Construction Journal September-October 2016

Construction Journal Learning from mistakes Lessons learned from past projects for managing risk

ARBITRATION CONTRACT ADVICE LEGAL

Raising the bar

A model answer

Managing the future

Why learning lessons from past project failures can help with future risk management

A BIM application can help remove risks throughout a project’s lifecycle

How Crossrail’s Learning Legacy programme can inform infrastructure development

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September/October 2016

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C O NTENTS

RI CS CONST RU C TIO N JOUR NAL

Construction Journal Learning from mistakes

contents

Lessons learned from past projects for managing risk

ARBITRATION CONTRACT ADVICE LEGAL

Raising the bar

A model answer

Managing the future

Why learning lessons from past project failures can help with future risk management

A BIM application can help remove risks throughout a project’s lifecycle

How Crossrail’s Learning Legacy programme can inform infrastructure development

PG.

8

PG.

10

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September/October 2016

rics.org/journals

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Front cover: ©Alamy/Shutterstock

CO N TACTS

4 Facing up to a risky future

Having the skills to mitigate risk is crucial to our industry’s success, says Tim Fry

CO N STR UCTI O N J OU R NAL Editor: Les Pickford E journals@rics.org The Construction Journal is the journal of the Project Management and Quantity Surveying & Construction Professional Groups Advisory group: Helen Brydson (Faithful+Gould), Gerard Clohessy (EC Harris), Christopher Green (Capita Property and Infrastructure), David Cohen (Amicus), Andrew McSmythurs (Sweett Group), David Reynolds (Property & Construction Consultant), Tim Fry (Project Management Professional Group Chairman), Alan Muse (RICS)

Construction Journal is available on annual subscription. All enquiries from non-RICS members for institutional or company subscriptions should be directed to: Proquest – Online Institutional Access E sales@proquest.co.uk T +44 (0)1223 215512 for online subscriptions or SWETS Print Institutional Access E info@uk.swets.com T +44 (0)1235 857500 for print subscriptions To take out a personal subscription, members and non-members should contact licensing manager Louise Weale E lweale@rics.org

Published by: Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)24 7686 8555 W www.rics.org ISSN: ISSN 1752-8720 (Print) ISSN 1759-3360 (Online) Editorial and production manager: Toni Gill Sub-editor: Matthew Griffiths

7 Preventing history from repeating itself

How do you learn from past projects, asks Richard Schofield?

8 Raising the bar

David Reynolds investigates the connections between project failure, lessons learned and managing risk

10 A model answer

Advertising: Emma Kennedy T +44 (0)20 7871 5734 E emmak@wearesunday.com Printed by: Page Bros

18 Running through the index

Andrew Pryke discusses how a BIM application can help with risk management at different stages of a project’s lifecycle

Joe Martin offers a detailed look at the new price adjustment formulae indices for civil engineering and related specialist engineering

12 Tackling the tough lessons

20 Experience counts

14 Shaping future performance

22 Contrasting fortunes

It is essential to learn from past mistakes and avoid repeating them in future construction projects, Les Pickford reports

Les Pickford talks to Richard Wood at Crossrail about how to improve commercial performance in UK infrastructure programmes

16 Restoring arbitration

Designer: Nicola Skowronek

Design by: Redactive Media Group

5 Update

The construction and engineering industry has been demanding a new approach to arbitration. Martin Burns outlines a solution

In the first of a series of articles providing guidance for APC candidates, Tim Jones considers the Contract Practice competency

While a freelancer can enjoy significant financial benefits, this may not stop them from later claiming to be an employee.

Helen Crossland examines the implications of contractors’ status

25 Taking care of the detail

Shy Jackson discusses some practical issues to address when putting contracts together

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

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CH A I R M A N ’S CO L U M N

CHAIRMAN'S COLUMN Having the skills to mitigate risk is crucial to our industry’s success, says Tim Fry

I

Facing up to a risky future

If there was ever a time when risk management was to the fore, it is now. We are in a world full of political, economic and social risks, but we must continue to operate whatever the challenges.

However, risk is like change – it is ever present. It is how we deal with it that is important.

As we know, risk has two aspects: the risk itself, and mitigating it. Rather like strengths and weaknesses or opportunities and threats, risk has a yin and a yang.

More often than not, people just articulate a risk, as it is easier to focus on the negative.

Describing how to mitigate it, however, is harder, and requires a positive approach. Mitigating risks is also about learning lessons from past projects, the theme of this edition of the Construction Journal.

As an industry, we are good at running risk workshops, producing risk registers and putting risk on meeting agendas – but we are less good at mitigating risks. There are too many naysayers sharing their

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thoughts. If we were better at mitigating risk then more projects would be completed on time, to cost and of the required quality. Improved people skills are needed to ensure this, though, as it will require a change in mindset.

The failure to mitigate risk runs right through project lifecycles, as many clients do not articulate clearly what they need. The flip side of this is those intelligent clients who decide what they need, write it down, make sure it is affordable, require value for money, describe the proposed benefits and gain corporate sign-off.

Some people’s sole aim in life seems to be backing away from risk. To make a sporting analogy, it is like England’s football team passing backwards and sideways; this is unproductive and does not benefit the end user. In contrast, England’s rugby union team recently took individual and collective responsibility for their performance and are now ranked second in the world.

Those in construction who have the skills to take risks should also take responsibility

and stop passing it endlessly down the chain. We have the players in our industry to do this, we just need to manage them better.

The new RICS President Amanda Clack said at her recent inauguration that we have to win the “war for talent” and be a more diverse industry with a desire to achieve equality of opportunity. If we do not rise to the challenge of recruiting and retaining the next generation of project managers, quantity surveyors and engineers, we will become a nation that commissions projects but pays others to implement them.

We will only mitigate the risk by talking with young people and finding out what they want, rather than giving them what we think they need, a process also known as stakeholder management and engagement.

The risk of not embracing equality and diversity is that the labour supply will be restricted, which will push prices up and create an inflationary market; history tells us that this is not an ideal situation. One reason why people have come to this country in the past is because

If we were better at mitigating risk, more projects would be completed on time and to cost

they can make the most of their opportunities here, so I would be more worried if no one had wanted to come. In the same vein, we need to ensure that new people want to enter our industry.

Working with our colleagues at the Institution of Civil Engineers, we have formed a leadership group including experts from Pinsent Masons, Skanska, Aecom, KPMG and the Construction Leadership Council, which will provide evidence-based briefings for the government’s Brexit negotiators.

The new prime minister and her government must promulgate the belief that the UK is a growing economy and still offers a good return on investment. It also needs to reassert its commitment to infrastructure, invest while money is cheap and limit our propensity to talk ourselves into another recession. b Tim Fry is Chairman of the RICS Project Management Board pm.professionalgroup@rics.org

UPDATE

UPDATE

STANDARDS International Standards IPMS for Industrial Buildings

ICMS update

EU appoints RICS Data Services to three-year commission RICS Data Services team has been appointed by the EU’s statistical office Eurostat to produce construction price-level indicators across the continent. The team will work with government, construction and statistical stakeholders on the project, which will directly inform estimates for comparisons of GDP between countries, in real terms, and its component expenditures in the evaluation of productivity levels as well as standards of living.

Construction is an important component of GDP for most economies; however, output prices are notoriously difficult to measure in a uniform way across countries. Our role is to provide high-quality, relevant, objective and independent data to enable statistical comparisons, and it represents a considerable opportunity for us to expand our European network and engage with organisations across the continent.

RI CS CONST RU C TIO N JOUR NAL

An International Construction Measurement Standards (ICMS) update was communicated at three recent international conferences run by professional bodies such as the European Committee of Construction Economists (CEEC) in Budapest and the International Federation of Surveyors (FIG) and the Pacific Association of Quantity Surveyors in New Zealand.

These updates explained that an early draft of the standard will be ready for selected consultation with government and industry in late 2016. Following that, the ICMS coalition intends to meet to ratify the standard and launch it for public consultation.

Black Book The latest Black Book pieces are Commercial Management of Construction and Life Cycle Costing, available online at n http://bit.ly/29Dg5L7 http://bit.ly/29PLycn

Consultation is live until 30 September 2016.

To view the document and find out how to submit feedback visit: n https://ipmsc.org/consultation

Forthcoming

Fluctuation guidance note Autumn 2016

Employer’s Agent Design and Build guidance note Autumn 2016

In consultation

Value Engineering guidance note

EVENTS RICS Telecoms Forum Conference

24 November 2016, London n http://bit.ly/2a8XMh5

Legal issues in construction conference 2016 29 November 2016

n http://bit.ly/2aOGyC8

RICS BIM Conference 2017 25 February 2017, London

First winner of inaugural David Bucknall Award announced The first David Bucknall Award has been presented to Andrew Smith for his outstanding contribution to quantity surveying. Andrew, who is Managing Director of Andrew D Smith Ltd, was recognised for his role as Chairman of the RICS Black Book Group’s Steering Group over more than six years. The award aims to carry on David Bucknall’s legacy of inspiring passion for construction.

