australia. (2020). Decarbonisation Futures: Solutions, actions and benchmarks for a net zero emissions Australia. Melbourne, VIC. DIS. (2015). Residential Energy Baseline Study: Australia. Canberra.

NaTHERS National Administrator. (2012). NATIONWIDE HOUSE ENERGY RATING SCHEME (NatHERS) - SOFTWARE ACCREDITATION PROTOCOL. Sethi, V. (2020). “Green, Energy Efficient Homes and Your Electrician.” Business Brokerage Blogs, <https://www.businessbrokerageblogs.com/ green-energy-efficient-homes-and-your-electrician/> (Dec. 14, 2020).

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 21

PROCUREMENT

RECOMMENDED APPROACH TO PROCUREMENT OF CLASS 2 RESIDENTIAL BUILDINGS 22: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

PROCUREMENT

AIQS has prepared this position paper as a guide outlining how the Certified Quantity Surveyors can assist in the delivery of higher quality and more reliable class 2 multi-unit residential buildings.

AIQS considers that improvements in the procurement and delivery of residential construction projects would help to optimise project outcomes in terms of time, cost and quality.

QUANTITY SURVEYOR COST MANAGEMENT SERVICES AIQS recommends the engagement of a Certified Quantity Surveyor from project inception and throughout the project design and delivery phases for a full cost management services role to establish the construction budget, cost manage the design development, assist with the tender process, contract sum agreement and post contract cost administration of the contract, opposed to ad-hoc limited engagements at specific points in time.

CONSULTANTS ENGAGEMENT

CONTRACT TYPE

To improve and maintain high levels of quality, all consultants should be engaged and maintained throughout the project.

There are various types of construction contracts ranging from ‘construct only’ to ‘design and construct’, ‘cost plus’, and ‘construction management’.

AIQS recommends that the original consultants who prepared the approved DA documentation should be responsible to prepare and/or verify the contract design documentation, the ‘for construction’ documentation and review, and approval of the shop drawing documentation ensuring it is in line with the project quality levels anticipated and required by the Building Code of Australia (BCA)/National Code of Construction (NCC).

The key consultants such as the Architect, Structural Engineer, Fire and Building Services Engineers, Certified Quantity Surveyor, BCA consultant and Private Certifier should have the following levels of Professional Indemnity (P.I.) insurance in place for the following project values.

It is recognised that ‘construct only’ and ‘design and construct’ contracts manage project cost risk in different ways and that a fully documented ’construct only’ contract will assist to ensure the works are constructed to the required quality, hence why this is a preferred contract method.

However, it is also recognised that a ’design and construct’ approach is appropriate to allow final co-ordination of the project design by the contractor.

AIQS considers this should only be based on maintaining the original design consultants to prepare and or verify the ‘for construction’ drawings and review and approve required shop drawings.

The typical construction contracts recommended are as follows: • MW21: lump sum ‘construct only’ • AS4000 – 1997: lump sum ‘construct only’

Project Value

P.I. Cover

$500,000 to $2M

$5M

• GC 21 Edition 2: ‘design and construct’

$2M to $10M

$5M

• AS4902 – 2000: ‘design and construct’

$10M to $20M

$10M

$20M to $60M

$20M

PROCUREMENT AND DELIVERY METHOD

$60M to $120M

$20M

There are various aspects to the procurement and delivery of construction works related to how the construction contract documentation is prepared and the approach to appointing an appropriate contractor, managing the construction contract and monitoring the implementation of the works.

$120M to $150M

$20M

This approach recognises the industry established and credible contract forms and seeks to maintain the consultant team throughout the delivery of the project.

$150M +

$20M

This approach provides greater certainty of a projects end cost relative to its qualitative benchmarks.

This approach will revive the skill sets and competency of the practitioners by increasing their training and involvement from start to finish on projects as opposed to the inconsistent approach that currently occurs.

This approach avoids conflicts of interest via bias superintendents who may favour the contractor and compromise on quality outcomes.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 23

PROCUREMENT

INDEPENDENT SUPERINTENDENT

BUILDING INFORMATION MODELLING (BIM)

The superintendent to the contract is to be an independent consultant appointed by the asset owner i.e. not part of the developer, client or contractor and not related to them.

AIQS believes that Certified Quantity Surveyors should fulfil this role.

The project should be documented utilising BIM which is an intelligent 3D model-based process that gives consultants tools to more efficiently plan, design documents, construct, and manage a building and infrastructure.

This approach avoids conflicts of interest via bias superintendents who may favour the contractor and compromise on quality outcomes.

CONTRACT DOCUMENTATION Contract documentation should be based on a minimum of 80% design documentation for all disciplines or LOD 300 (Level of Development of the BIM Model). It is unacceptable for a construction contract, for the main works (excluding early works), to be signed based on development application only documentation.

BCA design compliance declarations should be provided at the contract documentation stage by each respective design consultant. The tradition of multiple construction certificates is therefore replaced with contract stages that match the BCA design compliance declarations and then the construction certificates follow. Such design declarations should not replace any completion certifications or occupancy certificates but instead reinforce the design compliance process.

This approach will improve the standard and extend the formal contract documentation which will lead to improved construction quality.

As BIM technology is developed and progressively embraced by industry, AIQS recognises its importance to improving construction documentation.

In the short term, until the majority of the construction industry embraces the technology, AIQS recommends construction projects over $40 million (excl GST) in value be required to implement BIM documentation.

The level of project value should be reviewed progressively as this technology is embraced by industry at all levels.

A BIM model is an effective tool for Strata Managers to efficiently implement the management and maintenance of the building upon completion.

PROVISIONAL SUMS Provisional sums should not exceed 5% of the value of the construction contract sum and verified as adequate by the Certified Quantity Surveyor.

This approach will translate to further developed contract documentation and translate to further improved project quality.

GEOTECHNICAL INFORMATION The geotechnical report, sufficient to identify latent conditions, should be undertaken prior to letting a construction contract and be the basis of the structural

24: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

design and relied upon to determine the extent of soil condition types, ground water and the presence of any contamination. Identified contamination should be a lump sum amount for a pre-agreed volume and the contract should contain schedules of rates for any additional volume and alternative material types required to be removed from the site.

This approach will result in the early understanding of potential latent condition impacts and offer a fair and reasonable approach to the cost of removing additional volumes.

TYPE OF CONTRACTOR The type of Contractor suitable for a project will vary based on the size and nature of the development. AIQS recommends that the following minimum turnover for the Contractor based on the project value.

Project Value

Annual Turnover

$500,000 to $2M

$6M

$2M to $10M

$6M to $30M

$10M to $30M

$30M to $90M

$30M to $60M

$90M to $180M

$60M to $120M

$500M

$120M to $150M

$500M

Head Contractor to confirm P.I. Insurance levels in accordance with PI levels stated in the Consultants section of this Position Paper.

This approach recognises suitably capable contractors for variable project values.

PROCUREMENT

NOMINATED SUPERVISOR (BUILDERS LICENCE) The nominated supervisor should be identified as an appropriately qualified person with appropriate levels of experience as they hold the contractor licence as the person supervising the residential building work.

case, then details of the employment contract and tenure of the nominated supervisor with the Contractor and acknowledgement that they understand their obligations in the role should be required. Any replacement of the nominated supervisor must be formally notified to the funder, its representatives, and the developer.

In an owner-builder scenario, the nominated supervisor should also be a Director and an Owner of the development company. If this is not the

The nominated supervisor should be a regular participant at the site and attend consultant and client meetings, reporting on the status of the works.

This approach reinforces the diligence required by the nominated supervisor.

OWNER BUILDER The definition of Owner Builder relates to the owner or developer of the land being responsible for undertaking the construction works. The suitability of the Owner Builder to undertake such works should be on the basis that suitable criteria are achieved related to:

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 25

PROCUREMENT

• nominated supervisor’s experience in construction projects (min. ten years recommended) • turnover of the Contractor • experience of the Contractor’s on and off-site personnel • experience in design co-ordination • suitable insurances being in place • appropriate bank guarantees being in place.

This scrutiny assists to increase the standards of acceptable owner builders.

SUBCONTRACTORS Contractors should prepare a schedule of the capability of their critical subcontractors for approval by the developer and financier. The schedule should demonstrate the following: • related project experience • experience in design co-ordination • years in business undertaking the nominated trade • subcontractor turnover • CV of key subcontractor project/ construction manager and their relevant project experience

This approach will improve the standard and extent of formal contract documentation which will lead to improved construction quality.

DESIGN COMPLIANCE DECLARATIONS The project’s Consultants should be responsible for preparing the design compliance declarations which states that the as built works are in accordance with the BCA/NCC, and the design documentation. These declarations should be prepared for the contract documentation, monthly inspections/ milestone reporting, and on completion of the works for practical completion for each consultancy discipline.

In addition to the standard monthly architects, structural and building services engineers certificates, separate specific design compliance declarations should also relate to key milestone trades such as: • site clearance • termite protection (as required)

• CV of supporting key personnel and their relevant project experience.

• windows

Subcontractor to confirm P.I. Insurance levels are not less than the contracted value of their work.

• fire proofing

This scrutiny assists to increase the standards of acceptable subcontractors.

• waterproofing • façade cladding fire ratings • stormwater.

26: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

This approach reinforces the importance of Design Compliance Declarations by having them form part of the contract documentation and be provided regularly throughout construction as well as at completion to ensure progressively that quality of design and construction is continually monitored and adequately recorded.

