Built Environment Economist - Australia and New Zealand

SEPTEMBER - NOVEMBER 2020

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

4 REBALANCING RISK ALLOCATION ON INFRASTRUCTURE PROJECTS

9 MY HOPES FOR THE CONSTRUCTION INDUSTRY POST COVID

17 COLLABORATION AND INNOVATION: 32 AUCKLAND CITY MISSION: RAISING THE BAR ON HEALTHCARE HOMEGROUND CONTENTS 2 CEO Letter

31 NEC Reality Check

4 Rebalancing Risk Allocation on Infrastructure Projects

32 Auckland City Mission: Homeground

9 My Hopes for the Construction Industry Post COVID

37 How Quantity Takeoffs in REVU is a Big Deal for

11 Challenging Projects Q&A

Surveyors 2020

17 Collaboration and Innovation: Raising the Bar on

41 Construction Project Delays 101 – Plus Concurrency!

43 How to Best Train Estimators

Healthcare 22 The Quantity Surveyor as a Multiskilled Consultant: An

46 Time for Build to Rent to Take Off 55 Remote Signing of Contracts

Opinion Piece 24 What Does a “Good” Project Look Like? Ten Common

58 Unblocking the Roadblocks Towards a Collaborative

Benchmarking Mistakes 27 Build a Better Construction Industry

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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Construction Industry 61 Building Construction Index (available in print edition only)

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ISSN 2652-4023

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 01

CEO LETTER

Some two-and-a-half-years have transpired since the Shergold-Weir Report highlighted deficiencies across the Australian construction industry, making 24 recommendations to rectify these deficiencies. In that time, governments have been enacting legislation and implementing systems with the aim of instilling consumer confidence in one of Australia’s largest industry sectors. While the emphasis is principally focussed on design and building practitioners, the independent professional services that a quantity surveyor can offer is all too often being overlooked or in some cases denigrated as being too focussed on cost.

This letter seeks to stimulate thought and discussion around potential changes to the current status quo in relation to future construction procurement and the role of the quantity surveyor. These issues and questions are being posed following discussions with a number of senior quantity surveyors as well as feedback from industry participants in government led initiatives.

Let’s consider some observations and potential opportunities that might influence the future of our profession.

OBSERVATION Over the past 30 years procurement models have led to the demise of traditional quantity surveying work, with a marked trend of transferring all risks to the contractor under both private and public procurement models. With a view to reducing pre-contract durations, at times this has led to poor documentation (e.g. geotechnical documentation is invariably insufficient to make a risk determination) and often, poor scoping.

OPPORTUNITY Should we be mandating that a Construction Certificate can only be issued once design documentation has been finalised or at least at LOD 300?

OBSERVATION While spending greater time resolving scope and documenting solutions may take more time up front, it has reduced costs in the long term. In such circumstances, early engagement of the quantity surveyor will enable the development of cost plans for the purposes of defining scope, understanding risk and mitigating unnecessary costs.

OPPORTUNITY Should a priced bill of quantities be required as a mechanism for rectifying poor and inadequate documentation for tenderers? Other areas that would assist include mandating both a base bill of quantities and schedule of rates to be used to assess variations throughout the project, as well as a standard methodology for transparent returnable schedules to enable a robust assessment of cost and risk.

OBSERVATION Construction projects where quantity surveyors have limited or no involvement, or where they are only involved on behalf of the financier, typically have a poorer level of both documentation and risk management. Design and construct projects are a typically high-risk procurement method and should have a minimum monthly quality reporting requirement from all design consultants with standard wording that requires

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all projects to maintain these monthly signoffs.

The quantity surveyor could undertake an independent audit of the construction process to ensure compliance with design specifications. This would entail the quantity surveyor checking that all monthly certifications are provided and signed-off by the relevant consultant, thereby mandating that design specification requirements are met prior to proceeding to the next stage of construction. The quantity surveyor would review all contract quality documentation, inspection and test plans, as-built drawings, hold point, witness point and signature point checklists, material records and, if necessary, delivery dockets.

OPPORTUNITY Should the quantity surveyor’s role be expanded to that of the independent auditor on all construction projects?

Without the appropriate certifications, financial drawdowns should be withheld until issues are rectified as construction progresses. The onus should be on the quantity surveyor recommending the progress claim, with all “quality reporting requirements” included under the contract in place.

OBSERVATION The current certification process and the certifiers providing the service have been blamed for all the faults associated with recent building failures. While some certifiers have been found culpable, the blame game does not address the issue of ensuring greater compliance with the national construction code (NCC) during the construction process.

CEO LETTER Having more frequent (at least monthly) site inspections (rather than milestone reporting) to identify completed work and minimise any potential defects, should be the norm, not the exception.

OPPORTUNITY Should we be mandating site inspections and Project Control Group meetings more frequently?

OBSERVATION In recent years contracts have moved away from the provisions included in the Australian Standard (AS2124) with the result that many organisations, particularly subcontractors no longer understand the risks they’re signing up for and lack a detailed knowledge or understanding of contract terms and conditions. This is particularly so in relation to the ubiquitous use of contract amendments and exclusions.

OPPORTUNITY Is there a need to go back to the premise established in the Australian Standard with minimal amendments/ exclusions from the contract?

OBSERVATION There is an opportunity for financiers to have a greater role in consultant engagement through pre-agreed consultant panels. It may be beneficial for quantity surveyors to assist financiers by being more involved in a “pre-finance commitment” process where the track record of a developer-builder, their consultants etc is assessed based on the quantity surveyor’s experience. This could become an official process and part of the quantity surveyor’s commission.

OPPORTUNITY Should financiers be encouraged to establish a pre-finance assessment of the developer-builder and consultants with the quantity surveyor’s role being expanded to undertake this role?

OBSERVATION Quantity surveyor signs off on the part of a mortgage application where the applicant is seeking finance to purchase in a new development.

OPPORTUNITY Is it appropriate for a Quantity Surveyor to have an adjunct certifying role in verifying that all relevant certifications are in place, thereby assisting with reducing risk to financial institutions, particularly those that have financed the development and are subsequently financing the purchase of individual apartments?

OBSERVATION In relation to professional indemnity (P.I.) insurance, it has been suggested that a minimum level of $10 million should be established, with the ability for higher amounts depending on the nature, complexity and cost of the project.

OPPORTUNITY Should there be a mandatory minimum level of P.I. insurance for quantity surveyors engaged on construction projects?

OBSERVATION While governments across Australia have enacted proportionate liability legislation, virtually every construction contract includes a clause/s removing the protections (and apportionment of risk) afforded by such Acts. In New South Wales, Western Australia and Tasmania there is an express ability to contract out of proportionate liability.

Other jurisdictions include statutory provisions prohibiting the contracting out of proportionate liability. Contracting out of proportionate liability (in the relevant jurisdictions) may place one or more parties being held responsible for all losses and not being able to rely on their insurance policy to provide cover in the case of losses.

Preparing replacement cost assessments requires a high level of construction knowledge, use and cost of materials.

OPPORTUNITY Should replacement cost assessments only be undertaken by a certified quantity surveyor?

CONCLUSION Clearly the above demonstrates that the profession and scope of the quantity surveyor has the potential to further evolve, particularly in light of the New South Wales Building Commissioner’s mandate and the legislation proposed.

As a minimum, quantity surveyors should be engaged over the following four stages: 1. Pre-finance commencement review (e.g. contract documentation, consultant and developer-builder assessment, feasibility, priced bill of quantities, etc) 2. Initial report 3. Monthly progress reports and performance audit reporting 4. Post completion involvement (e.g. defects, replacement assessment, tax depreciation, capital sinking fund etc).

Are there other areas that Quantity Surveyors should be engaged in? What evolution can you see? Do you accept that the Quantity Surveyor is best positioned to determine risk levels in project documentation and delivery?

If you would like to contribute your thoughts in relation to the above, please email ceo@aiqs.com.au.

OPPORTUNITY Should there be a requirement for all governments to remove the ability to contract out of proportionate liability?

OBSERVATION Replacement cost assessments for insurance purposes are required to be prepared when insurance is being taken out and/or when a disaster has occurred.

GRANT WARNER CEO Australian Institute of Quantity Surveyors

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 03

RISK MANAGEMENT

REBALANCING RISK ALLOCATION ON INFRASTRUCTURE PROJECTS

BY OWEN HAYFORD, PARTNER AT DLA PIPER AUSTRALIA

With the rise of Australian ‘megaprojects’ and associated ‘mega-losses’ for contractors and engineering companies, calls for a risk allocation reset are becoming louder.

Unusually, there are signs these calls are being heard by governments and other owners, as the reduced risk appetite of contractors is reflected in tendered prices for infrastructure works. So, what risk allocation changes could we see?

We offer our thoughts below, but first some context.

A PROFITLESS BOOM Australian governments have long used competitive bidding processes, coupled with their immense purchasing power as Australia’s biggest buyer of civil engineering services, to cheaply transfer significant risk to civil engineering contractors eager to win new work.

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Twelve months ago, John Holland’s CEO Joe Barr was reported in the Australian Financial Review to have said that contractors tend to take risk “without really pricing it appropriately”.

When announcing John Holland’s aftertax net loss of $59.6 million for the 12 months to 31 December 2019 (after reporting profit of $84.2 million a year earlier), the same newspaper reported Mr Barr to say, “John Holland will no longer

RISK MANAGEMENT

MOST RISKS ARE ALLOCATED TO THE PPP COMPANY’S CONTRACTORS

CIMIC •Net profit after tax of $ 1 .0 4 b n f o r Y E 3 1 D e c e m b e r 2019; •but not paying bonuses to employees of its best-performing Thiess division.

JOHN HOLLAND • A f t e r- t a x n e t l o s s o f $59.6m for YE 31 December 2019 (after reporting profit of $84.2 million a year earlier).

Figure 1

L E N D L E AS E • A f t e r- t a x l o s s o f $ 3 3 7 m f o r i t s engineering and services business; • $ 5 0 0 m p r e - t a x p r ov i s i o n f o r underperforming projects (August 2019).

bid on projects where it believes the risk profile is unacceptable.”

Perhaps more alarming was Mr Barr’s admission, “We are in the midst of Australia’s biggest infrastructure boom, but as an industry we are teetering on the brink of collapse.” And for good reason it seems, looking at the recent financial performance of some of its competitors.

The financial woes of Lendlease’s engineering business received much press last year. In August 2019, Lendlease reported an after-tax loss of $337 million for its engineering and services business which included a $500 million pre-tax provision for underperforming projects -predominantly NorthConnex in Sydney and two road projects in Brisbane. The business has since been sold to Spanish contractor Acciona for $180 million, but Lendlease continues to hold some of the contracts that Acciona didn’t want, such as the contract on the troubled Melbourne Metro project.

CIMIC’s Australian business, which includes CPB (formerly Leighton Contractors) and Thiess, seems to be faring better. CIMIC reported a net profit after tax of $(1.04) billion for the year ended 31 December 2019, which

Public Private Partnerships (PPP) involving the use of private sector contractors and private finance have been a popular contract delivery model for major infrastructure projects in Australia for years, well before they were even called PPPs. The model is often preferred over publicly funded contract delivery models because of its additional risk transfer to the private sector.

The basic structure of a service payment PPP is shown in Figure 2.

included a one-off post tax write-down of $(1.84) billion arising from its Middle East business.

If the write-down is excluded, CIMIC’s profit before tax was $1.10 billion, on revenue of $14.7 billion, delivering a profit before tax margin of 7.5%. Even so, a piece of recent news reported that CIMIC is not paying bonuses to its Thiess employees despite Thiess being CIMIC’s best performing division, suggests that CIMIC’s cash flow is pressured.

~10%

Typically, government enters into a PPP contract with a new special purpose PPP company that has been established by the successful bidding consortium.

Under this PPP contract, most of the risks associated with the design, construction, financing, operation and maintenance of the infrastructure facility are allocated to the PPP company.

Government retains some risks, such as the obligation to acquire and make available the agreed construction site, and the risk of challenges to the planning approval

Government Agency ~3% Debt Financiers

PPP Contract

~10%

~90%

PPP Company

Debt finance Equity

D&C Contract O&M Contract

D&C Contractor

O&M Contractor

~60%

~20%

Equity Investors ~7%

Figure 2

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RISK MANAGEMENT

that government has obtained for the project. However, most risks (represented in the diagram as ~90% of the risks) are transferred to the PPP company.

The PPP company then enters into a fixed price design and construct (D&C) contract with its D&C contractor under which all of the risk associated with the design and construction of the project (other than risks specifically retained by the government agency) are transferred to the D&C contractor (say 60% of the project’s risk). The PPP company also enters into a largely fixed price operation and maintenance (O&M) contract with its O&M contractor under which all of the risk associated with the operation and maintenance of the project (other than risks specifically retained by the government agency) are transferred to the O&M Contractor (say ~20% of the project's risk).

The result is that the majority of the risk that was taken by the PPP company, has then been transferred to its two contractors, leaving the PPP company with only a small amount of risk (represented in the diagram as ~10%).

This remaining risk is then split between the PPP company's debt financiers and equity investors, with debt always taking less risk (~3%) than equity (~7%).

The contractors will effect insurance for some of the risks, such as the risk of the asset being damaged by a bad storm, or the contractor’s activities causing property damage or personal injury to a third party, but the risk of cost overruns and delay is generally borne by the contractors and their supply chain.

The relative percentage of risk taken on by the D&C contractor has become even more so with the rise of mega-projects, where the size of the D&C contract with its associated risks has increased both in absolute terms and as a proportion of total project value.

EQUITY AND DEBT SHIELDS GOVERNMENT FROM SOME RISKS If the PPP company is taking demand risk, this risk typically remains with the PPP company’s equity investors and, to a lesser extent, its debt financiers. The demand risk is not typically transferred to the O&M contractor.

Each of the D&C contractor and the O&M contractor will cap their liability to the PPP company for their defaults under the D&C contractor the O&M contract, respectively. Consequently, the PPP company and, hence, its equity investors and debt financiers, will bear the risk of losses arising from contract or defaults more than the cap on the liability of the relevant contractor. Likewise, the PPP company, and its equity investors and debt financiers, are exposed to the risk of the PPP company’s contractors becoming insolvent.

Accordingly, government is shielded from these risks by the PPP company’s equity investors and debt financiers, until the PPP company’s capacity to absorb such risks is exhausted causing the PPP company to become insolvent. At this point government will need to either: • provide further financial support to the PPP company so that it can continue to provide the contracted services; • engage another private sector company to take-over the contract and provide the contracted services; or • provide the contracted services itself, using publicly funded resources.

The amount of equity invested in the PPP company determines the PPP company’s capacity to absorb such risks before they fall upon government.

If the PPP company raises more equity, it will have more funds available to meet unexpected costs (or lower than

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The PPP model therefore represents an opportunity for private equity investors to present governments with a better value for money proposition in relation to these risks. expected revenue) and thus greater capacity to absorb the risks that it takes.

