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February/March 2020

10 Rule revision New Rules of Measurement revisions will take on feedback

20 Building on a theme Why specialist skills will power theme park growth

26 Record keeping How documentation is vital in the event of a dispute

rics.org/journals

Construction

Plan solo 12

Running your own construction consultancy: could it work for you?


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Construction

Contents

Editor: Steph Fairbairn T: +44 (0)20 7334 3726 E: sfairbairn@rics.org Advisory group: Helen Brydson (Faithful+Gould), Gerard Clohessy (Arcadis), David Cohen (Amicus), Tim Fry (Currie & Brown), Christopher Green (J. Murphy & Sons Limited), Andrew McSmythurs (McSmythurs Consulting Ltd), Alan Muse (RICS), David Reynolds (Bloomsbury Project Management), Anil Sawhney (RICS), Justin Sullivan (Standards Transformation Project Implementation Advisory Group chair), Steven Thompson (RICS), Rachel Titley (Adair) Published by: The Royal Institution of Chartered Surveyors,

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20

7

It’s no easy ride to source the specialist skills required in the expanding theme park development sector

A new year – and decade – provides an opportunity for review, on both a professional and personal level

24

8

The all-glass towers commonly found in major cities face renewed scrutiny in light of the climate crisis

The director of city centre development at Sheffield City Council explains why team working and collaboration are so important

26

Briefing The year ahead

Parliament Square, London SW1P 3AD T: + 44 (0)24 7678 8555 W: rics.org ISSN 1752-8720 (print) ISSN 1759-3360 (online) Editorial & production manager: Toni Gill Sub-editor: Katie Pattullo

Civic skills

Advertising: Jonny King T:+44 (0)20 7871 5734 E: jonny@wearesunday.com Design & production: We Are Sunday Printer: Geoff Neal Group

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Rule revision The New Rules of Measurement suite is being updated to better suit the market, in response to industry feedback 12

Going it alone Three construction consultancy owners discuss the advantages and challenges of operating an SME While every effort has been made to ensure the accuracy of all content in the journal,

those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the

rights in the journal, including full copyright or publishing right, content and design, are owned by RICS, except where otherwise

Doumenting key communications will pay dividends in the event of a dispute 30

Interactive professionalism RICS is launching a new online Professionalism module to refresh its training provision in ethics 31

Accounting principles The Accounting principles and procedures competency equips chartered surveyors to assess and lead financially sound firms

Misunderstanding the extent of your insurance cover could mean the difference between posting a profit or loss

expressed in the journal are not necessarily

of the material included in the journal. All

Record keeping

Business insurance

or omissions in the content. The views

person acting or refraining to act as a result

The glasshouse effect

32

RICS will have no responsibility for any errors

opinions expressed in the journal, or by any

Building on a theme

16

33

The key stages of compiling a business plan when setting up your own construction consultancy are explained

A new series of labour cost indices provides a more accurate assessment of cost dynamics at all project stages

19

34

One RICS professional saw an opportunity to embed quantity surveying in the Middle East and Gulf regions

Clearly identifying a company as limited when entering into a contract will avoid confusion and uncertainty

Starting small

Labour movement

described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v.3.0 for public sector information: nationalarchives.gov.uk/doc/ open-government-licence/version/3/

Spotting a niche

Limit your liability

rics.org/journals 3


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Construction

Briefing Construction firms urged to check health and safety compliance A recent study of 2,000 construction firms by Safetybank has found that 67 per cent admit that, in the event of an on the spot Health & Safety Executive site inspection, they would either fail or might scrape through due to internal failings in recording and maintaining accurate, up-to-date health and safety compliance data. More than a third of respondents said they log health and safety compliance matters inaccurately, while 20 per cent say the administrative costs are too high and complicated to record the necessary information effectively. Employers and workers operating in the UK are required to comply with the Health & Safety at Work etc Act 1974, while all RICS professionals must achieve the Health and safety competency to Level 2 and should then comply with RICS guidance, including the Surveying safely guidance note. rics.org/surveyingsafely

Improved journal experience If you read Construction Journal or any other RICS journal on your phone or tablet, we recommend downloading the Issuu app. The app, available from the App and Google Play stores, allows a much better reading experience on hand-held devices. bit.ly/GoogleIssuu bit.ly/AppleIssuu

Events RICS Infrastructure Conference 18 March, America Square Conference Centre, London rics.org/infraconference

RICS initiatives champion sustainability The new RICS Social Impact Awards will assess the human, social and environmental impact of development and infrastructure projects across the UK. Project innovation and collaboration will also be part of the assessment. The creation of the awards follows the announcement of RICS’ Value the Planet campaign to encourage its professionals to act on climate change and adopt the UN’s Sustainable Development Goals. rics.org/awards rics.org/valuetheplanet

Quantity surveying added to government’s Shortage Occupation List The Shortage Occupation List, compiled by the UK government and based on recommendations from the Migration Advisory Committee, is a list of occupations without enough resident workers to fill vacancies. Quantity surveying was added to the October 2019 update of the list, alongside numerous engineering roles. Featuring on the list means that the rules for employers who want to sponsor skilled workers from outside the European Economic Area are more relaxed, thus making it easier to hire the requisite professionals. The list is, however, always subject to change.

RICS Digital Built Environment Conference 25 June, Park Plaza Victoria, London rics.org/dbec RICS Construction Conference 2 July, America Square Conference Centre, London rics.org/consconference

Standards Recently published International Construction Measurement Standards, second edition rics.org/ICMS Forthcoming Change management guidance note Cost prediction professional statement Global construction standard New Rules of Measurement (NRM) suite update Subcontracting guidance note rics.org/standards All RICS and international standards are subject to a consultation, open to RICS members. rics.org/iconsult

rics.org/journals 5


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22/11/2019 10:49


Construction

Opinion

Industry trends

‘One person alone is unlikely to make a significant impact, but cumulative actions can have positive influences’ Helen Brydson Faithful+Gould

As a project manager, I am asked what’s happening on a project, what its impact will be and what I am doing about it more frequently than I care to admit – by both the client and the project team. Writing this article for the first 2020 issue of Construction Journal, I can’t help but think how pertinent these questions are to the wider world at present. As I write, a general election has just been won with a landslide, and there is also the uncertainty surrounding the ‘B’ word. So many challenges lie ahead, and we are yet to see how they will play out in 2020. I suspect there will be further public demonstrations, following the Extinction Rebellion protests of 2019, and increasing episodes of extreme weather, as seen in the severe flooding at the end of last year. I also expect market uncertainty to be reflected in higher tender return prices and more extensive cost plans. While the scope and impact of such events is difficult to quantify, what is certain is that they will shape the challenges we will face over the next decade – as a society and a country, as an industry, and

in our day-to-day working lives in our respective professions. In this context, and the spirit of the new year, I’ve been considering what practical action can be taken. While it is unlikely that one person alone will make a significant impact on any of the issues I’ve mentioned, it is interesting to think about what opportunities there are for cumulative actions to have positive influences. On a personal level, I’m lucky to have access to a good network of car-sharing schemes due to living in an inner-city location – so I’m going to give up my own vehicle and join a car club instead. I am also thinking of applying the same principle to contractor tender and evaluation processes: asking upfront for a consideration of and a commitment about how labour will travel to site, perhaps whether the contractor can support or enable car-sharing schemes. This would allow our industry to have a positive impact on environmental sustainability and social and economic opportunity. A larger change would be to consider the way we approach projects. I have a colleague who is looking to start trialling collaborative

working – not only in terms of project processes, procedures and management but also in terms of sharing traditionally sensitive commercial data with prospective tenderers. This colleague then wants to examine whether this influences the way that the team members interact with one another, resulting in an improved, more inclusive operating environment. A new year is also often the time to think about any aspirations that you haven’t yet had time to consider and to make resolutions accordingly. If you’ve ever thought about starting up your own business, for example, this edition of the journal contains a number of relevant articles: some business owners discuss how they set up their enterprise (p.12), and we also offer guidance on making those first steps (p.16). If you’ve been considering raising your professional profile and have wondered how to better engage with or even contribute to thought leadership or industry technical expertise, then Construction Journal is always on the lookout for new authors and contributors, so please contact the editor with your ideas (sfairbairn@rics.org). In 2020, RICS will be working on a number of standards and insight papers on subjects such as ethics, dispute resolution and technology, as well as the updated Global Construction Standard, formerly known as the RICS Black Book. The Future of Surveying initiative will also be prominent, exploring the themes of surveying technology, sustainability, and talent, skills and education (rics.org/futures). I’d like to leave you with a thought instigated from a client who recently commended our project management team on constantly ‘presenting solutions, not problems’. While 2020 is undoubtedly going to pose many challenges for us all, it is how we choose to approach these that will set the course for the decade ahead. Helen Brydson is associate director at Faithful+Gould and a member of the Construction Journal editorial advisory group helen.brydson@fgould.com rics.org/journals 7


Client perspective

Civic skills The third article in our client views series is a discussion with a director at Sheffield City Council about his thoughts on the role of project managers and quantity surveyors Nalin Seneviratne

8 Journal February/March 2020

Q: What is your experience of working with project managers and quantity surveyors? NS: I have worked with project managers and quantity surveyors – in the capacity of client and contractor – for 35 years. I have also worked in both roles over the course of my career. As a client for the past 16 years, I have commissioned both in-house and consultant project managers and quantity surveyors. Currently, I am responsible for Sheffield City Council’s Heart of the City II project – a £470m mixed-use city centre regeneration scheme. The council has taken on the developer role in a fully commercial environment, and office and retail lettings make up a large part of the project. The first phase of this project has been completed successfully: on time, on budget and to the required quality. The council is working with in-house, consultant and contractor professionals and it is through exceptional team working and collaboration that we are able to achieve this success. Q: Which qualities and skills do you look for when appointing or working with a project manager? NS: The role of the project manager is to be clear about the strategic direction of the project, yet also able to change tack or use different tactics as the project progresses and circumstances change. Ultimately, a project manager ensures that the final desired outcome is achieved. Understanding tools and techniques for project management is important, but this needs to run alongside a clear understanding of people management principles and stakeholder engagement and management.