DEFECTS MANAGEMENT SYSTEM The Principal and Contractor must incorporate a defects management system into the contract documents to clearly demonstrate the agreed method of managing defects and defect rectification throughout the project and how it is utilised to achieve defect free practical completion.

This approach ensures the Contractor has an acceptable defect management system that is operational within its business to mitigate, identify, and rectify defects, which form part of the construction contract.

OPINION

2021: RETENTION AND RECRUITMENT

BY MICK DONAGHY

It has been an unbelievably challenging year for consultancies throughout Australia, however, the outlook for 2021 certainly looks more positive on the work front but I do have some fears.

(health, education, defence) are likely to be an extremely hot commodity. Also, those with strong MEP experience, that can work across data centres, rail and health are also likely to be highly in favour.

Throughout the last 10 months, borders have been closed to highly skilled international candidates. One could suggest that the quantity surveying industry in Australia relies significantly on skilled candidates coming from the United Kingdom, Ireland, South Africa, Sri Lanka, India, and Asia.

The fever pitch for recruiting and onboarding these candidates is likely to be in March 2021 whilst the COVID-19 vaccine begins rolling out throughout Australia.

Approximately 40% of the hiring managers that we liaise with across the country, are "non- Australian". If we are to believe The Hon Josh Frydenberg MP and international borders do remain closed for most of 2021, new life blood won't have penetrated the market for nearly two years.

So what does this mean?

Firstly, salaries are likely to increase due to demand outweighing supply. Secondly, high calibre staff will be poached by clients, contractors, and competitors. Thirdly, revenues may dry up due to a lack of candidates who can deliver to a high enough quality. Fourthly, it is going to be extremely competitive.

With capital expenditure trickling into the market in the third and fourth quarter, it is likely we will see explosive demand for quantity surveyors, cost planners and estimators throughout 2021 especially those at intermediate to senior level.

Notably, candidates with infrastructure (especially transport) and social infrastructure

The threat of tier one contractors poaching top tier talent from professional quantity surveying firms is a very significant one. Tier one contractors typically have deep pockets and will also be experiencing a severe candidate shortage at a commercial level.

Typically an associate in Sydney for a tier one consultancy will earn circa $150-$180k, however a tier one contractor can quite easily afford to pay $180-$220K. An increase of 25% to a candidate, after the year that has been, is something that many will not walk away from.

However, one would hope that for the companies that have invested in their staff during the pandemic, that a level of loyalty will be reciprocated at the team level.

There are two things that you can do to get ready for upcoming demand – retention and recruitment.

require to achieve their targets. Discuss money.

Do they warrant a pay rise? Remember the cost of hiring someone new is seven times greater than keeping someone in the business.

RECRUITMENT Markdown your two top hires for 2021. Begin the recruiting process now and meet two candidates per week until you find the right person. We estimate that it will take anywhere between two to six months to find, attract and onboard the right people into the business.

However, this could be longer when the shortages really kick in.

We have noticed a significant shift away from candidates seeking the open office “bean bag and fruit box culture”. Most are now valuing job security, clear lines of communication, career development plans and most importantly, many will want to know “How did you manage your people during COVID?”.

It is going to be a dog fight to find good talent in 2021 but after the lockdowns, redundancies, health impact (COVID and mental health illnesses) it is better to have a dog in the ring than nothing at all.

RETENTION Have a one-to-one with each team member and ascertain individual goals and motivations for 2021 and ensure they get the support they

Mick Donaghy is Managing Director and Principal Consultant at Franklin Smith Australia.

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 27

LEGAL

GETTING THE PAYMENT CLAIM RIGHT The cashflow in construction contracts has improved throughout the industry in the past two decades due to the introduction of Security of Payment legislation in all States and Territories.

However, the process can be derailed from the beginning if the Payment Claim does not comply with the requirements of the legislation.

AUSTRALIAN LEGISLATION All the Security of Payment Legislation was, to varying degrees, modelled on the original New South Wales Act, with the Western Australia and Northern Territory Acts being notable in the degree to which the similar United Kingdom and New Zealand Legislation was also influential.

Even those that closely followed the New South Wales Act have subsequently diverged, so the same Payment Claim might be seen differently under different Acts.

However, all remain as Acts that are concerned with the rapid adjudication of payment disputes under construction contracts on an interim basis, to improve cashflow in the industry, and all rely on the first step of a claim for payment being made to the party responsible for payment.

COMMON REQUIREMENTS PARTIES A Payment Claim must be served on the party responsible for making payments under the contract.

Care should also be taken in distinguishing between individuals and companies. If a Payment Claim is directed at an individual, and the adjudication is commenced against their company, then the adjudication is likely to fail, so there must be consistency.

28: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

Stating the Australian Business Number is good practice or, if the relevant party is a company, the Australian Company Number.

The address used for the Respondent should be that stated in the contract, or as last notified in accordance with the contract.

If a superintendent is involved in managing a building contract, then the superintendent’s address may be the correct address for serving a Payment Claim. However, keep in mind that subsequent enforcement proceedings may need to be served on the Respondent directly as the person liable to make a payment.

IDENTIFICATION OF THE WORK BEING CLAIMED A Payment Claim must be in sufficient detail for the other party to make a reasoned response. A claim that simply nominated a lump sum amount that was

LEGAL

described as “claim for work completed this month on the project” would most likely fail.

The project should be identified, and the work completed that is being claimed should be described in enough detail that the other party can decide if that work was, in fact, completed, and that the appropriate value is being claimed.

STATE THE AMOUNT CLAIMED The amount claimed should be broken down sufficiently to show how it was calculated, and should refer to any agreed lump sum, schedule of rates or variation as applicable. A large proportion of disputes in relation to payment claims arise because the basis of the claim is insufficiently clear, and many of the issues that arise during adjudication or litigation arise because of the difficulties of proving that a claim is properly grounded in the terms of the contract.

ONE CONTRACT, ONE PAYMENT CLAIM, ONE ADJUDICATION The Acts all deal with payments under construction contracts, and not business dealings in general between the same parties. Therefore, if there is more than one contract between the parties, even if they are for the same project, a Payment Claim that included claims under more than one contract would most likely be found to be void.

Similarly, if proceeding to adjudication, there can only be one Payment Claim in that adjudication.

TIMING OF CLAIMS When Security of Payment Legislation was first enacted, the New South Wales Legislators were concerned that it could be abused if Payment Claims were submitted too frequently, and so the concept of “Reference Date” was created,

with every claim needing to relate to a Refence Date that arose either under the contract or, as a default, one at the end of the month. All other jurisdictions followed this process, except Western Australia and Northern Territory which placed primacy on the existing contract provisions and did not impose a limit if the contract was silent.

The fact that the New South Wales Legislation has now removed the concept of Reference Date altogether from its Act (effective for contracts entered into after 21 October 2019) should be taken as a warning that the concept has been problematic, with many claims failing because the Reference Date had not arisen before the claim was made.

Reference Dates remain in the other Acts (except Western Australia and Northern Territory), and for New South Wales contracts formed before 21 October 2019.

In New South Wales, for a contract entered into after 29 Oct 2019, the right to

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LEGAL

submit a claim arises on the last day of the month unless the contract gives an earlier date. Western Australia and Northern Territory rely on the contract provisions.

Each Act also includes limits on the timeframe for making a claim at the end of the project, generally based on when work was last carried out. The precise wording of the relevant contract and Act must be considered, with the default timeframe ranging from 12 months in New South Wales to 3 months in Victoria.

ONE PAYMENT CLAIM AT A TIME

claims for latent conditions, time-related costs (which includes claims for delay costs and back charges for liquidated damages), and changes to regulations and many disputed variations.

REFERENCE TO THE SECURITY OF PAYMENT ACT Except for in Queensland, Western Australia, and Northern Territory, all Payment Claims must include a notation that it is being made under the relevant State or Territory Act. Otherwise, the claim will not engage the processes of the Act.

For Acts that retain Reference Dates, they can only be used once and cannot be banked if not used, so if the most recent Reference Date has been used, subsequent claims will be invalid until a new Reference Date arises.

Queensland removed this requirement from its Act, despite New South Wales having previously done so but later reversing its position.

In New South Wales for contracts entered into after 21 October 2019, there is a limit of one claim per month unless the contract provides otherwise. For Western Australia and Northern Territory, the contract provisions will prevail and there are no defaults if the contract does not deal with the issue.

UNIQUE PROVISIONS

EXCLUDED AMOUNTS All the Acts deal with payments under a contract, so claims outside the contract are not permitted. That includes claims for damages for breach of contract and claims under the Australian Consumer Law. The Victorian Legislation goes further, with the Legislators taking the view that some payment disputes can be difficult to determine and are better resolved through the dispute provisions of the contract, particularly for larger contracts.

Therefore, the Victorian Act excludes

In addition to those unique aspects mentioned above, some Acts contain additional unique provisions, including but not limited to a requirement for the Payment Claim to: • in some circumstances include a supporting statement that all subcontractors have been paid • be signed • use the word invoice or make some other demand for payment.

CHANGES There are frequent changes to the Legislation, with most Acts containing mandatory requirements for reviews over time. There are also changes made to Legislation to reflect different circumstances.

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The interpretation of the Acts also can change as the Courts deal with new situations and make determinations that are binding or influential to other Courts.

