Construction Handbook[1]

8/12/2019 Construction Handbook[1]

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Update 15 published December 2003

Update 14 published September 2003

Update 13 published May 2003

Update 12 published January 2003

Update 11 published October 2002

Update 10 published August 2002



Update 7 published July 2001


Update 5 published October 2000Update 4 published May 2000



Update 1 published April 1999

Please note:References to the masculine include, where appropriate, the feminine.

Extracts fromParrys Valuation and Conversion Tables, A W Davidson (1989),(Estates Gazette) reproduced by permission of the College of Estate Management

which owns the copyright.

Appendix A, Section 2.3 is reproduced from the Building Cost Information Service publication,

Standard Form of Cost Analysis: Principles, Instructions and Definitions(1969).

Published by RICS Business Services Limited

a wholly owned subsidiary of

The Royal Institution of Chartered Surveyors

under the RICS Books imprint

Surveyor Court

Westwood Business Park

Coventry CV4 8JE

UK

No responsibility for loss occasioned to any person acting or refraining from

action as a result of the material included in this publication can be accepted by the

author or publisher.

ISBN 0 85406 865 1

RICS Business Services Limited (RBS) December 2003. Copyright in all or part

of this publication rests with RBS, and save by prior consent of RBS, no part or parts

shall be reproduced by any means electronic, mechanical, photocopying, recording or

otherwise, now known or to be devised.

Typeset and printed by Q3 Print Project Management Ltd, Loughborough.


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1998 FOREWORD

Knowledge is of two kinds: we know a subject ourselves, or we know

where we can find information upon it.Samuel Johnson (17091784)

The fact that our profession serves a changing world increases the need for

it to rely on well thought-out and reliable practices and procedures. Events

move at an ever-increasing pace, imposing a requirement for quicker

response times. Modern communication methods such as facsimile and now

e-mail result in the need for information to be available almost instantly.

This is made more difficult by an industry growing in complexity and which

is subject to increasing customer expectations in terms of service and

quality.

The RICS has published this Surveyors Construction Handbook to help

surveyors meet these needs. It is intended to become an important source of

reliable information and guidance to all Chartered Surveyors who practise in

construction. Much of the excellent information produced by the divisions

in the past has now been updated for inclusion. Other material not yet

revised will be added. The whole will be regularly reviewed and updated as

necessary. RICS practice panels are continuing to produce information for

inclusion to make it a useful construction reference document.

We hope that this Handbook will become an invaluable aid to yourday-to-day activities.

Christopher Powell,FRICS

P RES IDENT, QUANTITY S URVEYORS DIVIS ION, 1 9 9 7 98

Trevor Mole, FRICS

P RES IDENT, BUILDING S URVEYORS DIVIS ION, 1 9 9 7 98


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ACKNOWLEDGEMENTS

Professor Roy Morledge, Professor of Construction Procurement at The

Nottingham Trent University, for contributing the text of Part 3, Section 1.

Major D.R. Bassett, Royal Engineers, for his contribution to the research

underpinning the construction time charts in Part 3, Section 1; Central Unit for

Procurement, HM Treasury (now Office for Government Commerce), for

permission to use CUP guides extensively in the drafting of Part 1, Section 1

and Part 3, Section 1.

Alan Turner, JP FRICS ACIArb, author of Building Procurement, for

permission to use a number of the diagrams from his text in Part 3, Section 1.


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Page 2 Contents (12/03) The Surveyors Construction Handbook

1Introduction 1

2.1.1 Pre-contract Cost Planning and Cost Management 2

2.1.2 Preliminary Cost Studies and Feasibility Studies 4

2.1.3 Budget 4

2.1.4 The Cost Plan at Outline Proposals Stage 8

2.1.5 The Cost Plan at Scheme Design Stage 11

2.1.6 Cost Checking 13

2.1.7 Action after Receipt of Tenders 14

Appendix A: Sources of Cost Information 1

Appendix B: Format of Budget and Cost Plans 1

Appendix C: Element Unit Quantities Generation for Hypothetical

Buildings 1

Appendix D: Further Reading 1

1Introduction 1

2.2.1 The Client Context 1

2.2.2 The Life Cycle Costing Calculation 5

2.2.3 Tax Allowances, Incentives and Business Rates 10

2.2.4 Data Sources 14

2.2.5 Worked Examples 15

Appendix A: Residual Values 1

Appendix B: Obsolescence 1

Appendix C: Costs And Values 1

Appendix D: Glossary of Terms for Taxation 1

Appendix E: Examples of Items of Expenditure Likely to Attract

Taxation Allowances 1

Appendix F: Further Reading 1

1Introduction 1

2.3.1 Elements 1

2.3.2 Elemental Cost Analysis 1

2.3.3 Other Uses 2

Appendix A: BCIS Standard Elements 1

1Introduction 1

2.4.1 Background 2

2.4.2 Contract Documentation 3

2.4.3 Additional Services 3

2.4.4 Employers Requirements and Contractors Proposals

(including contract sum analysis) 5

2.4.5 Design and Build Variants 6

2.4.6 Novation 8

Appendix A: Potential Services Associated with the Role

of Employers Agent 1

Appendix B: Employers Requirements/Contractors Proposal Checklist 1


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The Surveyors Construction Handbook Contents (12/03) Page 3