IMAGE © NALIN SENEVIRATNE

Construction


Leadership is therefore a fundamental attribute for me when I am looking to appoint a project manager. Someone could have all the technical knowledge and qualifications, but if taking responsibility and being able to lead the team is not a characteristic they possess then their work becomes more about project administration. The ability to step back and see the bigger picture is also important. When I was cutting my teeth as a project manager, my mentor always made sure I took a step back and tried to look at the whole project and reflect on how things were taking shape. I’ve never forgotten this simple piece of advice. Q: Can you give any examples of good or bad practice? NS: The project doesn’t usually work out so well if the project manager is too focused on process. People skills are key. In my opinion, understanding each stakeholder’s objectives and using soft skills to stimulate those involved to meet the project objectives is an example of good practice. Being able to understand fully the nature and objectives of the client and how the project relates to these objectives is a key part of being able to apply these soft skills. Q: How do you see the role developing in the future? NS: People skills will continue to be crucial. As projects become more complex in terms of, for example, funding, stakeholder management, politics or market forces, the leadership role will become more important for managing all relevant stakeholders. Technology is beginning to automate some of the processes that help project managers manage time, money and quality more effectively. This means a project manager’s role will become more about ensuring that software and technology offer the right output, rather than calculating the outputs themselves. A project manager’s skill set should, therefore, be based on a solid foundation of knowledge about the stages that comprise a project. Q: Which qualities and skills do you look for when appointing or working with a quantity surveyor? NS: I have always believed that the quantity surveyor leads on cost management and contractual administration. The much-used term cost manager seems to reduce the role to only one of these responsibilities and doesn’t respect the understanding quantity surveyors have for contractual arrangements and the appropriate commercial terms for a project. Having been responsible for design development, I think it’s important that the quantity surveyor is involved with the project from the outset as they have a key part to play in advising on design cost decisions. This helps generate efficient designs and ensures budgets are managed through sharing information with the design team. On the contractor or supply side, I think the role is critical for managing effective supply chain administration – and is key to project cost and time risk management. When appointing a quantity surveyor, I look for good financial and contractual technical skills. I also look for assertiveness, so their advice on cost and budget issues is heard, and any degree of risk is understood by the team. This calls for the soft skills I referenced earlier.

The quantity surveyor of the future needs to be thinking about the value of projects, not just the cost Ultimately, I try to hire quantity surveyors who can lead the project appropriately. This requires strength of character based on a solid foundation of technical knowledge. Q: Can you give any examples of good or bad practice? NS: An example of best practice is when there is a seamless relationship between the quantity surveyor and the project manager, allowing them to support the client fully in achieving the project objectives. Collaboration with others is also extremely important – quantity surveyors who reach out to everyone in the team and supply chain and seek best practice from specialist contractors play their part in a successful project. Q: How do you see the role developing in the future? NS: With reference to quantity surveyors frequently being referred to as cost managers, I believe there may need to be a change of job title. It may be better to move away from both quantity surveyor and cost manager and towards a term that better reflects the full range of professional skills, so clients can fully appreciate the service available to them. A change of title would also mean the role is more relevant to the current business environment. With less of a focus on traditional bills of quantities and more on issues of efficiency, sustainability, carbon and climate change and supply chain management, I think the word value is missing from the role title. The quantity surveyor of the future needs to be thinking about the value of projects, not just the cost. This means an increased focus on social and environmental capital and a greater understanding of the relationship between cost and economic value. This, in turn, ensures understanding of long-term issues and whole life-cycle matters. All of these elements, combined with the expertise around commercial contracts, should mean the quantity surveying role – whatever name it takes – occupies a critical position in the development of the built environment. Nalin Seneviratne FRICS is director of city centre development at Sheffield City Council nalin.seneviratne@sheffield.gov.uk Related competencies include: Leading projects, people and teams rics.org/journals 9


Construction

Standards

Rule revision The revised New Rules of Measurement suite will respond to industry feedback and be integrated into all new and updated RICS publications and industry standards

Steven Thompson

RICS is in the process of updating the three volumes in its New Rules of Measurement (NRM) suite. The suite provides a standard set of measurement rules and essential guidance for the cost management of construction projects and maintenance works. It is designed to be understandable for anyone involved in a construction project and covers the whole life cycle of the cost management process for the construction, maintenance, repair and renewal of built assets. Although NRM is largely based on UK practice, the requirements for a coordinated set of rules and underlying philosophy behind each volume can apply globally. The suite comprises of the following three volumes. ••NRM 1: Order of cost estimating and elemental cost planning for capital building works allowing a consistent approach when 10 Journal February/March 2020

considering the capital cost of a construction project. ••NRM 2: Detailed measurement for building work dealing with the components required to produce bills of quantities, or similar pricing documents. ••NRM 3: Order of cost estimating and elemental cost planning for building maintenance works allowing a consistent approach when considering the costs incurred throughout the life cycle of a construction project. The suite was first published in 2012 – effective from 1 January 2013 – although NRM 1 had previously been launched as a stand-alone document in 2009. A more unified approach The main revisions to the suite will be made to NRM 1 and NRM 3 to ensure they are still fit for purpose and better align


with other industry publications. The aim is for a seamless integration of NRM into all new and updated RICS standards and publications, and other industry documents. The second edition of the International Construction Measurement Standards (ICMS 2) was published in September 2019, and includes a new method for the classification of costs for construction works and associated costs in an internationally agreed format. This means that ICMS 2 enable direct cost comparisons between projects in different parts of the world, irrespective of whether estimates and cost plans have been prepared in accordance with NRM 1 or the measurement rules used by another country or area. ICMS 2 take into account the cost classification of the life-cycle costs of the asset: the initial capital costs plus the renewal, operation, maintenance and end-of-life costs. The base cost classification arrangement for the initial capital costs can be used in conjunction with NRM 1, and the whole life-cycle cost arrangement can be used in conjunction with NRM 3. Both NRM 1 and NRM 3 will be mapped to ICMS 2. The forthcoming RICS professional statement on cost prediction will provide the first definitive global statement of the processes and procedures a surveyor must follow when reporting to a client on cost estimating and cost planning. The professional statement will apply the rules and classification systems used in NRM 1, NRM 3 and ICMS 2. The second edition of the RICS professional statement Property measurement incorporates the International Property Measurement Standards (IPMS).

This professional statement has been published and updated over the past few years as further property types, such as offices, retail, and residential, have been added to the IPMS system. It provides a global definition and guidance on how property measurement is to be approached and is aligned with the categories included in ICMS 2, NRM 1 and NRM 3. At the time of writing, the Royal Institute of British Architects (RIBA) is revising their Plan of Work (PoW). The 2020 PoW will update the industry-standard plan, setting out the various stages in the life cycle of a project, as mapped to the relevant functions and activities. Given that this updated PoW will take a wider view of the various procurement routes available to a client, the cost estimating and cost planning stages that are covered in NRM 1 and NRM 3 will be refined to align more closely with the RIBA PoW 2020. Some tweaks will also be made to NRM 2 as a result of feedback gathered from users since the publication of the first edition of the volume. An example of this feedback is the suggestion that it would be sensible to change the risk profile. We therefore propose changing the way that some items should be measured, particularly the measurement of earthwork support and working space. The current edition of NRM advises that this is only measured if the contract administrator instructs that it should be, which shifts the risk to the contractor. A revision to advise that earthwork support is always measured, irrespective of whether it is thought to be necessary or not, will take much of the risk away from the contractor. Contractors will then be free to include – or not include – a commercial

RICS is making a conscious effort to better understand the reasons for the limited take-up of NRM 2 and the continued use of SMM 7

rate for the work, dependent on any relevant commercial considerations. Wider review of NRM 2 RICS is aware that, over the years, the use of bills of quantities has diminished, mostly due to changes in procurement strategy and forms of contracts. We are also aware that when bills of quantities are prepared, the use of NRM 2 has been modest. There appears to be a clear divide in the users of NRM 2. In general, when clients’ consultants are preparing bills of quantities for the procurement of the main contractor, they are using Standard Method of Measurement (SMM) 7, and not NRM 2. SMM 7 was published by RICS in 1988 and superseded by NRM 2. When main contractors are preparing trade package bills of quantities for the procurement of subcontractors, however, they are often using NRM 2 – but adapting and amending it to suit their own purposes, incorporating elements from SMM 7 when applicable. RICS is making a conscious effort to better understand the reasons behind the limited take-up of NRM 2, and the continued use of SMM 7. Although we will benefit from feedback from users during the consultation process before the launch of the new edition of NRM, we believe a wider piece of research is needed to ensure that we are reflecting the needs of the market. The 2020 edition of NRM 2 will subsequently be revised to reflect the results of this research. Updating the NRM suite and undertaking research as to how it can better suit the market is another step in ensuring RICS standards are relevant and useful to as many of our professionals as possible. We invite you to share your thoughts on the proposed update by responding to the consultation (rics.org/iconsult). Steven Thompson is associate director of the built environment at RICS sthompson@rics.org Related competencies include: Quantification and costing (of construction works) Further information: rics.org/nrm rics.org/journals 11