It is therefore important to keep up to date with the Legislation and the effect of caselaw on interpreting the Acts.

RELEVANT ACTS All references above to “Security of Payment” or “the Act” should be taken to be references to the relevant legislation in each State and Territory where the construction work was carried out.

All Acts contain provisions to the effect that it is not possible to contract out of the Act, so a contract clause that states it is governed by the laws of a particular state or territory will not be effective. It is the location of the work that is relevant. This has been found to be the case even where goods are manufactured overseas, but the contract involved installation in Australia.

SUMMARY Where a payment is outstanding the Security of Payment Legislation should be used by the Contractor who is unpaid (or in Western Australia and Northern Territory by the Principal who seeks liquidated damages or other claims under the contract) as this valuable option has benefited the industry substantially for many years. In doing so a claimant must ensure his payment claim is well drawn to have the best prospects for success.

This article has been written by the team at Doyles Construction Lawyers. www.doylesconstructionlawyers.com

ADVANCING BUILT ENVIRONMENT COST PROFESSIONALS

EXPERIENCE. TECHNICAL SKILLS. ENGAGE WITH A CERTIFIED QUANTITY SURVEYOR (CQS) www.aiqs.com.au

TECHNOLOGY

DIGITAL TWINS A REALISTIC DIGITAL REPRESENTATION OF ASSETS, PROCESSES OR SYSTEMS IN THE BUILT OR NATURAL ENVIRONMENT. THE COMPLEXITY OF THAT REPRESENTATION, AND DEGREE OF CONNECTEDNESS, VARIES DEPENDING ON MATURITY.

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TECHNOLOGY

INTRODUCTION The Australasian BIM Advisory Board (ABAB) has recently published a position paper that outlines the value that Digital Twins and Building Information Modelling will deliver for governments.

The following content has been extracted from the position paper.

• explain how BIM impacts on, and connects with, Digital Twins • summarise published government positions on Digital Twins in Australia and New Zealand.

POTENTIAL BENEFITS • Increased productivity and collaboration

CONTEXT

There has been increasing interest in Digital Twins and their application over the last few years, as evidenced by the large number of articles published and seminars held on the topic. This interest is driven by the enormous potential for efficiency and productivity Digital Twins appear to offer.

They could be characterised as the current ‘hot topic’ relating to the digitalisation of the built environment. Recent government initiatives such as the New South Wales Spatial Digital Twin are manifestations of this trend.

• Reduced construction and operating costs

PURPOSE The purpose of the position paper is to provide the ABAB Board with sufficient information on the subject of Digital Twins to inform its decisions about what role, if any, it will undertake regarding them.

To this end, this position paper will: • provide a brief overview of Digital Twins to improve understanding of basic concepts, benefits and issues relevant to them • distinguish the difference between Digital Twins and related concepts such as BIM, Digital Engineering and Smart Cities

Vital information about the built asset such as design documentation can be stored and analysed throughout its lifecycle and kept current. This information can be easily accessed and used to assist decision making and de‐risk project execution.

Virtual scenarios on construction sequencing and logistics can be run and visualised, familiarising workers with required tasks and reducing costly re‐works. Data‐driven decision‐ making can be used for predictive maintenance planning and responding to unexpected events, which helps streamline costs throughout the asset’s operational life.

• Improved safety

Digital Twins can be used to interrogate the design to identify, eliminate or minimise safety hazards during construction and operation of an asset. On‐site workers, occupants, visitors, passengers, etc. can be given real‐time tracking and alerts about a site or location, including hazard notifications and emergency situation response instructions. Sensors can be attached to critical infrastructure and the data gathered linked to a Digital Twin so that its condition can

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TECHNOLOGY

be continuously monitored, and asset managers alerted to any potential failures in good time. In 2018, the Morandi Bridge in Genoa collapsed, killing 43 people. It is less likely this would have happened with an arrangement like this in place.

need not attempt to mirror everything about the original system.”

• Optimised asset performance and sustainability

Operational and occupational data can be monitored and analysed in real‐time, providing valuable insights on how the asset is used and currently performing. This provides the ability to identify areas of poor performance or risk, and model options or scenarios for rectifying or mitigating them. AI/ machine learning can also be used to provide predictive analysis.

• Ongoing compliance

Digital twins could be used to check compliance with regulations and codes when they are amended.

It is worth outlining the evolution of Digital Twins in the context of other paradigms such as DE, BIM and Smart Cities and many of the concepts they share because the issues that arose – and continue to arise – with BIM, e.g. differing understandings, interpretations and expectations of stakeholders, also arise with Digital Twins and smart cities.

For effective communication on the subject, shared terminology, concepts, and understanding are needed.

For their effective decision making about them, a clear understanding of the potential costs, benefits and constraints associated with the range of options available is needed. At the heart of the decision‐making process is a clear understanding of what value an organisation is looking for them to provide and how its requirements can be articulated to those appointed to satisfy them.

ISSUES AND CHALLENGES

• Security

• Communication

The visually compelling presentations of Digital Twins that abound can sometimes create heightened expectations about them. At first sight they “may appear to be an exact replica, however, Digital Twins are not necessarily realistic representations, but are rather relevant abstractions of the physical asset. It is not necessary for even the most advanced smart city to digitally replicate the fluting of every column or the mortar of every brick. In other words, we need to develop Digital Twins that are fit for purpose, and the level of fidelity will vary depending on the primary use cases. Digital Twins

Inevitably the aggregation of data in Digital Twins also creates a security risk, particularly for critical national infrastructure. Likewise, it creates a need to validate and authenticate data and prevent unauthorised changes, which is compounded in situations with multiple parties and sources.

This complex topic is not discussed in detail within this document, but anyone considering implementing a Digital Twin should make themselves aware of the potential risks.

• Data provenance

Digital twins are reliant on the accuracy and currency of their constituent data. Rigorous processes

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for checking the provenance and reliability of data are essential for them to be trusted and effective.

• Interoperability

Probably the biggest technical challenge to creating Digital Twins is managing the interoperability of the different software packages required to create them. Open standards such as buildingSMART’s Industry Foundation Classes can assist but a coordinated approach by all members of the team creating the Digital Twin must be established early in the process. Updates to software means that addressing interoperability issues is an ongoing process.

• Business models for sharing data

The data used to create and manage a Digital Twins comes from many sources. Agreements that define the responsibilities and authority of parties providing data, and their financial rewards, have to be negotiated.

• Ongoing maintenance

Because of software updates and inevitable changes to the physical model, ongoing maintenance and management has to be factored into the planning of Digital Twins. As for physical assets, these costs represent the largest proportion of the total life cycle cost of an asset.

To access this position paper, go to http://www.abab.net.au/wp-content/ uploads/2021/01/ABAB-Digital-TwinsPosition-Paper-Web-210118.pdf

CONTRACTS

SAVE MONEY AND AVOID DISPUTES THROUGH EQUITABLE CONTRACTING

BY JOE GREHAN MAIQS

The construction industry has long had a reputation for disputes between property owners and builders, although most construction projects start out with good intentions, if dollar loss from an unexpected risk is experienced, relationships can soon become damaged and focus is directed to tasks other than getting the job done right on time and within budget.

Due to the nature of price competitive procurement, most construction projects are completed on a short-term contractually driven project-by-project basis. This tends to develop armslength and short-term relationships with a tendency towards litigation to solve any disputes.

To minimise the number of claims and disputes and the impact they may have on the cost of the project, parties should understand contract conditions, their meaning and implications of inequitable allocation of risks. It is important that the rights, obligations, and procedures for all parties to follow are clearly set out and language is avoided which is ambiguous or susceptible to more than one meaning.

The quantity surveyor, appointed by the client, should also be experienced in contract law and be able to communicate with all parties honestly and fairly. This avoids misleading comments, false or promissory

statements, and/or unconscionable conduct which may be detrimental to the other parties if relied upon.

However, due to the complex nature of delivering construction projects and the complexity of construction contracts over several projects, a dispute between parties is likely.

or relied upon during project delivery can lead to a dispute. Examples of unfair terms are, where one party but not the other can: • avoid or limit performance • terminate the contract • penalise the other only

In the event there is a dispute between parties, it is essential that the contract is ‘wholly in writing’ and extrinsic evidence is not admissible i.e. the contract is the only document which is referred to and precontractual negotiations including verbal, letters, drafts, and other documents are excluded. To ensure the contract is wholly in writing a ‘merger’ or ‘entire contract clause’ can be inserted into the contract (Hope v RCA Photophone of Australia).

• vary

It is also essential that terms of the contract agreement are not ambiguous i.e. capable of more than one meaning.

An ambiguous term will allow extrinsic evidence to be used to ascertain objectively what the parties intended (Codelfa Constructions Pty Ltd v SRA of NSW), or can allow courts to remove the ambiguous term from the contract. In circumstances where the contract can remain intact without the uncertain term, the uncertain term may be severed from the contract (Fitzgerald v Masters).

Ultimately, all parties should take responsibility of reviewing the terms and conditions prior to signing the contract and make any changes at this stage.

Once the contract has been reduced to writing verbal evidence is not allowed to be given of what passed between the parties either before the written agreement was made, or during the time that it was in a state of preparation.

This creates certainty in the written agreement enabling the parties to enter into an agreement with the confidence that the benefit will be performed per the terms and conditions.