Justin Sullivan, RICS UK and Global Chair of Quantity Surveying and Construction Boards, commented: “We now have a set of standards that is the envy of not only the other professional groups in RICS but of other institutions around the world. We have had numerous requests from other jurisdictions for adoption, translation and adaption of Black Book standards into their industries … Presenting this award to Andrew will in part be our group’s way of saying thank you and showing to our peers what an achievement this is.”

BIM

An RICS insight paper on the effect of building information modelling (BIM) on global project management practice is now being developed, while BIM for Building Surveyors will publish shortly. A Chinese version of the International BIM Implementation Guide has also been published.

n http://bit.ly/1dI3eiI

RICS Quantity Surveying and construction conference 2017 May 2017, London

Register your interest: n http://bit.ly/2aDG021

Infrastructure The new Infrastructure Steering Group has now met for a second time and continues to formulate standards and policy for commercial management in this important growth sector. To augment the Informed Infrastructure Client guidance note, further guidance and research is planned specifically for this sector.

Project management The latest guidance note for project managers, Lessons Learned, was published in April and is also available online. n http://bit.ly/29Ewwnv SEP TEMBER/OC TOBER 2016

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A DV E RTI S I N G

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Paul Yandall, Project Manager and Quantity Surveyor, Torbay Development Agency

BCIS provides essential data to carry out early cost advice A reliable source of independent data

To find out more about BCIS visit rics.org/paulsstory or phone +44 (0)24 7686 8433

Discover a new specialism Gain key knowledge and practical understanding of five main industry areas through the Building Surveying Specialisms Series: 1. Dilapidations 2. Party Wall 3. Boundary Disputes 4. Right to Light 5. Expert Witness Whether you are seeking a comprehensive overview of all specialist topics or just one specialism, the distance learning sessions will help you better advise your clients, undertake more challenging job roles and advance your career to a senior level.

To find out more: t +44 (0)20 7686 8584 w rics.org/surveyingseries e training@rics.org

To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak @wearesu nday. c om 6 SEP TEMBER/OC TOBER 2016

LEA DER

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Preventing history from repeating itself How do you learn from past projects, asks Richard Schofield?

I

like the phrase: “If you always do what you always did, you’ll always get what you always got.” It is often used with a negative connotation to make us think about the positive changes we need to make to improve an activity or process and achieve a better or more certain result next time.

Of course, if your current project processes are providing successful results then you could continue with the status quo. Or is that complacency?

There could still be room for improvement. Can you learn any lessons from the past and apply these to future activities or projects?

This is the core message of the RICS Lessons Learned guidance note. It addresses the factors that contribute to failure throughout the project lifecycle, as well as looking at the importance of learning lessons to avoid repeating mistakes in the future, to reduce risks and to improve the chances of success.

I doubt whether any of us can truthfully say we have never made a mistake in our professional lives. We owe a duty of care to our clients and colleagues to provide the best possible standards of service – but we are, after all, human.

Things can and will go wrong as a result of technical problems or human error, including slips of judgement, poor planning, rushed timescales and so on. As chartered surveyors, we therefore owe it to ourselves and our clients – as well as to the industry and the public – to invest time during and at the end of projects to consider why things went wrong, analyse the causes and learn from experience. This should prevent them from happening again.

Every project is a unique undertaking, and it could be argued that the experiences that are gained on one Image © Shuuterstock

project, whether they are good or bad, may not be directly applicable or relevant to another. But analysed at a generic level, common issues can easily be translated from project to project, and the knowledge is then transferred rather than lost.

Generic issues can include communications, quality of information, project governance, roles and responsibilities and so on. There is much to be gained from investing time and resources in recording and re-using acquired project knowledge and lessons learned, and one area where these can prove useful is risk management.

The initial process of identifying risks through team brainstorming can be given a useful kick-start by looking back at the lessons from previous projects – your own as well as those of other team members – and adding these to the draft risk register. Contributions can be made anonymously if you prefer.

The guidance note also offers some practical advice for recording knowledge and lessons learned. Although most reviews are carried out at the end of a project before the team disperses and memories fade, there is a strong argument for an ongoing approach throughout the project, to discuss and make a note during meetings of lessons learned and possibly recording these in a project knowledge file.

Using knowledge acquired from your own projects is one approach, but there are other sources of knowledge, such as reports on publicly funded projects from, for instance, the National Audit Office.

Learning from the experience of others is valuable and there is no shortage of reports available.

For example, the Major Project Authority – which merged with Infrastructure UK to form the Infrastructure and Projects Authority

at the start of 2016 – produces annual strategic reports on government projects and programmes. But it is important to point out that, though these organisations focus on large-scale undertakings, many of the lessons learned are applicable to both large and small projects.

So, some thoughts – or challenges – with which to leave you. b Do you see value in recording knowledge, experience and lessons learned from your projects? b If so, do you have a process in place? b Do you use this knowledge to seed your risk registers?

If you are still doing what you always did on your current project, will you get what you got last time? b

Richard Schofield is a director of Rider Hunt Management Services and past chairman of the RICS Project Management Professional Group richardschofield@rhms.uk.com

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LESSONS LEARNED

David Reynolds investigates the links between project failure, lessons learned and risk management

Raising the bar

A

At the launch of Crossrail’s Learning Legacy project in February, the company’s Chief Executive Andrew Wolstenholme said: “Passing on the lessons and good practice that we have learned at Crossrail is an absolutely essential part of raising the bar in the delivery of major projects. With an unprecedented number of infrastructure schemes around the corner, now is the time to start sharing what we have learned so the UK can build on its reputation for delivering safely, on time and on budget.”

Most of us would agree that learning lessons from past projects has many benefits.

So why does it often seem difficult to do?

The reasons why projects fail Projects fail for many reasons, often interlinked. Some of the main ones are as follows. b Project initiation and planning: the expression “If you fail to plan, you plan to fail” is frequently used, but often planning is not given its due attention as we rush into a new project. b Governance: there can be a lack of ownership and an assumption that someone else was looking after a task, leading to people claiming it was not their responsibility when things go wrong.

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b People: often, a good plan can be derailed due to personality clashes. b Technical: there is a wide variety of potential technical causes for failure, ranging from design and resources to finance and procurement.

Why lessons are not learned Most projects follow a familiar path where we make assumptions based on our experience. For example, a project team may be assigned to a consecutive roll-out of refurbishments across 10 retail outlets. The element of repetition is used to ensure efficiency, yet time is not taken to review performance on the first project, the outcomes from which could inform the subsequent ones.

The team therefore proceeds beyond the first project, with its members all feeling they are using the correct process.

But without peer feedback and a sanity check on why they are doing something, they may be blissfully unaware that they are slightly off track.

Feedback and peer review will help you to correct or improve on your project processes. However, recording knowledge and learning from it requires time and resources, and the commitment of the individual and organisation.

Unfortunately, there are many barriers to implementing what is generally regarded as good practice. There are two parts to this issue.

Recording knowledge Many organisations have procedures for recording knowledge and lessons

learned, such as regular project reviews and feedback from end-of-project workshops. But these may not be implemented on smaller projects because of a perceived lack of value.

An individual’s willingness to discuss project issues openly is crucial to this process.

Unfortunately, there may be resistance because of other work priorities, the impact of admitting a mistake and so on. The behavioural and organisational aspects of discussing problems are therefore important to understand and address.

Using knowledge Even if knowledge is recorded, there is a risk that it will just get filed. If this knowledge is not used, it will have been a waste of time and resources.

There is lots of guidance, however, to help project managers develop and implement an effective process for recording and using knowledge, including the RICS Lessons Learned guidance note. The key is making time to record and use the knowledge gathered, and not charge headlong into a project and just do things as they have been done before.

Future impacts One of the main reasons that project teams or individuals do not develop is the fear of failure. This creates a risk-averse culture, where people repeat the same processes because “we have always done it that way”.

To have a positive effect on future projects, the process of learning lessons must provide Image ©

clear outcomes that can be implemented, especially at important project stages.

Examples include the earlier engagement of stakeholders to ensure that their expectations are managed, or moving a risk workshop to an earlier point in the process to allow potential problems to be flagged for those who are unfamiliar with a previous project’s issues.

The benefits of learning lessons Recording and re-using project knowledge has many benefits, including: b accumulating soft assets for the organisation b helping intra-organisational training through a living knowledge archive b not repeating mistakes made in the past b improving project planning and delivery b improving the outcomes for projects b reducing risks b not wasting money and instead maximising the benefits of the investment b improving client and stakeholder satisfaction b improving reputations, whether they are those of individuals, the organisation or the industry b developing project management competencies b increasing expertise as well as professionalism.

Most projects can benefit from recording and re-using project knowledge and lessons learned, such as one-off projects – perhaps the most common situation – as well as phased projects and framework agreements.

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Figure 1 Indicative slides outlining the workshop review process and its underlying principles This session is not : • • • • •

an evaluation of an individual’s or company’s performance a witch hunt a shame or blame session a set-up for a claim an opportunity to gloat over others’ perceived failures.

This session is: a facilitated review of the delivery process to learn lessons for the future and improve team performance as well as the quality of the final product.

How it will work

Rules

For the process to be successful and beneficial to all, project team members must participate fully in the process – on the basis that you only get out what you put in.