Construction

SMEs

Going it alone Almost one-fifth of all UK small- to medium-sized enterprises operate in the construction sector. We spoke to three professionals who set up their own construction consultancies about the advantages and challenges of running an SME Fiona Hull, David Reynolds and Justin Sullivan

12 Journal February/March 2020


Q: Tell us about what your construction consultancy does and how it’s evolved. FH: Construction Q is a full-service quantity surveying practice based in Cheshire. We look at all aspects of cost planning, cost control and cost management on both commercial and private residential schemes. We also carry out estimating services for contractors, have a team producing bills of quantities, and a specialist arm that concentrates on dispute resolution. The business has a growing portfolio of projects and two offices, and we were thrilled to win the 2019 Northern Power Women Small Organisation award. DR: Bloomsbury Project Management was established in 2018. The business is based in central London and offers cost and project management services across a wide range of construction projects. Although Bloomsbury Project Management was set up as a limited company two years ago, I have been running my own business since 2011 as a sole trader. The business has grown substantially in the past two years – and I think this has been helped by the profile and protection a limited company offers. JS: Adair was set up in September 1994 at my kitchen table in Cheam. I was initially a sole trader and now, 26 years later, Adair is a limited company with headquarters in Surrey and offices in Mayfair, the Midlands and Gibraltar. Adair has evolved from a quantity surveying firm to a business offering quantity surveying work along with project management, bank monitoring, building surveying and dispute resolution. Q: What made you decide to set up your own business in the first place? FH: After starting a family, I became shocked by the lack of flexible opportunities that existed for working mums in the construction industry. Working for myself allowed me flexible hours, home working if a child was sick, and it reduced travel time dramatically. DR: A combination of wanting to offer what I felt could be a better service, and the challenge of starting something and not quite knowing where it would go. My experiences have taught me that the construction industry can often be volatile, and I wanted to give myself as much control over my career as possible. JS: It was always my ambition to have my own business. I wanted to be my own boss and build something for myself. Q: How did you go about setting up your business? FH: When I decided to set up the business, I had no capital and no real idea of how to go about it. My brother had started his own mortgage company several years before, so I used him as inspiration and support.

Owning your own construction firm means you have an opportunity to build an ethos and, on a grander scale, shape the industry I persuaded him and his brand consultants to let me have his logo, change the colours and tweak the name, so Mortgage Q became Construction Q. Structuring the company was also done on a bit of a whim and is something I’ve revisited. Following a recent restructure, with far more thought and forward planning, I now have a joint shareholder and director. DR: The key thing for me when setting up was clients. I had enough project experience and contacts who trusted my work to be able to go it alone. In the surveying profession, as the surveyor you are the product. You don’t have to go out and buy stock or have a shopfront, you can do everything you need on a computer. When I became self-employed in 2011, cloud computing was becoming popular and this worked in my favour. It allowed me to operate seamlessly and very quickly without any great overheads or initial outlay. JS: I was lucky that I had a friend who had done something similar who I relied on for advice. He discouraged me at first, mainly because I wasn’t a chartered surveyor yet, but I was determined. In terms of logistics, there were two main objectives for me: appointing an accountant and obtaining professional indemnity insurance. Once I had those, off I went. Q: What do you see as the benefits of running your own business? FH: Having your own business can be exhausting, stressful and complicated to set up, yet the benefits far outweigh the negatives – and one of the main advantages is flexibility. I may now work weekends, evenings, and take a laptop on holiday, but I choose my hours. You work more hours than you would as an employee, but they are on your own terms. You also have an opportunity to build an ethos and, on a grander scale, shape the industry. Many of our clients, for example, are women, and they see it is an advantage to have a female presence on what are often male-dominated building sites. DR: The independence and the flexibility, which in turn lead to personal fulfilment, are the main benefits. You are representing yourself, so you’re providing rics.org/journals 13


Construction

SMEs

a service at director or partner level yourself and always looking to be your best. The nature of the construction business also means you are exposed to different clients and sectors, all offering a variety of challenges. No two days are the same when you run your own business, and that makes it exciting. JS: Two things: the first is making your own decisions and not needing anyone else’s approval. The second is being able to employ who you want to employ: it’s nice to look at the business and realise that I employed everyone, and they all align with the company ethos and do a great job. Q: What are the challenges involved in running your own business? FH: Cash flow has been one of the biggest struggles for us. As a small business, particularly when starting out, you can’t always be choosy about the clients you take on. As a result, we have become the victims of company insolvencies, absent builders, and clients that simply decide not to pay. Fortunately, these instances have been few and far between – you learn from being too trusting, and we created robust terms of engagement and payment to protect ourselves. We can now afford to be more selective about who we work with. Many of our contracts are repeat clients and these long-term relationships are a key factor in enabling us to grow the business. Recruitment has also been tricky. It’s a chicken and egg scenario as we grow year on year. You have to gamble when you take on staff and believe that the work will follow. Finding the right staff is crucial. Running your own business is a constant juggling act. There is always something to do, whether it’s planning a pitch for a new contract, working all night to meet a deadline or dealing with a human resources (HR) issue. DR: The challenge is providing a valuable service while also managing all the administrative tasks: company registrations, VAT, legalities, and professional indemnity insurance, for example. These tasks can be quite burdensome: you are the IT department, the HR department – and everything else rolled into one. Luckily, I think, as surveyors we’re already trained to do most of those tasks so we can take it in our stride. When setting up the business, there are certain things that RICS guides you through but, ultimately, you need to understand what you’re doing. JS: As I was very young when I set up the business, I often had people looking over my shoulder to see where my boss was, only to find I was the boss! Besides that, the main challenge was being paid on time, if at all. Cash is king in construction. When 14 Journal February/March 2020

The challenge of owning your own firm is providing a valuable service, while also managing all the administrative tasks I originally set up the business, I was working lower down the food chain, and being paid was often difficult due to the financial situation of those above me. Riding out the cash challenge is easier as your business expands. Now my business has an accounts team with a credit control branch that chases up outstanding money. We’re also more careful about who we work for now, both in terms of ensuring we’re paid and ascertaining whether the culture of the client is similar to our own culture. If they’re different, it’s likely we won’t work well together. Q: Can it be daunting competing in a market dominated by bigger firms? FH: Only in the first year. The biggest obstacle is opening the door to larger contracts when you start as a one-man band. This is when you rely on your existing network and reputation to get that first break. I think most small firms are confident that they actually provide a better service – it’s just persuading clients that you don’t need to be a recognisable brand to know what you’re doing. This is especially important as many contracts are awarded through procurement frameworks – generally long-term contracts – that look for evidence of similar schemes. Many firms invest five-figure sums into bid-writing and trying to secure a framework. A start-up firm doesn’t have this resource, which is why it makes sense to focus on growing at a steady rate and building your reputation as a business. DR: On the contrary, SMEs offer a director-level service and can be far more competitive than the bigger organisations. You can offer stealth and a level of confidentiality and discretion not possible under the banner of a large corporate organisation. It does, of course, depend on the service you’re offering. Bigger firms offer a global reach, whereas I offer a tailored, local service. I haven’t got a big machine to feed, so I can pick up the small bits of work that the bigger firms don’t and still offer the same level of service with lower overhead costs.


JS: Smaller firms can be more agile without the constraints that the larger firms have. Adair used to say ‘small enough to care, large enough to cope’. The benefits of working with a smaller firm are that we can be cheaper, as we have fewer overheads, and there will always be a director working on the project. Q: How has having your own firm helped you develop as a professional and an individual? FH: Running your own business has an incredible effect on your personal development. Instead of being just a quantity surveyor, I suddenly also became head of marketing, head of HR and head of accounts. You have to adapt and learn skills in all areas of the business. I also had to get up to speed with social media – Twitter, LinkedIn and Instagram have all helped our business win contracts and grow. As a small business, you don’t have the resources to employ others to do this for you. You have to wear all hats and learn quickly. In the first year of Construction Q, I joined a well-known networking group. Suddenly I was thrown into giving presentations every week in front of 50 people. I would never have had the confidence to do this without being thrown in at the deep end due to the incentive of growing my own business. DR: Having my own business has made me more confident and open to new opportunities. On a professional level you have to make sure you define your ethics and processes – I think that’s one of the most refreshing things to have control over. The key difference is motivation – I can decide on a certain direction for the company, but I have to motivate myself. JS: You have to learn skills that perhaps you weren’t expecting to: accountancy, employment law, insurance, management skills, graphic design, web design. I’m also a prolific networker – you have to network to keep abreast of what’s going on in the industry. Having your own business is like creating an animal – sometimes it’s nice to you and other times it bites you. I’ve learned to deal with both scenarios. Q: What advice would you offer someone considering setting up their own firm? FH: My only regret is that I have been too trusting at times. Several unpaid debts have caused difficulties for us and if I’d been a bit more switched on in the early days, these may have been avoided. It’s a learning process, though, and I definitely don’t want to be seen as being too contractual. I’d recommend growing at a steady rate: we have had opportunities to grow quickly, but I think our growth rate of one additional employee per year has made the business easier to manage.