But the cost of equity finance is greater than the cost of debt finance because equity investors require a higher return for the higher level of risk, they take compared to debt financiers. More equity, and less debt, results in a higher weighted average cost of capital for the PPP company, which translates to a higher service payment for government, or higher user charges (or a longer user charge period) for users.

WHO WILL TAKE RISKS THAT CONTRACTORS ARE NO LONGER PREPARED TO TAKE? D&C contractors are saying they are no longer prepared to take risks that they previously underpriced, such as the risk of: • additional costs or delays due to unforeseeable ground conditions; • the cost of treating or disposing of pre-existing contamination; • the cost and time impact of utility owners adjusting existing utility assets to accommodate the new infrastructure; and • additional costs arising from changes of law after the date of the contract.

The time and cost impacts of COVID-19 can be added to this list.

RISK MANAGEMENT

If the D&C contractor doesn’t take these risks (for a price) then the risks must be taken by someone else. There are only two options between government and the PPP company. Either, these risks will need to be taken (in whole or part) by government, or they are taken (in whole or part) by the PPP company.

If government takes these risks, it will cease to achieve the value for money outcomes it previously achieved by transferring these risks (assuming the risks weren’t previously fully priced, as suggested by John Holland’s CEO).

If the PPP company takes the risks, it will need to raise more equity to give it the capacity to absorb such risks.

Its weighted average cost of capital increases, resulting in a higher service payment for government, or higher user charges (or a longer user charge period) for users.

In other words, government and/or users must either pay more for the PPP company to take more risk, or government must take the additional risk. It thus becomes a value for money judgement for government. What provides better value for money: paying more to the PPP company’s equity investors to take more risk, or reducing the contract price by taking more risk itself but thereby exposing government to additional costs if such risks eventuate?

Government doesn’t have this choice for a publicly funded delivery model. If the D&C contractor will no longer take certain risks at any price, they will need to be taken by government.

The PPP model, therefore, represents an opportunity for private equity investors to present governments with a better value for money proposition in relation to these risks. But the value for money proposition will turn on the ability of equity investors, through the PPP company, to manage these risks with

D&C contractors more effectively than government can, and the returns that equity providers require in return for doing so.

BREAKING MEGA-PROJECTS INTO SMALLER ONES The emergence of mega-projects has seen governments spread the construction works across several contract packages, rather than combining them into the PPP contract package, as a way of de-risking the PPP package, or to enable smaller or more specialised contractors to compete in their own right and thereby expand the pool of bidders. Recent examples of PPP projects that have employed this strategy include Sydney Metro Northwest, Melbourne Metro, Cross River Rail and North East Link.

But this strategy also brings new risks that must be carefully managed. Most significantly, government ends up needing to manage the contract interface risks between each interfacing contract.

The government agency will need to make promises to the PPP company and each interfacing contractor regarding the scope and timing of the interfacing

works that will be performed by the other interfacing contractors engaged by government, some of whom may be yet to be engaged. If these promises aren’t met, government will be liable to the parties to whom the promises are made and left to recover from the defaulting contractor.

Any liability which government has in excess of the cap on the defaulting contractor’s liability remains with government. This can be a significant risk for government if the value of the defaulting contract (and the resulting cap on the defaulting contractor’s liability) is small relative to the government’s liability to its other contractors that have suffered loss as a result of the default. If the default causes a delay to service commencement under the PPP contract, the government’s liability to the PPP company for loss of revenue and additional financing costs can be massive.

IS THERE A BETTER WAY? Perhaps there is a bigger role for equity and/or managing contractors to play in managing multiple construction contractors. For example, perhaps the

A

Capped liability for default

B

Government promises that the P1 and P2 contractors will complete their works on time and to specification

A

A

Government Agency

B

Debt Financiers

PPP Company

Debt Finance Equity Equity Investors

D&C Contract O&M Contract Contractor for Package 1

Contractor for Package 2

D&C Contractor

O&M Contractor

Figure 3

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RISK MANAGEMENT

contract interface risks could be better managed by a PPP company that has both: • the expertise of a top tier ‘managing contractor’ (either through its employees, or through an outsourcing arrangement) to manage multiple interfacing subcontractors; and • the equity, or recourse to a balance sheet, that can absorb the financial consequences of a failure to adequately manage these risks.

The second element is needed because of the PPP company’s use of limited recourse debt. It won’t be able to borrow the limited recourse debt unless its debt financiers are satisfied that the PPP company has the equity needed to absorb the additional contract interface risks, or has the ability to recover its losses from the party to whom it has outsourced the management of the contract interface risks. Again, this presents another opportunity for equity investors to add value to a PPP by sharing more risk.

There are many top-tier contractors in or looking at the Australian market that could perform the ‘managing contractor’ role.

But managing contractors typically seek to limit their liability by reference to the price they are paid for the performance of their services, which may not provide the PPP company with sufficient recourse. One way to lift the limit on the managing contractor’s liability for its managing contractor services might be for the managing contractor to also perform significant D&C services for the PPP company under a separate D&C contract, and for its potential liability across both contracts to be aggregated based on the combined value of the services under both contracts.

As mentioned above, one of the reasons why governments are creating separate contract packages is to enable certain works to commence before the PPP contract is awarded. This creates a timing issue that would need to be

addressed under the arrangements just discussed, as the early works contracts would be awarded by government ahead of the PPP contract. The subsequent novation of the government’s rights and obligations under the early works contracts to the PPP company (or its outsourced managing contractor) is one potential solution to the timing issue.

Another approach to optimising the sharing of contract interface risk involves the government retaining the risk (in its contract with the PPP company), but then sharing it with a managing contractor. The managing contractor is the one engaged by government to assist it to manage the contract interface risks.

This shields the PPP company’s equity investors and debt financiers from the contract interface risk. Consequently, the PPP company avoids the need to have additional equity, or recourse to a balance sheet that can absorb the financial consequences of a failure of the PPP company or its managing contractor to adequately manage these risks. This approach also avoids the timing issue mentioned above.

Perhaps there is a bigger role for equity and/or managing contractors to play in managing multiple construction contractors.

CONCLUSION The PPP model will continue to evolve in response to market conditions.

The risk allocation re-balance that D&C contractors are seeking present opportunities for other PPP participants to re-optimise PPP risk allocation.

Many participants want governments to take back risks that were previously transferred to the D&C contractor. But opportunities exist for equity investors and managing contractors to manage these risks and earn an appropriate return for doing so, and at the same time reduce the overall risk-adjusted project cost for government and taxpayers.

A

Capped liability for default

B

Managing Contractor promises that the P1 and P2 contractors will complete their works on time and to specification

C

PPP Co promises to manage the P1 and P2 Contract interfaces Government Agency Debt Financiers

C A

Contractor for Package 1

Managing Contractor

B

PPP Company

Debt Finance Equity

D&C Contract O&M Contract MC performs P2

D&C Contractor

Equity Investors

O&M Contractor

Figure 4

Owen Hayford is a Partner at DLA Piper Australia

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THOUGHT LEADERSHIP

MY HOPES FOR THE CONSTRUCTION INDUSTRY POST COVID

BY ALISON MIRAMS AAIQS

Three weeks into the COVID lockdown, I was working from home, I’d had three sleepless nights wondering if construction would be stopped, we were modelling 7 different scenarios and I remember having the very distinct thought – “I didn’t sign up for this as a CEO”. There was no playbook that I could look to. There was no other event in history that I could learn from. This was a true black swan event that no one saw coming.

But as they say, every cloud has a silver lining and COVID-19 has put the construction industry (along with other industries) into the biggest and fastest experiment on flexible working. For the past 20 years, I have heard many dinosaurs in the industry say, “you can’t work flexibly or be part-time on a construction site”. This attitude has perpetuated the gender imbalance as women leave the industry 39 times

faster than men, mostly during their childbearing years, thinking they can’t have a family and be based on site.

COVID-19 has allowed us to test those outdated theories and pleasingly it has been a resounding success. We have developed new ways of working that I sincerely hope becomes the new normal for the construction industry.

It would be such a waste of a bad situation if we didn’t sit back and analyse what we’ve learnt and set some new benchmarks. I am sharing my hopes for the construction industry moving out of the global pandemic known as COVID-19.

1. I hope that the construction industry will actually embrace flexibility.

Companies need to stop talking and pretending they are working flexibly – they need to truly embrace flexibility for all. We have seen over the past three months that you can work

remotely and still build. From the start of March, we asked our engineers, contracts administrators, design managers and project managers to alternate days between the site office and working from home. Sure, it’s had its challenges. We had to introduce virtual meetings and we turned on face time so engineers could see the issues on sites; but our jobs kept moving, we increased the numbers of workers on site and we kept everyone safe. People had time with their loved ones. And people experienced the joy of eating dinner together as a family at least a couple of nights a week.

We have proven flexibility is possible and we have demonstrated it’s not a women’s issue, it’s a people issue. If we genuinely embrace flexibility, it will help to attract more women and keep them in the industry, and we can break the gender imbalance.

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THOUGHT LEADERSHIP

Let’s maintain the focus on people’s health, smash the gender imbalance, and openly and honestly embrace flexible working for all.

2. I hope that people now understand the isolation that an expectant mother experiences. That feeling that everyone felt when we entered COVID and were forced into our homes is exactly how an expectant mother feels.

You are about to give birth, you’ve stopped work to rest, but the days are long. You can’t go shopping as you are not your normal size and god forbid your waters break whilst you are out and there is only so much Netflix and books you can read because you are terribly uncomfortable. Everyone else’s life continues as normal and you are alone at home. It’s lonely and it’s isolating. I hope people now realise why it’s so important for those women that want to return to work, to return to the job they left. It’s a small piece of a mothers’ former life that is so important for them to return to. I have seen many women lose their roles returning from maternity leave and the pain and devastation it causes is wrong. Perhaps this period will give people a different perspective on maternity leave.

3. I hope that clients continue to focus on the health and well-being of construction workers. This pandemic has been a health pandemic.

Everyone has been very focused on staying safe and healthy. Let’s not lose those caring attitudes. I’d love clients to consider, that as the cost of time is so low, that there is no need to push programmes. There was a time imperative when interest rates were at 17%, but there is not now. To be honest – speed is the opposite

of what we need now – as we try to keep people employed. We are seeing people hesitating to return to the office five days a week, but construction workers are working six or seven days a week. People need time to rest and recover. Working five days a week, gives construction workers an additional six weeks of leave per annum. Granted it’s not in one block, but it is still the equivalent of an additional six weeks of rest per annum – that’s a massive increase in rest time that must be good for you. It can’t be solely up to contractors to push this change; I’d love to see clients asking for five-day programmes in tenders and accepting the responsibility of their actions when they want projects delivered in ridiculously tight timeframes. Please don’t lose the focus we have had on people’s health.

We have developed new ways of working that I sincerely hope becomes the new normal for the construction industry.

4. I hope clients don’t take advantage of cheap prices. With the forward pipeline vanishing before our eyes, builders will be keen to fill their workbooks and to keep their good people together. Over many years, construction margins have been squeezed and the risk profile has increased exponentially. Pre-COVID it was not unusual to see contractors making a nett 2 - 3% return. Let’s be honest – with labour prices fixed and supply prices known, any discounting will come from margin and contingency. With margins squeezed so tightly, contractors don’t have the capacity to deal with significant bumps in the road, but

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more importantly, they don’t have the financial capacity to invest in research and development and we are perpetuating an unsustainable industry. We need to take a longterm view on the industry, and not feast on ridiculously cheap pricing.

I’d love to hear clients say, this price is too cheap.

5. I hope that the industry collaboration continues as the new normal. The collaboration between contractors, industry bodies, the MBA and the unions has been simply magnificent.

Let’s stop tearing each other down, let’s raise each other up, and work together so that the industry improves for every single person in it.

After all, we want the same thing – a truly sustainable industry, where we are all valued and one that we can be proud of.

Everyone is saying the world has changed. This is our new normal. Let’s maintain the focus on people’s health, smash the gender imbalance, and openly and honestly embrace flexible working for all. And finally, let’s treat contractors and the entire supply chain with respect and fairness so that together we can develop a sustainable industry for everyone.

What hopes do you have?

Alison Mirams AAIQS is the Chief Executive Officer of Roberts Pizzarotti.

Q&A

CHALLENGING PROJECTS We hand-picked several members of AIQS and NZIQS and asked them to provide us with their insights into the most challenging project that they have worked on and the reasons why.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 11

Q&A

ANNABEL FITZSIMONS NZCQS MNZIQS

GUANGHENG (JACK) TONG MAIQS, CQS

“The most challenging project I have worked on was the restoration and seismic strengthening of a heritage building in Christchurch, to bring up to code for public use following the earthquakes. Working on existing buildings have the ‘unknown’ factor at the best of times, add in secret doors, unreinforced structural brick walls and gables, filled in windows and native New Zealand exposed timber trusses and sarking to be stripped of many layers of paint. There were no existing plans, just a few distant photos which showed only some of the current buildings with openings and chimney stacks that no longer exist, a rare project to be involved with.

Needless to say, there were many calls for site meetings to work through how to deal with unexpected findings on site. The scope of the job was a moving target from day one, there were many variations. The whole team worked with the same goal in mind throughout, correspondence flowed, and the result was a fully compliant, beautifully restored building. The owner’s unwavering commitment along with a passionate team made this a success.

“In my experience as a quantity surveyor, I have worked on multifarious projects ranging from large scale education facilities and hospitals to small offices and ancillary services, however, the most challenging project to date was a luxury residential home. This surprised me as whilst the project was smaller than some of my other projects, it was very complex.

The third challenge on this project was insufficient documentation. An absence of the engineering drawings and specifications meant some of the detailed measurements were inapplicable and therefore a list of assumptions was needed. As this was my first luxury residential home project, I did not have the experience to make suitable assumptions easily.

Firstly, there was the limited timeline.

When the project was assigned to me, I was occupied with other tasks including a bill of quantities and numerous estimates, all with pressing deadlines.

Regarding complexity, although smaller in scale to my usual projects, there were many features and details. For example, there were two different staircases, three kinds of glazing, four types of retaining walls, a lift core, laundry chute, and many other bespoke items. Measuring and pricing such detail was time-consuming.

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This most challenging project was also most satisfying, I’m sure I don’t just speak for myself to say I am proud to have been a part of it.”

Initially I found the project daunting, however, with extra hours and my Director's invaluable advice, I was able to meet the deadline and the clients were impressed by our comprehensive and accurate report.

This experience taught me about time management and that a challenging project is also a great learning opportunity.

Every time we overcome a small challenge, we developed a bit more expertise and confidence. And this, eventually, makes us better quantity surveyors.”

Q&A

“In 2003, I accepted the role of a project based commercial manager from a head contractor, a design and build joint venture between Obayashi Corporation and McConnell Dowell. The project primarily consisted of a power cable tunnel running from a nearby power-station to an industrial zone in northern Singapore.