Unfair terms should also be avoided as these are rarely enforceable and if used

• choose whether to renew • change price • assign contract to another’s detriment • determine breach/meaning • limit the other’s right to litigate • limit evidence for the other party • place an eventual burden on the other.

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TECHNOLOGY

EMBRACING THE NEW NORMAL: DELIVERING PROJECTS DIGITALLY

BY JAMES WINDER MAIQS AND JAMIE FRASER

Architecture, engineering, and construction organisations are proving they can maintain operations across large parts of their businesses by working remotely. In essence, parts of the construction industry are undergoing an accelerated digital transformation.

So as the industry embraced a new norm throughout 2020, what should organisations be asking themselves to ensure that they can embrace a new, digital way of delivering projects over the long term?

When trying to keep control in a rapidly changing landscape, data is the evidence of what is happening.

LASER FOCUS ON PRODUCTIVITY AND OUTCOMES Throughout COVID-19, sustaining revenue-generating activities and delivering project outcomes efficiently and effectively has become critical for survival.

Organisations must hold up a mirror and consider what outcomes they are trying to achieve and what day-to-day activities are required to do this. Non-essentials should be parked, and people, investment and innovation directed to the areas which will drive productivity and outcomes.

Key productivity considerations to deliver outcomes include: • Look at typical tasks and how they have had to adapt as a result of COVID-19. For example – valuing a contract, reporting project performance etc. What has adapted

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and improved operations, what has (or hasn’t) adapted and is now inefficient?

• Ask tough questions and challenge the status quo at all levels. Do you need everyone in the office, do we need that report or meeting? Reimagine processes and practices which are no longer productive or effective.

BUILDING DIGITAL CAPABILITY AND CULTURE FOR THE FUTURE Use a Digital Maturity Framework to develop a clear understanding of capability, culture, leadership, and organisational design to inform digital plans and investments. This will explore the gaps, like how leadership and teams respond when ‘normal’ working approaches have evolved.

TECHNOLOGY

and means that working differently (or remotely) becomes second nature.

Establishing a common data environment where different users can access information needed from a ‘single source of truth’ to make organisations more robust to sudden changes.

Key considerations to manage information include: • Create a common data environment and associated standards for new projects at the ‘setup’ stage. All stakeholders and suppliers should feed into and pull from this environment.

Encourage collaboration through proper information management.

• What incentives, reporting and advocacy are needed? Build a culture that treats data and information as valuable business assets rather than a by-product of project delivery.

Key considerations to build digital capability and culture include: • What systems are not being used effectively as a result of changes in working practices? What capability, training or development plans must be rolled out?

• Consider the long-term investment in digital skills/resources that bring cultural change and rapidly pilot new solutions and approaches.

INFORMATION MANAGEMENT AS A ROUTE TO ORGANISATIONAL AGILITY When trying to keep control in a rapidly changing landscape, data is the evidence of what is happening. Accessing the right data, in real-time, from a central place enables agility, decision making

CONNECTING THE PHYSICAL SITE AND DIGITAL MANAGEMENT ENVIRONMENT Management teams often feel detached from on-site delivery which can impact the understanding of progress and performance and hinder the ability to make proactive decisions. This has been a key consideration for remote projects throughout Australia.

Key considerations to improve the connection between the physical site and digital management environment include: • Consider current management information and what is missing. For example, would 360° photos of sites give management more confidence, rather than traditional charts?

• Be alert to information filtering (human and system) and what is being discarded inadvertently. Use a common data environment as a

collaborative tool and establish a ‘digital thread’ to allow stakeholders to use data and information over the entire delivery lifecycle.

ASSURED DATA AND ANALYTICS TO MAKE DECISIONS Trusted data supports the generation of actionable insight and enables proactive decision-making. It is critical in challenging times to provide managers at all levels, the quantitative basis with which to make informed decisions. To achieve this, renew requirements for assured data and use robust, repeatable analytics to understand current and future reality as accurately as possible.

Clearly define the information requirement: • What questions do you need answering?

• What decisions and actions do you need to take as a result of those questions?

Key data and analytics considerations include: • Based on these questions, organisations and different management levels will understand what information they need. These can be validated through using a Digital Maturity Framework to help understand what data, information and analytics will best support decision-making and achieve the answers you need.

• Take the time to review corporate reporting in terms of content and frequency. COVID-19 has brought focus on the key items that must be managed, and the risks leadership must maintain control over – now is the time to review and check to make sure data and reporting serves a purpose.

James Winder MAIQS and Jamie Fraser work at Turner & Townsend. www.turnerandtownsend.com

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 37

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SUSTAINABILITY

BUILDINGS ARE VITAL

BY ANDREW EAGLES

BUILT ENVIRONMENT ECONOMIST: MARCH - MAY 2021: 39

SUSTAINABILITY

Building to a healthy, efficient standard is, increasingly, becoming expected by tenants and investors. And, as New Zealand makes the inevitable shift to zero carbon, this expectation will move towards becoming an absolute requirement.

THE BUILT ENVIRONMENT AND CARBON POLLUTION The built environment, and the construction and building sector, has a significant role to play as New Zealand moves towards a healthier, zero carbon nation. That is because our built environment is responsible for 20% of New Zealand’s carbon pollution.

As an example, new homes built in New Zealand belch out five times too much carbon pollution and must shrink their carbon footprint by 80% to meet the requirements needed to stay within two degrees of warming.

Buildings cause carbon pollution when using energy for the likes of heating, cooling, and lighting; and also during their construction, when pollution is emitted through the extraction of raw materials and the manufacture of building products such as concrete and steel. The construction emissions of these materials and products is often referred to as ‘embodied carbon’ or ‘locked-in emissions’.

Embodied carbon is a significant issue.

Concrete is the most widely used construction material on the planet, and is second only to water as the most consumed material in the world.

It is widely used because it has many benefits. For example, it is strong, durable, and can be formed into various shapes and sizes.

Between now and 2050, constructing new buildings in New Zealand could pump out embodied carbon emissions

equivalent to one million cars on the road every year and construction emissions in New Zealand are soaring. Greenhouse gas emissions in the sector are up a whopping 81% from 2007 to 2018.

As construction booms around the world, with the equivalent of Paris being built every five days, international bodies are warning that if the sector does not act soon time will run out to meet the necessary cuts to stay within 1.5 degrees of warming.

Both the International Energy Agency and the United Nations Environment Programme have warned that zero emissions buildings need to be the construction standard globally within a decade, and the rate at which existing buildings are being retrofitted to be energy efficient, needs to increase rapidly.

Retrofitting existing homes and buildings deals with the other type of emissions, those from heating, hot water, and turning on the lights, and are known as operational emissions.

Like embodied emissions, operational emissions are also a big deal. The key difference is that while emissions from embodied carbon are locked in place from the get-go, operational emissions can, and must, be reduced over time, through improvements in energy efficiency and increasing use of renewable energy.

THE SOLUTIONS, AND THEIR SIGNIFICANT BENEFITS Making such improvements will not just reduce climate change emissions.

There are big co-benefits that we could enjoy too. Tackling the climate change emissions of the built environment could boost economic growth, create millions of new jobs, and put global greenhouse gas emissions into structural decline, says a report and economic recovery plan from

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the International Energy Agency (IEA), in conjunction with the International Monetary Fund (IMF).

As you might expect coming from those institutions, it is a weighty piece of work, looking across different sectors, it clearly shows that constructing and retrofitting more energy efficient buildings has the greatest potential of all for job creation. More jobs are created, says the IEA and IMF, per million dollars, than in other sectors.

Besides the clear job creation benefits and those would-be local jobs, there is a bunch of other benefits including reduced energy bills for consumers, reduced energy poverty, improved health and comfort, and improved resilience in the face of climate events and price shocks. Plus improving the efficiency of buildings lowers energy bills for consumers who can spend the savings on other goods and services, providing a further boost to the economy.

We could see those co-benefits here in New Zealand. Improving the insulation and energy efficiency of our homes would lower carbon emissions and could also give the country a benefit of over NZD3 billion, improve health outcomes, and create over 1,000 new jobs.

It is these wealth of co-benefits that make reducing the carbon pollution from the built environment so attractive.

Even without the climate benefits, which are significant, there are a whole host of other reasons to slash the sector’s emissions.

The solutions exist.

Government is moving.

The benefits are considerable.

SUSTAINABILITY

THE ACTION, AND MOMENTUM The solutions to reducing these emissions exist and are outlined in the zero-carbon roadmap for New Zealand’s buildings.

There is momentum building and optimism that the sector is well-placed to succeed. The optimism is evident.

For example, in the researchers who uncovered the five times too big carbon footprint of our homes mentioned earlier.

The necessary carbon reductions are ‘doable’, ‘a challenge that can be taken up’, the research ‘has shown us that this is possible’, and there ‘are things we can do quickly to get the carbon down.’ they say.

We are increasingly seeing the New Zealand construction and property sector come on board.

“Mansons developments target a six Green Star rating. This will ensure our tenants notice a real difference in terms of improved health, and greater productivity and operational efficiency. Mansons believes that this is essential to the longterm success of the company and to being part of a truly sustainable future.” Ted Manson, Mansons TLCM

BUILDINGS “We believe that green buildings have the potential to provide a number of key business benefits, including: increased marketability, higher rental rates, lower operating costs, higher occupancy, improved worker productivity, improved occupant health and well-being, and lower regulatory risks. We are invested in this for our buildings and with the ways in which we attract finance.” Peter Mence, Chief Executive Argosy Property Limited Kwanto, the Auckland based quantity surveying firm believe in better greener buildings. They state “There is a clear trade-off between taking a cheaper approach initially and spending more

upfront on materials. The cheap option usually means a shorter life for the materials and greater long-term maintenance costs; the reverse is true if you spend well initially – and you increase the value of the building asset.”