It is also really important to surround yourself with a good support network – not just family and friends, but support from other businesses that will help you thrive. Nurture the right support team and you will reap the benefits of a trusted network. Running your own business is exhausting, but everything you do is for you. It is extremely rewarding, and if you have the drive and determination you will succeed. I would encourage anyone to take the gamble and go it alone. If you’re not afraid of hard work and taking a few risks, then self-employment is definitely the answer. DR: I would advise setting up your business as a limited company straight away. It provides stability and profile. Be open to advances in technology and learn how to apply them in, what is fundamentally, a people industry. Our work needs a lot of professional input; you can offer that very quickly and seamlessly if you do as much as you can digitally. Start small and lean and make sure you are open to any opportunities. Things move quickly and when you are in control of your own company you can be agile and adapt to that. JS: Put a chairperson in place, to give a structure to your firm. Ideally, this should be someone you trust who can act as a mentor, and who is predominantly there to look after you and the business. Have your goals set out so you know where you’re heading. It’s vital to have a strong brand and to wrap everything you do around that brand. We look at everything – the clients we work for, the jobs we do – and then ask ourselves if they sit well with our brand. If they don’t then we don’t work with them. Then invest time and money in communicating that brand: get a marketing professional involved at the start of your business’s journey. Finally, you need a good website – it’s your shop window – and it’s worth doing well. Fiona Hull MRICS is director at Construction Q fiona.hull@constructionq.co.uk David Reynolds FRICS is director at Bloomsbury Project Management david.reynolds@bloomsbury.pm Justin Sullivan FRICS is director at Adair justin.sullivan@adair.co.uk Related competencies include: Business planning Further information: This article is the first in a series of articles in Construction Journal on operating as an SME in the construction industry. Contact the editor at sfairbairn@rics.org if there is any specific information related to SMEs that you would like us to cover. rics.org/journals 15


Construction

SMEs

Starting small Setting up your own consultancy is common practice in the construction sector – we guide you through the key stages of the start-up process Claire Watkins

Setting up your own business can be a daunting prospect. It requires energy, patience, considerable courage and, of course, it comes at a cost. Your aspiration may be to run a growing business, employing people who are passionate about providing a quality service and creating a name and a legacy for others to continue. This is all achievable; most entrepreneurs, however, will tell you that running a successful business did not come without taking a few risks – and making a few mistakes. Mistakes are unavoidable, but it is possible to minimise them and make sure you are in a position to recover quickly. The starting point for any new venture is a business plan: this sets out what you want to achieve and how you plan to achieve it. A business plan is essential, and not just for your own purposes; if you are likely to require finance, it is a good way to encourage your bank to lend you the necessary funds. A business plan should include the following items. 16 Journal February/March 2020

••Service or product: comment on the sector – how your business fits into it, how you plan to approach your business, where you see gaps in the market and how you intend to fill them. Describe, in as much detail as possible, how your business will distinguish itself from the others already in the market. Include information on how you will provide a quality service, where the work will come from and who you consider to be your target market. For example, if a key part of your business plan is project management and construction design management, you should focus on how you intend to streamline processes so costs are controlled, regulations are met and any red tape is kept to a minimum. The goal is to address your clients’ needs rather than simply sell a service. ••Resources: this is where you include details of the team you intend to hire to provide the relevant service or product. Various qualities will be required so, in addition to highly skilled surveyors, you might also require a business development

specialist, practice manager, finance manager and IT specialist – or, at least to begin with, you may be required to upskill and carry out these roles yourself. You also need to consider office space, depending on the size of your business: will you operate from your home, take a lease and adapt it to your own specifications, or opt for serviced offices that can provide IT, meeting rooms and front-of-house support as part of the deal? Software is another consideration: for construction businesses it is essential to choose software that is designed for the management of long-term projects. ••Your clients and referrers: many new businesses struggle to define how much money should be spent on marketing. Once you’ve identified your target market, devote some time and cost to cultivating relationships with key referrers and attending networking events, as a means of creating awareness of your brand. Although a good website is also essential, more than 90 per cent of new work for most surveying firms comes from referrals. While part


of this figure is most likely to be made up of contacts from businesses you’ve worked with before, new connections will undoubtedly be very useful. Building a network of architects, construction companies, estate agents, surveyors and other professionals who are not already in your field is time well spent. ••Growth plan: be bold and set goals. If your intention is to achieve a £5m turnover in ten years, map out how you plan to achieve this target. Will it be through organic growth? How do you intend to go about attracting staff? Decide how you would like your firm to stand out from the others in the marketplace so it becomes a business people want to work for. We are seeing a generational shift where new entrants into any profession are demanding more than just a nine-to-five job. Every modern business needs to consider flexible working, agile working, employee ownership and incentives that go beyond purely financial reward. ••Financial details: a business plan should include cash-flow and profit forecasts; ideally for five years, but at least a minimum of two. It is advisable to start with known costs: salary expectations, rent, IT equipment and professional indemnity insurance. Once you have noted these core costs, you need to include any other items of potential expenditure so you can see how much revenue you will need to generate to be able to cover all these costs. It is important to have a good grasp of job costing so as not to lose sight of the break-even point of a project, rendering it potentially loss-making. Ensure you work out how much it costs to employ one person by taking into account all essential overheads and tax requirements; this will

help you work out how much business each employee will need to generate in order to achieve your projected profit level. Choosing a business structure If you are flying solo, then operating as a sole practitioner – defined as being self-employed by the government – will keep things simple. There are no filing requirements other than the need to submit a tax return to HMRC at the end of each tax year, and a VAT return if you are VAT-registered. HMRC is in the process of replacing the annual tax return with more frequent online reporting obligations in a scheme known as Making Tax Digital (for more information, see Construction Journal November/December 2019, pp.30–32). Another option is a limited company. There are advantages to this structure – not least the appeal of limiting liability. Limited companies offer flexibility around remunerating director–shareholders as they can earn a salary as well as receiving a share of profits via dividend payments. Directors, as well as other employees, can also benefit from receiving employer contributions to their pension. From a tax perspective, there can be advantages to operating as a limited company. This is because corporate tax rates are lower, so profits that are retained in the company, that is, profits that are not paid out as salary or dividends, are taxed at 19 per cent. This rate is correct at the time of writing, but it is subject to change. Limited companies are also required to file accounts with Companies House, although small companies are obliged to supply less financial information for public record than larger companies as they are entitled to file accounts in filleted form.

Although a good website is essential, more than 90 per cent of new work for most surveying firms comes from referrals

This means details of turnover, expenditure and profit are largely omitted. Another common structure is the limited liability partnership (LLP). LLPs are popular because they afford the owners – or members – limited liability in much the same way as a limited company, yet they are more flexible in structure because profits can be allocated easily, retaining the partnership ethos that is attractive to so many professional practices. Profits are shared among members by agreement and partners are taxed under self-assessment rules, with tax payments being made in January and July each year. Although selecting the right structure is important, it does not tie you in forever and it is very common for an LLP to convert to a limited company and vice versa. At different stages of the business’s life, one structure might provide a better fit than another. For example, it is quite common to see well-established surveyor firms adopting a company structure. This is often because firms that have been operating for a few years can afford to leave working capital in the business, where it is taxed at low corporate rates. In an LLP structure, the same working capital would be taxed at much higher income tax rates. It is also increasingly common to see companies implementing share-based ownership schemes, such as share options and employee ownership trusts, enabling all employees to become shareholders in the business. For some firms this is a key part of their succession planning, particularly where founding shareholders choose to sell their shares to employees, instead of back to the company. Developing a plan and deciding on a structure are the first steps in building a dynamic, agile company to compete in today’s business environment. Claire Watkins is partner and head of professional practices at Buzzacott LLP watkinsc@buzzacott.co.uk Related competencies include: Business planning Further information: The RICS Small Business Hub provides advice for SMEs at rics.org/smallbusinesshub. rics.org/journals 17


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Construction

Comment

International

‘I want to raise awareness and embed our profession in construction activity across the Middle East and Gulf regions’ Nabih E. Azzam Nabih Elias Azzam & Partners

Despite the evolution of quantity surveying in the UK and other Commonwealth countries where the profession is often studied at both bachelor’s and master’s degree level, there are few education programmes for the discipline in the Middle East and Gulf countries. Conversely, the added value of quantity surveyors is widely recognised in these regions, which has resulted in the services of quantity surveyors from other countries where the profession is better established being commissioned on various projects and programmes. In 1982, however, neither the education nor the recognition of the profession’s added value were evident. The absence of an established quantity surveying profession meant other disciplines, such as engineering, took on the work. These disciplines were, however, bound by the limitations of the scope of services they could provide, particularly in terms of cost estimating, planning and control, evaluation of variations and final accounts – the services that essentially comprise a quantity surveyor’s role.