• • • • • • •

No tangents No detail discussions No dwelling on blame Look forward not backwards Use history for lessons learned rather than recriminations Use examples for illustration Do not ‘labour’ examples

Input

Output:: Output

• • • • •

•

Experiences Observations Constructive criticisms Honest assessments Ideas for improvements

• • • • •

Practical advice The process of reviewing lessons can be incorporated into different project stages.

These include the following.

Project inception At this point, knowledge, experience and lessons learned can be most beneficial to the success of a new project.

Project execution plan The project manager should establish the process for recording knowledge and lessons learned, such as stage-by-stage or other regular reviews, and documenting the results.

Risk management This is where learned lessons potentially offer the greatest value in project planning and completion. Project managers should refer to reports on the lessons learned and identify issues relevant to the new project. As a starting point for risk management, brainstorming should involve:

Strengths and weaknesses of project delivery process New or revised procedures Changes to project structure Improvements to quality and timing of information New ideas/innovation Closure

b identifying the main areas in which previous projects went wrong b identifying where things worked well and could be successfully repeated b keeping the issues anonymous – using generic descriptions and respecting confidentiality b considering all issues – technical, governance, relationships and people.

Project meetings The project manager should introduce a monthly item for the meeting agenda to discuss lessons learned, inviting individuals to offer comments or observations from the previous month.

Starting this initiative early in a project’s life will help to establish an ethos of open dialogue. This is similar for public-sector gateway and assurance reviews.

Project evaluation at completion A continuous process for recording knowledge

Source: RICS Lessons Learned guidance note, 1st edition, April 2016

and lessons learned has many benefits during the planning and completion of a project. However, it is likely that this process will often be performed at project completion through a facilitated workshop.

The ‘lessons learned’ workshop It is useful to start the workshop by setting the scene, describing what the workshop aims to achieve and setting out some rules.

An hour is an ideal duration, which is enough time for the participants to focus but not so long that they become entrenched in a topic. An example of how this might be approached is shown in Figure 1.

It is crucial to a workshop’s success to use an impartial chair for the meeting, collecting the data and generating the output. They can help you reflect on your own understanding of an issue, which may make it easier to take a step back from the project detail. Inviting others into the process who are not familiar with that detail will bring impartial perspectives and fresh views on what may previously have been considered insurmountable differences. However, a word of warning: conducting ‘lessons learned’ exercises with a client or external consultants present may give rise to claims for negligence or breach of contract.

A group of between eight and 12 people is ideal for a workshop, and they should comment on the project under the following headings. b Communications: this can include the marketing and media teams, public liaison officers and those involved in the project communication process, such as meetings, distribution of actions etc. b Planning: a member of the planning team responsible for the overall project timeline, including an understanding of where time was lost or

gained due to issues on site or changes of information. b Commercial: the project manager and quantity surveyor or commercial manager will be able to offer feedback on the project’s cost and commercial processes. b Construction governance: the construction manager and site agent are critical to this process, as is the director responsible for overall progress and ensuring the quality and specification expectations were met. b Health and safety: the appointed project coordinator and other safety representatives are key, especially if there were issues related to health and safety. b Stakeholder management: this relates to the overall project manager who had responsibility for the stakeholder map as well as key relationships.

Ultimately, the success of any lesson-learning process will be people’s willingness to participate, the desire to learn from previous projects and the use of that knowledge to improve future ones. Achieve this and you will have worked smarter, not just harder. b

David Reynolds FRICS is a property and construction consultant and a member of the working group that developed the Lessons Learned guidance note david@david-reynolds.com

The guidance note is available at www.rics.org/guidance

Related competencies include Managing a team, Project audit, Project evaluation, Risk management

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R I S K M A N AG E M E N T

Andrew Pryke discusses how a BIM application can help risk management at different stages of a project’s lifecycle

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A model answer

henever you undertake a project, there is always some element of risk, whether from cost overruns, project delays or buildings not performing as expected.

While adopting building information modelling (BIM) cannot eradicate all risks, it enables us to de-risk many areas across the project lifecycle. This provides greater certainty and ensures that key project milestones are met and assets delivered as expected.

The UK government’s Level 2 BIM mandate sets out a standard process for the industry to follow. The PAS 1192 – 2 and 3 information management standards track the RIBA work stages from briefing through to design and construction and, most importantly, the operations stage. This ensures that teams focus on their ultimate goal from the outset, and that assets are designed to meet client needs. The use of standard documents such as employer’s information requirements, the BIM execution plan and the BIM protocol makes certain that the right material – graphical, non-graphical and data – is produced at the right time, and that everyone is working towards the same deadlines and goals.

The BIM execution plan is developed at the outset during the digital project execution workshop and it defines, for example, the roles and responsibilities for each team member as well as the way in which the model will be constructed. A BIM protocol is also established, which is an agreement between all parties to exchange models and information, ensuring that a transparent data-sharing environment is created. To be certain that each team member can fulfil these requirements, a gap analysis and supply chain capability assessment should be performed to identify any risks that would prevent effective collaboration or the achievement of PAS 1192, which covers areas such as skills and capability, organisational readiness and technology. Any issues should be addressed via workshops, ongoing training and support.

The design phase Computer animation and 3D model fly-throughs help clients to experience their building before it is built, enabling them to understand

The virtual world meets the real world for increased operational efficiencies, cost savings and user satisfaction

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the effect their choices will have on its performance and the user’s experience.

This enables better and earlier decision-making and greater collaboration between the client, design team and other stakeholders. It helps reduce the risk of buildings failing to meet employees’ or customers’ needs. These tools can be used to market properties at an earlier stage, helping clients to meet occupancy and sales targets.

By employing the same language, such as the common classification for objects in rooms, quantity surveyors can automatically take area information from the model in a format that is user-friendly, increasing the speed of calculating a design cost for a project.

At Aylesbury Vale Academy, for example, BIM enabled bills of quantities to be created 80% faster, while also improving cost certainty by 30%. The same classification allows facilities management service providers to assign operational data and costs during the design and construction phases, so they can develop a cost to operate and a service charge more accurately and earlier than before. At the Connect110NS development in Glasgow, we achieved this six months before completion, thereby de-risking operational costs for the client and tenants.

Pre-construction efficiencies, cost savings and waste reduction can all be achieved by using BIM, thereby reducing the risk of cost or time overruns. Logistics planning prevents site delays, while clash detection allows us to ‘build the building’ twice, saving time and money by reducing the amount of rework on site. At Leeds Arena, our ability to use the model to take off quantities to order materials reduced wastage by 8%, compared to the Leeds Beckett University Rose Bowl, a project completed two years earlier without the use of BIM.

The construction phase Targeted software and mobile technology offers a way to manage risk during the construction phase by providing an accurate audit trail, up-to-date information, progress reports and interim certificate analysis. It uses iPads and cloud connectivity to let individuals record information on site for access whenever they need it later. It means that everyone uses the same assessment tool, process and documentation, and so all users have information that is timely and relevant.

Changes can also be managed Image © BAM Construct UK

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At Aylesbury Vale Academy, BIM enabled bills of quantities to be created 80% faster effectively using the model and the 3D intelligent objects it contains. When a decision is made to change an item such as a chair, the model automatically shows the other items this decision will affect and calculates the associated costs.

The operational phase With 80% of a building’s costs related to operations, risk does not disappear once construction is completed. The government’s Soft Landings initiative, part of its Level 2 mandate, requires an annual post-occupancy evaluation for at least three years, to ensure buildings perform as anticipated and to allow lessons learned to be incorporated into future projects.

Information has to be collected during the design and construction phases to enable comparisons between actual performance and what has been predicted. This process is supported by the data-rich BIM model and PAS 1192, which allows the correct data to be identified and recorded from the outset and used during operations. This data can be continually enhanced by linking the model to a computer-aided facility management system, which ensures that the model is updated in real time and allows facilities managers to unlock efficiencies.

At Wharfedale Hospital in Leeds, we have seen savings of 45% on unplanned maintenance activities and 20% on planned preventative maintenance tasks. In addition, response rates to problems have improved by 54% and productivity has increased by 50% during planned preventative maintenance tasks.

Estate management The creation of an estate-wide model allows monitoring and performance benchmarking across all assets. The model’s data can be supplemented by technology such as sensors and smart applications, which enhance the building information with additional sets containing environmental, social and business data.

These extra layers enable estate managers to take a more holistic view in decision-making and allow them to reduce risk and realise new opportunities, including managing spaces more effectively and planning estate-wide maintenance activities.

The digital world is moving at speed, resulting in a smarter environment, smarter business systems and hence smarter people. Failure to adopt will ultimately mean a failed business. b

Andrew Pryke is Managing Director of BAM Design apryke@bam.co.uk

Related competencies include Data management, Risk management

From surveyors, for surveyors

A DV ERTISING P ROMOTIO N

Cosmas Kamasho and Marianne Chowdhury urge construction firms to supply their data so BCIS can help the industry provide better service Project cost data has always been at the heart of the RICS Building Cost Information Service (BCIS) since its inception in 1961, and continues to be the backbone of the economic advice it provides to the industry. By analysing a large enough sample of project data, BCIS gains an insight into the level of economic activity in construction and can help determine related economic indicators, which can in turn inform future project pricing levels.

Bills of quantities provide a wealth of information from which BCIS can generate benchmarking cost data and the All-In Tender Price Index (TPI), widely recognised as one of the best measures of contractors’ pricing trends in accepted tenders.