JAMES FUNGE FAIQS

The project was in its infancy on the day I joined, with the tunnel boring machine only 100 metres into its drive. Within seven days, disaster struck. The machine hit a geotechnical fault which led to severe flooding and eventually, the collapse of the ground and entombment of the machine.

Within 48 hours, the main road, which was located directly above the tunnel subsided, which in-turn ruptured nearby

“A high-rise office complex project with a large contract price was one of my most confronting projects where I was the contractor’s quantity surveyor. As the foundation stage of this project reached its completion, the client was unable to make the progress payments on time.

JAYALATH A. FERNANDO FAIQS, CQS

During this period, there were numerous meetings that I had to attend as well as the constant exchange of many emails and phone calls with the client and the contractor, most of which were far from pleasant. Consequently, the contractor submitted a ‘claim of interest’ for delayed progress payments as per the contract.

Despite the claim of interest and subsequent phone calls, the client was still unable to make the payment. Eventually, the contractor made the drastic decision of suspending the work due to financial constraints. As a result, a ‘termination of contract’ was given by the contractor.

utilities including a high-pressure gas main which exploded. Buildings adjacent to the main road cracked and a number partially collapsed. In a further twist of fate, during the madness of those 48 hours, a concrete delivery driver was tragically killed when a concrete hose pressurised, whiplashed and launched him over a safety barrier which was located 10 metres above the shaft floor.

As a 31-year-old quantity surveyor, I was faced with a situation that could not have been more challenging. All five project insurance policies were triggered, the project was delayed for over a year and four years later, I found myself in the Supreme Court of New South Wales acting as a witness of fact in a litigation battle between insurers. They say that you learn from challenging situations. I certainly did.”

The detrimental impact of late payments and its consequences are demonstrated well in this scenario. These impacts can have a bearing not only to the project’s progression but also on its stakeholders including, but not limited to, the bank, the contractor, and the client. The overall project can be delayed or even suspended. It compromises the goodwill of the client and has a negative impact on the cash flow of both the client and the contractor. The list of damaging effects goes on. The client’s financial stability is a crucial element of a contract.

Overall, timely payment is a vital factor to deliver a successful project and to avoid additional costs.

Through this project, I gathered an extensive array of experience and knowledge regarding how to deal with late payments, as well as how to deal with a stressful, demanding, and unique situation.”

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Q&A

“As a niche business providing structural steel and metalwork solutions to a range of clients, we are often presented with complex projects that have unique characteristics.

Complicated projects demand flexible thinking and creative solutions. In Christchurch, a proportion of our complex work involves the strengthening of old buildings due to post-earthquake engineering evaluations.

MERIAM AL-REHANI MNZIQS

The recent strengthening of a large cool store facility is an example of a project with multiple intricacies.

Tendering was based on drawings created 25 years ago. Work had to take place within a roof space, with no opportunity for pre-tendering inspection.

Site inspection pre-start highlighted

“The SIHIP (Strategic Indigenous Housing Infrastructure Program) was a large-scale program renovating existing and providing new housing and civil infrastructure to many remote indigenous communities throughout the Northern Territory of Australia.

NICKI DOCKERY ANZIQS, REGISTERED QS

A minimal suite of documents and building types were required whilst still achieving budget and program and attempting to meet the diverse needs of the residents and communities.

Consideration had to be made for the transport of appropriate materials, both in cost and time, as well as potential damage from trucking many miles on dirt roads. Material selection had to be robust and easily maintained.

Locations were remote, up to 800km off a sealed road, but also included urban town settings. There were different

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fabrication that deviated from plan, necessitating proactive co-ordination with engineers and construction partners to facilitate timely and practical solutions.

The cool store also presented complexities for environmental reasons. Temperatures had to be maintained at all times, necessitating a very small envelope through which to bring materials. The building was constructed with highly flammable products, increasing fire risk. Working in a confined and elevated space also required continual air quality monitoring and robust risk management procedures.

Finding practical, cost-effective solutions to multiple complexities is a rewarding part of my work, fundamental to the successful delivery of our services.”

climatic regions, and large and small communities with varying levels of available resources.

Temporary accommodation including the provision of meals for the construction team had to be arranged - often as the first phase of building before the actual housing construction could begin.

An important component of the program was the training and employment of local labour in the communities. Community engagement was also crucial to success.

All personnel working on the project undertook cultural awareness courses.

There was learning both ways.

The program had various stakeholders including levels of Government and was undertaken by several alliances.

Teamwork and communication were required for the successful completion of this project.”

Q&A

REBECCA THOMPSON MNZIQS

“As a female in construction for over 25 years I have been a part of many difficult projects, my early career as an electrician saw many physical and psychological challenges. The most challenging project I’ve worked on as a quantity surveyor was the design and build of a school for boys, the demands were both in my personal life and on site. A long journey to and from site, young children at home and studying for a degree meant lots of stressful days.

The project was underestimated. I took over halfway through the build and found myself in the middle of a team that was at odds with each other.

The project was in delay with the possibility of LD’s looming, the

“Every project has its own set of problems. Warehousing construction can be challenging as in the case of the Bush Road development project which is made up of a cold storage warehouse and a two-storey office building.

YVONNE CHAN MNZIQS, REGISTERED QS

The estimating process started almost one year before it could finally take off.

The pricing was initially carried out for three blocks of warehouses. After several design changes and due to the client’s strategic planning, the project was eventually reduced to one block including infrastructure and external works.

At the earthwork stage, the analytical results revealed that the surface soil, up to 150mm thick, had been impacted

specification was very high with stringent quality requirements.

The brickwork subcontractor underestimated their package of works and tried to hold us to ransom. The groundwork contractor went into liquidation before completing their work and our dry-lining contractor threatened an adjudication following a re-measure of their contract works.

The project was a commercial disaster with a -17% margin, however, we did manage to turn the team morale around, please our client and deliver a topquality project.

Hard work, but a great learning experience.”

by the former horticulture use and it no longer met the clean-fill category as defined by the Ministry of Environment.

The managed fill and disposal of the soil were a substantial variation to the works.

The freezer and cold store designs were firmed up a few months into the construction stage. This walk-in freezer and cold store solutions involved a tedious process of constant monitoring and close co-ordination among all parties, including the client, to meet the stringent design requirements.

Although there were a few hiccups resulting in additional costs and extended programme, the project was ultimately completed and handed over successfully.”

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CASE STUDY

COLLABORATION AND INNOVATION: RAISING THE BAR ON HEALTHCARE Building hospitals and healthcare facilities is a complex operation.

When it comes to constructing one of Australia's largest hospital redevelopments, collaboration and innovation are key.

The redevelopment of Westmead Hospital was designed to deliver upgraded infrastructure and new stateof-the-art health facilities, to satisfy the need for a modern, integrated healthcare precinct for the growing Western Sydney population.

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CASE STUDY

Photo courtesy of Multiplex

THE PROJECT In 2014, Altus Group was engaged by Health Infrastructure NSW to provide Cost Management services for the planning phases of the Westmead Hospital Redevelopment.

Extensive master planning options were prepared, and Altus Group was then engaged through the planning and delivery stages for all works including the brand new Central Acute Services Building (CASB), which was procured through Early Contractor Involvement, with Multiplex selected as the contractor for the project.

Currently, the Westmead Hospital Redevelopment has a project value of over $1 billion, making it one of the largest health projects in the state. The impressive multi-stage Redevelopment comprises over 15 stages of works with numerous contractors. The first clinical area to be redeveloped was the expansion of the existing Emergency Short Stay Unit, which commenced in September 2015, and the Healthcare for Older People Earlier unit, to help meet the increasing demand for services.

At a similar time, two other projects commenced in the precinct: The High Voltage Consumer Main Upgrades and Early Works package.

HIGH VOLTAGE CONSUMER MAIN UPGRADES (SEPT 2015 – MAY 2016) Stowe Electrical commenced a complex upgrade of critical high voltage power infrastructure in the zone substation to ensure there was sufficient capacity for the precinct’s current and future power needs.

EARLY WORKS (OCT 2015 – MAR 2017) The Early Works package included the construction of on-grade car parking, extension to road networks, extensive services trenches and reticulation of services for the CASB and future projects in the precinct. It also comprised decommissioning, demolition and replacement of old Hospital cooling towers, installation of oxygen vessels and compound, upgrade of the existing natural gas main and extension of the existing meter.

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ENABLING WORKS (MAY 2016 - JUN 2017) The Enabling Works package comprised relocation of Newborn and Paediatric Emergency Transport Service (NETS) to Bankstown Aerodrome, demolition of NETS and the existing multi-storey car park, installation of a pre-fabricated helipad on the existing Hainsworth Street car park, services infrastructure (including pipejacking of the huge stormwater pipework underground from the CASB site to Toongabbie Creek), and general site clearance in advance of commencement of the CASB.

EDUCATION AND CONFERENCE CENTRE (FEB 2017 - NOV 2017) & RESEARCH INSTITUTE (FEB 2017 - MAY 2018) The Westmead Education and Conference Centre (WECC) and Kids Research Institute (KRI) are significant examples of innovative, forward-thinking educational facilities. The WECC project is a partnership between Western Sydney Local Health District (WSLHD) and the University of Sydney (USYD). It comprises four new teaching areas, including case study rooms and

CASE STUDY

a small amphitheatre for collaboration.

WECC facilities are available for USYD and WSLHD staff and students for education, training and research. Similarly, the KRI project is a collaborative and integrated teaching facility. The refurbishment of the office and clinical space within the KRI involved a new reception and entrance, along with a new flexible work environment with a high focus work zone and a hub for socialising, collaborative work, meals and events. The 10 new meeting rooms include conference rooms with advanced Audio Visual capabilities and small rooms for informal discussions.

CENTRAL ACUTE SERVICES BUILDING (NOV 2017 - JUN 2020) The most high-profile component of the Westmead Hospital Redevelopment, the 14-storey Central Acute Services Building completed in June 2020. The CASB is a collaboration between Westmead Hospital, The Children’s Hospital at Westmead, the University of Sydney and Health Infrastructure. The CASB pays tribute to Australia's indigenous history, with the inclusion of artwork and reflective spaces including the Cultural Gathering Place Garden, which features Aboriginal sculptures.

The new Hospital building comprises: • two new emergency departments (one for adults and one for children) • digital operating theatres • inpatient units with comfortable, modern patient bedrooms • expanded, state-of-the-art pharmacy and medical imaging services • cardiac inpatient units • sterilising service • NSW infectious diseases unit • a new helipad • one-and-a-half floors of lecture/ teaching space (occupied by the University of Sydney)

• a new entry plaza and forecourt featuring landscaped green spaces and connection points to the Parramatta Light Rail and the future Sydney Metro West.

The facilities within the Westmead Redevelopment precinct are not only at the forefront of tertiary and quaternary healthcare in NSW, but also play a significant role in the advancement of education, training and medical research within the state. Designed and constructed in partnership between WSLHD, Sydney Children’s Hospitals Network and the University of Sydney, the integration of USYD into the CASB will create a central collaborative space.

Connected to the new Hospital building is the Westmead Innovation Centre, which, combined with the CASB, covers an area of 83,500 square metres. The Innovation Centre aims to tap into the precinct's existing expertise across the healthcare, research and education sectors. It will provide a space that fosters new ideas to solve the health problems of today and the challenges of tomorrow.

It will provide a space that fosters new ideas to solve the health problems of today and the challenges of tomorrow.

REFURBISHMENT WORKS There are three distinct stages of refurbishment works. Each stage has numerous milestones, which are located in different departments throughout the existing Hospital. Stage 1 and 2 are now complete, with the final Stage 3 due to commence in Q3 2020.

Some of the departments include: • gastroenterology • inpatient units • audiology • intensive care unit • transit lounge • respiratory • operating theatres • cystic fibrosis.

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CASE STUDY

Photo courtesy of Multiplex

KEY CHALLENGES SIZE The site area for the Redevelopment covers approximately 32 hectares.

Working on such an immense operational Hospital site, as well as dealing with numerous contractors at various locations throughout the precinct, was a challenge. Providing staff continuity and having staff based onsite allowed us to keep in touch with all aspects of the project and ultimately help control the project costs and budget, while also allowing Altus to build strong relationships with the design team, contractors and client, which created a great working environment and team atmosphere.

STAGING AND FUTURE-PROOFING Staging and future-proofing for the proposed and future developments in the precinct was a significant consideration and challenge at the outset. As part of

the early works package, an extensive service trench network was constructed on the site to ensure that the proposed developments could be serviced appropriately. These trench networks have been designed with additional redundant conduits to cater for future developments. This came at additional expense to the project but avoided abortive works in the long run.

Another example of forward-thinking is the road widening works on Hawkesbury Road for Parramatta Light Rail. Health Infrastructure completed these works on behalf of Transport for NSW, which included relocating utilities and parking, modifying and installing traffic lights, footpaths, street lighting and landscaping to enable construction and operation of the Parramatta Light Rail. The retaining walls between the boundary of Hawkesbury Road and the Westmead Adult Hospital were a key feature of the design. They were designed and constructed in a way that would allow a contractor to excavate and build a basement underneath the adjoining public footpaths without impacting them.

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This came at additional expense to the project but avoided abortive works in the long run.

CONNECTIVITY Maintaining connectivity between the Westmead Adult Hospital and Sydney Children’s Hospital was critical to Hospital operations, however, the proposed location of the new CASB would break that link. The solution was to provide a temporary linkway between the two buildings. This suspended linkway comprised nine 12-metre shipping containers extending more than 108 metres in length and was constructed through the middle of the live site. The CASB was designed and constructed around the temporary linkway, which was then removed at the opportune time. With the CASB now complete, staff, patients and the public can move freely from Westmead Adult Hospital to the Sydney Children’s Hospital.

CASE STUDY

PROJECT SUCCESS Altus Group was directly involved in the establishment of the overall project budget for the Westmead Hospital Redevelopment, which has been maintained over the course of the project's detailed planning and delivery.

The sheer size of the project and the expanse of the site required highly accurate cost estimating, contingency and escalation cost allocation, along with reliable, complex cost reporting.

Being the single Cost Manager across the entire project enabled effective coordination and management of many concurrent packages of work across the operational Westmead Hospital site. It also provided a great learning opportunity for the health team, whose role involved managing various stakeholders throughout the multi-stage Redevelopment, which is one of the first Health Infrastructure jobs to have a dedicated onsite project office. This has further expanded Altus Group’s health sector knowledge and experience in best practice and efficient processes

for communication. As a result of our comprehensive role, Altus Group has gathered extensive health sector cost data, which has been captured for future benchmarking.

Major construction of the CASB was finished three months ahead of schedule.

The handover of the building for early usage will help manage any COVID-19 surges in Western Sydney and provide much needed services for the community.

The project has been well received by key stakeholders who appreciate the depth of the scope of services and the challenges of delivering multiple projects within the operational Westmead Hospital precinct.

Graeme Loy, WSLHD Chief Executive explains: "It reflects thousands of hours of work from so many people over several years – including our staff and the local community who provided input into the design, as well as the dedication of the project consultants and builders."