There seemed to be an opportunity to raise awareness of the profession and embed it in construction activity in the Middle East and Gulf regions. To that end, I founded Nabih Elisa Azzam & Partners (NEA & Partners) in Jordan, the first Arab chartered quantity surveying practice offering specialist quantity surveying and cost management services to Jordan and the surrounding Middle East and Gulf regions. Launching the business was the culmination of my education in quantity surveying, professional training – including my RICS qualification – and work experience across both the UK and Gulf countries. Establishing the company brought many challenges. A prominent engineering firm in Jordan once asked why they should use the services of a company such as mine when they had a team of engineers able to carry out the tasks of quantity surveyors, including preparing bills of quantities. The firm’s statement was correct: its engineers could carry out some of those tasks, but not to the standard of trained quantity surveyors, resulting in an elevated number of disputes and discrepancies. This only

strengthened my resolve to promote the benefits that the quantity surveying profession can bring to construction. The encounter with the engineering firm, and other similar experiences, indicated that for public perception and awareness to shift, further investment in education programmes promoting surveying was required – starting in schools and providing clear progression to further education. To contribute to this quantity surveying education, NEA & Partners began offering opportunities to young engineers, training them in our Jordan office and converting their skills to quantity surveying. We then collaborated with government authorities, such as the Ministry of Public Works and Housing in Jordan and the Jordan Engineering Association, to introduce a professional diploma in quantity surveying in partnership with the German Jordanian University. In September 2018, 15 students graduated from the course, while a second batch began their studies in October 2019. Our vision is to create an academy within NEA & Partners and expand the range of courses available. We are also hoping to visit schools in Jordan to introduce students to the benefits and importance of the profession, with the hope of encouraging them to consider quantity surveying as an option to study at university. Ultimately, we aim to be able to extend these initiatives beyond Jordan and into other Middle East and Gulf countries. UK universities in particular are instrumental to the success of these initiatives and we are looking to collaborate with them to establish new education programmes, combining our knowledge and experience in the Arab world with their expertise in quantity surveying education. The opportunities to expand and promote the benefits of our profession are vast. As RICS professionals we have the expertise and experience to identify them, address them and ensure quantity surveying is valued and utilised around the world. Nabih E. Azzam FRICS is founder and owner of NEA & Partners. He won the first movers category award in the RICS Pride in the Profession awards nabih.azzam@nea-me.com rics.org/journals 19


Construction

International

No easy ride Demand for theme park developments is increasing, particularly in the Middle East. Project and cost managers are critical to the success of such developments

Karl Codd

20 Journal February/March 2020


Theme parks are big business. In 2018, there was an increase of around four per cent in theme park attendance globally and this trend is set to continue. The International Association of Amusement Parks and Attractions forecasts compound annual growth in the market of 3.8 per cent up to 2022, with visitor numbers rising towards 1bn per annum. In the Middle East, market expansion is driven by government policies to attract more tourists, coupled closely with the wider diversification of oil money. In this area alone there are big plans for new theme parks, such as Qiddiya in Saudi Arabia. This adds to the many existing attractions such as Ferrari World and Warner Bros World in Abu Dhabi, IMG World of Adventure and Dubai Parks and Resorts in Dubai – not to mention those currently under construction, such as SeaWorld Abu Dhabi. New levels of disposable income are emerging in high-population countries, such as India, making the Middle East a major theme park tourist destination. This, in turn, is making long-term investment in the theme park industry more viable than ever before. Challenges When considering the development of a theme park, having the right project and cost managers on board at an early stage is critical to the project’s success. The role of the project manager on theme parks presents some unique challenges, especially around managing the lines of communication between employer, consultants, specialist vendors and project stakeholders who will undoubtedly be located in several different countries. A variety of time zones, working weeks and cultures, along with significant amounts of travel, can lead to inefficient working due to a lack of face-to-face collaboration. Project delivery teams based in the relevant country are the obvious solution to these issues, and productivity generally increases exponentially through these teams. However, there is a general reluctance for consultants to relocate en masse from overseas because of licensing issues for companies and the personal disruption for their employees. Shift

working, rotations and co-location can often maximise productivity. Regardless of location, getting the right consultants on board at an early stage is critical. There needs to be an appreciation of not just the key construction drivers, but also of the highly specialised demands of such a huge and diverse build. Only a relatively small proportion of the physical assets are likely to use traditional construction methods. A range of specialist consultants with experience in areas such as rides and theming, as well as an international background, will be essential. The role of the cost manager – or cost management consultant – on a theme park is also significantly different from more traditional construction projects. The main challenge for the cost manager is balancing commercial decisions against the subjective aspect of guest experience. This makes budget management and value engineering extremely challenging. Specialist theme park elements, such as rides, shows and theming, can often represent more than 60 per cent of the overall construction cost. These elements are not easily benchmarked, neither are the interfaces well understood by professionals who haven’t been through the process before. Not understanding this at the outset could expose significant cost overruns as the design and construction progress. One of the biggest challenges for both the project and cost managers is ensuring the change management process is robust, with an embedded flexibility for late change. This is especially important on theme parks involving a wide range of technology. Through both the design and build process, new technologies come on to the market that enhance what may already be proposed in the design or budget. Clients and end-users alike want to see these latest technologies integrated to enhance the brand and marketability of the park. Theme parks are complex and will continue to change from inception through to completion. Such complexities cause interface and conflict issues between the trades working alongside each other with different priorities, mindsets and ethos. Flexibility in the contract provisions needs to allow for late change with minimal

time and cost impact. It is imperative that the project team collaboratively engage in the change management process for successful completion of the park. This flexibility is equally important when working with specialist vendors who are in short supply and generally operate using factory production slots that do not always follow the regional industry norms. Late decisions or changes to design can result in missed production slots that, in turn, lead to significant critical path delays. For example, a ride vendor may have a four-month production slot to produce a ride, yet if the design is not complete and production cannot begin, work will begin on another job and the ride will move to the back of the production slot queue. As with any other construction project, the health and safety regulations of theme parks need to be well understood and observed. In the Middle East, significant steps are being taken with the introduction of worker welfare policies relating to all parties involved in construction. The related costs – both hard and soft – need to be understood and accounted for. Furthermore, theme parks are often seen as risky because of concerns about potential injuries, despite the fact that stringent safety standards are the industry’s top priority. Rides now incorporate thousands of sensors to evaluate safety factors before the launch of any vehicles, with further safety advancements constantly being explored. Safety precautions don’t come cheap, but are an essential part of any ride system and these will continue to evolve over time. Expenditure and revenue The capital spend on any theme park project is always going to be significant, but there is plenty of room to develop various revenue streams beyond the rides and attractions. Visitors tend to have realistic expectations about admission prices, accepting that it is unlikely to be a cheap experience. The park brings the footfall, and then visitors are encouraged to spend additional money on retail, food and beverages. The location of these facilities needs to be well thought through, along with the extent of the themed fit-out, to rics.org/journals 21


ensure consumer spend is maximised. It is not uncommon for themed retail, food and beverage fit-outs to cost two to three times – per square metre – that of a five-star hotel. Securing the intellectual property (IP) to a theme park can be a significant cost that must also be factored in, and strict guidelines can mean that securing the necessary permissions and sign-off is not a quick or straightforward process. An established IP such as Harry Potter, owned by Universal, or Toy Story, by Disney, allows for a new theme park to benefit from a brand’s image and following, tying together various experiences on offer. An IP can help a theme park differentiate itself from smaller amusement parks, such as those that are increasingly being developed in shopping centres in the Middle East. With or without IP, theming is an integral part of theme parks because it brings them to life. The design needs to be well managed to achieve the optimum balance between creative licence and being fit for purpose. IP requirements can be onerous, requiring significant amounts of reworking to achieve the expected brand standards. Local conditions can have an impact on revenue. If the weather is inclement for part of the year, the theme park may have to close. This seasonal loss of income needs to be factored into financial projections – you can’t make money when the park is closed. Local demographic and cultural traits in the Middle East also need to be considered. It is normal for local visitors to want to attend parks in the evening rather than during the day, and this can affect the operational requirements of a theme park. One solution is to build indoor or semi-indoor spaces, but this can be more difficult logistically and increase the capital expenditure costs significantly. For example, the target market of a proposed outdoor water park was Gulf Cooperation Council (GCC) nationals. Market research showed that most visitors wanted to visit the park at night so areas for queuing had to be cool in the day, but heated in the evening. Procurement Procurement has to be carefully planned. In the Middle East, traditional procurement 22 Journal February/March 2020