But progressive changes in procurement have meant less and less detailed project information is submitted for analyses, so BCIS finds it increasingly hard to obtain detailed cost data while sample sizes are declining.

The integrity of the service depends on a steady flow of project data, which helps BCIS to help surveyors provide high-quality construction consultancy services. This is why BCIS would like to hear from you if you would like to submit data.

The service wants to make it easy to contribute, and it can also collect data from you if you would prefer.

David Mulford, Construction Procurement Manager, Commercial and Operations at the London Borough of

Haringey, advises that the council has even made it mandatory for contractors to submit their project data to support BCIS. b Cosmas Kamasho is Head of Data Management, BCIS Marianne Chowdhury is Head of Data Collection, BCIS

If you would like to talk about submitting data, please contact Marianne on 020 7695 1532 or email mchowdhury@bcis.co.uk

SEP TEMBER/OC TOBER 2016

11

RICS CON ST RU CT I O N JO U RN A L

LESSONS LEARNED

The complex nature of construction projects means there will often be some kind of failure, but the trick is to learn from these mistakes and avoid repeating them in the future. Les Pickford reports

Tackling the tough lessons

T

here are many reasons why projects fail – from poor project definitions and unstructured planning to ineffective communications and a lack of sound feasibility studies. Some organisations

find it easy to identify their project problems, and even record these in some way; but others find it much harder to translate this knowledge into learning that can help future projects.

The working group that developed the RICS Lessons Learned guidance note represents a broad spectrum of organisations and locations. I asked them some questions about project

failure, lessons learned and risk management. Their answers show some common thoughts about recording project knowledge and applying this on subsequent projects. What is your view, and how do you use your ‘corporate memory’ on new projects?

working to achieve their own objectives rather than the project goals.

Why do projects fail?

Projects fail for many reasons, from immaturity at commitment and the introduction of unfunded change to uncontrolled design development and having no idea about what ‘success’ looks like.

and corporate learning from their previous experiences.

Major projects have formal systems that are adapted to new situations. Refer to these on future projects to transfer knowledge. Use peer-group reviews with those from recent similar projects – individuals who worked at a detailed level, not just with the great and the good.

Why are project lessons not learned?

Einstein is reported to have said: “Insanity is doing the same thing over and over and expecting different results.” People ignore lessons learned because their project is ‘different’, but many projects are similar.

There is often no corporate memory available to project teams, which start afresh each time. Reporting problems is good, but without successful solutions future projects cannot learn. Consider the progress made in site safety; what could we achieve if we approached cost control with the same zeal?

What is the best way to record project knowledge?

Close-out reports are useful, but have to be comprehensive, while also allowing readers to find what they need easily.

Networking between individuals or small groups can gather and transfer knowledge to new projects.

What is the best way to apply lessons learned to new projects?

Staff are often chosen for their experience, which is built on lessons learned. Those who are great at delivering projects contribute individual 12 SEP TEMBER/OC TOBER 2016

What is the link between lessons learned and risk management?

There is a reasoned reaction against using generic risks to form the backbone of a risk register. However, this is different from having a checklist of risks that have affected previous projects, which can act as an aide-memoire for a new project.

Rod Nathan is a commercial manager at Crossrail in London, UK

Why do projects fail?

The main factor that contributes to projects failing is communication, for example, misunderstanding client requirements, risk profile and so on. It also includes poor communication of project goals to the client team and subsequently the contractor – poorly prepared tender documentation can lead to contractor claims – and often poor people relationships, with each party

Les Pickford is a freelance writer and editor lespickford@yahoo.co.uk

Why are project lessons not learned?

This happens for a number of reasons, such as people not wanting to own up to their own failures as they would rather communicate only their successes. Also, there is often no time for a proper debrief as the project team moves on to new projects or key staff leave the company.

What is the best way to record project knowledge?

We try to capture project knowledge in three ways: project debriefs with the client and team; internal knowledge sharing, such as in seminars at the end of the projects; and project start-up meetings, involving all members of the client team and consultants, to discuss openly what went right or wrong on similar projects in the past.

What is the best way to apply lessons learned to new projects?

Wherever possible, we try to mentor our key staff on new projects and/or ensure oversight by senior staff. The knowledge gained through project debriefs and the like should be captured in the risk register for the project.

Piotr Rusinek is Operations Director at Arcadis in Warsaw, Poland

RI CS CONST RU C TIO N JOUR NAL

Why do projects fail?

The biggest reason is the lack of a sound feasibility study. For some projects, a study is not intended to assess the feasibility of the project but to prove its feasibility, therefore leading to prior bias.

Why are project lessons not learned?

From an organisational perspective, summarising good and bad experience is not part of project performance evaluations. From an individual’s perspective, people tend to share success stories, not project failures.

What is the best way to record project knowledge?

The most effective way is to establish a forum for systematically summarising, sharing and learning the good and bad experiences from all participants as a part of the project close-out phase.

All the ideas and opinions should be recorded formally as “organisational process assets”.

What is the best way to apply lessons learned to new projects?

These assets should be shared across the organisation and used as input for new projects, particularly at the planning stage. Industry-wide, professional institutions should collect and summarise project case studies and disseminate them as part of a body of knowledge.

What is the link between lessons learned and risk management?

Project lessons from a body of knowledge should inform risk management; that is, identifying and evaluating risks should be based on lessons from project histories.

However, I am a little pessimistic about the prospects for this, as the only lesson we learn from history is that we seldom learn lessons from history.

Shuibo Zhang is Professor of International Construction Contracts at Tianjin University in China

Why do projects fail?

Projects fail, or are perceived to fail, as a result of poor or unstructured planning and bad analytical decision-making at

Without appropriate planned gateways and well-structured decision-making, a project will go astray project stages or gateways. Without appropriate planned gateways and well-structured decision-making, a project’s direction will always go astray and failure ensues.

Why are project lessons not learned?

Often, a project issues document is not used to record problems during the project’s life. Team members also often do not seek to learn lessons as they do not see this as part of their normal scope, or they believe that it is someone else’s responsibility (i.e. the project manager’s).

Establishing a good team rapport and a clear definition of the scope of lessons learned work before appointments can help alleviate this issue.

What is the best way to record project knowledge?

A project plan, relevant to the project’s size, provides a structure and process to capture all project lessons, decisions, designs and so on.

What is the best way to apply lessons learned to new projects?

Use the lessons learned documents at the project’s inception. Do a workshop with all interested parties – not just those close to the project delivery, but peers and others outside the technical project sphere.

What is the link between lessons learned and risk management?

Risk management is about controlling uncertainty; lessons learned are an outcome of past uncertainty. If risk management is undertaken correctly, the uncertainty will be reduced and a springboard for further risks to be defined will be provided.

William Francis is Property & Development Manager at Wesley Mission Brisbane in Brisbane, Australia

Why do projects fail?

Projects often commence without a robust definition or a plan that contains all dependencies. Risk registers also contain items that are undefined and/or not project-specific. Detailed resource programming is often not developed sufficiently early to enable challenges to be met. Projects are also often under-resourced.

Why are project lessons not learned?

Businesses do not want to be part of any failure, and blame other stakeholders or the project for being complex. Projects are often set up and run without any changes being made on the basis of lessons learned. Individuals involved throughout a project may also move on before formal close-out steps are taken.

What is the best way to record project knowledge?

This must happen from project inception to completion. Baseline and benchmark parameters must be taken at all stages and used to focus on continual improvement. A consistent team throughout a project is essential.

Ownership of project success increases the desire to demonstrate improvements and implement learning.

What is the best way to apply lessons learned to new projects?

Lessons learned must be simple and have demonstrable benefits that are easily communicated. Major issues should be shared with other parts of the business, including removing the stigma associated with failure.

What is the link between lessons learned and risk management?

Lessons from previous projects should feed into the risk schedule on new projects. This should be used to ensure any additional steps or processes required are documented and appropriate time and timing is included for all stakeholders to understand. Generic risks should be avoided, key risks focused on and a mitigation strategy implemented. b

Peter Coombs is an associate director at Aquenta in Perth, Australia

SEP TEMBER/OC TOBER 2016

13

RICS CON ST RU CT I O N JO U RN A L

CR O S S R A I L L E A R N I NG L E GACY

Shaping future performance Les Pickford talks to Richard Wood, Associate Director of Turner & Townsend and Commercial and Performance Assurance Manager at Crossrail, about how to improve commercial performance in UK infrastructure programmes

I

nfrastructure is a core part of the government’s economic strategy. It hopes that schemes will generate growth and enhance productivity through a direct economic stimulus and provide longer-term social benefits. And following successes with projects such as Heathrow Airport’s Terminal 2, the London 2012 Olympics and progress with Crossrail, the UK has been seen as a leading market for global investment.

“It has got more visibility than ever before through the National Infrastructure Pipeline,” says Wood. “And the Infrastructure Procurement Routemap will help both public- and private-sector infrastructure providers improve their ability to deliver their projects and programmes.”

But he admits that more action is needed to overcome some challenges.