“An environmentally and sustainably built asset also delivers in terms of fostering better health for the people who live or work there, creating more comfort in a home and enabling greater productivity in a workplace.”

The finance sector is changing also. ANZ announced on 29th October “we will only finance the construction of new largescale office buildings if they are highly energy efficient and being built to either a NABERS 5-star energy rating or 5-star Green Star Design rating (or equivalent international rating), at least.”

Following the Minister of Health instructing District Health Boards to certify to five Green Star in 2020 on capital projects, they are now moving to use Green Star as standard on their schemes. Taranaki Base Hospital, Hillmorton Mental Health Facility and other health projects are now all being built to greener healthier standards.

And it is not hard. Great analysis from quantity surveyors has helped illustrate the potential to do more in residential buildings also.

Wellington or Christchurch. Which equates to 1.5-2% on a $350,000 house.

Clearly, developers are not finding it too much of a challenge. In the last 18 months, over 6,000 homes have registered to rate their homes to the Homestar standard. BUPA, Kainga Ora, Legacy Homes, Otautahi Community Housing Trust, Panuku Development Auckland, Oceania and others are all building to Homestar as standard.

The big issue of cement is being tackled too. LafargeHolcim, the world’s biggest cement producer, has said it will cut carbon emissions by 20% by 2030.

Our government is acting. The Building for Climate Change programme is a huge step forward, and a once in a generation plan for reforming our buildings and homes. They state that the sector should, where possible, build ahead of the building code. The government has also made a key promise to improve the energy efficiency of the buildings it owns and tenants. This is significant as government is the largest occupier of buildings in New Zealand.

The solutions exist. Government is moving. The benefits are considerable.

Not every sector in New Zealand will hit the 2030 emissions reduction target. The building and construction sector is ready to step up, with solutions, momentum and optimism, do the heavy lifting, and exceed the 2030 targets.

RESIDENTIAL Analysis from Rawlinsons Quantity Surveyors has been useful to outline the costs associated with building more sustainable homes. They found in 2018 that building to six Homestar standards was not a significant step up for residential developers. Their findings were that the cost premium of building a 175m2 house to six Homestar, in lieu of just complying with the building code, was approximately $5,500 in Auckland and $7,000 in

BUT THERE’S STILL MORE TO DO The current government have promised a lot of initiatives to improve our homes and buildings.

There appears to be real interest in boosting efforts to make our homes and buildings more energy efficient. They have promised to introduce mandatory energy efficiency information to help homebuyers through an Energy

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SUSTAINABILITY

Performance Certificate (EPC) ratings scheme, similar to one already used in the UK. This is something long overdue and it will help embed transparency and energy performance literacy in New Zealand.

The Building for Climate Change programme (BfCC) will continue, and it is hugely important that this delivers in a timely and ambitious manner.

On top of that, Labour committed to requiring government-funded construction projects to meet Green Star five or six. This is a big vote of confidence in the rating scheme and a real boost for getting the sector up to speed with sustainable construction.

Introducing EPCs and the BfCC programme are big, longer term steps and will almost certainly require legislative change. However, we have already seen the government’s commitment to NABERSNZ bear fruit.

The government’s procurement agency has confirmed that from January 1 next year, NABERSNZ will be compulsory for all government agencies who occupy single-tenant, co-tenanted or co-located government office accommodation.

This is a huge step forward and sends a strong message to the rest of the sector that this is the direction we are headed.

According to NABERS Australia and the New South Wales Department of Planning, Industry and Environment, NABERS has saved building owners AUD1 billion in energy bills since its introduction. If we want to see similar benefits we need this transparency and energy consideration embedded not just in our public assets but across all buildings. A carbon buildings disclosure is required in New Zealand. Based on the Australian experience it is likely to deliver significant savings for kiwi businesses.

The role of homes and buildings also features throughout the advice to government from the Climate

Change Commission. But does the ambition shown by the Climate Change Commission align with the ambition needed? Unfortunately, not.

‘The time for accelerated climate action is now,’ the advice’s introduction concludes, while at the same time saying that by 2035 ‘newly built homes are 35% more energy efficient compared to today’s performance.’ A 35% improvement is achievable much sooner than 2035, perhaps even nearly a decade sooner, if backed with the proper ambition.

It is a little disconcerting too to see that, when it comes to our homes and buildings, the ambition shown by the Climate Change Commission is much less than that outlined in the Building for Climate Change programme, which states that ‘by 2035, New Zealand’s new buildings are using as little energy and water as possible’. ‘As little energy as possible’ is very different than 35% less energy.

Research from Australia has shown that Green Star certified buildings use 66% less energy than average buildings. This is happening right now in 2021. We should not be having to wait over a decade.

The Commission’s advice to shift away from fossil fuel connections to our homes and buildings, and the introduction of mandatory measures to improve energy efficiency, which was included in the raft of solutions laid out in the New Zealand Green Building Council zero carbon roadmap, are to be welcomed. There must though be a much greater focus on the significant challenges posed by embodied carbon, which is a key focus in the Building for Climate Change programme.

Our job now, the job of people like you and me who want New Zealand to be less polluted, better, and healthier, is to hold government to these promises and raise their ambition.

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Andrew Eagles is the CEO of the New Zealand Green Building Council

CONTRACT ADMINISTRATION

COMMERCIAL PRACTICES FOR MAIN CONTRACTORS IN THE CONSTRUCTION INDUSTRY

BY ADJUNCT ASSOCIATE PROFESSOR BOB WILDERMUTH OAM FAIQS CQS FAIB NBPR LEVEL 1

INSIGHTFUL QUOTES RELATED TO COMMERCIAL AWARENESS: “All things are possible except skiing through a revolving door.”

“New systems generate new problems.”

“A complex system that works is invariably found to have evolved from a simple system that works.”

“The product of an arithmetical computation is the answer to an equation; it is not the solution to a problem.”

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CONTRACT ADMINISTRATION

GENERAL CONTRACT ADMINISTRATION ADVICE A proactive approach is the key to successful contract administration. It follows that resource levels must be adequate to support a proactive approach.

A proactive approach means early identification of issues and variations, followed by regular and systematic actions that produce timely resolutions. This approach usually enables a relatively swift conclusion at project practical completion because most issues have been progressively resolved during the contract. Whilst I do not particularly like time bar provisions, they do work to assist in achieving this goal.

A non-proactive approach typically leaves a mountain of disputed issues and requires significant resources to close out all issues. This process is an ever-increasing cost to the project for the length of time it ultimately takes. It also whittles away the project margin.

The bottom line is that good contract administrators resolve most issues progressively and before practical completion of the project. You should always encourage subcontractors to progressively “get their paperwork in order”. That does not necessarily mean highlighting variations to them. It means creating an expectation that you want to set a goal of having all issues resolved prior to practical completion or shortly thereafter.

Always try to maintain frequent and courteous communication with subcontractors. The type of communication should always be at the discretion of the contract administrator dependent upon the subject matter and the parties involved, however some issues such as negotiations are usually best discussed face to face. Contractual issues should always be recorded in writing and whilst, some subcontractors may see this as either aggressive or

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unnecessary, it is always best to point out it is a requirement of the subcontract and the parties would be in breach of subcontract if it was not done. A similar approach can be taken to the giving of notices require under the subcontract.

Always keep abreast of the latest legislation.

SECURITY OF PAYMENT LEGISLATION BUILDING INDUSTRY FAIRNESS (SECURITY OF PAYMENT) ACT 2017 (QUEENSLAND) As I am based in Queensland I talk about the Queensland legislation, however, each state in Australia has its own unique security of payment legislation which should be fully researched and understood.

For every subcontract progress claim, take immediate action to prepare an appropriate response (payment schedule) in accordance with the specific time and content requirements of the Act. Every head contract payment claim must be accompanied by a supporting statement in accordance with the specific time and content requirements of the Act. The supporting statement basically sets out the details of any component of a subcontractor claim which has not been paid and the reason why it has not been paid.

Always keep abreast of the latest legislation.

In fact, it is becoming common practice by quite a few subcontractors to wait until during the defect liability period to submit a claim under the Act. Also, be aware that some subcontractors have been known to submit what is often colloquially referred to “ambush” claims in the form of large amounts of

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documentation (multiple volumes) on the last working day before the Christmas or Easter period. Subcontractor’s hope that the main contractor will only be able to provide an extremely limited response due to time and resource constraints or, in fact, overlook providing a response altogether. Either way, the goal for the subcontractor is an enhanced outcome for themselves. Therefore, constant vigilance is required and particularly after a site team has demobilised off site (during the defects liability period).

It is important to implement a system that accurately determines the date upon which subcontract progress claims have been received. Do not just accept either the date on the claim nor a date stamp place on the payment claim. Enquire of the person who received the progress claim as to the absolute correctness of the date of receipt. There have been situations where progress claims are date stamped by the main contractor later than the actual date of receipt. This could lead to a response being delivered too late and being invalid, meaning the subcontractor was entitled to be paid the full value of his claim including the disputed component.