When considering the development of a theme park, having the right project and cost managers on board at an early stage is critical routes are generally preferred by clients, but time pressures to open the parks can mean that hybrid solutions are created, for example, management contracting that combines both traditional and design and build elements. Hybrid solutions often entail a significant number of provisional sums, which can present time and cost risks to the client. The project team needs to manage this carefully to guarantee that budgets will be achievable, scope gaps are minimised, and the schedule is maximised. Timing is important: contractors and designers should be involved early in the process, particularly if the physical infrastructure has a long lead time. It is essential for the design and procurement programmes to be aligned to minimise potential delay claims. Rides are usually the principal attraction, so early procurement and design input is critical. Capital expenditure is high – signature roller coasters can cost between $25m and $100m – but this can be contained by investing in off-the-shelf rides, which can then be used with minor modifications. Bespoke rides are more expensive and can incur significant issues relating to testing and commissioning. Theme park projects require highly skilled specialist suppliers, and the amount of work currently in the pipeline across the world often places them in an advantageous negotiating position to set their own terms and conditions. Life-cycle costs Operational expenditure (OPEX) costs for theme parks are significant and must be both carefully considered and costed accurately. Employee costs make up the largest proportion of the OPEX, with

landscaping, ride maintenance and spare parts, utilities, cleaning and decorating and material costs all contributing to these ongoing expenses. Live shows are another major attraction at theme parks, but they are often labour-intensive and operationally costly. Show projection and media, on the other hand, can be less OPEX-heavy but have a comparatively higher initial capital expenditure. Technology progresses quickly, and what began as a dazzling spectacle can soon become dated, so the life cycle of the show should be defined – and estimated and budgeted for accordingly. To put the scale of the theme park OPEX into context: at the top end of the theme park spectrum, Disneyland’s daily average operating cost per park is estimated to be $3.25m, amounting to $10.68bn per annum split evenly across seven parks and resorts, including Florida and Paris. Given the costs involved, it’s clear to see that inaccurate estimating of daily operating costs will have a damaging impact on the park’s viability. Theme parks have much to commend themselves. They can be highly profitable for both the investor and the construction sector, and demand is increasing. They offer unusual challenges to the industry and boost local economies, and – this isn’t to be underestimated – they make people happy. But, whether in the Middle East or anywhere else in the world, constructing a theme park is going to require a large investment – and project and cost management skills will be key in securing the best value for all stakeholders. Karl Codd is associate director in Currie & Brown’s Dubai office enquiries@curriebrown.com


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The glasshouse effect The climate crisis means that the all-glass towers commonly found in the world’s major cities have been coming under fresh scrutiny

Glass towers have been a staple of commercial architecture since the 1950s, and the advent of two New York buildings in particular: the Seagram Building, designed by Mies Van de Rohe, and the United Nations Secretariat Building, designed by Oscar Niemeyer and Le Corbusier. Both presented a post-war vision of shiny modernity and the latter, completed in 1952, was the first fully glazed, curtain-walled building using the then recent innovation of air conditioning. In the 1950s, energy was cheap, and there was no thought of a climate crisis. The fact that buildings with all-glass facades were 24 Journal February/March 2020

prone to overheating had, however, already become apparent 100 years earlier with the UK’s Crystal Palace. A cast-iron and plate-glass structure, it was originally built in Hyde Park, London, to house the Great Exhibition of 1851, and – even in the mild British climate – sections of glass had to be removed and canvas used for shading to keep the building cool and habitable. The architectural and sculptural appeal of all-glass facades combined with the speed and economy of construction has remained irresistible to architects and developers; the benefits of great views and an abundance of natural light have also made them attractive

to occupiers and therefore easy to let. This combination of these factors has proved enduring for the past 70 years. Despite that history, the case for all-glass towers now needs to be re-examined for two vital reasons: resource efficiency and climate change. In practice, these two are connected, as increasing the efficiency with which resources are used reduces carbon emissions. The Ministry of Defence’s Global Strategic Trends – The Future Starts Today report, published in 2018, cites both of these as key strategic issues, with climate change judged to have the third greatest impact of 16 trends (bit.ly/MoDGSTed6).

IMAGE © SIMON STURGIS

Simon Sturgis


Construction

Sustainability

The relationship between climate change and real estate is based on the amount of carbon emitted in the construction and occupation of a building per square metre of useable space. Tall buildings – whether fully glazed or not – are thus inherently inefficient in terms of resources because the volume of material needed to create a square metre of useable space is very high, but this has historically been justified by location and rental yield. The most obvious source of carbon emissions for an all-glass building is the energy used in the cooling required to mitigate the heat gain from the facade, which is typically double-glazed. The greater the area of glass in a facade, the greater the load on the air-conditioning and the greater the carbon emissions. Research by University College London’s Energy Institute has found that electricity use per square metre of floor area is nearly two and a half times greater in high-rise office buildings, of 20 or more storeys, than in low-rise buildings, of six storeys or fewer. Gas use also increases with height, by around 40 per cent. As a result, total carbon emissions from gas and electricity consumption in high-rise buildings are twice as high as in low-rise. Towers, and particularly all-glass towers, are therefore inefficient in terms of energy use (bit.ly/hrenerint). The second and less obvious carbon associated with such a facade is the material-related emissions associated with sourcing, manufacture, transport, construction, maintenance and disposal, which are known as embodied emissions. The need to reduce air-conditioning load while keeping an all-glass facade means that sophisticated glazing measures have to be found, which usually entails a triple-glazed facade with a large gap between the outer pane and double-glazed inner panes to accommodate electrically operated blinds. The external and internal layers of glass are also usually laminated for safety, all of which means five layers of glass are set in a deep aluminium framing system. This type of system has a high embodied carbon cost. An additional problem is that laminated glass and double-glazed units typically have warranties of 25 years, and even if they

continue to perform beyond this time, the units still tend to need replacing every 30-40 years. Typically, replacing all the glazing leads directly to replacement of the whole system, and these are difficult to recycle effectively. This therefore represents ongoing carbon and financial costs over the life cycle of an all-glass tower. The time frames for replacing the entire facade do not tend to coincide with the expected lease cycles either. So, whether it is from the perspective of day-to-day energy use or construction and maintenance, all-glass buildings are problematic in terms of both carbon emissions and resource efficiency. Far better from all perspectives is a facade where most of the surface area has a life expectancy of 100 years or more, and no more than 40 per cent comprises smaller, simpler double-glazed units that can be replaced when required. Such replacements are cheaper, generate less carbon and are potentially less disruptive over the commercial life of the building. Does any of this matter, however, if the rent is justifying the additional costs of a 30–40-year facade replacement cycle and demand is sufficient? There are two areas that will make an increasing difference to investors, owners and occupiers, the first of which is regulation. In the UK for instance, the new London Plan will be requiring life-cycle embodied carbon emission assessments for all referable schemes, and towers are automatically referable. Over the next ten years or so, this requirement is likely to tighten up further in response to the UK government policy for zero carbon by 2050. Today’s all-glass buildings will likely fail to meet more stringent future regulations, and this could become an issue when the facades need replacing. Such replacements will almost certainly not be like for like. The second key issue is the investment and insurance risks inherent in climate change, and the likely impact of these on occupier sentiment. There are several international organisations that are advising investors and insurers on the implications of climate change, including

the World Business Council for Sustainable Development, the Financial Stability Board’s Task Force for Climate-related Financial Disclosures (TCFD), and the Principles for Responsible Investment – Real Estate (PRI). All of these make clear links between investment and climate change. For example, the PRI state that: ‘As part of wider efforts to implement the Paris Agreement, every real-estate asset owner, investor and stakeholder must now recognise they have a clear fiduciary duty to understand and actively manage environmental, social and governance [factors] and climate-related risks as a routine component of their business thinking, practices and management processes’ (bit.ly/PRIParis). The TCFD meanwhile says recommendations it made in its final report in 2017 ‘will ensure that the effects of climate change become routinely considered in business and investment decisions’ (bit.ly/TCFDrecs2017). The Bank of England, which already stress-tests financial institutions for financial resilience, will next year be including climatic risk in such testing as well. All of these measures will help put climate change at the centre of financial decision-making and have a direct impact on real estate. All-glass buildings responsible for significant carbon emissions will therefore be increasingly problematic, from a regulatory and an investment perspective alike. Tenants will become concerned about using buildings that are not perceived to be zero-carbon, and this can only have a negative impact on the value of all-glass towers. Simon Sturgis is the founder of Targeting Zero and co-author of the RICS Whole life carbon assessment for the built environment professional statement simon.sturgis@targetingzero.co.uk @simonsturgis Related competencies include: Construction technology and environmental services, Sustainability Further information: rics.org/wholelifecarbonps rics.org/journals 25


Construction

Disputes

Record keeping Construction disputes can happen well after the event in question when those involved are not there to respond to the allegation. Top tip: keep all key communications documented and accessible for future reference Oliver Sugden

Formal disputes in the construction industry can occur at any point in the contract period, and generally revolve around cost and time, or liability. Many disputes arise at the time the event occurs, but it is equally possible for a dispute to emerge much later than the event itself. This is either due to a failure to agree a mutually acceptable position on the issue, which then crystallises the disagreement further down the line, or for the point of dispute to arise when brought to light by other events. The classic example of this is a failure in design that leads to damage to a building, only discovered after many years, such as water ingress or structural failure – a latent defect. While the statute of limitations – the maximum time after an event in which legal proceedings may be initiated – is 12 years for contracts executed as deeds, this relates to the event itself and not the date of the contract. For significant projects carried out over longer time spans, this can mean that disputes arise well after the 12 years generally understood to be the period of liability. Defending such claims can be difficult due to the availability, or more likely the ability, to locate the information required so long after the contract has completed. Despite the wide use of email for communication purposes by the turn of the century, many construction professionals were – for many years – reliant on the postal service for contract administration. For example, by default the 1998 JCT contract did not permit electronic communication for formal documents. Unless parties had the foresight to store the information 26 Journal February/March 2020

electronically, they would have been reliant on hard copies, making it more difficult to locate and retrieve the critical material. Another factor contributing to the difficulty of defending these claims is staff retention – boom and bust cycles encourage the movement of staff, which together with natural churn makes it unlikely that many participants in a contract will still be at their original companies more than 12 years later. Although it is almost impossible to pass on all the specific knowledge gained during the process of managing or being involved in such projects, even vague memories can provide important context or reasoning that may not be immediately apparent, and can assist with tracing the information required. Once staff have left the business, however, this is lost – and the only point of reference is the paperwork. If you are responsible for contract administration in any way, shape, or form – as an employer’s agent, project manager or in any commercial role on the client or contracting side – anything you put in writing may be read years from now in a court of law, without your ability to provide context or supporting information. It is important, therefore, that key contractual information not only speaks for itself, but is accessible should this situation arise. Technology can help, but it needs to be applied appropriately. It is easy to become dragged into an exchange of back and forth emails, or create only a short summary that makes sense to those currently resolving the issue. It is sometimes necessary to take a step back and record the full picture in a way that would be understood by parties not involved with the subject.