“There is lots of inconsistency across the industry in areas such as packaging and procuring work, measuring and incentivising performance, design management and contract documentation. We also need more consistency in how we manage risk and develop business cases. We have made great progress, but we can still improve our overall commercial environment and collaborative behaviours.”

Then there are the well-publicised skills shortages. Wood suggests that the huge investment plan for the infrastructure pipeline means an increasing demand for professionals with the expertise to set up, manage and control such major projects and programmes, as well as the trade skills to implement them.

“For example, there was a shortage of tunnelling skills as the UK had lost expertise overseas after the completion 14 SEP T EMBER/OC TOBER 2016

of projects such as the Jubilee Line extension,” he says. “Crossrail recognised this strategic risk and established the Tunnelling and Underground Construction Academy to ensure it could develop the skills needed and leave a legacy of tunnelling expertise in the UK.” He adds that the issue will be compounded by several large-scale projects coming on stream at the same time. “We should stop thinking about infrastructure sectors such as rail and aviation in isolation and consider the infrastructure market and the wider construction industry as one. This would unlock our ability to identify best practice, innovation, ways of working and collaborative behaviours to take the whole industry forward.

“We have been through a time of austerity and volatile market conditions,” Wood says, but he suggests that improving commercial performance will provide greater value for money and predictability for both public and private investors.

“However, commercial performance should not be limited to that of the supply chain or the client. We need to look at it collectively and collaborate to drive improvement.”

Improving performance So if commercial performance should be improved, how can this be done?

“First and foremost, business cases must be robust and linked to clear benefits,” he explains. “Once these are in place, we need to create the right environment to deliver them, including ensuring clear programme objectives.

“Passing these clear benefits and objectives down to the commercial function means we can align all of the key commercial functions, such as procurement and contracting strategies, allocation of risk, contract forms,

incentivisation and design management.”

Wood adds that greater collaboration, innovation and knowledge sharing – both in projects and programmes and across the industry – would support improved commercial performance, all of which should be linked to the clear objectives.

Following this, he says the next step is to make sure there are effective control and governance arrangements in place, supported by recording and interrogating data. “Harnessing the power of data will make sure we can spot trends in performance and implement robust corrective actions. Then at project close-out, we must link the programme outcomes with the business case benefits to make sure these are being realised.”

Combined measures Crucial to the success of commercial performance is objective measurement, which is why Crossrail developed a commercial assurance process at the outset. “This uses traditional, quantitative key performance indicators (KPIs), such as forecasting accuracy, contract change and how we are managing contract change.

“But alongside these we also measure the maturity of the input process: what are the processes for developing spend forecasts? Is there a clear link between cost forecasts and schedule? How is this reviewed? Is it authorised by a senior commercial manager? Do we have the right subcontract liabilities in the forecast?

Improving these input processes should mean more accurate forecasts.”

Wood says by ensuring a link between assessments of input maturity and the KPIs, “we can see which input processes deliver the best outcomes, and then use the model to share those processes to improve the collective performance level.

These ‘leading and lagging’ indicators are crucial to the lessons learned.”

Figure 1 shows how measuring input maturity alongside quantitative KPIs helps to identify future commercial risk – the lower the input maturity, the more likely that commercial outcomes will suffer should project complexity increase or commercial challenges arise.

Not only does the model facilitate this risk-based approach to the commercial management of programmes, but it also allows knowledge to be shared in a targeted way. Sharing best practice input processes from projects in the ‘aspirational zone’ will help to increase the input maturity of projects in the ‘improvement zone’, which will, over time, drive improved commercial outcomes and raise aggregate commercial performance.

RI CS CONST RU C TIO N JOUR NAL

Figure 1 Performance assurance: how the scoring works Indicative average compliance line

Value-added zone

World-class zone

Aspirational zone

High performance

3

Performance level INPUTS

2

Potential improvement zone

Performance risk

1 Improvement zone

0

Performance risk

Wood explains that learning from experience and sharing lessons is central to the way in which Crossrail operates. It has a senior management team with experience in delivering major infrastructure projects, and has built on the Olympic experience to create a Crossrail Learning Legacy website (http://bit.ly/1SZZ1Nv).

“The commercial assurance framework was developed using Turner & Townsend’s knowledge of major infrastructure projects and programmes in the UK and overseas,” he says.

“We also collaborated with Crossrail’s functional experts and supply chain to define the ‘value-added’ and ‘world-class’ performance thresholds.”

Focus on risk So what is the link between commercial assurance and risk management? Wood suggests that the key point of the Crossrail model is that it is used it to identify future commercial risks. “By looking at these leading and lagging indicators, we can see areas of risk and then act proactively before a risk materialises.

“We also developed a periodic commercial indicator report that is reviewed by a commercial assurance working group. This enables us to assign specific project actions,” he says. “We can also look at things on a functional basis, such as risk management or contract administration, to identify any trends across the programme.”

Source: Crossrail

1

Performance level OUTPUTS

2

These functional trends are used to ensure Crossrail puts in place the right training, guidance notes, templates and so on, as well as informing the requirement for risk-based ‘deep dive’ commercial reviews.

Wood says one of the benefits of this approach is that it enables Crossrail to assign specialist resources in the best way possible. “Being a publicly funded project, we must provide value for money.

Being able to direct our specialists to any areas of concern has been a real benefit.

“For example, we have commercial experts across the programme,” Wood continues. “They help projects establish the processes that contractors will work to, when meeting contract requirements.

Once these areas reach a certain level of maturity, we start reallocating our experts on to new contracts that are still mobilising or developing their approaches.

“The commercial assurance model is not an audit where we visit sites and point fingers. We use it collaboratively to identify the input processes that are improving quantitative outcomes, and work with the project teams to share that information across the programme.”

Wood suggests that the key to achieving successful commercial assurance is to have a clear idea of what the organisation, programme or project is trying to achieve. “Ensure you are measuring the right things and driving performance in areas linked to your overall corporate aims. But these measures must

High performance

3

be objective. Collaboration, knowledge sharing and incentivisation will also be crucial to your success.”

The bigger picture Looking at leading and lagging indicators can be very powerful, says Wood.

“Assessing input maturity alongside quantitative KPIs gives a more informative picture of current performance, which can be used for shaping future performance, especially through the effective identification of future commercial risk.

“Standardising the way we measure performance from a commercial perspective across the industry will enable us to share more knowledge more effectively across all sectors,” Wood suggests. “If we can standardise the way we do this, we will be able to create a cross-industry performance forum, like the one in the oil and gas industry.” b Richard Wood is the lead author of the RICS information paper Driving commercial performance on major projects and programmes richard.wood@turntown.co.uk

Related competencies include Commercial management of projects, Project Audit, Project Evaluation, Risk management

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15

RICS CON ST RU CT I O N JO U RN A L

D I S P U TE R E S O L U TI O N

The construction and engineering industries have been demanding a new approach to arbitration. Martin Burns outlines a solution

B

Restoring arbitration

By the late 1990s, arbitration in the construction and engineering industries had lost its way. It had become systematically formal and complicated, to the extent that it was more like litigation than a quicker and cheaper alternative to it. The procedure for arbitration was inordinately slow and immensely expensive. Parties tended to wait years for decisions, and costs often outweighed the value of the amounts in dispute.

Some of the blame was levelled at particular arbitrators, who were alleged to have allowed the process to get beyond their control and become a long, drawn-out affair. The overall quality of decisions was also considered patchy. Parties who applied to arbitral institutions for appointments were often uncertain whether they would get someone they considered to be a first-rate arbitrator or not. They felt they had no say in the matter.

Client needs Organisations and businesses are now demanding better control of their disputes.

Parties want to be able to provide greater input into who 16 SEP TEMBER/OC TOBER 2016

will arbitrate their disputes, and desire the time and space to convince decision-makers of their case – something that a 28-day adjudication process does not allow. Parties want more detailed examination of issues and require decisions that are superior to adjudications in terms of overall depth and reasoning.

It would be foolish to suggest that the arbitration process that fell out of favour in the industry in the 1990s would be acceptable in 2016.

A 2014 survey conducted by the RICS Dispute Resolution Service (DRS) demonstrated that parties who may today consider using arbitration demand highly experienced arbitrators who will manage timetables and costs with exceptional proficiency.

Parties want arbitrators who are immensely credible in the industry and require outcomes that are fair, sound and fully reasoned. So far as institutional appointments are concerned, parties would like more involvement in deciding who their arbitrators will be, and they also want clarity about how much arbitration

Organisations and businesses are now demanding better control of disputes

will cost and how long it will take to get decisions.

So a new approach to arbitration in the UK is long overdue – but meeting the demands of parties today is not without its challenges.

The highly specialised nature of construction and engineering disputes and the requirements for commercially focused outcomes mean that parties are increasingly eager to refer to decision-makers who have unquestionable subject knowledge and practical expertise obtained over many years.

Anecdotal feedback and comments from our DRS panel of construction adjudicators all suggest that arbitration is making a comeback in construction and engineering, and that the market wants industry professionals to resolve their disputes. But what parties want in 2016 is not just an arbitration system that improves on the 1990s version: the restoration of arbitration in the 21st century is a matter of doing things differently, creating a procedure and a panel of high-quality arbitrators that breaks new ground.