The Westmead Hospital Redevelopment is the largest infrastructure project the Altus Group health team has had the pleasure of being involved in. Reflecting on Altus’

delivery of major facilities for the precinct, Alan Fox, Altus Group’s Director and health sector team leader states: "I have considered it a privilege to be involved in this once in a lifetime project and take pride in knowing that it will continue to deliver high-quality healthcare to patients for decades to come.”

As a result of our comprehensive role, Altus Group has gathered extensive health sector cost data, which has been captured for future benchmarking.

This article has been supplied by Altus Group. www.altusgroup.com

Photo courtesy of Multiplex

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SKILLS

THE QUANTITY SURVEYOR AS A MULTISKILLED CONSULTANT AN OPINION PIECE

BY ADWOA ABBAN MAIQS, CQS Is the quantity surveyor (QS) task only restricted to just surveying quantities such as cost planning and bills of quantities? Why put the QS in a “box” when you can get most out having a QS on your project or your team. The skillset for a QS is diverse and can assist with everything cost-related from project

inception to final account as well as contracts and dispute resolution.

The QS is trained to be a multiskilled disciplinary in all aspects of the project to ensure the project runs smoothly. In Europe and Africa, there are specific quantity surveying degree courses

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designed to train and empower the students in with all the diverse skillset to understand all aspects of the project and function as an excellent and productive member of the project team and the same applies to students studying construction management in Australian universities.

SKILLS

Why put the QS in a “box� when you can get most out having a QS on your project or your team.

The QS is most suited for any cost and contract related role in the project lifecycle, such as estimator to contract administrator to a commercial manager, project controls and claims management (with adequate experience). However, in most cases, the QS is underutilised, and the scope of works is limited to just cost planning, and the majority of their responsibilities have been allocated to other professionals. Why this is the case is unknown; however, the impacts of not having a QS throughout the project have been disastrous. Some people are of the view that the name QUANTITY has limited the extent of the QS or is it a camouflage to hide the fact that the industry does not understand the diversity of the QS and the benefits they bring to the project.

As a QS and a quantum claims consultant, my role varies from client to client and project to project and from which phase of the project life cycle I am called to assist.

The tasks range from cost plan, bills of quantities contract administration, variation assessments to quantum assessments for claims as well as an independent thirdparty evaluation of progress claims or expert determination. Regardless of which phase of the project I am called, the goal is to ensure cost certainty. In addition to that, my role as a dispute resolution professional is built on having a quantity surveying knowledgebase.

In a recent role for a client, the scope was to prepare a cost plan, including a material schedule, direct labour and plant required which includes man-hours, together with a programme of works and cash flow analysis. Also, provide ongoing support to monitor the project.

By working out the man-hours and with

the understanding of the construction process, putting the programme of works together is the next progressive step then out of that, the cash flow can be produced. This role has shown the diverse skillset and the benefits a QS can be to your project and your team. The question is, would a company consider the QS for other roles other than what the traditional QS does or perhaps the QS comes to mind only when cost plan or bills of quantities is required, or multiple claims and disputes are on the horizon?

... a QS MUST have an indepth knowledge of the project to understand the design intent.

As a QS you are characterised by all the above tasks except for the programme of works. In my opinion, a QS MUST have an in-depth knowledge of the project to understand the design intent. With that knowledge, you would be able to understand the various aspects of the project, the sequence of the construction process, identify, take off and price missing items and contingencies. The QS, unlike other professions in the industry, is present from the project inception untill completion and handover, in the event of a dispute the QS is called on to assess the quantum aspect of the works.

From the project design phase to the construction phase, and during the use of the facility, the importance of the QS is evident whether you are a PQS or a contractor QS. The goal is to maximise the budget to ensure the project completes within the budget, and the project is value for money.

Adwoa Abban is a Director at Quantum Phases Consortium Pty Ltd.

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BENCHMARKING

WHAT DOES A “GOOD” PROJECT LOOK LIKE? TEN COMMON BENCHMARKING MISTAKES

BY AILEEN JAMIESON, MATT BILLINGHAM MAIQS AND BRADLEY FARRELL When you benchmark your project cost and schedule, what would you like the results to tell you? Are you focussed only on being faster or cheaper than your previous projects or an industry benchmark? How would you respond if your project sits out of the expected

cost range or took six months longer to complete?

This article examines the ten most common mistakes made by owners when benchmarking, perhaps due to a perception of “what good should look like”.

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it is extremely important to ensure you are comparing project data on a likefor-like basis.

BENCHMARKING

Conversely, when your project benchmarks below the industry trend do you automatically pat yourself on the back and assume you’ve done well or interrogate the data to ensure you are not missing some costs from the comparison?

2. NOT COMPARING THE SAME SCOPE It goes without saying that when comparing building construction costs, the benchmarked projects should be within the same asset class; hospitals, schools, offices, etc.

In the build environment and especially with new build real estate assets, it’s important to ensure that peripheral scope to the building works is treated in a consistent manner. Common examples of benchmarking scope inconsistencies include external works, furniture, fixtures and equipment, and tenant fit-out (for office developments). For refurbishment projects, scope inconsistencies such as work to the existing building fabric and central plant can lead to misleading benchmark comparisons.

Similarly, in the infrastructure space, metrics for the relocation of utilities are a prime example of where owners struggle to compare a like-for-like scope. Owners understand that utility relocation can be an especially complex undertaking in inner-city locations. The drivers of complexity being the type of utilities,

costs compared to equivalent surfaces in traditional road settings.

3. FOCUSSING ONLY ON THE NUMBERS AND NOT THE CONTEXT Context is king. A common mistake is only focussing on the numbers without understanding the context behind them. A good example would be only looking at a ‘road construction cost per kilometre’ without understanding the geographic location of the road. While road benchmark data often distinguishes between urban and regional locales, there are many roads in Australia that are truly classified as remote, with commensurate higher costs. In such circumstances, the context is key to understanding the numbers.

In the same vein, if you have not defined all your parameters consistently, are you confident in what the numbers mean? What does the ‘pavement cost per kilometre’ tell you if you do not know the specification of the pavement being laid? For example, road surfaces built below the normal groundwater level have different specifications, compositions and

In the case of property projects, the building location can have a significant impact on construction costs.

Constrained inner-city brown-field sites will typically attract higher costs than green-field sites.

4. OBSESSING ABOUT THE COST/M2 DATA WITHOUT CONSIDERING THE COST/VALUEDRIVERS Benchmarking construction costs for property projects usually centres on $/m2. Whilst this is an important metric, owners often overlook the importance of understanding the cost drivers associated with particular asset types and the value derived in use. For example, an office fit-out that can accommodate a higher density of workers through the provision of flexible working space may have a higher construction $/m2 but be less expensive on a $/occupant basis. So, whilst the construction costs might appear higher than comparator projects, they offer a lower cost/higher value solution. This is shown on the chart where projects 7, 8 and 9 all have similar construction cost/ m2 but show quite different costs when measured per user.

New Build Office Fit-Out

$4,000

$45,000 $40,000

$3,500

$35,000

$3,000

$30,000

$2,500

$25,000 $2,000

$20,000

$1,500

$15,000

$1,000

$10,000

$500 $0

Construction Cost ($/user)

Benchmarking doesn’t determine right from wrong for your project, although it is often interpreted that way. It should be a tool that provides a sense check and allow project teams to be proactive, rather than reactive. If your project benchmarks above a historical or industry trend, do you understand and can explain the reasons why?

their age/condition, and the reliability of the utility location information. All of this leads to significant variation in the scope of works for utility relocations, confounding the efforts of owners seeking like-for-like cost comparisons.

Construction Cost ($/m2)

1. BELOW TREND IS GOOD, ABOVE TREND IS BAD

$5,000 Project 1

Project 2

Project 3

Project 4

Project 5

Project 6

$/m2

Project 7

Project 8

Project 9 Project 10

Project 11

$0

$/user

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BENCHMARKING

5. INCORRECT/NO ESCALATION OF DATA TO COMMON CURRENCY AND TIME PERIOD

7. MANIPULATING THE TREND (CHANGING OUTLIERS OR COMPARATOR PROJECTS)

Data can be collected and stored for projects in any location around the world.

This results in cost data being collected at different time periods and in different currencies. Therefore, it is extremely important to ensure you are comparing project data on a like-for-like basis.

“If that project wasn’t included in the dataset then my project would look better”. A benchmarking metric should be impartial, and not created to make any one project look better than another.

Check the base date of your costs.

Ensure it is at the same time period as your comparator data and in the same currency. Do not include future escalation in your estimate - while there is a good chance that some contractors will have factored it into their bids (particularly late execution tasks), you should be comparing what the project is estimated to cost now versus comparators at today’s money.

6. OMITTING CONTINGENCY FROM YOUR ESTIMATE Always include contingency in estimated costs. Contingency is an amount of money added to an estimate to allow for items, conditions or events for which the effect is uncertain and that experience shows can result in additional costs. It is money that you anticipate will be spent while executing the project, even if you are not entirely sure what it will be spent on. Your comparator data should be actual costs, who will have spent most, if not all, of their contingency.

Contingency usually excludes: 1. Major scope changes such as changes in specification, capacities, building sizes, and location of the asset or project 2. Extraordinary events such as natural disasters 3. Management reserves 4. Escalation and currency effects.

Another common mistake includes cherry picking the best (or worst) projects for comparison against, to influence how your current project will look. Historical projects to be used as comparator data should be selected to ensure that the technical characteristics are as closely matched to the project being benchmarked as possible.

8. ASSUMING QUANTITY OVER QUALITY Some people think a metric is only valid with large numbers of projects to make it statistically significant. When a statistic is significant, it simply means that you are very sure that the finding is reliable. It doesn't mean the finding is important. While there are a minimum number of datasets required for good benchmarking (and from the right number of owners to comply with antitrust legislation) it’s better to have a smaller number of identical comparator projects rather than a large set of vaguely familiar projects.

9. BIAS/SELECTIVE VISION (CHOOSING THE “BEST” METRIC) When we don’t like the results of benchmarking, our natural inclination is often to look for a different metric that might give a better result.

If you’re using benchmarking as part of a concept screening process, then there is no reason why your project should always be within a specific range from the trend (a root mean square error is often used to indicate the spread of data). However, if your

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project is approaching final investment decision, there may be a more implicit pressure to show your project in the best possible light.

Ask yourself why you want to look at different metrics – confirmation of what you already know or because you don’t like the look of what you have?

Precision ranges are intended to give an indication of the possible range of typical behaviour and are not hard limits of acceptable costs/schedule.

10. ONLY BENCHMARKING INTERNALLY Internal and external benchmarking can be uncomfortable bedfellows, because they sometimes paint very different pictures. That should be a positive thing, provided that those differences can be explained. External benchmarking can identify best-inclass performance, provide stretch targets and challenge your internal views. If you only benchmark your projects against your own historical data, then you are in danger of repeating the same results and potentially being consistently different from your peers.

CONCLUSION When the pitfalls outlined above are avoided, benchmarking is a valuable tool that aids better decision making, increases client confidence and enables project performance to be improved.

It is important that benchmarking is supported by reliable data coupled with an understanding of the cost drivers associated with the asset type.

When these ingredients are in place, benchmarking can give owners and their advisers a roadmap to driving value optimisation from their capital projects and programs.

Aileen Jamieson, Matt Billingham MAIQS and Bradley Farrell all work at Turner & Townsend.

THOUGHT LEADERSHIP

BUILD A BETTER CONSTRUCTION INDUSTRY

BY MIKAEL HEINONEN AAIQS, CQS CONSTRUCTION The New South Wales Government recently passed legislation aimed at restoring confidence in the construction industry after serious safety concerns were raised at Opal and Mascot Towers in 2018 and 2019 respectively, whilst also looking to provide a timely boost in stimulating the stagnant economy following the COVID-19 lockdown.

These events were not isolated, with industry confidence already eroded prior from major building fires linked to non-compliant building products

at the Lacrosse Tower in Melbourne (2014) and the Grenfell Tower in London (2017). These fires were a catalyst for the “Building Confidence Report”¹

by Prof. Peter Shergold and Bronwyn Weir published in April 2018 (with the UK publishing its own report around a similar time frame) recommending changes to building practices, culture, and regulatory oversight.

Whilst strong momentum has been built in addressing the problems stated above, recent legislation albeit welcomed still only papers over the symptoms of an industry that is showing signs of stress.

A SYSTEM UNDER STRESS The construction industry is a complex system, made up of individual interconnected parts. Addressing individual parts of a system without considering the whole and how they interact is futile as famous organisational theorist Russell Ackoff highlights…

"A system is never the sum of its parts; it’s the product of their interaction."

Poor cost and performance on projects continue to plague the industry, putting strain on the system. Projects are often

¹ https://www.industry.gov.au/sites/default/files/July%202018/document/pdf/building_ministers_forum_expert_assessment_-_building_ confidence.pdf

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THOUGHT LEADERSHIP

subjected to a common spiral of blame relationships that is detrimentally impacting productivity, morale and consequently successful project outcomes.

The construction industry globally has been an ongoing case study with many reviews conducted over the years, and McKinsey & Company published a report in 2017 titled “Reinventing Construction Through a Productivity Revolution”² showing that the industry has been plagued with poor productivity for decades, and continues to fall further behind other industries such as manufacturing in productivity growth. The report also highlighted that construction is amongst the least digitised industries in the world, firmly rooted at the base of its digitisation index.

These points are further supported by other recent independent reports such as Infrastructure New Zealand’s 2018 “Creating Value Through Procurement”³ and Institute of Chartered Accountants in England and Wales's 2019 “Audit Insights: Construction”⁴ both highlighting that value continues to be leaked or eroded due to high levels of mistrust between parties which then frustrates collaboration and prevents innovation.

However, these results have not been through any lack of trying, just in the wrong areas and the wrong way.

A HISTORY BUILT ON EMBRACING THE STATUS QUO Much of the developed world underwent a significant period of advancement from the late 19th century until World War I during what is known as the Second Industrial Revolution. During this time, inventors improved manufacturing processes and materials like massproduced steel became commonplace and laid the foundations to what the construction industry is today.

The early manual labour in construction suited the male physique and when coupled with the "stay at home mum" mindset of the day, it has reinforced masculinity within the industry. The remnants of this legacy are still present today and are potentially part of the reason why change including the adoption of innovation has been so lethargic to date.

There are industry advocates such as the National Association of Women in Construction who are driving for positive change through increased diversity, but progress is slow. BDO Australia released results of a recent construction survey⁵, that indicated female representation within the construction industry remains stubbornly low at 18%. This limited perspective and lack of diversity only continues to reinforce a lack of change mentality via a reinforcing loop.

What the industry is missing out on is that diversity brings alternative perspectives and a sense of balance to the industry. Diversity helps to not only in drive positive change through creativity for innovation, but also in tackling negative aspects through constructive dissent i.e. helping validate and enrich decision making. Through diversity and alternative perspectives, people can build a greater understanding of where others are coming from, opening the door for empathy. Empathy then leads to trust, which is a requirement for collaboration.