If you are responsible for contract administration in any way, anything you put in writing may be read in a court of law Formal documents issued under construction contracts are generally certificates that state, among other things: ••date of contract completion ••confirmation of financial obligations ••failure to meet completion date. In addition, there will be informal documents including progress meeting minutes and any other recorded meetings relating to the contract; emails, letters, and handwritten documents may also be relevant in the event of a dispute. While it is impractical to review every single piece of communication with a view to ensuring that it would stand alone, it would be prudent for consultants and clients alike to make sure any grey areas or contentious issues are recorded with the insight of contemporaneous knowledge. If the party making the claim has

more accurate or informed records regarding a disagreement and the defending organisation has no contextual historic knowledge, the case will be very difficult to defend. Many disputes will end up in front of an adjudicator where, in general, only written submissions will be reviewed. Evidence from the time of the actual event is critical in painting a picture and will be given significant weight in assessing the balance of liability. For example, a programme issued at the time by the contractor that shows an exaggerated assessment of delays from client instructions, but is not challenged, would indicate that this was accepted by default. All consultants have a responsibility to review contract documents and ensure that both they and the client are protected by acting in good time. This does not have to result in confrontation at every turn – a simple request for more substantiation, or noting the flaws in a programme submission, can be sufficient to protect the employer’s position. Construction contracts generate huge amounts of data. Ensuring that the information required to protect the employer is relevant, accurately recorded and available would take a relatively small amount of resources at the time – but could avoid problematic situations in the future. Oliver Sugden MRICS is a managing surveyor at Sanctuary Housing Association oliver.sugden@sanctuary-housing.co.uk Related competencies include: Legal/regulatory compliance rics.org/journals 27


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Construction

Ethics

Interactive

ethics

RICS is set to launch its new online Professionalism module to refresh its training provision in ethics

Paulo Ferreira

RICS is developing a new e-learning and assessment tool to replace the online module Professional Ethics for RICS Members, which is a mandatory assessment requirement for all individuals qualifying with RICS. Although this has been an effective assessment and learning tool, the publication of professional statements such as Conflicts of interest and Countering bribery and corruption, money laundering and terrorist financing offers us a valuable opportunity to refresh the content. The new RICS Professionalism module will become part of candidates’ journey towards achieving professional status when it launches later this year. It will feature a completely new e-learning section with more interactive material. Users will work through exercises on different approaches to ethics, clients’ interest, and the public interest, trust and trustworthiness.

They will have the opportunity to think as an RICS professional facing an ethical dilemma, with a series of possible courses of action; each will lead them down a different route, with different outcomes. Candidates will have their knowledge and application of the Ethics, Rules of Conduct and professionalism competency tested through a new bank of multiple-choice questions, which will tailor the experience according to their chosen pathway. For example, candidates qualifying through built environment pathways such as Infrastructure and Quantity Surveying could be presented with the following question: ‘Competitive tenders on a private-sector project are due to be submitted on a particular date and time. One of the tenders arrives late and is the lowest of those submitted. Your client is very keen for the late tender to be

The module will feature a completely new e-learning section 30 Journal February/March 2020

considered and asks you, the consultant quantity surveyor, to include it in the report as if it had not been late. Which of these possible responses would be recommended by RICS ethical standards?’ a. Refuse to consider the late tender at all and report on that basis. b. Report on the late tender as if it had not been late, as instructed by the client. c. Report on the late tender and highlight the fact that it was late in the report, but that the client had instructed you to consider and report on it. d. Report the client to RICS. The final challenge will be a longer, more complex interactive case as part of the assessment. Candidates will be presented with a scenario that requires an ethical decision. Whichever path is chosen, candidates will need to respond to a series of ethical challenges that aim to test the depth of their reflection on ethics. RICS has collaborated with its qualified professionals around the world, as well as seeking input from outside the profession, to make the content work more effectively and better reflect the role of professionalism in their region. Alongside the module, we are also revamping the list of free ethics resources. The material will be more engaging, challenging and responsive to professionals’ need to make the most of their time – watch out for our suggestions of online training and podcasts on ethics, which will be appearing online alongside the Professionalism module. Ahead of the module’s launch, candidates and assessors will be fully informed of the switch and how this may affect their assessment window. It will also be translated into our core business languages of Chinese, Dutch, French, German, Portuguese and Spanish. And for those of you still wondering, the preferred answer to the above question is ‘c’, although ‘a’ would also be acceptable. Paulo Ferreira is a policy and assurance officer in the RICS Education and Qualifications Standards team pferreira@rics.org Related competencies include: Ethics, Rules of Conduct and professionalism


Construction

APC

Accounting principles Chartered surveyors must be equipped to assess, recognise and lead financially sound businesses. The Accounting principles and procedures competency provides a solid foundation to do so Susan Hanley

The Accounting principles and procedures competency covers the basic principles of accounting and interpretation of company accounts. It is a mandatory competency to Level 1 across all RICS pathways, meaning candidates must ‘demonstrate knowledge and understanding of accounting concepts and the format and preparation of management and company accounts, including profit and loss statements, cash flow statements and balance sheets.’ This competency can be approached from two angles. ••Internal: this covers the accounts of the company you work for or manage. A good place to start when looking to develop your Level 1 knowledge is to review your company’s accounts. If possible, meet your company accountant and ask them to talk you through the requirements for logging and keeping accounts, and to explain the headings. Reviewing a real set of accounts and understanding what they demonstrate, rather than reading about accounts generically, will make it easier to recall this knowledge and relay a response at final assessment. ••External: this covers the accounts you may be required to review as part of your role. Consider why you might have to review external company accounts. Do you need to consider the financial viability of a contractor as part of the tender pre-qualification process, for example? Or do you need to be able to understand the credit agency reports that provide this information? In addition to understanding the principles of accounting you should also have an awareness of both national and international requirements. These include the Generally accepted accounting principles (GAAP) – derived from the work of several government-sponsored accounting entities and consolidated in the Accounting Standards Codification (ASC) – and the International Accounting Standards (IAS), referred to in the RICS pathway guide. Knowledge of the International Financial Reporting Standards (IFRS), issued by the IFRS Foundation and the International Accounting Standards Board, is also useful. When completing your summary of experience to Level 1, make sure you link your knowledge to its source, for example:

••‘At university I learnt about balance sheets and profit and loss statements …’ ••‘Through work experience I have gained an understanding of cash flow statements and their importance …’ ••‘I attended a course that identified the requirements of the GAAP in the UK ...’ ••‘As a result of structured reading I am aware of the IFRS and how an asset is treated in an entity’s account …’ If you are logging your structured reading or course attendance as CPD, make sure you have gained a clear learning outcome, and that you revise the content of your CPD learning outcomes before the final interview. A CPD entry or summary of experience relating to accounting generally may result in a more generic question such as: ‘Can you explain the purpose of keeping company accounts?’ Giving a more specific learning outcome, however, allows assessors to focus questions more directly, giving you a better opportunity to demonstrate your knowledge. An example question could be: ‘I see you have reviewed your company’s balance sheet – can you talk me through the headings?’ Although mandatory competencies can be questioned directly, remember that they can also be addressed while you are being questioned on other technical competencies – or as part of your case study questioning. As chartered surveyors, you could also become the business leaders of the future, so assessors need to verify that those qualifying meet the knowledge requirements for building safe and sustainable businesses. The Accounting principles and procedures competency is a key component to achieve this objective. Susan Hanley FRICS is director of the APC Academy susan.hanley@apc-academy.co.uk Related competencies include: Accounting principles and procedures rics.org/journals 31


Construction

Comment

Insurance

‘Sourcing insurance online to seek the cheapest premiums often results in underinsurance or the wrong cover’ Colin Donnellon MPW Brokers