In cases where disputes are relatively low in value and straightforward, then speed and cost will often be the main priorities. The arbitral process should be – and be seen to be – faster and cheaper than the courts, while at the same time it must be better than adjudication by allowing a thorough examination of the issues. Arbitration should

routinely result in decisions that are commercially sound and offer better value than court judgments.

The results of the RICS survey suggest that while, for some, the cost and length of time it takes to get a resolution are the key concerns, other parties prioritise having more time to ensure there is comprehensive deliberation over the issues and an intensive assessment of the evidence. This is particularly the case where disputes are complicated in nature and involve huge sums of money.

A new approach To counter these trends and meet increased client needs, RICS is promoting arbitration as a viable and cost-effective approach to resolving disputes, and has developed panels and appointment services that are specifically

RI CS CONST RU C TIO N JOUR NAL

A modern service should demonstrate that it has overcome past problems

for the construction and engineering industries.

This new approach to arbitration is innovative and engineered for a more demanding client base. Its development takes into account the views of law firms and of claims consultants who responded to the RICS survey. The survey revealed support for RICS proposals to underpin a regime of arbitration panels and appointments with more clarity on how long the process will take and how much it will cost.

To enable arbitration to address modern needs and make it more accessible to parties, RICS has therefore developed two new services.

The Select Arbitration Service is designed to determine complex disputes where the claim exceeds £100,000, and to provide a viable alternative to the Image © iStock

Technology and Construction Court. Arbitrators adhere to published RICS service levels and commit to working with the parties to achieve an award on their substantive dispute within 12 months. While arbitrators’ fees are not capped, they will be required to provide an estimate at the outset and to update this throughout the course of the arbitration.

The Fast Track Arbitration Service is in turn designed to resolve lower-value disputes, specifically where the value of the claim is below £100,000.

This service provides parties with an alternative to the county courts and adjudication. The fees for arbitrators are set at a maximum hourly rate of £175, up to a maximum of 60 hours.

The parties’ recoverable costs are also capped at £5,000, or 20% of the value of the claim plus the value of any counterclaim. Arbitrators

must work with the parties to enable the award to be published within six months.

Parties patently want arbitration services that give access to high-quality arbitrators who understand construction, engineering and relevant law. They also want arbitration appointments services, as commonly offered by professional institutions such as RICS, to be supported by high-quality customer service standards and access to information and guidance.

A modern arbitration service should be able to demonstrate that it has tackled the concerns of the past. Arbitrators need to submit to supervision, which ensures they use the powers given to them under the Arbitration Act 1996 to manage time and costs in a rigorous manner.

For both the Select and Fast Track Arbitration

Services, there are two panels of high-quality arbitrators representing a variety of professions. All of them are independently trained and assessed to ensure they are up to date with relevant law and practice, and can discharge the arbitrator’s responsibilities sensibly and without delay.

Arbitrators must also strive to manage cases proactively while enforcing time limits, and combine this ability with greater flexibility throughout the arbitration process.

The arbitration process should be – and be seen to be – faster and cheaper than the courts, and at the same time be better than adjudication by allowing a detailed examination of the issues.

What is apparent from the RICS survey is that there is a renewed appetite and interest in arbitration, but it remains to be seen whether the construction and engineering sector will embrace a fresh approach such as the one that RICS has designed and begin to follow the arbitral route once more. b Martin Burns is Head of ADR Research and Development at RICS mburns@rics.org

Related competencies include Conflict avoidance, management and dispute resolution procedures

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17

RICS CON ST RU CT I O N JO U RN A L

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

Running through the index

Classification (SOC2010) given in the ASHE b NI contributions b pension contributions derived from the annual ONS Occupational Pension Schemes Survey findings.

The monthly indices are compiled such that earnings are adjusted annually in the January after the ASHE is published.

Changes in NI will be included in the index for the month in which they occur by weighting them according to the number of days to which they apply. Pension contributions will be reviewed when the annual survey is published.

Material indices are, where possible, the producer price indices (PPIs), import price indices (IPIs) or services producer price indices (SPPIs), prepared by the ONS. Where there is no appropriate ONS index or the coverage of the closest index includes too disparate a range of materials, then BCIS has, with the help of manufacturers, prepared specially constructed indices for the PAFI following the principles used by the ONS indices.

The PPIs represent the changes in factory gate prices of goods sold by UK manufacturers, net of VAT and after any discounts. They relate to manufacturers’ prices in the UK market, and take account of raw materials and manufactured components imported for incorporation into goods manufactured in the UK. The IPIs represent the price changes of imported goods from EU or non-EU countries, net of VAT and after discounts.

In his second article on the new price adjustment formulae indices for civil engineering and related specialist engineering, Joe Martin describes the new series in detail

T

he new price adjustment formulae indices (PAFIs) series comprises 42 resource indices.

These are made up of the following categories: b three labour indices b five plant indices (including site accommodation and transport) b 21 materials indices b six specialist labour indices b seven specialist materials indices.

For existing resources, RICS Building Cost Information Services (BCIS) reviewed the weights and the data sources; for new resources, we consulted the steering group and manufacturers to set weightings and identify appropriate data sources.

b holiday pay covered by the working rule agreement (may also be influenced by statute) b pension contribution covered by the working rule agreement (may also be influenced by statute) b sick pay covered by the working rule agreement or statute b National Insurance (NI).

The indices are for national application in the UK and relate to calendar months.

The monthly indices are compiled such that changes will be included for the month in which they occur, by weighting them according to the number of days to which the changes apply.

The Management and Administration and Professional Services indices are based on: b earnings for individual occupations defined by the Standard Occupation

Resource cost indices

18 SEP TEMBER/OC TOBER 2016

Figure 1 Differential movement in resource costs 160 140 120 100 80

Jan 16

Sep 15

May 15

Jan 15

Sep 14

Jan 14

May 14

Sep 13

Jan 13

May 13

Sep 12

May 12

Jan 12

Sep 11

May 11

Jan 11

Sep 10

May 10

60 Jan 10

Index

The indices represent the underlying movement in factory gate prices and nationally agreed wage awards. They are not intended to represent the effect that national or local market pressures have on prices from subcontractors, merchants and so forth; the management of these is actually the commercial concern of the contractor.

The labour indices for individual trades are based on: b nationally agreed wage awards b overtime, based on an assumption of working hours derived from the Office for National Statistics (ONS) Annual Survey of Hours and Earnings (ASHE) that will be reviewed each year b allowances for travelling, tools and so on covered by the appropriate working rule agreement (the employment terms agreed between the unions and employers); while this is not covered by statute, we would reflect this if necessary in future

Date 4/CE/01 Civil Engineering Labour

4/CE/13 Ready Mixed Concrete

4/CE/28 Gas Oil Fuel

4/CE/EL/03 Electrical Cables

4/CE/ST/02 Structural Steelwork Materials

RI CS CONST RU C TIO N JOUR NAL

Table 1 Electrical installation materials (PAFI Reference 4/CE/EL/02) Resource index

Source

Source index name

Instrumentation – general

ONS PPI

Electronic components and boards

20%

Instrumentation – liquid/gas flow

ONS PPI

Measuring, testing and navigation equipment: watches and clocks

3%

Electrical distribution and control equipment

ONS PPI

Electricity distribution and control apparatus

17%

Computers

ONS PPI

Computers and peripheral equipment

1%

Cable trays

ONS PPI

Imported basic iron and steel and ferrous alloys – non-EU

2%

Power supply and cables

ONS PPI

Wiring and wiring devices

40%

The new series will be published with a June 2015 = 100 base, although BCIS has provided a series dating back to 2010.

This back series (see Figure 1) shows the volatility in the resource cost indices over the past five years; in this time, tumbling oil prices and instability in metal prices have affected fuel, steel and electrical cable prices while labour prices have been much more subdued. This highlights the importance of choosing the right mix for indices on a contract.

Lighting equipment

ONS PPI

Electric lighting equipment

7%

Highways indices

Power installation

ONS PPI

Electric motors, generators and transformers

6%

Communication equipment

ONS PPI

Communication equipment

4%

In preparing IPIs, prices are converted to sterling from several different currencies as part of the monthly calculation. They measure price levels of manufactured items imported into the UK for direct incorporation into construction work.

The SPPIs represent the quarterly changes in the prices received for services provided in the UK on a business-to-business basis. This means that prices are only collected for services that are provided by one business to another business or government department. All transactions to private individuals and households are excluded.

The indices represent groupings of types of materials and manufactured components. In some cases, particularly for the import indices, the groupings are very broad. PPIs, IPIs and SPPIs are defined by reference to UK Standard Industrial Classification of Economic Activities 2007 codes (SIC codes).

PPIs and IPIs are monthly indices and are based on prices in the month to which the index number refers. The indices measure average prices for each month. SPPIs are quarterly indices that are based on the percentage change in the price of services in the quarter. BCIS applies the quarterly changes in the month following the publication of the SPPI; but it does not interpolate monthly indices from the quarterly figures.

Base weighting

b any revisions to the indices b the choice of alternative sources of information where the current sources cease to be available b the interpretation of new legislation, working rules and so on b any other issues that affect the indices, their calculation or publication.

The BCIS indices are based on increases reported in a survey it carries out at the end of each month, and they therefore represent the average change in price for the month. The plant indices are compiled from labour and resource PPIs, IPIs and SPPIs, calculated and applied in the same way as for materials.