And without collaboration, there is no spark for innovation.

Unfortunately, it is not as simple as just improving diversity and everything else will align. As Donella Meadows states that if the players fit into the same old system, changing the players in the system is a low-level intervention.

Meaning it is likely that over time any new players will adapt to suit the system rather than change it.

By uncovering some of these commitments and aligning them to the habits of the past perhaps we can build toward a conversation.

AN INDUSTRY THAT IS ALWAYS READY FOR A FIGHT The industry continues to have long and expensive vetting processes in contracting which conclude with hard negotiations, squeezing out every last drop. Contractors (and similarly subcontractors) are seen as “easily replaceable” with relationships kept at arm’s length. This is all from the pages of history, with the "gotta be tough to survive" mindset forged into the very DNA of the construction industry.

So, do businesses play hard because it is an ingrained habit from history or is it caused by continued low margins plaguing the industry or both?

Regardless of the cause, the reality is that the adversarial nature and focus on the lowest costs have caused another reinforcing loop within the industry, expressed in how contracts and risk allocation are approached.

The traditional transactional type of contracting commonly adopted by the construction industry erodes performance as explained in the whitepaper “Unpacking Oliver: 10 Lessons to Creating Better Outsourcing Agreements”⁶. Some of the industry's poor performance can be attributed to what the whitepaper above labels as "shading", which is a retaliatory behaviour where one party stops cooperating, ceases to be proactive, or makes countermoves. Normally, it occurs when the one-party believes they are not

² https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/reinventing-construction-through-a-productivity-revolution ³ https://infrastructure.org.nz/resources/Documents/Reports/Infrastructure%20NZ%20Procurement%20Study%20Report%20FINAL.pdf ⁴ https://www.icaew.com/technical/audit-and-assurance/audit-insights/audit-insights-industry-sectors/audit-insights-construction ⁵ https://www.bdo.com.au/en-au/constructionsurvey2020 ⁶ https://www.vestedway.com/

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THOUGHT LEADERSHIP

getting the outcome they had expected from the deal, then cutting back on their performance in subtle ways, sometimes even unconsciously, to compensate.

Ultimately, contracts should be used as a framework, not a weapon, but this requires a paradigm shift across the industry.

WHY THE SYSTEM HAS NOT BEEN FIXED YET There are many failure archetypes at play within this system, but one that is at the forefront is “Fixes That Fail”.

This archetype diagnoses the pattern of behaviour within the system where a quick fix is implemented to make a symptom go away. However, these actions trigger unintended consequences that make the original symptom reappear after some delay, often worse than before.

This can be depicted in Figure 1.

For example, the various state-based legislations for security of payment.

There has been ongoing tinkering to this legislation, "plugging the holes of the dyke" where participants of the system are found to not be conforming to the way it intended but rather how it had been designed. Without being too critical, the legislation has fulfilled much of its original intent that is to free up cashflow within the industry, but it has only addressed the symptoms and not the real root causes of system failure, which include low margins and an industry low on trust. So, whilst changes to legislation may be well-intentioned, they are often not the most effective way to intervene in a system and in some instances may have unintended consequences.

For greater impact, a holistic approach is needed with a paradigm shift in thinking.

One where objectives of the construction industry can be better understood, to find a more sustainable common purpose.

However, the construction industry carries a heavy immunity to change which impacts any transformation effort.

IMMUNITY TO CHANGE Kegan and Lahey in their Harvard Business Review article titled “The Real Reason People Won’t Change”⁷ refer to an inbuilt “immunity to change” that individuals and organisations have, which prevent real change from occurring even when the motivation, time and resources are available. Overcoming any immunity to change requires engaging with a complex web of competing commitments and assumptions.

For most organisations within the construction industry, competing commitments are likely acting as a form of self-protection because of the way the system operates through the reinforcing loops identified above. By uncovering some of these commitments and aligning them to the habits of the past perhaps we can build towards a conversation.

A conversation on what is the broader purpose of the system, to build better a construction industry.

TOWARD A BETTER CONSTRUCTION INDUSTRY By using the sentiments from Russell Ackoff, the construction industry should re-examine its objectives rather than look at the efficiency of the objectives. What should the objectives of the construction industry be? Is it one where "confidence" is ever-present and industry participants do the right thing as a default rather than doing wrong things right? Confidence in the industry will only be brought about by the relentless investment in building trust which will allow a move from adversarial to collaborative approaches.

PROBLEM

SHORT-TERM FIX

DELAY

UNINTENDED CONSEQUENCES

Figure 1

Trust is central to any change which is constructed with authenticity, logic and empathy all being required with transparency and vulnerability as precursors. Beyond trust is when collaboration can be embraced, and then true innovation realised. It is then that the concept of industry 4.0 can then be embedded into the system noting there will still be a lag as transformation takes time.

Then finally beyond that, broader purpose and objectives of the industry as determined by the industry can be realised as a stable part of the system.

Mikael Heinonen is a Certified Quantity Surveyor and co-creator of www.thebuildbetter.network a global construction industry advocacy forum which is helping facilitate conversations across all parts of the industry to build a better construction industry. Mikael is on the AIQS Technology and Innovation Committee.

⁷ https://hbr.org/2001/11/the-real-reason-people-wont-change

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 29

CONTRACTS

NEC REALITY CHECK

BY PHILIP ADAMS MAIQS, CQS

The NEC suite of contracts is very well intentioned and would no doubt improve things if implemented unamended.

However, therein lies the main problem and it’s the same problem that affects every other standard form contract around the world.

Consider for a moment one of the NEC’s main principles, it is virtually impossible to compel parties to act in a spirit of mutual trust and cooperation; either they do, or they don’t! The NEC endeavours to provide some contractual teeth to this overriding spirit with condition precedents aimed at the project manager (e.g. 61.4, 62.6 and 64.4), but in practice these clauses rarely stay intact and tend to be amended or deleted, leaving the underlying principle somewhat isolated.

Compensation events are assessed at the dividing date, in most cases the date of instruction, and once agreed there is very little scope to revisit the assessment. In preparing assessments, contractors include ‘for risk allowances for cost and time for matters which have a significant chance of occurring’ (clause 63.8), and after implementation, it is ‘not revised except as stated in these conditions of contract’ (clause 66.3).

The project manager is required to state assumptions upon which the assessment should be based, effectively providing direction; and if such assumptions are subsequently corrected then this becomes a compensation event in itself (clause 60.1(17)).

The NEC explains the principles behind the above. It is intended to ‘stimulate

foresight’, enable the employer to make decisions ‘with reasonable certainty of the cost and time implications’, and ‘put a risk on the contractor which is tolerable and motivates him to manage efficiently’.

Unfortunately, in practice, neither the project manager, employer or the contractor seem to understand this relatively simple risk share principle.

Contractor’s initial assessments tend to be too global and incorporate ‘on account’ sums. The project manager then tends to erode the assessment due to lack of substantiation, until eventually the assessment reverts to something closer to the actual cost. The project manager rarely states assumptions and matters therefore remain vague, no doubt in the hope that a ‘wait and see’ attitude will have a positive outcome when invariably the opposite occurs.

Consequently, there can be no cost or time certainty for the employer and little motivation for the contractor.

Furthermore, the definition of disallowed costs under options C and D includes costs which the project manager decides ‘is not justified by the contractor’s accounts and records’. Unfortunately, these provisions tend to be used to revisit assessments and this doesn’t sit well with clauses 63.8 and 66.3.

Finally, under option C (target cost contract with activity schedule) assessments are there to increase or decrease the target price, and therefore have limited bearing on the final cost of the works other than as an incentive for the contractor. However,

again this concept is often misunderstood, and the project manager seeks to erode the assessments to actual cost. In my experience option C projects administered as normal cost-plus contracts result in no gain and a lot of pain!

Unfortunately, in practice, neither the project manager, employer or the contractor seem to understand this relatively simple risk share principle.

In conclusion, contractors must ensure that the compensation events are priced properly and timely. If there are multiple compensation events the process can become quite complex and therefore, contractors should ensure they allocate adequate commercial and programming resources. If insufficient information exists regarding a compensation event and the project manager is not providing clear direction, contractors should be proactive and prepare their own list of assumptions so that the project manager is clear from the outset where the risks lie.

Philip Adams MAIQS, CQS is Director and Principal at Shared Vision Solutions.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 31

CASE STUDY

AUCKLAND CITY MISSION: HOMEGROUND Landmark. Groundbreaking. Leading edge. These are often-overused words in the world of development and construction. However, in the case of the new NZ$110 million housing and social services facility for Auckland City Mission, they are not just a fair description of ambition in action, but the starting point for a truly impressive accomplishment emerging in central Auckland.

One of Auckland’s best-known social service providers, Auckland City Mission was established in 1920. A century on, the Mission delivers daily on its purpose to help people in desperate need; rough sleepers, isolated elderly, people living in cars, battling addictions, living with mental health issues, or struggling to feed their families.

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Over time, the Mission’s central Auckland facilities had developed an increasingly urgent need to be upgraded. In 2007, a design competition to create a new complex was won by Stevens Lawson Architects, and a vision was born for Mission HomeGround: a new multi-storey facility to provide integrated wraparound services

CASE STUDY

and accommodation for some of the city’s most vulnerable people - and a structure designed and built in a more sustainable manner.

Fast-forward 13 years, and the vision is now becoming reality. Work is well underway on site to build the ninestorey structure, the tallest building in New Zealand to use cross-laminated timber for its core strength.

Based on successful international supportive housing models, the precinct will be a place where the Mission can support, share and connect with those who need it most. It will be a thriving community hub featuring 80 apartments to provide safe, permanent homes for people experiencing homelessness.

The precinct will offer low-cost medical treatment from its health centre and pharmacy, wholesome meals in its community dining room, dedicated activity spaces and a community rooftop garden. A state-of-the-art 25-bed social and medical detox unit will be across two floors, with space for 250 admissions annually.

Intimately involved in Mission HomeGround, the project has involved a wide range of the team’s skillsets, from estimating to bank funding and pre-condition reports reviews, and postcontract skills now being applied daily as the team works to help the Mission deliver this landmark project within an evolving, fundraising-driven budget.

a large scale. CLT is undoubtedly the answer to building sustainably, adding value to a natural, renewable resource through technology - as well as fast, safe, economical and good for the planet.

Importantly for the Mission, it’s also an incredibly robust and hard-wearing material - vital given the building will be a busy hub for many people.”

Brett Zeiler, who leads the post-contract quantity surveying work for White Associates on the project, says that the challenges come in three main flavours: firsts, fire and funding.

However, anyone who has been on a construction site knows that new materials or methods can add dimensions of uncertainty and risk, all of which can add time and cost to a project.

FIRSTS “Firstly”, says Zeiler, “this project is one of the tallest timber buildings in New Zealand. It is revolutionary in its use of Cross Laminated Timber (CLT) on such

“Because the structure above Level 2 is made out of timber, the team has had to put some serious time and effort into understanding it, with meetings with producers XLam to gain specialist knowledge of the system and the construction methodology.

“To say HomeGround is an ambitious project is an understatement, but we know its benefits will be reaped for many years. It’s incredibly important that we create a space which upholds the dignity and mana of the people who will frequent it,” says Auckland City Mission CE, Chris Farrelly. “With a fantastic and dedicated team, the project is progressing incredibly well. Those involved really understand our vision and how to get there with the greatest of care.”

AMBITION = COMPLEXITY = QS CHALLENGES As often happens, with pioneering ambition comes complexity and challenge. This project is not short of any of them, as Auckland cost consultants and quantity surveyors White Associates have come to know.

Auckland City Mission project sketch.

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CASE STUDY

“Now, however, as the build progresses the team are getting to know the product, and we are all becoming comfortable with it and the installation methodology. That has been a highlight of the project; being exposed to how it works, how it affects different elements of design, and seeing how the consultancy team have dealt with all of the new systems involved.”

FIRE Fire rating requirements were a related challenge, adds Zeiler.

“One of the major elements was understanding how key requirements for the timber structure differed from the conventional steel and concrete. This involved understanding how Council was treating the fire design and the implications on design and cost. We went through the design options and carried out a cost analysis, presenting the most cost-effective options to the team.”

The process involved considerable interaction with the fire engineers and the architects, he adds. “We worked through numerous options and gained valuable insight into the inner workings of the fire requirements with a CLT system. We overcame what was definitely a hurdle at one stage.”

FUNDING AND PROJECT CASHFLOW One of the continual challenges on a project that involves significant and ongoing public fundraising is cashflow funding, says Zeiler.

“The Mission has undertaken fundraising for different aspects of the project from generous members of the public, companies and grants from Foundation North, Auckland DHB, council and government.

There’s no doubt that multiple sources of funding have introduced complexity.

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CASE STUDY

“We need to honour the generosity of the donors and ensure all funds are used for their intended purposes. We therefore work alongside the contractor, getting prices in for trades so we can split out required levels of cost. This has involved collaboration with the contractor to extrapolate the required information and present it clearly. Our bank funding team has been extremely helpful in this area.”

Zeiler adds that the team has worked closely to inform the Mission on their cashflow forecasting.

VALUE THROUGH PROCUREMENT AND ENGINEERING The procurement process was a key lever in maximising the use of funds, as well as the project’s overall potential, Zeiler adds.

“To gain an early start we tendered a P&G

Margin contract to get a contractor on board, and then tendered trade packages until we had a 60% lump sum before commencing on site. This was a fairly unique process, to maximise value within our timeframe. Since then we have been working on an open book basis to procure the remaining 40% of trades.”

Value engineering has also played a significant part of White Associates’ role.

“As we have been dealing with public money and donations, we have run a value engineering drive. This has focused on targeting a level of spec in the building that is appropriate for its intended uses, prioritising durability, longevity, always being cost-conscious - targeting the right cost for the right design life.

“The procurement process has also allowed us insight into the design. We have been able to review designs and

provide cost-conscious alternatives to the client, then engage in active talks with the contractor to improve buildability and cost savings.”

This approach has required a solid and collaborative team, he adds. “The team has been really good. Everyone from the architects to the engineers understand what we are working on and why it is important. This has kept the Mission and the outcome of the project at the forefront of every meeting.”

COVID CURVEBALLS The Level 4 COVID lockdown meant that the site came to a standstill for four weeks. This was a major challenge, but ultimately provided an unexpected benefit: a ‘half-time break’ in the construction process, Zeiler explains.

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CASE STUDY

“Our team worked full-steam during lockdown, which gave the job a lot more financial security. Busy, complex projects like this can throw up a multitude of questions daily, which can put everyone under pressure as construction progresses. However, the enforced stoppage meant we could all get ahead and sort out things without the distractions and challenges of a live building site. This has made the completion of the job more certain and efficient, and it has given us all a far better understanding of the challenges to come.”

When Level 4 became Level 3, then 2, Zeiler says that the attitude of the contractor made a big difference in terms of moving forwards. “The contractor has been open about the work and planning they could do during lockdown to push it on. And in terms of costs relating to an extension of time, the relationship between client and contractor meant it was all sorted out simply, avoiding a scrap. The levels of trust within the team - built on open and honest communication - made this possible.”