Every RICS-regulated firm is required to have professional indemnity insurance (PII), which is designed to cover any compensation claims and legal costs as a result of a professional making a mistake and a client subsequently losing money. According to UK law, the only compulsory insurance for firms are employers’ liability insurance for those that employ staff – even on a casual basis – and business vehicle insurance, for those who use a car or van for work-related purposes. There are, however, several other insurance types to consider when starting your own construction business, including business interruption insurance, business legal protection insurance, directors’ and officers’ liability insurance, material damage insurance and public liability insurance. There is a tendency for small- to medium-sized enterprises (SMEs) in the construction and professional services sectors, particularly sole traders or companies comprising two or three employees, to source their insurance – compulsory or not – online, to seek the cheapest premiums, whether purchasing 32 Journal February/March Xxxxx/Xxxxx 2019 2019

a package cover or an individual policy. This means it is often purchased without full understanding of what cover has been provided, resulting in scenarios such as underinsurance or restrictive policy cover. Misunderstanding the level of cover provided could mean the policy protection fails to indemnify the policyholder and could be the difference between posting a loss or profit at the end of the firm’s financial year or, at worst, ceasing to trade. Another common issue with sourcing insurance online is miscommunicating the business description and activities. Insurers must be informed of the precise work undertaken as they need to understand the risks they are covering. For example, is there any specialist activity in the build contract they should be aware of, such as basement works? If these types of activity are not disclosed to insurers, then there is a major risk they will not be included in the insurance policy. In the case of basement works, the policyholder may be in breach of a working at depth condition. Focusing on achieving the lowest price possible belies the significant risks

in the construction sector. Ultimately, SMEs operating in the construction sector must ensure they obtain insurance protection that fulfils their needs, provides comprehensive risk protection and pays a premium commensurate to the risks. Any policy should be competitively priced and provided by a recognised insurer. Ideally, engage with a specialist construction insurance broker that has a thorough understanding of the industry, including the activities undertaken, the possible risks and the parties involved and, on a more technical level, the standard forms of building contracts. Specialist construction brokers also provide an opportunity to discuss your business activities and clarify any uncertainties and queries before purchase. Both your broker and insurer will then have all the facts and a full understanding of your business, so you purchase the insurance protection that correctly covers your business. Regular dialogue with your broker is necessary so they are kept informed of any changes to your firm’s activities – such as business expansion – during the period of insurance. Many SME policies will have certain limitations not solely restricted to the cover offered. There may be limitations on contract value, turnover, number of employees, or the use of subcontractors. Making your broker aware of changes enables them to review cover options to meet the ongoing needs of your business. You should look upon a specialist broker as your own in-house insurance adviser: someone who knows the insurance market and understands the intricacies of the construction industry. Colin Donnellon is associate director of MPW Brokers, a construction specialist broker owned by the Clear Group colin.donnellon@mpwbrokers.com Related competencies include: Client care Further information: RICS has a list of insurers that are listed to underwrite professional indemnity insurance policies of RICS member firms in the UK and Republic of Ireland jursidictions (rics.org/insurerslist).


Construction

Cost management

Labour movement A new series of labour cost indices provides a more accurate assessment of cost dynamics at all project stages

Paul Burrows

Costing labour is an integral part of any construction project, yet data to inform this has not typically been as reliable as it is for other project elements such as materials. Typically, labour cost rates and indices have been calculated and produced using figures published in working rule agreements. From these, it has been difficult to establish whether the rates stipulated in the agreement are representative of those actually being paid in the labour market. While the rates of wage inflation will keep pace with construction industry costs over the longer term, changes in the actual cost to industry of labour have been hard to discern because calculated wage rates are not responsive to short-term changes in the market. The indices have not been showing a true picture of market demand. To rectify this, BCIS has partnered with Hays Construction & Property to produce the Hays/BCIS Site Wage Cost Indices measuring site labour costs in the construction industry, addressing some of these issues by comparing actual market rates and determining their true movement. Having a direct measurement of rates gives a much more accurate picture of the market, and highlights changes in demand for different grades of workers – particularly relevant in today’s economic climate. Index calculations have to be repeatable over long periods of time in order to give a true picture. Real-world data is often full of quirks that can cause inconsistency, and wage-rate data is no exception. The index aims to address these problems by building on a series of historical values dating back to the start of 2011, using data from all over the UK, allowing users to see market movements over a long duration. Data is

Real-world data is often full of quirks that can cause inconsistency, and wage-rate data is no exception analysed at the end of each quarter, enabling quick publication of the index values after data collection for each period is complete. The six separate index series that have been calculated by BCIS from labour categories identified by Hays are: building trades, skilled; improvers and semi-skilled; mechanical and electrical (M&E) trades, skilled; plant operators; unskilled and semi-skilled labour; and all-in. The all-in series is calculated from the aggregate of the other five separate indices. Comparing the three categories with the largest samples – building trades, skilled; M&E trades, skilled; and unskilled and semi-skilled labour – reveals that the older index series reflects regular percentage increases in labour costs, as agreed by the trade bodies. Hays/BCIS indices display the relative dynamics in much more detail than the indices based on working rule agreements, and short-term changes and labour market volatility are more evident when viewing the quarterly movement. For instance, working rule agreement rates have shown steady rises from 2015 to the present, and all grades have risen by a similar amount over the period. Hays/BCIS indices values also show that skilled trades have done relatively better than unskilled workers and that the traditional trades –

building trades, skilled – have increased at a faster rate than M&E. Better visibility of short-term movements in rates will give customers a more realistic market view. The benefits of a more effective process for labour costing will have an impact not only on a project-to-project basis but also the construction industry as a whole. As Hays Construction director Duncan Bullimore says, ‘Encouragingly, we know from our own experience and data that employers are adopting a forwardlooking, adaptable and flexible approach to resourcing for projects amid ongoing skills shortages and uncertainty. ‘Employers are struggling to recruit construction talent and we hope that our data will prove useful at this time and beyond. Providing credible data on traditional construction roles UK-wide will help employers with effective procurement by contributing to cost and margin control.’ Paul Burrows is a solutions architect at RICS pburrows@rics.org Related competencies include: Commercial management Further information: The new index series is available on BCIS Online at rics.org/bcis rics.org/journals 33


Construction

Comment

Legal

‘A failure to clearly identify a company when entering into a contract can lead to confusion and uncertainty’ Shy Jackson Pinsent Masons

There are many benefits to operating through a limited company, but it is important to ensure that such a company is clearly identified when entering into a contract. A failure to do so can lead to confusion and uncertainty, as can be seen in the two following cases. In Erith Holdings Ltd & Ors v Murphy [2017] EWHC 1364 the court considered a claim based on an alleged oral contract with Mr Murphy in which he agreed to pay for certain waste removal services, for which he would also supply a personal indemnity or guarantee. The claim involved discussions with Murphy for the purchase of his business, Murphy’s Waste Limited, a company that then went into liquidation. The parties agreed that none of the oral agreement was put in writing and therefore the court had to determine the issues in dispute based on witness evidence as to what happened in the context of the contemporaneous documents. The court found that there was an initial agreement in place, but with Murphy’s Waste Limited. Invoices were issued to Murphy’s Waste Limited that then made the payment, 34 Journal February/March 2020

which indicated the agreement was with the company despite Murphy himself providing the funds for payment. The court decided that a revised agreement had not been entered into, although it had been the subject of lengthy discussions. It was not credible that an agreed increase in costs of up to £1m would be left unrecorded and not communicated to the project funders or the solicitors involved in the negotiations. The court also rejected the argument that Murphy agreed to give a personal guarantee, noting that while he provided substantial financial support to the company, the funds were always channelled through the company. There was also no evidence that Murphy had paid any of Murphy’s Waste Limited’s debts directly or given a personal guarantee for its debts. In Williams Tarr Construction Ltd v Anthony Roylance Ltd & Anor [2018] EWHC 2339 there was a written contract that governed the appointment of civil engineer Anthony Roylance by contractor Williams Tarr Construction Ltd. However, it was reached through an exchange of emails and

not recorded in a formal document. The installation of a retaining wall had proved to be problematic, which led to the alleged claim that the final design was defective. The main contractor argued that Mr Roylance had acted in a personal capacity and that he had designed the wall and warranted it would be fit for purpose. The claim was brought against Anthony Roylance Limited as the first defendant and Anthony Roylance as the second defendant. There was evidence that the main contractor was not aware that Roylance had a limited company and that correspondence was addressed to the same details as set out in his letter-headed paper, which made no reference to a limited company. The documents also suggested that Roylance was working in a private capacity as communications were sent to his personal email. The court accepted that Roylance paid the fees into the company’s account and regarded himself as operating through the company. This, however, had not been explained to the contractor and the company had not been referred to. Roylance had decided that his paperwork would look more professional if it made no reference to the company. The court held that the agreement was with Roylance in his personal capacity, but found that the scope of the agreement did not cover the design of the wall – so the claim failed. These decisions demonstrate the benefits of acting through a limited company. Murphy operated in that way and therefore the allegation that he agreed matters in his personal capacity failed, but Roylance did not use his limited company and was found to have entered into the agreement in a personal capacity. In both cases, however, the need to decide which party entered into the contract would have been avoided if there had been a written contract in place, identifying the limited company by its full name, number and registered address – as is common practice. Shy Jackson is partner at Pinsent Masons shy.jackson@pinsentmasons.com Related competencies include: Consultancy services


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Profile for RICS

Construction Journal: February-March 2020  

Our focus this issue is to offer advice to those running SMEs – predominantly sole traders or smaller firms – and to those thinking of setti...

Construction Journal: February-March 2020  

Our focus this issue is to offer advice to those running SMEs – predominantly sole traders or smaller firms – and to those thinking of setti...

Profile for ricsmodus