If a subcontract progress claim is not being certified in full, or if in any doubt whatsoever, ACT immediately and seek advice from head office commercial or in-house corporate/external lawyers.

Failure to respond appropriately (with contractual reasons and within time bars) to subcontract progress claims (including ambit claims contained therein) may result in an adjudication award under the Act that requires the main contractor to pay disputed claims as an enforceable debt under the Act, albeit that it would be on a “payment on account” basis.

Despite the “payment on account” status, the main contractor would then be forced to invoke dispute provisions under the subcontract and

pursue a lengthy and usually costly recovery process with no guarantees the subcontractor will be solvent in the event of a successful resolution under such a protracted recovery process. Notwithstanding the merits of each case, it is important to note that many recent court decisions have generally supported the adjudicator’s adjudication decision. Therefore, from a practical and commercial perspective, the quantum amount in dispute would need to greatly exceed the likely costs of litigation (including legal costs) to justify challenging an adverse adjudication decision. My rough rule of thumb is disputes under AU$100,000 are best resolved through negotiation, irrespective of the merits of the dispute.

Where subcontractors have identified contractual claims and variations, and included amounts (albeit unsubstantiated) on their monthly progress claims, it is recommended the site team always takes a pro-active approach and prepares preliminary written defences (in as much detail as possible) to all such subcontractor contractual claims and variations as soon as possible because time is always against you if the subcontract elects to push the “adjudication button”.

Obviously, these preliminary defences would be revisited at the appropriate time to address the latest information submitted by the subcontractor.

There have been situations where progress claims are date stamped by the main contractor later than the actual date of receipt.

VARIATION APPROVAL LETTERS It is good practice to include the following clause in any variation approval letters to subcontractors to ensure clarity and finality:

“This variation approval is necessarily and comprehensively inclusive of all approved entitlements (claimed or otherwise) to time, cost and disruption related to this variation.”

GOOD CONTRACT ADMINISTRATION PRACTICES Many of these practices relate to traditional hard dollar lump sum head contracts. However, they will also apply to subcontract management under managing contractor or alliances, as the client is paying the main contractor a fee to effectively manage the hard dollar lump sum subcontracts as a managing contractor or alliance partner respectively.

The result of successfully applying these generic practices will effectively improve the bottom line for the main contractor (hard dollar contracts) or client (managing contractor and alliance contracts).

In the managing contractor and alliance contracts, if the client is acknowledging and appreciative of the main contractor’s professional contribution/service then that creates a positive contribution towards achieving client satisfaction and ultimately securing further work from that client.

Some basic points to be emphasised with minimising expenditure and maximising revenues: • Always negotiate forcefully but fairly with suppliers and subcontractors (both price and scope).

• Explore subcontractor smarts. Always canvass suppliers and subcontractors

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for their views on any potential savings (materials, procedures, risk minimisation or time, etc.).

• Subcontract letting is not always just about the initial let price. Risk items can be negotiated into the subcontract scope of work to avoid subsequent variations/claims by the subcontractor.

This will ultimately minimise the main contractor’s subcontract administration and consequently provide the client with earlier certainty of final price on managing contractor forms of contract and more confidence in the management service provided by the main contractor.

• The contract administrator must always fully understand the full scope of work for each budget and be fully involved in the budget allocation to assist with this understanding. The most important part of a subcontract from a practical perspective is the documentation of an accurate and comprehensive scope of work. The subcontract package must be at least back-to-back with the head contract but, subject to a value for money assessment, contract administrators are encouraged to prepare a more comprehensive subcontract scope of works than the head contract which may subsequently allow a variation claim under lump sum head contracts but not under subcontracts (thus producing revenue for the contractor).

• Do not assume nor rely upon the contract documents being complete or comprehensive. As the head/ managing contractor, always fully reviews the head contract documents to understand and confirm the subcontract scope of work. If not comprehensive, then instigate RFI’s early to avoid subsequent delays which will ultimately result in additional overheads for the head contractor as well as subcontractors. The main

contractor’s managing contractor fees are essentially fixed and therefore avoidance or minimisation of programme delays saves time related to the main contractor overheads and directly assists in preserving the main contractor’s margin.

• Subcontractors prefer working for contractors that consistently beat their programmes because margin erosion is minimal and consequently everyone on the project usually makes a good margin. Repeat subcontract work also usually follows – meaning you become one of the subcontractor’s preferred head contractors.

• Also, ensure the scope of work for the budget matches the scope of work for the package being let (i.e. always ensure apples for apples comparisons and adjust either the scope of work by getting the subcontractor to add the missing work to the price or reduce the budget for letting comparison as necessary to ensure separate retention of an adequate portion of the budget to cover the missing scope of work).

• Utilise standard catch-all trade price clauses wherever possible to avoid subcontract claims for commonly undocumented but necessary minor items of work usually associated with particular trades or subcontract packages. My experience is that if a subcontractor is referred to a clause in their subcontract scope of works identifying an item as their responsibility then they generally accept it and withdraw their claim irrespective of whether the item is documented or not.

• Contract administrators must always prepare and maintain a base set of contract documents on site. This would usually occur after the estimator checks and confirms the bid documents against the

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contract documents. This can’t be overemphasised as a critically important exercise that must be undertaken to ensure the documents bid price was prepared from exactly aligns with the contract documents, otherwise any changes (which are effectively variations) will be borne by the main contractor without any right to recompense. This process should also occur with the managing contractor form of contract, however with design and construct contracts, the issue of variation versus design development arises quite frequently.

In such cases, a cost planner would normally be monitoring the design development process for both legitimate variations to the original brief (part of the contract documents) and compliance to client budgets.

• Monitor each and every incoming document (including drawings, site instructions, memos, letters or whatever is issued by the client or his consultants) in a timely manner cognisant of contract time bars if any, against the base set of contract documents, and notify all potential variations.

• Identified potential changes must be immediately entered onto the project variation and/or EOT registers along with an order of cost and/or time.

Especially with respect to lump sum contracts, target pricing (at actual/ realistic prices).

The most important part of a subcontract from a practical perspective is the documentation of an accurate and comprehensive scope of work.

CONTRACT ADMINISTRATION

• Immediately prepare and issue documentation to satisfy the time bar provisions of the contract. If a subcontractor fails to satisfy time bar provisions, then the contract administrator should prepare and submit an appropriate head contract variation/EOT claim which will (when approved) add to the contractor’s bottom line margin.

• Spend money to make money.

Particularly on lump sum contracts, if the contract documentation is extremely poor and incomplete and there is the real potential for a large number of variations, then consider the merits of engaging a quantity surveyor for the sole purpose of identifying and pricing variations. Each situation should be judged on its merits provided the site administration team is assessed as insufficient to undertake the task reasonably and proficiently.

• It is important that the lack of a dedicated budget (for such work) should not be a valid reason for not engaging a quantity surveyor for such work. My experience indicates that a quantity surveyor engaged under these circumstances usually pays for themselves several times over because of the advantages flowing from the proactive process as all variations are efficiently identified early and documented (in a format that the client’s quantity surveyor can readily relate to).

• The best results from variation management occur when a proactive approach is undertaken.

Clients appreciate early notification which allows early corrective design modification where the client has a fixed or drop-dead budget. In this situation, late notification of variation

claims always proves problematic simply because the client has a fixed/ limited amount of funds for the project and in the end quite often rejects variations (grey or otherwise).

• Where the client engages consultants directly, the early notification of variations does require some early selling to the client that the contractor is actually working in both parties’ best interests to deliver an acceptable product within the client’s time and cost budgets, irrespective of the standard of project documentation provided by the client’s consultants.

• It goes without saying that the consultants also need to be managed to get them on board with this process as they usually tend to see every RFI as a direct attack on the quality of “their” documentation. The message needs to be that you are assisting them to attain a satisfied client. Also, a valuable lesson learned is never directly criticise a consultant’s documentation. Prepare fully researched RFI’s which speak for themselves (after reviewing all the documentation).

A final thought for graduates and young contract administrators…

“The simple but difficult arts of paying attention, copying accurately, following an argument, detecting an ambiguity or a false inference, testing guesses by summoning up contrary instances, organising one's time and one's thought for study - all these arts - cannot be taught in the air but only through the difficulties of a defined subject. They cannot be taught in one course or one year, but must be acquired gradually in dozens of connections”

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DELAY COSTS

APPROACHES TO ASSESS A CONTRACTOR’S FINANCIAL ENTITLEMENT DUE TO COMPENSABLE DELAY

BY ROBERT GEMMELL

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INTRODUCTION This article provides an overview of the general approaches that can be used to assess a contractor’s financial entitlement due to delayed preliminaries.

GENERAL APPROACHES This article examines and provides a basic overview of some of the methods to quantify the additional costs for delayed preliminaries under the following five broad approaches: 1. global pro-rata approach 2. planned versus actual and modified planned versus actual approaches 3. weighted average delay rate approach 4. delay rate per-day approach 5. resource-by-resource ‘but for’ approach.

for the alleged imprecision of Ascon Contracting’s average rate for preliminaries derived from the entire contract period and other parts of the detail of Ascon Contracting’s expert’s calculation.

Ascon Contracting’s global pro-rata approach could instead utilise the actual costs for preliminaires for the whole contract period if these costs could be obtained from the contractor’s accounting records. Using actual costs would bring the assessment more into line with the ‘loss and/or expense’ provisions in most construction contracts for the assessment of delay costs as the tender/contract rates for preliminaries very rarely, if ever, reflect actual costs.