FOCUSED ON THE FUTURE The team is now working towards the end goal of completion in July 2021, all focused on the same objectives, says Zeiler.

“Morale is great, and we applaud the Auckland City Mission for taking this sustainable path forward. They are paving the way so other people can follow. It is great that they have taken the initiative, and it is great to be part of the process.”

If you would like to find out more or support the project, please visit: www.aucklandcitymission.org.nz/homeground This article has been supplied by the New Zealand Institute of Quantity Surveyors.

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ADVERTORIAL

HOW QUANTITY TAKEOFFS IN REVU IS A BIG DEAL FOR SURVEYORS 2020 Features in Revu make quantity takeoffs more accurate and faster than ever, making it an ideal tool for surveyors and estimators.

Don Peters has been an estimator for more than three decades, so when a prospective client insisted that his business use Bluebeam Revu to conduct an estimation as part of the bidding process for a recent job, Peters felt uneasy.

“I've been estimating for more than 30 years,” said Peters, who owns Solid Earth Civil Constructors in Pueblo, Colorado, with his wife, Rae. “When I look at technology, it's extremely scary.”

Peters put one of his employees, techsavvy field operator Drake Carter, on the job to figure out the quantity takeoff technology in Revu. He was amazed by the results.

Carter completed in just one day an estimation that was not only more accurate but had taken Peters two weeks initially. What’s more, the estimation using Revu ended up saving the company from making a costly mistake.

“On one item, I had 15,000 lineal feet [4,572 metres],” said Carter, who used quantity takeoffs in Revu to help produce his estimation, “but Don only had 13,600

lineal feet [4,145 metres], which would have been like a $50,000 to $60,000 hit to the company.”

“The first job we did with Bluebeam Revu paid for itself,” Peters said.

Revu, the industry standard for project efficiency and collaboration, has now also become the standard for surveyors and estimators like Peters. And with the recent release of Revu 20, estimators have access to new tools specifically designed to capture the most precise quantity takeoffs faster and more accurately than ever.

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ADVERTORIAL

ONE TOOLBOX FOR EVERY PROFESSIONAL New users will appreciate in-app onboarding for every role in construction, especially for estimators. The first time you open Revu, you’ll have the option to select the quantity takeoff profile—and customise it—based on your needs that will give you quick access to the tools and markups that you’ll use the most. More in-depth lessons and demonstrations are also available online.

Precision is everything for estimators.

Accurate quantity takeoffs are a crucial early step for any contract, and Revu has long been an industry favourite for estimators performing quantity takeoffs.

Measurements taken in Revu go beyond length, width and area, with functions to calculate volume, depth, radius, slope, rise, drop, angle and arc, and cutouts.

Features like Dynamic Fill section off and fill complex drawing regions to easily generate area measurements, while the Count tool and VisualSearch can be used for calculating and tracking quantities.

Moreover, you can live link measurements and counts for materials into Excel spreadsheets using Quantity Link. As you work and add measurements, the data will automatically populate the spreadsheet so you always have an upto-date cost analysis.

QUANTITY TAKEOFFS AND ESTIMATORS AND SURVEYORS Revu 2020 features numerous tools for quantity takeoffs that are a result of feedback and ideas from professionals in the field that have used the software for years. Most notably, Bluebeam has added valuable upgrades for estimators that will help manage scale through automatic prompts.

The automatic scale prompts ensure 100% correct scale for every page of a

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document. A dialogue will automatically prompt the user to calibrate or input a known scale on every page and then apply that scale to a page range of the user’s choosing.

Furthermore, there are common preset scales for imperial and metric measurements; scales can be viewed or modified in several places throughout Revu to make your scale always visible.

These changes promise to reduce errors and make scale simple to find and use, so users can have confidence that the scale is set correctly on every page.

User-driven features like these benefit the user’s experience, saving time and making for a more intuitive process, so you spend less time in menus and more time in measurements. Revu enables you to create custom columns for the running total of measurement values when placing markups, so you can intuitively track the numbers.

Bluebeam also includes the Viewports in Revu based on users’ feedback, adding the ability to create new or edit existing Viewports for detailed breakdowns of design features. Also, each Viewport has its own Set Scale prompt, so if a user magnifies a feature by five times to include a detailed estimation within a page, the Set Scale will reflect that magnification for precise and correct measurements.

Finally, if you want to shift viewports to their own page, you can remove viewports with the Clear All from Page option, leaving the original page with the correct scale unchanged.

These capabilities are focused on quantity takeoffs for estimators, but many of the improvements made in recent years apply to the entire platform, such as a new hardware-accelerated rendering engine that allows users to pan and zoom complex plans six times faster than any previous version, resulting in a smoother user experience.

ADVERTORIAL

As always, Revu is a highly customisable program; users can set unique markups and customise several other features within the platform to their liking.

EVERYONE’S TIME IS VALUABLE Yet another benefit to working with Revu that deserves mention is the availability of clear and fast communication with partners, potential clients and any other stakeholder with an interest in your quantity takeoff.

Bluebeam Studio—which includes Sessions, for real-time collaboration, and Projects, for document management—is widely used throughout the construction, architecture and engineering industry. If you use Revu, stakeholders know you’re engaging with a trusted technology and can meet the pace set for the entire team.

Digital communication is increasingly a necessity for construction businesses to remain competitive because as the speed of work has increased, the time it takes to drive to meetings to review plans and estimates on paper becomes a burden.

This is where Bluebeam Studio Sessions becomes invaluable for estimators.

For example, Knutson Construction in Minneapolis, Minnesota, in the United States had only two weeks to put in a bid for a $75 million job. “I put all the drawings in a Bluebeam Studio Session,” said Micah Vainikka, the company’s preconstruction manager. Bluebeam Studio allows numerous users to simultaneously review and measure a set of drawings, meaning Vainikka could collaborate in real-time with his crew.

Vainikka added the estimating toolset he’d created for his group; then, he gave a onehour training session. After that, the team was able to do quantity takeoffs using the same file in real-time, eliminating so much of the back-and-forth that usually comes with sharing files.

“It was just kind of magic,” Vainikka said.

Overall, about six estimators in total divided the labour: one person handled glazing and drywall; somebody handled waterproofing and siding, and so on.

“We had many estimators getting all the markups done really fast,” Vainikka said.

Also beneficial to estimators using Revu: When you win a bid, all the measurements and markups you’ve already put together can be passed on to the pre-construction and construction teams within Revu; there’s no need to use another program to start design review, site logistics or any other downstream aspects of a project.

Furthermore, switching to digital estimates and communications means saving thousands of dollars per year just on printing and document transportation, in addition to the savings of work hours required for traditional measurements and calculations.

You’ll save yourself—and everyone you work with—valuable time and energy by engaging with digital solutions.

A FULL-SERVICE DIGITAL PLATFORM Revu serves the entire spectrum of construction-industry professionals, and with capabilities specifically meant to improve quantity takeoffs, estimators can expect to save time and money in assembling bids without worrying over potentially expensive miscalculations and errors.

Using Revu, quantity surveyors can complete tasks in a more intuitive and streamlined way. They can also quickly generate your quantity takeoffs to help create a stronger bid, even for projects that require thousands of documents.

For independent estimators and smallto medium-sized contractors that must regularly submit bids, using Revu for quantity takeoffs is worth the investment.

Learn more at Bluebeam.com.au Bluebeam has paid for, and written, this advertorial.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 39

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PROJECT DELAYS

CONSTRUCTION PROJECT DELAYS 101 – PLUS CONCURRENCY!

BY ROBERT GEMMELL

There are several different types of delay that can occur during the progress of the works on a construction project, each of which, depending on the terms of the applicable contract, give different entitlements/liabilities.

The types of delay that can occur and covered in this article are: 1.

Non-excusable delay

2. Excusable non-compensable delay 3. Excusable compensable delay 4. Concurrent delay.

An overview of each now follows.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 41

PROJECT DELAYS

NON-EXCUSABLE DELAY Non-excusable delays are delays that are either caused by the contractor and/ or are delays where the contractor takes the contractual risk in relation to time and money.

Because a non-excusable delay does not give the contractor an entitlement to an extension of time or money, the contractor will be exposed to liquidated damages for the delay and will have no entitlement to delay damages.

EXCUSABLE NON-COMPENSABLE DELAY An excusable non-compensable delay is one which gives the contractor an entitlement to an extension of time, hence relief from liquidated damages, but no entitlement to delay damages.

Neither the contractor nor the employer may have caused an excusable noncompensable delay, that is, neither party may be at fault. However, in accordance with the applicable terms of the contract, the parties may have agreed to share the risk should such a delay occur. An example of an excusable non-compensable delay in many construction contracts is a “force majeure” event or exceptionally inclement weather conditions.

EXCUSABLE COMPENSABLE DELAY An excusable compensable delay gives the contractor an entitlement to an extension of time, hence relief from liquidated damages plus an entitlement to delay costs.

Excusable compensable delays are caused by the employer and/or where both time and money are at the employer’s risk under the contract.

This type of delay may also occur as a result of changes instructed by the

employer. Payment for delay caused by an employer variation may be valued differently to the delay caused by an employer breach of one or more of its obligations under the contract; one being a valuation exercise, the other loss and expense under the contract or for general damages at common law.

CONCURRENT DELAY There is no single accepted definition of concurrent delay. True concurrent delay is where the employer and contractor independently delay the critical path, both of which occur at the same time, and either of which, in the absence of the other, is likely to cause delay to the completion of the works.

impact differently on the contractor’s entitlement to time and money. There may also be parallel critical paths to be considered, together with contractor acceleration/mitigation measures.

The preferred approach for assessing extensions of time and delay damages where there is concurrent delay is uncertain. This is partly due to the uncertainty and confusion in relation to the definition and categorisation of different types of concurrency in construction contracts. The standard form contracts differ in their apportionment of risk in relation to concurrency and in relation to what concurrency is. Further, contract provisions often provide very little, if any, guidance on how concurrency is to be assessed.

However, concurrent delay has also been described as: each delay event in the absence of any competing event which has caused delay, each event is on the critical path, and the delays caused by the employer and contractor overlap.

In addition to the uncertainty and confusion in construction contracts, is the limited judicial guidance from the courts on the principles to govern the correct approach to analysing entitlement to both extensions of time and damages when there is concurrency.

The Society of Construction Law (SCL) Protocol says that a more common usage of the term concurrent delay concerns the situation where two or more delay events arise at different times, but the effects of them are felt at the same time.

As a result, the correct application and approach to assess concurrency in relation to to both time and money gives rise to differences of opinion and to potential and actual disputes.

The differences between the above concurrent delay scenarios will be explored in more detail in the next article on concurrent delay.

Concurrent delay in relation to extensions of time and delay damages often present problematic and complicated issues. Not only is it necessary to identify the causes of delay but, depending on the terms of the contract and the applicable law, it may also be necessary to apportion liability when there has been a contribution by both the employer and the contractor to the delay experienced. Further, and at the same time, there may also be neutral events such as force majeure, during a period of concurrent delay. All these scenarios

42: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

Robert Gemmell is a quantum expert/claims consultant who specialises in all aspects of quantum/cost/damages, particularly the assessment and quantification of financial loss caused by delay and disruption.

SKILLS

HOW TO BEST TRAIN ESTIMATORS

BY TREVOR MOSELEY AAIQS

'Expectations of some builders' of their 'tendering estimating department', even by today’s standards, is largely seen as a necessary evil and these departments are being put under increasing pressure to produce more tenders in less time.

After all, they have the software to help them and other resources at their disposal, don’t they? That seems to be the reply when these departments don’t live up to the expectations of their managers or owners.

Estimator training, and how is it different from Software Training. It would appear that some people think it’s the same

thing. Unfortunately, it’s not, and no matter how good the software might be, it’s only as good as the person using it.

What do I mean by that? Well, if you don’t have any practical experience already then you are not going to be able to gain much more using software that is designed for an experienced estimator to use.

The fault doesn’t lie with the software usually, but the user. In simple terms an example would be, ‘let’s say’ you were fortunate to be able to purchase a brand-new sports car, and this car had everything to make your driving

experience ‘out of this world’. Only problem is, you don’t have a driving licence. What’s more you haven’t even had driving lessons yet, but you expect that this car can teach you how to drive.

It’s the same with software, without some degree of experience you are never going to be able to drive it effectively.

So, how do you get the experience you need. Well, you can jump into the deep end and learn through trial and error. A very expensive way in our profession, where it’s easy to lose money by not having the skills to do the job.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 43

SKILLS

Alternatively, you can learn from people already in the profession. Again, this has been a big problem in recent years where the senior professionals have been put under more and more pressure to complete far more tenders in less time.

Guess who suffers the most in this case? ‘The young trainees.’ Seniors have less spare time to train them and, as a consequence, they start to take shortcuts. Little ones at first, but as these slip through the cracks, they get bigger and bigger, until the day ‘it all comes tumbling down’ like a pack of cards.

That’s the day you feel like crawling under a rock. Oh, and by the way, saying, “no one taught me that I wasn’t supposed to do that, or it was incorrect", isn’t an excuse that your boss is likely to accept, even though the latter may be true.

No one seems to want to teach them generally, so they must try and learn on the go. Needless to say, this doesn’t happen without risks. I was visiting a builder a year or so ago and happened to get talking to a young estimator who was in the middle of pricing a project. I ask him casually how it was going, to which he replied ‘flat out’ like a lizard drinking (a local colloquial expression), subbies are late as usual and I’m struggling with prices. Have you priced the trades yourself I asked! ‘Priced the trades’, when do I get time to do that he replied. So, how do you compare the prices I asked? I look for the lowest and make sure he has everything covered and check it against the other prices, if I have any that is. Even if he is the lowest how do you know its priced correctly? To which he replied, he is the subbie he should know what he is doing. So, you really don’t know, give or take two to three percent if he is right or not? That’s not my job it’s his! he replied, anyway, I wouldn’t have time.

So, there you have it in a nutshell, little or no risk analysis. What are companies coming to when this is happening

around the country. I know it takes time to learn these skills so why not make time for training sessions with the more experienced senior estimators to at least give the younger guys an opportunity to develop these skills inhouse.

Estimating is knowing just about as much as the individual tradesman in their own trade and then some, being able to talk to them based on your experience and expertise from a point of strength and experience when discussing why their estimate looks high, or low for that matter.

Technical colleges can be useful, but a lot have focused on teaching bits and pieces of what they think is needed and generally not always based on the latest methods. Experienced estimators have learned the hard way that taking shortcuts can be a disaster waiting to happen and have looked for ways of improving their personal skills.

Some have had personal mentoring, where they haven’t been able to gain this experience in house, for various reasons. Others have decided to spend more time on site where tradesmen can enlighten them on the best way of doing particular procedures so they can become better adapted at pricing these when the need arises.

