Despite numerous inquiries, (including two Royal Commissions), and the publication of reports on construction and infrastructure procurement and productivity, little appears to have changed over the past 30 to 40 years.

We continue to see an industry which is plagued with demands for delivering the quickest built product for the cheapest price.

Industry participants, both contractors and consultants have been banging their heads against the proverbial wall for years attempting to highlight the significant deficiencies in the procurement processes by governments and private sector developers.

The level of construction work, (both buildings and horizontal infrastructure), in Australia over recent years has been impacted by, and will continue to be impacted by, a lack of resources, poorly applied lessons learned from previous projects of a similar nature and a lack of consistent benchmarks to validate the project.

Additionally, the need for joint ventures created by the scale, complexity, value and significant interfaces between contract packages and stakeholders on projects, delivers additional complications. These include which systems to use, the requirement for multiple reviews, how to adequately resource, and of course the many different management styles of those involved. All these variables add cost and complexity to infrastructure projects.

The common misconception is that the traditional approach of transferring risk that costs the client less money is not well-founded and incorrect. Neither the client nor the contractor during the development of the budget and project bid phase can understand the extent of risk. Passing the risk to a contractor adds cost to the project, and ultimately when the project goes off the rails, the client will need to step in and cover the costs.

There appears to be little understanding of procurement and construction processes and risk minimisation prior to commencing construction.  Since virtually all governments have devolved themselves of their Public Works Departments, there appear to be few or no personnel with any hands-on construction experience.

The term “value for money” is often touted as the reason for choosing a certain procurement model or contractor.  However, in many cases, lowest initial price and maximum transfer of risk are taken as measures of value for money. With no direct relationship between scope and the required outcomes, the lowest price to deliver work does not represent value for money (Infrastructure Australia, Delivering Outcomes, March 2022).

It is evident that both government and private sector clients view the engagement of consultants as an additional negative project cost rather than professionals with the skill and expertise to minimise project risks and costs.  The current environment sees consultants being engaged to provide minimal service for a minimal fee with the result that actual construction costs often blow out due to lack of design documentation, poor risk analysis and inadequate project scope.

As has been raised many times in the past, the solution is to engage a Certified Quantity Surveyor (CQS) from project inception to undertake the role as cost manager and set a realistic budget figure during the initial assessment of the project. It is then imperative to adhere to this figure throughout design and construction until completion of the project.  The first crucial point is to ensure that projects are designed within a budget framework, not costed to a design.

Modern infrastructure projects are complex and very high value, with many third-party stakeholders, often multiple levels of government and a high level of risk.  The number of interfaces between contract packages and stakeholders is also often extensive.

Government agencies frequently express concerns at significant cost differences between the business case funding approval and final outturn cost.  On the surface this may be a valid concern.  However, once you start peeling back the layers, the increases are based on a poorly developed initial baseline not addressing the project risks or scope.

In delivering value to construction projects for clients, a CQS will minimise and manage project risk exposure by:

• providing due diligence reporting to assist with strategic decision making
• advising on potential risks and opportunities arising from:
  • design variations
  • construction program planning
  • subcontracting competency
  • government approval process
  • price inflation of materials
• providing procurement advice
• delivering independent and expert advice
• identifying and minimising risks associated with time, cost, labour, material supply, quality, technology, sustainability, and safety.

When standard designs are provided, there is still significant uncertainty with existing conditions, constructability and market forces which impact time and cost. The exploration and resolution of project risk will reduce the impact of budget and scope variations and ensure contractors are providing comparable tenders.

From a client’s budgetary perspective, the initial budget and updates are often based on limited information with significant qualifications and exclusions. As the scope of works has not been sufficiently resolved to enable the quantity surveyor to account for all the issues that go into developing the funding envelope, when contractors are brought into the process, the limited tender timeframe invariably results in contractors submitting qualified offers to address the risks. This then creates a complex process to align the contractors’ submissions with the risk items qualified.  In the end, what the initial business case budget was based on is different to what the contractors are offering, resulting in the client requiring a greater contingency to cover the outstanding risk.

There is still a resistance from some governments to adopt a collaborative approach as already used in some States and there remains that faction of people within, (or engaged by), government agencies with the perception that it is better to pass the risk over the fence and maintain the historical approach.  However, experience has shown that these risks ultimately end up with a client who often must step in to ensure the delivery of a project to meet a timeframe, with costs becoming a secondary consideration.

Establishing a robust accurate project budget at day one is often impossible for large, complex infrastructure projects as project budgets typically evolve through the development of the scope, contract, risks, stakeholders, and planning consent.  Project budgets and timeframes are often announced too early and for political gain before the project has been scoped without the necessary diligence to validate the budget and program.  Compounding the problem are governments that are unwilling to adjust the budget/timeframe or scope as the project evolves. If possible, it would be better to hold off such announcements until a robust project budget has been established by the appointed CQS.

Here a CQS can protect their clients’ financial interests from project concept and design, during construction and post construction by:

• working closely, at the earliest stage possible, with engineers, designers, contractors, suppliers, and financial institutions.
• being skilled in the art of measurement.
• estimating construction and whole-of-life costs.
• advising on appropriate funding models.
• developing cashflow requirements
• managing contractual arrangements.
• certifying progress payments.
• providing dispute resolution, mediation and arbitration if required.
• evaluating how to eliminate unnecessary costs throughout the project delivery.

Where the scope of work is subject to interpretation or qualification, it becomes difficult to align the client’s budget/program to the contractor’s offer—making it difficult to recommend the most suitable tenderer. By not aligning each of the contractors’ submissions to the scope, governments will be selecting tenderers on a more subjective basis rather than a qualitative basis. The result is that the best contractor may not have been selected, making it more difficult to hold them accountable for something the government has been unable to evaluate completely. This invariably results in increased project costs in the long run.

Adoption of cost control, ensuring the scope, budget and time is managed effectively, it is vital to have a CQS control the process from day one through to project completion (not just milestones), as this will significantly reduce the impact of factors impacting project costs such as:

• change in location – project location changed because of alternative preferred site
• clarity of project brief
• contract type
• timing of project to the market (pipeline of work)
• appointment of the project and design team
• enhancement/changes in level of design
• identification/mitigation/allocation of risk
• procurement
• stakeholders
• contamination
• services (utilities)
• existing structures
• geo-technical survey – to develop a baseline as a contract document.

Certified Quantity Surveyors provide a wide range of skills and services – not just cost estimating, and the construction sector does not always utilise the full range of quantity surveying services effectively.  Often the service is ad-hoc and not a full cost management service.  The provision of full cost management services requires a broad range of professional skills and experience, including experience with similar projects and contracts, an understanding of the level of design and identification of deficiencies in documentation, and risks associated with the project (i.e., latent conditions, constructability, procurement, and escalation).

In addition, a CQS can deliver a consistent approach to work breakdown and cost breakdown structures and format of the cost estimate, validation through benchmarking of design, pricing, and production metrics and knowledge of the qualifications, assumptions, and exclusions to provide a complete budgetary approach and align pricing during the project’s development and reconciliation with contractors.

If you would like to discuss any points that I have raised in my article, I encourage you to email myself at ceo@aiqs.com.au.

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