Weightings The individual PAFIs are compiled from one or more resource indices, representing the movement of individual labour, plant or materials or groups of each. Table 1 provides an example for electrical installation materials.

Publication The index numbers are usually published in the BCIS PAFI online service at noon on the Monday after the third Friday of the month. Publication at other times will be announced in advance on the service.

This online service is the only official source of PAFI numbers, and users should not rely on any other source. The indices are published as “provisional” in the first instance and remain as such for up to three months, after which they are confirmed or amended as “firm” indices.

BCIS has set up a PAFI working group with representation from the steering group. This will advise on the implementation of:

Because there is an overlap between the resources in the Civil Engineering and related Specialist Engineering indices and the Highways Maintenance indices, another steering group was set up to look at the latter, and a revised and updated series has been issued.

BCIS was commissioned by Highways England to provide a single index for use on its highways maintenance framework contracts, and this has also been published as the Highways England Maintenance Cost Index. b

Joe Martin is BCIS Executive Director jmartin@bcis.co.uk

Full details of the source data and the weightings are included in the Guide to Price Adjustment Formulae Indices Series 4 – Civil Engineering and Related Specialist Engineering – Calculation, available from BCIS. The new series is available to current subscribers to the PAFI online service (http://bit.ly/1PFdzyu) and the RICS Infrastructure Information Service (http://bit.ly/1BQwhZW).

BCIS would like to acknowledge the assistance of the steering group, the ONS and Sue White, Head of Indices at BCIS and Martine Damon-De Waele, Construction Data Analyst at BCIS for their assistance in producing the new series.

Related competencies include Contract practice, Project financial control and reporting

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19

RICS CON ST RU CT I O N JO U RN A L

APC

Experience counts In the first of a series of articles providing guidance to APC candidates, Tim Jones looks at the Contract Practice competency

T The RICS APC process ensures that candidates undergo a rigorous assessment and that their competence to practice is checked. The process gives confidence to the sector, the public, clients and employers that they have reached an acceptable level of experience before they are admitted into the profession.

We often see candidates falling down in the crucial area of Contract Practice, in both their written documentation and at interview. So, let us start with the basics.

Contract Practice is a core Level 3 competency for those on the Quantity Surveying and Project Management pathways, and an optional competency for those on the Building Surveying and Built Infrastructure pathways.

The competency requires you to have an understanding of all aspects of construction contracts and how they are administered. For example,

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Quantity Surveying or Project Management candidates might gain experience in this competency when acting as an assistant to, or as the employer’s agent on, a design and build contract or as a project manager on an NEC3 contract. They may also gain relevant experience acting for a contractor, or managing subcontractor contracts.

The assessors will ask questions on those contracts that you use on a daily basis but, given that you need to provide guidance or advice in this area, you should also be conscious of the other types of contract that there are in your area of practice.

The assessors are likely to ask questions across a wide range of subjects, but you

You should also be conscious of the other types of contract that there are in your area of practice

should have gained direct experience and provided advice in most of these. You will need to show that you have a clear grasp of the contractual implications of any decisions and advice that you have provided.

It is fairly standard for assessors to ask questions in the following areas.

Establishing a contract: b basic contract law b current contract legislation such as the Housing Grants, Construction and Regeneration Act 1996, the CDM Regulations 2015 etc. b common standard forms of contract and subcontract that are in use, for instance JCT, NEC3, International Federation of Consulting Engineers (FIDIC) etc. b contract documentation b letters of intent b third-party rights, for example collateral warranties, Contracts (Rights of Third Parties) Act 1999 etc.

Image © Shutterstock

Contract mechanisms: b roles of parties under the contract, such as client, contractor, contract administrator, employer’s agent, project manager etc. b conflict avoidance and dispute resolution, for example mediation, adjudication, arbitration etc. b contractor-designed works, for instance employer’s requirements, contractor’s proposals etc. b subcontracting b payment provisions b change procedures, such as variations, compensation events etc. b bonds or parent company guarantees b insurance, for instance public, professional indemnity, employer’s, all risks etc. b retention, including retention bonds b liquidated damages b claims, such as extensions of time, acceleration, loss and expense etc.

RI CS CONST RU C TIO N JOUR NAL

b early possession and phasing (sectional completion) b termination of contract and insolvency b contract completion b final accounts b defects/rectification.

This extensive list covers the areas that you should know, so ensure that you have read all the relevant guidance. A good place to start, if you have not already done so, is to consult the Black Book. This is a suite of guidance notes that define good technical standards for quantity surveying and construction professionals.

These standards are essential development tools for younger professionals working through their APCs. The Black Book provides clear standards against which professionals can perform their duties, eliminate ambiguity and promote best practice. It also helps

to ensure that clients receive objective advice in a professional manner with a consistent approach.

You should visit the RICS website regularly as the Black Book is continually being updated and the assessors will expect you to know about any updates. For example, guidance on employer’s agents and fluctuations is currently being developed.

There are also numerous books to read and APC courses that you can attend.

RICS runs a number of online APC-related masterclasses as well as face-to-face training courses. The wider you make your range of reading and training then the better your understanding of Contract Practice will become.

Obviously, the assessors will not be able to ask about all areas in this competency, but given that around 100 questions are asked at interview, it is common for several areas to be to be covered in both discussions about your case study and in your Summary of Experience.

If you have attended seminars and done your research and reading, you should have the basic knowledge to comply with Level 1 of this competency.

RICS expects you to have experience to show Level 2 competency, and – importantly – to have provided advice to show Level 3 competency.

In your Summary of Experience for Contract Practice, you should demonstrate experience in as many of the above areas as possible and, ideally, in a number of different forms of contract. However, where your experience is only in one form, you should thoroughly understand all the components as they relate to that form. It would also be acceptable for you to have

The wider you make your range of reading and training, the better you will understand Contract Practice been involved in a bespoke contract rather than one of the standard forms in your area of practice.

Again, you should be able to show that you have gained experience and a thorough understanding of that contract. For example, you might not have worked on a project where a letter of intent was used, or a claim for loss and expense was made, but you should still know about such components.

When filling out your Level 2 competency statement, discuss your experience of at least two of the above areas, preferably in different projects. Often, candidates are only involved in one large project; if so, discuss your involvement in a number of the above areas in relation to it to show assessors you have a wide range of experience.

The assessors will also target those areas when they ask their questions – they are trained to enquire according to your experience.

For Level 3, you should have given advice on the selection or implementation of at least some of the above areas.

Advice can be in written or verbal forms and must be addressed to someone in particular, such as a client, your manager or director,

a board or committee, the contractor, a subcontractor or the project team. Again, you need to cover at least two of the above areas when writing your Level 3 Summary of Experience statement, and it is sensible to choose different projects rather than just one.

You will not be expected to have provided guidance in all of the above areas.

For example, you might not have given advice on the use of collateral warranties as opposed to using relevant legislation. However, you should understand the advantages and disadvantages of both so you can give advice if required.

To summarise, make sure you have read the Black Book, have read widely on contract provisions and have attended a range of seminars on the aforementioned subjects.

You should also have gained experience in a range of the above areas and provided advice on several of them.

The more diverse a range of contract-related areas that you discuss in your Summary of Experience and Case Study the better, because it shows assessors that your experience is not narrow. b

Tim Jones is a director of TJMC Ltd, an APC trainer, coach and assessor and a member of the RICS Project Management Professional Group Board timjj42@gmail.com

The Black Book can be found at http://bit.ly/1S7r0VZ RICS training courses can be found at http://bit.ly/29l94do

Related competencies include Contract practice and procedures

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21

RICS CON ST RU CT I O N JO U RN A L

L E GA L

Contrasting fortunes While a freelancer can enjoy significant financial benefits, this may not stop them from later claiming to be an employee. Helen Crossland looks at the issues

T

he number of contractors or freelancers operating in the UK has surged in the last few years, with construction now the leading sector for engaging individuals on this basis.

The construction industry has always been eminently suitable for hiring people as freelancers owing to the obvious flexibility and practical advantages this route can offer. The perception that such an arrangement carries less risk and commitment than taking on employees is also seen as a bonus.

This is likely to remain the case following Brexit where, owing to the uncertain short- and long-term impacts for the construction sector, businesses may favour taking people on under temporary rather than permanent contracts, pending the close examination of the pipeline of work and future costs.

This aside, the decision to recruit individuals as employees or contractors will still largely depend on the circumstances and the role in question. However, it is increasingly common for individuals to demand contractor status because it is financially lucrative, and is seen by many to outweigh the greater legal protection that comes with being an employee.

While this may be acceptable to many businesses, clashes over employment status are increasing in number, even where an individual readily agrees to enter into an arrangement as a contractor and signs up to the company’s terms on this basis.

Legally, there is a material difference between being a contractor and an employee that should be borne out both in practice and in documentation. But where aspects of the relationship leave the true arrangement open to question, a contractor’s prospects of claiming they are an employee and eligible to enjoy all the perks associated with this status may well be successfully tested.

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rights afforded to them. That said, the lack of distinction between the ways in which contractors and employees are sometimes treated has created an additional type of risk for businesses.

Determining factors

Contractors or employees?