44: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

If you think that estimating is all about 'shuffling subcontractors’ prices' around, making sure that the scope is generally covered and all the items have been priced, then you are in the wrong profession. Estimating is knowing just about as much as the individual tradesman in their own trade and then some, being able to talk to them based on your experience and expertise from a point of strength and experience when discussing why their estimate looks high, or low for that matter. If you want them to respect you, estimators have to demonstrate they have the necessary experience they have gained over the years.

There has been a move, ‘in some quarters’ to bring in some of the more mature senior estimators into full-time mentoring roles to fill this knowledge shortfall, however, some construction companies have been slow on the uptake, and unless this changes, there is likely to be more and more business going broke.

Isn’t it about time that these businesses invested in their up and coming estimators to help grow their companies into the future? Either set up a mentoring program internally or bring in outside resources once every say two to three months to add additional experience to their teams. They can provide practical exercises and examples of how to manage different processes and advise on how to build up rates when estimators can’t get prices from subcontractors.

Trevor Moseley AAIQS, ICECA is Director of QS Project Services.

DECREASING REVENUE? RISING INSURANCE? About the PI insurance market & rate increases: The professional indemnity market has come under pressure of late with premiums increasing, and insurers reducing capacity.

This has particularly affected any professionals involved in the construction space. Given the myriad of issues surrounding cladding, non-compliant building products, the Opal Tower, and Mascot Towers insurers have been reducing their capacity and seeking to increase premiums between 20%-40%.

How we can assist in managing down your insurance expense: To mitigate expenses during a downturn in business, we suggest reviewing the following:

• • • • •

Decreased wages and Workers Compensation Increased excesses to manage real cost Reviewing your Sums Insured against contracts and exposures Run-Off Cover, if you are a consultant now with zero current work Consider insurance you may temporarily have decreased need for, such as Travel or Property

Contact us to provide an insurance review.

We are also managing cashflow for clients via monthly funding arrangements to spread expense out until activity and revenues lift again.

Countrywide Insurance Group Pty Ltd T/As Member Advantage Insurance Broking AFSL 511363

Call now for a free insurance review Stay protected but manage your cost

1300 365 152 Or visit:

abcountrywide.com/aiqs

Member Advantage Insurance Broking is the preferred Insurance & Financial Services partner of

T. E. W.

1300 365 152 aiqs@abcountrywide.com.au abcountrywide.com/aiqs

BUILD TO RENT

TIME FOR BUILD TO RENT TO TAKE OFF Build to rent is yet to gain a strong foothold in Australia. Slattery’s residential team investigates how practical and cost-effective design can help build to rent take off.

BY MARK PICKERILL, SLATTERY One in three Australians are renters – and this number is rising – so it’s no surprise that build to rent has been a hot topic in the Australian property industry for the past two years.

and affordability in our major cities, promises to improve the residential experience, offers longer-term tenure and professional lease management, and adds to the range of housing options.

to 12 full time positions over its lifetime including community managers, leasing professionals, facilities managers, housekeepers, event managers, and landscapers.

The asset class, which has been hailed a panacea for housing undersupply

A build to rent scheme can also be a job generator, supporting between 10

Australia was expected to follow the lead of other countries, notably America,

46: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

BUILD TO RENT

524 Pacific Highway, St Leonards.

Development by Grocon.

Design by PTW Architects.

Canada and the United Kingdom, where large institutional investors and pension funds have embraced this new asset class of long-term rental properties.

The build to rent asset class is well established in the United States, where it is known as multi-family residential. The

sector currently represents more than 25% of the NCREIF Property Index, the world’s largest database of real estate assets tracked by the National Council of Real Estate Investment Fiduciaries. In comparison, office assets account for 35% for total market value.

In the UK, the build to rent sector has grown rapidly. According to the British Property Foundation, more than 157,000 build to rent units are either completed or planned. This includes 43,000 complete, 34,000 under construction and a further 80,000 with planning permission.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 47

BUILD TO RENT

In contrast, Australia’s uptake of build to rent has been slow. This is despite many superfunds, international investors and property developers expressing interest.

In Australia, Grocon pioneered build to rent with a development within the Commonwealth Games Athletes Village on the Gold Coast and since then has acquired several sites in New South Wales and Victoria, targeting executive tenants with its Grocon HOME model.

The biggest mover in the market has been Mirvac, which launched its $1 billion build to rent ‘club’, backed by funding from the Clean Energy Finance Corporation, in 2018. Mirvac’s $200 million Indigo development at Sydney Olympic Park is now complete and three Melbourne projects are underway at Queen Victoria Markets, Brunswick and Spencer Street. Altogether, Mirvac has 1,600 build to rent apartments either in the pipeline or completed.

Oxford Properties, the real estate investment arm of one of Canada’s largest pension funds, has entered the build to rent market in Australia with a 39-storey residential tower above Pitt Street Metro.

Greystar, which manages around $160 billion-plus of assets across 200 global markets, recently acquired two adjoining sites in Melbourne’s South Yarra with the intent to build a mixed-use precinct with more than 500 apartments.

Additionally, investment firm Qualitas has secured $125 million from the Clean Energy Finance Council to establish a new fund for energy efficient, low emissions build to rent buildings.

Qualitas has already identified a pipeline of five significant projects totalling $700plus million in loans.

BUILD TO RENT CHALLENGES IN AUSTRALIA Despite these emerging green shoots, build to rent has been slow to take off for four reasons: 1. Rates of return: Build to rent is typically characterised by relatively low rates of return when compared to other asset classes such as commercial offices.

2. Unknown risks: The traditional Australian build to sell model provides high levels of return and helps people secure home ownership. The model is well established in a risk-averse industry.

3. Perception: Large property funds are often perceived as competition for ‘mum and dad’ investors. This ‘big business versus the Aussie battler’ attitude has impeded the development of smart and supportive policy.

4. Taxation: The tax system currently hinders the build to rent model.

Taxation is the biggest handbrake on the development of build to rent, so we’ll unpack the details further below.

LAND TAX Land tax varies from state to state, but generally operates on a sliding scale. In New South Wales, for example, the basic land threshold is $629,000 and the land apportioned to one residential unit is unlikely to cross that threshold. However, in a build to rent scenario, the entity will far exceed the tax threshold as it holds all units within the development. This puts build to rent at a disadvantage as land tax will be paid over the life of the investment and erode the overall yield.

48: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

GST When developing a residential building GST is paid on input costs. Full credits for GST can then be claimed back on these input costs once the units are sold, if still deemed new, as per tax legislation.

Developers of office, retail or industrial assets can also claim back full GST credits, because the asset will be used for commercial activity.

Current legislation classifies build to rent as residential development. But, because the asset is held for longer than five years, the long-term owner or investor cannot claim GST credits because the asset is not deemed new.

WITHHOLDING TAX Institutional investors, especially foreign investors, commonly invest through Managed Investment Trust (MIT) structures to take advantage of lower tax rates. The top company tax rate is currently 27.5% but will fall to 25% by 2021-22. In comparison, the tax rate for MITs is just 15%.

This provides an obvious investment incentive and has underpinned the development of commercial real estate across Australia.

Currently MIT entities are unable to buy or develop residential assets, including build to rent, unless it is deemed affordable housing. This is a clear disadvantage to build to rent, especially as significant investment demand is international, and an MIT is deemed a foreign entity if 20% of the owners are non-residents.

BUILD TO RENT

The Mews, South City Square, Woolloongabba. Developed by Pellicano.

Designed by DBI Architects.

Pitt Street South Tower, Sydney.

Development by Oxford Properties.

Design by Bates Smart.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 49

BUILD TO RENT

Functional area

Brisbane

Melbourne

Sydney

Range

Range

Range

Rate ($/m2)

Rate ($/m2)

Rate ($/m2)

Rate ($/m2)

Rate ($/m2)

Rate ($/m2)

Basement car park

1,250

1,800

1,300

2,100

1,500

2,300

Podium car park

1,100

1,600

1,500

2,400

1,500

2,600

Retail (cold shell)

1,650

2,300

1,800

2,450

2,100

2,650

Residential - high rise

2,800

3,300

2,900

3,800

2,900

3,900

Residential - medium rise

2,600

3,000

2,700

3,400

2,800

3,500

Extra-Over - high density

1,000

2,000

1,000

2,000

1,000

2,000

Lobby / Community space / Back of house

2,100

3,200

2,100

3,900

2,100

3,800

500,000

1,000,000

500,000

1,000,000

500,000

1,000,000

Roof terrace

1,500

2,100

1,600

2,600

1,600

2,550

Total building cost (blended rate)

2,350

2,950

2,500

3,100

2,900

3,200

Site preparation and demolition (excl asbestos) – lump sum

500,000

2,000,000

500,000

2,000,000

500,000

2,000,000

External works and services - lump sum

500,000

2,500,000

500,000

2,500,000

500,000

2,500,000

Allowance for works outside site boundary, etc.

Excluded

Excluded

Excluded

Excluded

Excluded

Excluded

Allowance for abnormal ground conditions / site decontamination / remediation

Excluded

Excluded

Excluded

Excluded

Excluded

Excluded

2,400

3,050

2,600

3,200

2,950

3,300

Extra over pool - lump sum

Total building and external works & services cost

PRACTICAL AND COST-EFFECTIVE DESIGN The competition for development sites in the major cities is fierce, with both local and international investors looking to build their portfolios in a growing economy. Build to rent is in competition with a host of other asset types, from mixed-use to commercial office, student accommodation to retirement living.

A summary of build to rent construction costs is detailed above.

To be competitive, build to rent developers must ensure the construction price and cost per apartment is comparable with a build to sell product.

This is made more challenging as many build to rent brands provide additional

amenities, such as concierge services, dry cleaning facilities and high-end common areas.

The approach to achieving a costeffective design is discussed in the following sections.

FUNCTIONAL SPACE AND PLANNING Practical and cost-effective design starts by considering functional space requirements and efficiencies. Every square metre of building area should be utilised and constructed only if it creates revenue, enhances the tenant experience, is functional or an operational necessity.

Key areas for consideration include:

50: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

CARPARK SPACES The town planning requirements for carpark spaces vary from council to council but generally carparking for residential developments are a significant cost. A typical residential development has between 0.7 to 1.1 carpark spaces per apartment.

Build to rent projects could challenge this requirement as shared amenities and community-based living could encourage car share schemes. This is especially important for sites near transport hubs and corridors.

BUILD TO RENT

BUILDING CORES AND CIRCULATION Build to rent can challenge the number of apartments per building core, with longer corridors and cleverly designed lift lobbies replicating hotel efficiencies.

This may enable a reduction in cores, lift sizes and speeds, as well as effective space utilisation at the entry level. This will increase density and the dollar per square metre rate but reduce the cost per apartment. The result? Higher net to gross residential efficiency.

Private residential generally targets a 7580% efficiency, while build to rent targets more than 80%.

View, Rockdale.

Developed by PietyTHP. Designed by Fuse Architecture.

COMMUNITY SPACE AND AMENITY Build to rent projects designed in the USA and UK have included community space and amenity of between four and 12 sqm per apartment. This is a significant cost impost compared to build to sell but may provide a point of difference and generate an increase in rental income.

Where possible, designs should utilise existing zones such as lift lobbies, circulation space and building podiums to reduce costs.

The entry level provides space for the permanent leasing office and, potentially, retail space. Other key spaces include dry cleaning, parcel and general storage, cold storage, pet wash, as well as crèche or childcare facilities.

Successful build to rent developments create a sense of place and introduce design elements that encourage longterm occupancy and brand loyalty – a task that is no easy feat.

From a cost perspective, a careful assessment is required to balance costs and returns. For example, a gym will

reduce the number of apartments in the building but may allow for increases in rent and generate revenue from a fitness centre tenant.

The secret is to create flexible spaces that can be adjusted to reflect future demand.

Will there be demand for a scheme with a cinema? Could this be converted into a childcare facility in the future if demand and demographics change? These are the types of design questions to answer.

OPERATIONS A successful build to rent project considers tenant movements through the building and their experience, as well as day-to-day operational issues, from waste removal to lobby activation, to how the building will accommodate the leasing team, retail tenants and even removalists.

APARTMENT NUMBERS AND SIZE Build to rent schemes require a critical mass of 200-plus apartments to gain efficiencies of scale and meet longterm running costs. It is also important to rationalise the apartment mix and size to meet the target demographic.

Well-designed community spaces and amenities can improve the building experience, reduce apartment sizes while also attracting higher rents.

BUILD TO RENT VERSUS BUILD TO SELL The graphs below illustrate the differences between build to rent and build to sell development as a percentage of gross floor area on a typical project in New South Wales.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 51

BUILD TO RENT

15%

65%

ommerical

etail

arpark

Carpark Retail

12%

Commercial Communal Facilities Core & Circulation Apartment

Build to Rent

15%

5%

65%

12%

Build to Sell

Apartments

Carpark Retail

3%

Carpark

Core & cirulation

22%

Communal facilities

Core & Circulation Carpark Apartment

Retail

5%

Commerical Commercial

CommunalRetail Facilities

58%

Commercial Communal Facilities

15%

Core & Circulation Apartment

To be competitive, build to rent developers must ensure the construction price and cost per apartment is comparable with a build to sell product.

Build to Sell Carpark

ore & cirulation

ommunal facilities

5% 3%

15%

%

partments

Build to Rent

DESIGN SPECIFICATION 22%

5%

Retail

BUILDING FABRIC AND BALCONIES

Commercial

Communal Facilities Successful build to rent developments 58% 15% offer tenants Core & Circulation in the UK and USA convenience and an enhanced living Apartment experience. To get the most costeffective design, the design approach should work “inside out” – focusing on the interior amenity that improves the tenant experience, rather than a façade that may attract attention but offer little additional value.

The following is an analysis comparing build to rent versus build to sell elemental cost allocation.

A significant amount of money can be spent on a façade that does not deliver additional rental income. Project teams must prioritise the pace of construction and cost-effective materials as speed to market is paramount. For this reason, the design specification of a build to rent project may look very different to one for a typical build to sell.

The floor-to-wall ratios are a major factor in achieving a cost-effective design.

While the considerations will be site and project specific, balconies can be

eliminated if open space is provided through communal facilities if regulations allow. However, in Victoria, for example, developments will still need to meet the Better Apartments Design Standards which require balcony spaces.

The project must also balance architectural design and planning requirements with the durability of materials and the cost of their replacement over the life of the building.

Operational considerations should make a greater provision for cleaning and maintenance.

BUILDING STRUCTURE AND MODULAR COMPONENTS The building structure should be designed with repetitious floor and apartment plans, standardised layouts and stacked wet areas, where possible.

Successful projects often focus on a lean structural frame and upper floor design with minimal transfers and a regular column grid.

Standardisation lends itself to modular delivery, however, there are risks due to lack of competition and a pipeline that is not yet able to drive efficiencies. Modular delivery is currently working in the student accommodation market where repetition is maximised and the program

52: SEPTEMBER - NOVEMBER 2020: BUILT ENVIRONMENT ECONOMIST

BUILD TO RENT

savings offset any capital cost on average against traditional methods.