The global pro-rata approach used in Ascon Contracting using the tender amount for preliminaires would be suitable where:

Each of the five approaches are now examined in turn.

• the parties have agreed to the approach either in the contract or at any other time after entering the contract; or, if there is no such agreement

GLOBAL PRO-RATA APPROACH

• where the contract provides for the rates in the preliminaries section of the tender/contract BQ to apply

The global pro-rata approach was used in Ascon Contracting v Alfred McAlpine¹.

In summary, Ascon Contracting conducted its assessment for delayed preliminaries as follows: 1. total tender price for the preliminaries for the entire contract period 2. less the fixed-price preliminaries items leaving only the time-related items 3. divided by the contract period in days 4. multiplied by the period of delay in days to arrive at the claimed amount.

The court, however, made some downward adjustments to Ascon Contracting’s assessment to allow

• the preliminaries project spend is a linear/even spend during the entire contract period from commencement to completion.

It should be noted that preliminaries across the whole contract period will fluctuate, particularly at the beginning and end of a project life-cycle. Therefore, if average rates are to be used, especially average rates derived from the entire contract period, they will most probably need to be adjusted as appropriate to take these factors into account.

In Ascon Contracting v Alfred McAlpine, the court awarded Ascon Contracting an extension of time of 14 days and the parties agreed that Ascon’s entitlement

to delay costs for preliminaries is usually quantified in terms of a daily or weekly rate for reasonable expenses.

Alfred McAlpine suggested using, as the “safest route”, the rate implicit in Ascon Contracting’s tender to calculate Ascon’s entitlement. However, if enough evidence was available then a more precise assessment to reflect loss and/ or expense or damages entitlement due to the delay would be to use actual costs incurred as the basis for the delay rate rather than the amount in Ascon Contracting’s tender.

Alfred McAlpine raised two main objections to Ascon Contracting’s assessment, the first in relation to Ascon Contracting’s evidence used to support the preliminaries rates, and the second, Ascon Contracting’s use of an average rate. In summary, the court accepted Ascon Contracting’s evidence of the rate used and said, although there was some force in Alfred McAlpine’s argument criticising Ascon’s use of average rates, that neither party had provided the court with an alternative approach and also that Alfred McAlpine’s approach was itself an averaging approach. The court, therefore, proceeded with the averaging approach but made some broad adjustments to take Alfred McAlpine’s objections into account.

It is submitted that the global prorata approach should not be used by contractors as a first choice unless, for example, the contractor requires a quick ‘rough’ check of likely additional costs. However, with the appropriate adjustments made to the assessment to take account of factors such as fluctuating spend during the project, the global pro-rata approach could be ‘indicative’ of the order of additional preliminaries costs incurred by the contractor because of delay.

However, as detailed in the next section on the planned versus actual

¹ Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd 1999 WL 1610677.

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and modified planned versus actual approaches, the global pro-rata approach is a ‘global’ type of assessment that lacks a forensic cause-and-effect analysis to properly attribute liability for any additional costs to the cause(s) of loss, and ultimately the party responsible. The same considerations as set out in the next section on the planned versus actual and modified planned versus actual approaches will therefore apply to the global pro-rata approach.

PLANNED VERSUS ACTUAL AND MODIFIED PLANNED VERSUS ACTUAL APPROACHES The modified planned versus actual approach is an extension of the planned versus actual approach so the two approaches are examined together in this section.

• the planned/baseline program preliminaries resources may have been insufficient to carry out the work as planned; and/or • the contractor may be responsible for some or all the delay; and/or • the delayed preliminaries item(s) was/ were not delayed due to a delay that gives the contractor an entitlement to additional payment; and/or • some of the delay costs claimed are attributable to non-critical delay which also does not give the contractor an entitlement to delay costs; and/or others.

Where the contractor adjusts its planned versus actual assessment to take into account any one or more of the above considerations, then this approach is often referred to as a modified total cost or modified global claim.

In the planned versus actual approach, the contractor compares its planned preliminaries costs for the baseline program durations for each of its preliminaries items being assessed with the actual costs for those items for the whole duration of the works. The basis of the assessment being that, had there not been compensable delay(s) (which caused the entire delay) then the contractor would have achieved its planned baseline duration and hence planned cost, and that therefore the employer is liable for all the delay overand-above the planned duration, and therefore liable for all the additional costs which are attributed to the compensable delay(s) which caused the whole of the delay.

However, like the planned versus actual approach, it lacks the forensic causeand-effect analysis to demonstrate that the additional costs claimed are due to a compensable delay, and simply subtracting amounts for which the contractor is liable from the total additional cost, is not a substitute for a properly conducted causeand-effect analysis.

However, adjustments to the planned versus actual approach may be necessary, to take into account one or more of the following:

So, although calculating the amount of entitlement may be difficult, it is demonstrating the causal link between the delay event(s) and the related loss that poses the real problem for contractors.

Contractors will often argue that it is sometimes not possible to fully particularise its claim for delay costs.

However, to properly prove its claim, the contractor must establish how the loss and/or additional cost due to delay was incurred to demonstrate that the party against whom the claim is being made is liable for the costs claimed.

However, it may be permissible to make a global claim for delay (and disruption) where it is impossible or impracticable to identify a specific nexus between each of the alleged events and the delay caused² and that this situation was not brought about by delay or other conduct of the contractor.³ The contractor will have to demonstrate that: • the employer’s breaches caused the addional costs and/or loss • the employer’s breaches represent the only causally significant factor responsible for the difference between the planned/expected cost and the actual cost • that the breaches were the material cause of ‘all’ of the contractor’s additional costs claimed.⁴ This will involve an assertion that the employer’s breaches must have caused the whole of the additional costs because no other cause was responsible for any part of it.⁵ Commonly in construction and engineering contracts, a whole series of delay events occur which individually would form the basis for a claim.

However, those delay (and other) events may inter-react with each other in very complex ways so that it becomes very difficult, if not impossible, to identify what loss and expense each individual event has caused.

Notwithstanding this, the contractor still has to prove the causal connections between the delay event(s) and the loss claimed. However, if all the delay events are events for which the employer is responsible, it may be unnecessary to insist on proof of which loss has been caused by each event.

It will therefore be essential to establish that the contractor was not responsible

² Nauru Phosphaste Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] VicrP 67; [1994] 2 VR 386. ³ John Holland Construction & Engineering v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681 at [14], [20], [23]. ⁴ John Holland Construction & Engineering v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681 at [15] ⁵ John Holland Construction & Engineering v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681 at [15]

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for any of the alleged causes of loss.

This may be difficult to demonstrate, and, if the employer is able to prove that the contractor caused any of the costs claimed, then the global/total cost claim will almost certainly fail.

In a global claim approach, proof of causation will mostly, or totally, be by inference. To establish the inference, it will be necessary to provide the material facts relied on. On some occasions, the effect of a delay may be self-evident, and the inference is easily drawn.

However, in circumstances where it is unclear what effect the alleged causes would have had, and how they may have

caused delay, it will be necessary to better particularise the argument as the inference will be more difficult to draw.

The more factual the evidence is of actual delay, the more likely a planned versus actual, or modified planned versus actual approach, is to succeed. When using either the planned versus actual or modified planned versus actual approach, whenever possible, the contractor should try to find evidence of actual delay costs at a micro level by way of packages of evidence using contemporaneous project documents. The contractor should also demonstrate that the scope and cost of the work not affected by the delay was reasonable.

To do this, the contractor should demonstrate how it planned to carry out and resource the work. This will require the contractor to provide evidence of its planned preliminaries resources, planned method and sequence of works, and the reasonable cost of carrying out the works on this basis within the time stipulated in the contract. If this exercise shows that the works were under-priced, the amount of under-pricing must be deducted from the amount claimed so that the causal inference does not fail. The contractor must demonstrate that all the loss claimed was caused only by the alleged delay events.

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The contractor will need to demonstrate and support the actual reasonable preliminaries costs to complete the delayed work, demonstrating the actual preliminaries items and resources required, the actual method and sequence of work and the additional costs required.

The contractor then contends that its additional costs is the additional work required due to the compensable delay.

The New South Wales Court of Appeal in Mainteck Services v Stein Heurtey SA,⁶ made it clear that Australian courts: • require proof of causation in the context of a global claim; but • recognise that a contractor may advance a global claim where it is impractical to disentangle the composite loss attributable to a series of causes; and • that situation was not brought about by the contractor; and • it is unlikely that a global claim will succeed if other causally significant events exist for which the defendant is not responsible – in such circumstances it is likely that the claim will fail in its entirety.

Like the global pro-rata approach, if the criteria in Mainteck Services v Stein Heurtey SA cannot be satisfied, neither the planned versus actual or the modified planned versus actual approaches should be used by the contractor to quantify additional costs for delayed preliminaries.

WEIGHTED AVERAGE DELAY RATE APPROACH In the weighted average delay rate approach, a weighted average rate for preliminaries is applied to the period of

delay cost entitlement. It may be necessary, or preferable, to use this approach, for example instead of the ‘delay rate per day approach’ detailed in the next section, because the specific period(s) of delay cannot be precisely identified. This may occur, for example, where the delay has been intermittent, or the contractor’s progress on site has slowed for a sustained period of say five months but has manifested into a compensable delay of say two months. In these circumstances, it may be necessary to take the average preliminaries rate over the five months and apply it to the applicable two-month period of compensable delay entitlement.

