Independence

A “Best Practice" for Public Procurement of Construction Cost Estimating and Cost Management Services

The problem of cost predictability was introduced by Public Works and Government Services Canada (PWGSC) at the joint Government of Canada/Canadian Construction Association (CCA) meeting in April 2003, where the department identified a need to improve the accuracy of its pre-tender construction estimates (Class A estimate) which were increasingly resulting in variances of greater than 30% from the bids received.1

The Joint Federal Government/Industry Cost Predictability Taskforce (November 2012) stated: “It is highly problematic for any one individual or agency, no matter how qualified or “in tune” with local conditions and market influences, to arrive at a consistent and accurate prebid estimate for construction services.”1

A recent study of 258 major roads, tunnels, bridges, urban transit, and interurban rail projects in 20 countries on five continents concluded that 90% of megaprojects experienced a cost overrun with an average cost increase of 28%.2

A 2006 study of cost overruns on Canadian transportation projects conducted by Joseph Berechman and Qing Wu examined 163 routine highway, bridge, and tunnel projects on Vancouver Island, and found that eight out of ten had cost overruns. The average cost overrun was 5.5 percent, while a considerable share of the projects had far larger cost increases.3

Given the financial risks associated with capital projects, many government procurement agencies engage with cost consulting firms to provide them with Project Cost Estimates. Typically, these firms will be consulting Quantity Surveying firms, with professional staff carrying the designation Professional Quantity Surveyor.4

The Canadian Association of Consulting Quantity Surveyors (CACQS/ ACCEC)5 conducted an RFP Audit in 2017, and again in 2019, looking at RFPs (asking for project cost estimates) from the Government of Canada, the provinces, municipalities, as well as college, hospital, and school boards. The audits specifically looked at to whom who the cost consultant would be reporting: the owner (government ministry, agency or Board of Directors) or the design consultant (typically architects or engineers).

In 2017, the audit (of 110 randomly selected RFPs) revealed that 18% of the RFPs asked the cost consultant to report directly to the owner, whereas the other 82% of RFPs had the cost consultant reporting to the architect or engineer (as part of their team).

In 2019, our second audit of 130 RFPs revealed that 35% of the RFPs asked the cost consultant to report directly to the owner, and 65% of the RFPs asked the cost consultant to report to the design consultant.

A further breakdown of the 2019 RFP audit results showed that one agency, Infrastructure Ontario, had the cost consultant reporting directly to the owner in 88% of their RFPs, whereas for all of the other agencies, only 31% of their RFPs asked the cost consultant to report directly to the owner.

Infrastructure Ontario’s 2018 Track Record Report states that, of 62 P3 projects reaching substantial completion as of December 31, 2018, 95% were completed on budget.6 Typically, Infrastructure Ontario contracts directly with an independent cost consulting firm to provide first, an Order of Magnitude Estimate (Class D) prepared at a Functional Program/Concept Stage, and second, Pre-tender Estimates (Class B or C estimates, depending on the Project Delivery Model).

Independence is considered to be one of the most sought after and important commitments that Professional Consultants can offer to their Clients.

In its Guide to Canadian Independence Standard, the Chartered Professional Accountants (Canada) states:

“It is a fundamental principle of the practice of Chartered Professional Accountancy that a member who provides assurance services shall do so with unimpaired professional judgment and objectivity, and shall be seen to be doing so by a reasonable observer. This principle is the foundation for public confidence in the reports of assurance providers.

The confidence that professional judgment has been exercised depends on the unbiased and objective state of mind of the reporting accountant, both in fact and appearance. Independence is the condition of mind and circumstance that would reasonably be expected to result in the application by a member of unbiased judgment and objective consideration in arriving at opinions or decisions in support of the member’s report.”7

Similarly, independence is the foundation for client confidence in the reports of a consulting quantity surveyor.

In 2017, in order to reflect the importance of independence (in the provision of cost estimating and cost management services8 to the clients of its member firms) the Canadian Association of Consulting Quantity Surveyors (CACQS/ ACCEC) changed its By-laws.

The following addition was made to Article 1 (Definitions): Independent Consulting refers to consulting engagements not affected by influences that may compromise professional judgement. In support of this requirement, any or all of the firm’s work performed in the nature of quantity surveying shall be devoid of the influence or input of others including but not limited to designers, constructors (general contractors or construction managers) and equity investors. Although this does not preclude a firm from such engagements, the firm shall have conflict of interest policies and mechanisms in place to identify and segregate Independent work. These shall be underpinned by objectivity, integrity, and professional skepticism such that the clients’ interest and that of the public is preserved and the firm would pre-agree these mechanisms with clients.

The following addition was made to Article 3 (Membership Requirements): The firm shall be engaged in the provision of independent advice directly to clients, free from bias, conflict of interest, or the undue influence of others whether real or perceived. The firm shall pre-agree conflict of interest mechanisms with clients when these arise.

Further, at its March 2021 Board meeting, the CACQS/ACCEC Board of Directors passed a motion requiring that, starting in January 2022, all member firms must sign a Declaration certifying that they are in compliance with the CACQS By-laws on independence.

In its “Recommendations for Improved Cost Predictability,” the Guide to Cost Predictability in Construction has as its first recommendation: “Utilize qualified estimating personnel throughout the life of the project – budget preparation, design, tendering, post-tender review and construction phases.”1

The CACQS/ACCEC proposes that only independent cost consulting firms are truly “qualified” and in addition, we speculate that true independence only comes when the consulting firm reports directly to the owner. (Note that the fees charged by the cost consulting firm are unchanged, whether the consultant reports directly to the owner, or to the design consultant.)

We recognize that it takes time and effort to create and manage a separate RFP process and resultant contract for cost consulting services; however, we think that this time and effort pays real dividends in ensuring that the owner of the project receives independent (unbiased and objective) cost estimating and cost management services. In doing so, the owner improves their odds for bringing construction projects to conclusion “on budget.”

REFERENCES

1 www.cca-acc.com/wpcontent/uploads/2016/07/ guidecostpredictability.pdf 2 www.researchgate.net/ publication/263746967_ underestimating_costs_in_public_ works_projects_error_or_lie 3 Berechman, J., and Wu, Q. 2006. Cost

Overruns Risk Analysis in Transport

Infrastructure Investments. Working

Paper 2006-05. University of British

Columbia, Phelps Centre for the Study of

Government and Business. 4 www.ciqs.org/english/designationsdefined-professional-quantity-surveyor 5 www.cacqs.ca 6 2018 Track Record Report (PDF).

Hanscomb (July 2019) 7 www.media.cpaontario.ca/stewardshipof-the-profession/pdfs/guide-tocanadian-independence-standards.pdf 8 CACQS/ACCEC Cost Management Best

Practices Guide

About the authors

Glenn Hultzer, B.Sc. (QS), MRICS, PQS, has more than 31 years of international experience as a professional quantity surveyor. He is a CACQS Ontario board representative and has deep experience in all aspects of quantity surveying and advisory work on a range of project types.

Susan Neil, PQS(F), MRICS, is President of the CACQS/ACCEC and Executive Vice President at Hanscomb with 32 years of experience working on many of the country’s most significant infrastructure projects. Susan is a proud fellow of CIQS and a Member of RICS.