When it comes to build to rent, clients must prepare to invest long term in a procurement pipeline, fix designs early and limit late design changes.

APARTMENT FITOUT Build to rent apartments demand more durable products that can be easily replaced due to high usage and more occupiers over their lifecycle. Balancing practicality and quality may mean substituting high-end fixtures for those that offer more durability.

Some fitout elements for consideration include: • Flooring: Carpet in bedrooms and laminate or engineered wood elsewhere is often preferred due to cost effectiveness, durability and ease of replacement when compared to tiles.

• Ceilings: Savings can be made by minimising bulkheads and ducts.

• Room sizes: When designed to suit standard gyprock sheet sizes, this can minimise cutting and wastage and accelerate installation time.

• Doors: Solid or semi-solid core doors and robust hardware are best for durability.

• Cabinetry: Standard size wardrobes and cupboards can be repeated throughout the building. Standard sheet sizes reduce cutting and wastage. Free standing may also be an option.

• Kitchens: Robust kitchen joinery is a priority, while appliance brand names are less important. A build to rent kitchen should be 20% cheaper than a private sale as joinery needs to be easily maintained and replaced. No Italian marble!

• White goods: We expect kitchen components to be cheaper as suppliers gain more value from larger deals and as product requirements are better understood.

• Bathrooms: Rather than building bathrooms in-situ, bathroom pods can deliver a robust, standardised design and quality. However, the effect of pods on set-downs and floor levels must be considered.

In a conventional scheme, build cost budgets do not include loose furniture fixtures and equipment (FF&E) and a developer would rarely supply beds, bedside units, cupboards and so on.

But the appraisal of any build to rent proposal must consider FF&E. This requires consideration of relevant supply chains, detailed procurement plans and procurement deals alongside ongoing budgetary concerns.

From our many years of experience in the hotels market, the Slattery team understand that rooms must be refreshed every five to seven years to maintain the hotel’s market position. This work usually includes replacement of fittings, furniture and equipment, minor works and redecoration. We envisage a similar strategy required in the build to rent market.

Accordingly, assessing the whole lifecycle cost and assessment of replacements, ongoing maintenance and other costs is critical.

Responsibility will sit with the operator to maintain the building’s standards, so the ability to replace fixtures and fittings, and the durability of these items, must be factored in. Similarly, the longevity of the building itself must be considered as these schemes are a long-term play and any signs of fatigue will impact on the long-term rentability of the asset. Carefully weighing each of these elements will help operators to secure long-term value.

MECHANICAL, ELECTRICAL AND PLUMBING SERVICES Strategies to maintain MEP services are more akin to hotels than private residential, with lifecycle and operating costs at the forefront of the design process. This may mean a higher capital cost but should provide a saving in costs over the lifetime of the building.

Some items for consideration include: • Centralised mechanical plant • Exhaust from wet areas to façade or roof • Air-conditioning controls • Metering systems • Low-energy light fittings • Super highspeed broadband • Solar installations • Water re-use • Dedicated goods lifts.

Careful adoption of the right technology will ensure the build to rent asset does not require early refurbishment or become quickly obsolete. Providing technology to individual units, as well as kitchen fixtures can support tenant retention and brand building. But extended warranty products will be required, and this will become another significant cost to factor in the planning process.

As the operator of the space, the developer will fall liable for the upkeep of these goods. Securing sufficient warranties will minimise that risk but increase costs in the short-term.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 53

BUILD TO RENT

Project teams must prioritise the pace of construction and costeffective materials as speed to market is paramount.

The Mews, South City Square, Woolloongabba.

Developed by Pellicano.

Designed by DBI Architects.

CONCLUSION In other parts of the world, build to rent is similar to other long-term real estate investments, such as commercial offices and shopping centres. In these offshore markets, build to rent housing is categorised as a low-risk, core real estate asset class for institutional investment.

With the right taxation settings, build to rent can deliver long-term tenure for residents in quality accommodation that delivers solid returns to investors.

Slattery.

Mark Pickerill is a Director of Slattery.

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LEGAL

REMOTE g n i n ig S OF CONTRACTS The COVID-19 pandemic brings some challenges to those who are needing to sign documents despite the social distancing restrictions in place. But failing to sign contracts can lead to much confusion and regrets later.

As we all know the difficulties of proving the exact terms of a verbal contract are legion as “verbal contracts are worth the paper they are written on”.

Previously in Australia, there has been no sufficient legislation or affirmed protocols which allow ‘virtual signings’ of documents.

However, since the pandemic, emergency legislative instruments enacted in Queensland, Victoria, New South Wales,

SIGN UP NOW SO NO REGRETS LATER

and South Australia have introduced solutions to those needing to attend, sign or witness documents with social distancing in mind.

Signing and Witnessing) Regulations 2020 (VIC) or Regulation 2 of the Electronics Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW).

WITNESSING DOCUMENTS

In Queensland, signatures can now be witnessed by a ‘special witness’ (which term includes an Australian lawyer or Justice of the Peace).

In New South Wales and Victoria, signatures can now be witnessed by audio visual link, such as Zoom, Skype or FaceTime.

The witness must sign the document (or a copy of it) and state that the document was witnessed in accordance with Regulation 10 of the COVID-19 Omnibus (Emergency Measures) (Electronic

The special witness must sign a statement to the effect that the document was signed and witnessed in accordance with Regulation 16 of the Justice Legislation (COVID-19 Emergency Response—Documents and Oaths) Regulation 2020 (QLD).

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 55

LEGAL

EXECUTION OF DEEDS/CONTRACTS/ AGREEMENTS In Queensland, deeds can be executed electronically and witnessed remotely by a special witness, however, there is no need for deeds to be witnessed, or nor that they need to be on paper or parchment. Deeds can also be signed in counterparts.

Part 3D of the Justice Legislation (COVID-19 Emergency Response— Documents and Oaths) Regulation 2020 (QLD): • allows a deed to be made or signed electronically and also eliminates the requirements for a deed to be made on paper or parchment • allows a deed to be signed without a witness • removes the requirement for a deed to be sealed or deemed to be sealed • allows any corporation to sign deeds (without a seal) by: (1) two directors, (2) a director and a secretary, or (3) a sole director and secretary (as is consistent with Section 127 of the Corporations Act (Cth)).

In Victoria, deeds can now be executed electronically and witnessed remotely.

If counterparts are used, each signatory must receive a copy of every signed counterpart as per Regulations 6, 10 and 12 of the COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 (VIC), under which: • the provisions allowing electronic deeds (sections 5 and 6) operate by altering the Electronic Transactions Act 2000 (VIC) but are clear and apply whether the deed is signed by an individual or a corporation • deeds do not need to be witnessed • deeds can now be electronic.

Under CTH law, a copy or counterpart of a document to be signed under Section

127 of the Corporations Act 2001 (Cth) can be by wet-ink or electronically either by split execution (i.e., two separate counterparts for each officer) or by electronic means. The determination covers a company signing a deed.

Using powers under emergency legislation, the federal Treasurer has issued a statutory instrument modifying the Corporations Act 2001 (Cth) for a period of six months from 6 May 2020 to provide for: • the electronic execution of documents by companies • general meetings and other meetings to be held remotely.

The instrument alters Sections 127(1) and 129(5) of the Corporations Act 2001 (Cth) to allow the signing of documents during the pandemic period and: • allows documents to be signed by companies under Section 127(1) electronically, so that two directors, a director and a secretary, or a sole director and secretary can sign electronically • provides for 'split execution' where the appropriate officers of the company sign separate counterparts (physically or electronically) • modifies the assumption in Section 129(5) of the Corporations Act 2001 (Cth), so that parties dealing with companies may assume a document has been duly executed if it appears to have been executed under the modified Section 127(1) of the Corporations Act 2001 (Cth).

ZOOM SIGNING PROCEDURES The likes of Zoom, Skype and Facetime can now assist in the signing of documents under the various state and territories’ Electronic Transactions Acts that are in place.

Things to remember when using Zoom to sign and witness documents: (based on New South Wales legislation):

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• You must witness the person signing the document in real-time, i.e., you may not witness the signing through a recording.

• You must attest or confirm that the signature was witnessed by signing the document or a copy of the document as soon as practicable after witnessing, however a witness can confirm a document by signing a counterpart of the document.

• Alternatively, the signatory can scan and send a copy of the signed document electronically and the witness can countersign the scanned document.

• You must endorse the document, or a copy of the document, with a statement outlining the method used by you to witness the signatory's signature and attesting that the document was witnessed in accordance with the Regulations of the applicable state or territory.

SUMMARY It should be remembered that appropriate authorities to sign or witness documents must be in place and that the affected parties all agree on the method of remote execution of their contracts.

Additionally, key risks on electronic signatures must be identified and managed to protect the integrity of the electronic agreements.

In any event, quantity surveyors are often advising parties who are close to contracting for significant projects and should ensure that the contract is signed so that it is enforceable and effective to protect all parties (and the quantity surveyor from later complaints).

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

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BLOCKCHAIN

UNBLOCKING THE ROADBLOCKS TOWARDS A COLLABORATIVE CONSTRUCTION INDUSTRY

BY UDAI E. GOMEZ

Construction is a highly “collaborative process involving a larger or smaller group of participants" (Turk and Klinc, 2005). Construction projects have increased in complexity over time, causing the traditional means of managing projects outdated. The use of traditional tools, processes and techniques that were once at the forefront of management technology have lately become insufficient; and in many cases, questionable (Morris,1994; Baccarini, 1996).

While certain aspects of multiple projects may contain similarities, the processes, strategies, and tools that are required to deliver each of these projects have a large scope for variation.

Similarly, despite the differences that exist between multiple projects, certain technological advancements provide solutions to problems that span numerous domains.

One of these problem arising domains is the issue of payment; this is an issue

that has the potential to cause delays in projects at any moment from the design stage leading all the way up to the construction stage.

According to Kartam and Kartam (2001), delayed payment is the second-highest operational risk that leads to project delays, the highest being financial failure. The reason for this is that contractors heavily rely on said routine payments in order to finance various stages of the project and maintain compliance with a set schedule.

Failure to make payments within stipulated timeframes mean that contractors would have to deviate from the planned schedule as well as incur additional financing and transaction costs, the latter of which increases their risk of insolvency (Odeyinka and Kaka, 2005). Another significant consequence of delayed payments is the slowdown in material delivery which, in turn, impacts labour productivity. In summary, delayed payments have a large role to play in both determining the success of construction projects as well as

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maintaining the survival of the construction industry (Cheng et al. 2009). Since payment is a realm of the construction industry where there is such a large scope for issues to arise, there is significant room for improvement.

Among the various issues that exist in the construction industry, one area of improvement present is the use of file storing. Before any project gains traction, there are various stages and parties it must first reach. Technological advancements over time have allowed construction projects to grow not only in size but also in its complexity. This brings forth the issue of storing data of such complex projects.

Hard drives have, for a long time, been the prime means of storage. When dealing with files of complex nature and large sizes, however, it is often the case that storage devices are unable to carry these files along with other documentation equally important to the project. There may be a solution to this

BLOCKCHAIN

issue among others in the construction industry. All of these issues could potentially be resolved rapidly via collaboration. The problem with this solution is that for collaboration to be efficient in any economic activity, trust is one of those little things that goes a long way. Most people do not trust blindly; rather, they require some form of verification and/or reassurance, first, that the other party is worthy of their trust.

In commercial settings, they often buy that reassurance from intermediaries, middlemen and women, go-betweens, and matchmakers who they feel are trustworthy (Dakhli and Mossman, 2019).

One possible solution to these issues is having a vision that is believed to revolutionise how transactions occur and their impact that may be had on the construction industry. The solution being suggested here is one known as blockchain (Dakhli and Mossman, 2019). The technology of blockchain is a tool to assist in managing projects more efficiently.

DISCUSSIONS WITH A QUANTITY SURVEYOR As part of this research, an interview was conducted with a quantity surveyor with over 10 years of experience.

This quantity surveyor also has significant experience working in multi-unit residential, commercial, and education sectors among many more. This expert also has experience working in New Zealand and Australia and now is an associate director in a large multinational quantity surveying consultancy firm.

Some of the issues in the construction industry that are visible today are shortage of skilled labour including consultancies such as quantity surveyors and project managers. Trades such as tiling have encountered with significant experiences where labour increased by up to 100% ($125/square metre to $250 square metre). Among other common trade shortages are in those that are

utilised across all projects – such as structural trades (concrete, formwork, etc.). Quantity surveyors are always required to know what the market is doing in order to allow for shortages of trades, or rise in costs of trades, etc.

Quantity surveyors are always required to be cognisant of what that means and how it impacts the bigger construction picture.

Quantity surveyors are required to focus on what is specified. While it can depend on what stage the project is in, it is also dependent on how specific the item is and where it is being procured from. Quantity surveyors are always required to be cognisant of what that means and how it impacts the bigger construction picture. It may also mean that material substitutions may have to be made and what impacts that may have on this particular project.

More shortages may be experienced in the construction industry, especially if major events such as the Olympics come to Brisbane. There would be more infrastructure projects to be delivered which may bring migration from other cities and states. In turn, the cities that these labourers may arrive from may experience shortages for a certain period of time. Construction is always a cyclical process. However, there never is going to be a surplus of any trades or skills in the construction industry. Professions such as quantity surveyors and project managers are always on the long term in the skills occupation list and this and may not be disappearing from skilled shortage list anytime soon.

In Queensland’s building environment, there is a requirement with a progress claim that needs to be completed where a statutory declaration is issued that states the employees, suppliers,

subcontractors have been paid - this is becoming a bigger issue. There are supposed to be audited project bank accounts which should have the ability to audit all funds going in and out of that account but this requires another level of bureaucracy and, essentially cost which is to be ultimately be borne by the client.

Australia has quite strict rules on immigration but there are things like the skilled shortage list that allows the introduction of skilled people from overseas.

Educational offerings such as that at Bond University allows for some of the skills for newcomers to develop into what they are interested in and work in a field that is currently experiencing a shortage.

Business in the construction industry may not change significantly in the near/ short-term future. Business is going to be continuing as it has been for a number of years. Banks will continue to remain to be a means through which funding and funds will be processed. A lot of the future remains unknown including what direction the industry will head towards.

Jobs (such as quantity surveyors) and institutions (such as banks) will continue to evolve with technology and time. For example, technological advancements in the construction industry such as building information modelling (BIM) continue to improve and allow for more accurate measurement –financial institutions may go through a similar evolution process.

Developments in the blockchain may include where blockchain is able to link a BIM take-off or bills of quantities (BoQ) and eventually, when the project commences on site, tracking contractor progress claims can be linked to items in the BoQ which becomes easily quantifiable and trackable.

Udai E. Gomez is a student at Bond University.

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BCI

BUILDING COST INDEX

SEPTEMBER 2020

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.

BUILT ENVIRONMENT ECONOMIST: SEPTEMBER - NOVEMBER 2020: 61

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