In this case, there would no specific two months from which to identify applicable delay rates.

parties’ quantum experts had identified an appropriate daily rate reflecting Civil Mining & Construction’s on-site overheads for the relevant period of 208 days delay.

The weighted average delay rate approach was part of the global pro-rata approach used in Ascon Contracting v Alfred McAlpine. The approach in Ascon Contracting is the ‘broadest’ of the average approaches and provides the least accurate delay rate to apply to the relevant delay period. This is because the average daily rate applied to the period of delay was derived from an average of the preliminaries tender price for the entire contract period divided by the entire contract duration. The duration for which the average rate is derived from should ideally be the period in which the delay occurred and to which the average rate will apply. It is important with the weighted average delay rate approach that these two periods correspond. This was one of the issues faced by the parties and the court in Civil Mining & Construction v Wiggins Island Coal Export Terminal.⁷

In summary, during the trial, there were issues for the court to decide in relation to:

The Court in Civil Mining & Construction v Wiggins Island Coal Export Terminal ⁸ said that a difficulty it had in ascertaining the amount for on-site overheads/ preliminaries is that neither of the

Both Civil Mining & Construction’s and Wiggins Island Coal Export Terminal’s experts valued onsite overheads for the period closer to when the period of actual delay occurred. However, the court’s interpretation of the contract was that Civil Mining & Construction was entitled to on-site overheads attributable to the period of extension time at the end of the project during the period of overrun.

A further difficulty the court said it had was that the rate in Civil Mining & Construction’s exhibit 427 did not constitute a ‘weighted average’.

1. The applicable period of delay in that: a. is the applicable period to which the delay rate will apply the period of actual delay; or b. is the applicable period to which the delay rate will apply the period of overrun at the end of the project?

2. The applicable delay rate in that: a. should the delay rate be the rate(s) in the ‘Schedule of Daywork Indirect Personnel and Facilities Rates’; or b. reasonable rate(s)?

The experts quantifying delay costs did not know the court’s position on either question until the court made its findings on the points later in the proceedings – after the quantum experts had already spent considerable time quantifying Civil Mining & Construction’s financial entitlement due to delay.

⁶ Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184 ⁷ Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85. ⁸ Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85 at para 835.

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The weighted average approach is often used by practitioners and experts and is effective when it is clear(er) than in Civil Mining & Construction v Wiggins Island Coal Export Terminal what the applicable period of delay to which the rate will apply is, and also where it is clear(er) what the basis of the rate is. Although there may be some differences between the parties, when these points are clearer, fundamentally, there is general agreement in principle to the approach to be taken. This was not the case in Civil Mining & Construction v Wiggins Island Coal Export Terminal.

In Civil Mining & Construction v Wiggins Island Coal Export Terminal,⁹ the court said: “The adoption of a weighted average to arrive at an average daily rate is in my view correct. This weighted average should therefore be applied in calculating the average daily rate once the relevant valuation is calculated by reference to [Civil Mining & Construction’s expert’s] reasonable rates rather than the C-4.2 rates.”

Towards the conclusion of the trial, the court in Civil Mining & Construction v Wiggins Island Coal Export Terminal directed the experts to quantify the financial entitlement to delay based on reasonable rates that are applicable to the period of overrun at the end of the project.

An alternative to the weighted average approach to quantify a contractor’s financial entitlement to delayed preliminaries because of delay that would consider the parties’ and other possible scenarios like those in Civil Mining & Construction v Wiggins Island Coal Export Terminal, is the ‘delay rate per-day approach’ and the resource-by-resource ‘but-for’ approach as detailed in the next two sections.

DELAY RATE PER-DAY APPROACH In the delay rate per-day approach, an assessment of actual daily preliminaries costs incurred during the project duration is conducted. The period(s) of compensable delay is/are identified, and the applicable daily rates are applied to the actual days of delay for which the contractor is entitled to recover its delay costs.

The basis of this approach being that the costs incurred during these compensable delay periods would not have been incurred had there been no compensable delay.

The quantum experts using the delay rate per-day approach could produce an overall matrix of all the preliminaries costs for the duration of the project. The matrix could be prepared in such a way that identifies detail such as: • each time-related prelimaries item that has been impacted by the compensable delay event(s) • the costs incurred each month for each of the impacted timerelated preliminaries items from the commencement of the project to completion • the monthly costs for each preliminary item are divided by the number of days in the month to give a daily rate¹⁰ • it will then be possible to identify the daily rate for each time-related preliminaries item, or any combination of preliminaries items, for any date or dates from the commencement to the completion of the project.

When the applicable period(s) of compensable delay is /are identified, the daily costs incurred during that/ those period(s) can be readily identified.

Further, some cause-and-effect has been illustrated as follows:

⁹ Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85 at para 837 ¹⁰ Because a contractor usually books its costs on a monthly basis, it will be necessary to divide the costs incurred by the number of days in the month to arrive at the daily rate for that month.

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• cause: compensable delay as identified in the program delay analysis • effect: the costs incurred during those periods of compensable delay that would not have been incurred had there been no compensable delay.¹¹ It would be necessary when carrying out this exercise that the contractor’s preliminaries cost allocation to a particular month or months is correct and to decide whether some costs need to be redistributed to take into account differences in timing between when the item was procured, invoiced and paid etc. This exercise may not be necessary when using a weighted average approach if the period for which the average covers the period from when the item was procured, invoiced, paid and installed into the works.

Also, account will need to be taken where delayed resources are not captured at the time of the actual delay (or during the period of overrun if this happens to be the applicable period to which the delay rate applies). However, a quantum expert will be able to make the appropriate adjustments to the matrix of daily preliminaries costs to take this into account.

By applying the detailed daily rate approach to Civil Mining & Construction v Wiggins Island Coal Export Terminal, the matrix could, for example, comprise all impacted/delayed time-related preliminaries in the vertical far left-hand column and the applicable daily rate for each of the preliminaries items and resources¹² along the horizontal rows.

The court and/or the quantum experts would then be able to apply its findings in relation to the applicable period(s) of delay and rate(s) to arrive at, with relative ease, Civil Mining & Construction’s

¹¹ Further analysis / investigation will need to be carried out to demonstrate that this is in fact the case. ¹² Daily rate is the monthly cost/rate (as applicable) for each preliminaries item divided by the number of days in the month.

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entitlement the additional payment.

The matrix could be prepared so that an assessment of any of the alternative positions can be made.

when each time-related resource was on site, and when those resources would have been on site had there been no compensable delay.

Where there is dispute about the applicable rate(s) and the period(s) of delay to which the rate will apply, this approach would provide the court with a matrix of all the daily rates, including alternative rates, for each delayed preliminaries items. The court would then be able to identify the relevant delayed preliminaries items, the relevant delay period(s) and the applicable rate(s).

Some adjustment may be required to the assessment to take into account impacted resources that would not be captured during the period of delay for which there is financial entitlement and these adjustments can be carried out as a standalone separate exercise on a case by case basis.

The resource-by-resource ‘but-for’ approach essentially compares the cost to the contractor for:

Alternatively, a resource-by-resource ‘but for’ approach’ as detailed in the next section could be undertaken.

RESOURCE-BY-RESOURCE ‘BUT-FOR’ APPROACH The resource-by-resource ‘but-for’ approach compares the period each preliminaries resource was on site because of compensable delay with how long the resource would have been on site had there not been compensable delay.

This approach takes into consideration the issues such as that, on occasions the time when the contractor suffers compensable delay, the costs incurred during the actual period of delay do not accurately reflect the ‘true’ delay costs incurred.

To overcome such problems, the contractor needs to show the periods for

1. The period(s) in which the contractor’s preliminaries resources were on site because of the compensable delay(s) with

approach, and the most appropriate approach must be decided on a caseby-case basis based on the particular constraints the analyst may face, for example: time available to conduct the assessment, available records, budget, amount in dispute, forum etc.

Robert Gemmell is Co-Founder and Partner of DD Quantum Expert

2. The period(s) which the contractor’s preliminaries resources would have been on site had there not been the compensable delay(s).

Note that this is not the same as the planned versus actual approach.

The period(s) in which the contractor’s preliminaries resources were on site because of the compensable delay will be less than the actual period the resources were on site if the contractor caused some of the delay. The resourceby-resource ‘but for’ approach is not an exercise of simply identifying the duration of the contractor’s own delay and subtracting that from the actual duration and comparing this with the planned duration as this would simply be the modified planned versus actual approach.

SUMMARY The above five approaches provide an overview of the general approaches that can be used to assess a contractor’s financial entitlement to delayed preliminaries due to compensable delay.

In reality, the most appropriate approach may be a hybrid/combination of two or more of the five approaches outlined above, or another equally suitable

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56: MARCH - MAY 2021: BUILT ENVIRONMENT ECONOMIST

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BUILDING COST INDEX

MARCH 2021

THE BUILDING COST INDEX IS PUBLISHED IN THE PRINT VERSION OF THE BUILDING ECONOMIST. IT CONTAINS DATA THAT CAN BE USED AS A PREDICTOR FOR THE ESTIMATED TIMES FOR DESIGN AND CONSTRUCTION AND INCLUDES A SUMMARY OF THE PAST, PRESENT AND ESTIMATED FUTURE CONSTRUCTION COSTS.

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