Potential disputes aside, the pros of using contractors are undisputed. They can be engaged to undertake short-term work, brought in for their specialist skills or to ensure the completion of a project to deadline. They can be hired and laid off quickly as demand dictates, and generate limited administration owing to the lack of PAYE and HR obligations for the business engaging them.

There are cons, however. Contractors can command premium rates of pay to recognise the temporary or specialist nature of the arrangement and can also – suddenly and without warning – jump ship to work elsewhere. Long-term or predominant use of contractors can also hamper a business’s ability to hone and retain talent, and may cause permanent employees to become disaffected if they consider contractors are on a better deal to carry out similar work.

Employees will generally always absorb more management time as a result of the onus on employers to address HR matters in a particular way, while such staff also carry a greater litigation risk because of the enhanced legal Image © Shutterstock

Table 1 sets out the key factors that distinguish contractors from employees and illustrates the substantially beneficial position of employees in law, particularly at the end of the relationship.

Not included in the table is the additional category of “worker”. This separate status falls between that of contractor and employee and covers more casual arrangements, such as agency working and zero-hour contracts.

Workers benefit from many of the same employment law rights as employees, barring the right to claim unfair dismissal, receive redundancy pay or qualify for most types of family-friendly leave or pay.

Disputes It is clear from Table 1 why some contractors decide that they would prefer employee status if a working arrangement turns sour, even where they have been better compensated as a freelancer. This is particularly the case at the end of the relationship where an individual’s prospects of getting future work are uncertain and so they feel that they may as well explore what they can get out of the “employer”.

Case law on the matter is plentiful, but what has emerged is that while the courts are loath to allow contractors to have their cake and eat it, businesses should beware if they allow – or are in cahoots with a contractor to allow – one type of relationship to be a smokescreen for another. The following cases illustrate the litigation risk.

In Alstom Transport v Tilson UKEAT/0358/09, Mr Tilson was engaged to provide services as an independent contractor for Alstom. During the term of the contract, Mr Tilson twice refused the firm’s requests to become an employee,

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Table 1 Contractors v employees Contractor

Employee

Defining feature Contract for services/consultancy agreement – focus is on the services provided not the person providing them.

Contract of employment – requires the work to be carried out by the individual.

Important factors Contractor can provide a substitute to perform the services, provided the company agrees to their suitability.

Employee has no right of substitution and must undertake the work personally.

Company can decide not to give work and contractor can elect not to accept work.

Employer has an obligation to provide work for the duration of the employment and the employee must carry out that work.

Contractor may work for more than one company at the same time and has more control over when and how they carry out the services.

Employer has significant control over how, when and what the employee does.

Other factors Paid an hourly, daily or weekly rate or per job.

Paid a salary.

Works as necessary to complete services or a project.

Works set or core hours.

Paid on submission of an invoice.

Paid automatically on regular date each week, fortnight or month.

Paid gross; responsible for own tax arrangements.

Paid net; employer obliged to operate PAYE and deduct income tax and NI contributions.

Not paid for sickness or holidays if not working.

Right to holiday and sick pay (statutory or contractual).

Does not have any entitlement to family-friendly rights (with the possible exception of maternity allowance).

Fully entitled to family-friendly rights subject to statutory eligibility/compliance with employer’s procedures.

Contractor is not subject to disciplinary, capability or other HR procedures and their relationship can be terminated as per contract under which they work.

Employee subject to disciplinary, capability or other HR procedures and employment can be terminated as per contract.

Uses or provides their own clothing, tools and equipment.

Employer provides employee with uniform, tools and equipment.

Has no protection against unfair dismissal.

Has full employment law protection including for unfair dismissal if two or more years’ service.

Has no protection from redundancy and no entitlement to redundancy pay.

Entitled to redundancy pay if employed for two or more years.

Is protected from both discrimination and harassment.

Is protected from both discrimination and harassment.

Has no protection under TUPE if business or services transfer.

Protected under TUPE on transfer of employer’s business or services.

Covered by Working Time Regulations (except the right to paid holidays).

Covered by Working Time Regulations.

Not entitled to the National Minimum or Living Wage.

Entitled to National Minimum/Living Wage.

Receives protection under health and safety legislation.

Receives protection under health and safety legislation.

Company not required to undertake checks to ensure contractor has right to work in UK.

Employer required to undertake checks to ensure employee has right to work in UK.

Contractor arranges own insurance.

Employer arranges insurance for coverage of employees.

yet on having his contract terminated he decided he was an employee and claimed unfair dismissal.

He succeeded in arguing he was an employee in the first instance but lost on appeal, the court determining “the would-be employee has at all times asserted the opposite, with his eyes wide open and articulately understanding the advantages to be gained from remaining as an independent contractor”.

In the converse judgment of Autoclenz Ltd v Belcher & Ors [2011] UKSC 41, a company and a group of car valeters entered into a series of contracts for services on the basis that having the latter work as contractors was the most tax-efficient arrangement for all concerned. The court held that, whereas the valeters had willingly agreed to be contractors, they were employees under the law and both parties knew from the outset the written terms into which they had entered were a sham.

Conclusion If a contractor chances their luck at being an employee, the business defending the claim could have contrasting fortunes – in particular if the company knows that it was complicit in agreeing to an arrangement that may not withstand scrutiny, or where an individual may have legitimately been taken on as a contractor but has become an employee through the course of time. It is imperative that managers do not enable a company to be an easy target, and understand the differences in how contractors and employees should be handled.

A company’s position will be almost watertight, however, if there is a contract for services to document the terms, and such terms are enacted in practice. This should also be sufficient to deter a would-be claimant and avoid any unwanted dealings with the Employment Tribunal or, worse, the tax office. b

Helen Crossland is a partner at Seddons helen.crossland@seddons.co.uk

Related competencies include Accounting, Team management

SEP TEMBER/OC TOBER 2016

23

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Taking care of the detail

I

Shy Jackson discusses some practical issues to address when putting contracts together t goes without saying that it is important to put together a contract that is clear, comprehensive and consistent. Although this helps to reduce uncertainty and therefore the risk of dispute, it is not unusual to come across contracts that have been put together in a hurry, without sufficient thought. A few recent decisions serve as a reminder of the importance of getting the contract right.

Square brackets

In Imperial Chemical Industries Limited v Merit Merrell Technology Limited [2015] EWHC 2915 (TCC), the final version of the contract contained various terms left in square brackets.

This was an issue for the dispute resolution clause, where the reference to the Technology and Construction Solicitors’ Association adjudication rules was left in square brackets, as was the choice of the RICS as the adjudicator-nominating body.

The judge saw no reason why the square brackets should be ignored, especially as, in several places, ordinary brackets were used. He therefore found that the insertion of text in square brackets must have been deliberate. In his view, their use meant that the reference to RICS was intended to suggest it would be this organisation unless another nominating body had been specifically identified elsewhere in the contract documents.

Another body was named and so it was not possible to argue that the nomination should have been performed by the RICS.

identify what was agreed when it is still possible to ascertain what words have been deleted. While it may be helpful in cases of ambiguity, it does mean a party may try to rely on deleted words to support its interpretation of the contract.

Incorporating documents into the contract Tender and pre-contract correspondence is often incorporated into the contract to ensure that all agreed matters are included.

Such documents, however, are not usually reviewed with the same care as contractual terms, and can lead to uncertainty. This was the case in Martifer UK Ltd v Lend Lease Construction (EMEA) Ltd [2015] ScotCS CSOH 81, where an information release schedule and a programme were incorporated into the contract.

The court accepted that the information release schedule showed the earliest dates that the main contractor could expect to receive detailed information from the designers, and that the programme provided the parties with information about the key sequencing of works. The contractual effect of such documents was, however, a question of interpretation, and it was held that such documents had a limited effect as they had to be read in the context of the main contract and the commencement notice and completion dates.

As observed by the court, if a programme was held to be binding in its entirety, a failure to comply in every respect would result in a breach, which could not have been the parties’ intent.

Conclusion Care needs to be taken when putting a contract together to ensure that there is certainty as to the scope of the contractual obligations and the parties’ intentions. When drafts are being prepared for execution, it is important to check they are in their final forms and any drafting notes have been removed. While incorporating pre-contract correspondence may seem an easy way to record what was agreed, it may result in more uncertainty with regard to any inconsistent provisions. b

The effect of leaving in the deleted words Some standard form contracts rely on the parties completing the agreement by crossing out certain words or options. Other forms can be used electronically, which makes it more difficult to identify what may have been deleted. In Narandas-Girdhar and another v Bradstock [2016] EWCA Civ 88, the issue was whether the court could have regard to deleted words when interpreting the contract.

The Court of Appeal confirmed that in the event of an ambiguity, deleted words can be taken into account if the fact of deletion shows what the parties agreed and what they did not agree. It was noted that care is required as to what inferences, if any, can be drawn from the fact of the deletion, but this principle may help Image © Shutterstock

Shy Jackson is a partner at Pinsent Masons shy.jackson@pinsentmasons.com

Related competencies include

Contract practice

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RICS CON ST RU CT I O N JO U RN A L

A DV E RTI S I N G

To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak @wearesu nday. c om 26 SEP TEMBER/OC TOBER 2016