1Introduction 1

2.5.1 Definitions: The Difference Between a Project Manager and

Lead Consultant 1

2.5.2 Benefits of Appointing a Chartered Surveyor as Lead Consultant 22.5.3 Issues to Consider before Undertaking the Role 3

2.5.4 Schedule of Lead Consultant Duties 3

1Introduction 1

2.6.1 Technology Swaps 2

2.6.2 How Can the Environment and Sustainability be Valued? 3

2.6.3 How Does This Effect the Construction Industry? 4

2.6.4 Green Building Materials 7

2.6.5 Whole Building Sustainability 8

2.6.6 The Government Line 9

2.6.7 What Might the Future Hold 11Appendix A: Embodied Energy Content of Building Material 1

Appendix B: Useful Addresses 1

1Introduction 1

3.1.1 The Clients Role 2

3.1.2 Procurement Strategy 12

3.1.3 Selection of Most Appropriate Procurement Strategy 25

3.1.4 Implementation 29

Appendix A: Procurement Options 1

1Introduction 1

3.2.1 Appointing the Building Services Designer 3

3.2.2 Design Coordination 11

3.2.3 Appointing a Building Services Contractor 19

3.2.4 Tender Documents 34

Appendix A: Typical Example 1

1Introduction 1

4.1.1 What Happens in Practice 1

4.1.2 Standard Form Approaches 3

4.1.3 Effects of Practical Completion 13

4.1.4 Methods for Dealing with Practical Completion 14

4.1.5 Definitions 16

4.1.6 Subsidiary Issues 20

Appendix A: General Objectives to be Achieved at Practical

Completion for Small to Medium-sized Building Projects 1

Appendix B: Table of Cases 1

Appendix C: Further Reading 1


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Page 4 Contents (12/03) The Surveyors Construction Handbook

1Introduction 1

4.2.1 General Principles 1

4.2.2 Definitions 44.2.3 Entitlement 4

4.2.4 Ascertainment 7

4.2.5 Admissible Items 9

4.2.6 Inadmissible Items 13

Appendix A: Ascertaining the Cost of Running a Site 1

Appendix B: Disruption 1

Appendix C: Ascertaining the Cost of Head Office Overheads 1

Appendix D: Checklist of Items for which Loss and/or Expense are

Allowed 1

Appendix E: Checklist of Steps Required when Considering

Submissions by Contractor 1

Appendix F: Further Reading 1

1Introduction 1

4.3.1 Definitions 2

4.3.2 The Rationale for Risk Management in the Construction Process 2

4.3.3 The Risk Management Process 5

4.3.4 Summary 14

Appendix A: Further Reading 1

1Introduction 1

4.4.1 Valuations 1

4.4.2 Assumptions 2

4.4.3 Valuation Under a JCT Contract: Background 3

4.4.4 Recommended Action at the Start of a Contract 4

4.4.5 Communications 5

4.4.6 Approach 6

4.4.7 Content of a Valuation 8

4.4.8 Administration 15

4.4.9 Special Situations 16

4.4.10 Other Contract Terms (relative to valuations) 17

4.4.11 Valuations Under Other Forms of Contract 18


Appendix B: JCT Definition of Reasonable Proof 1Appendix C: Example of Priced Activity Schedule 1

1Introduction 1

4.5.1 Extension of Time Clauses 2

4.5.2 Assumptions 2

4.5.3 Extension of Time Under a JCT Contract 3

4.5.4 Notice by the Contractor of Delay to Progress 4

4.5.5 The Award of an Extension of Time during the Contract

Period and Before the Completion Date 5

4.5.6 The Award of an Extension of Time after the Completion Date 6

4.5.7 Relevant Events 7

4.5.8 Concurrent Delays 12

4.5.9 Consequential Entitlement 13


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The Surveyors Construction Handbook Contents (12/03) Page 5

4.5.10 Administration 13

4.5.11 Extension of Time under an ICE Contract 14

4.5.12 Extension of Time under a GC Works Contract 14


1

15.2.1 Schedule of Sources of Useful CDM Information 2

1

15.4.3 BCIS Online 1

5.4.4 Other BCIS Publications and Services 2

5.4.5 Further details 4

15.5.2 BMI Quarterly Cost Briefing 1

5.5.3 Building Maintenance Price Book 1

5.5.4 Special Reports for Benchmarking 2

5.5.5 News, Digests and Reports 2

1Introduction 1

5.6.1 Code of Practice DISC PD 0008: 1999 2

5.6.2 Weight of evidence and document destruction 3

5.6.3 Authenticity 3

5.6.4 Photocopies, microfilm and image processing 4

5.6.5 Document storage 45.6.6 Storage and access procedures 5

5.6.7 Format of the Code of Practice 6

5.6.8 Conclusion 20

Appendix A: Specimen form for recording scanning information 1

Appendix B: Specimen form for recording retrieval 1

Appendix C: References 1

1


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The Surveyors Construction Handbook Abbreviations (10/02) Page 1

LIST OF ABBREVIATIONS

ABE Association of Building Engineers

ABI Association of British InsurersACA Association of Consultant Architects

ACE Association of Consulting Engineers

AQL Acceptable quality level

BCIS Building Cost Information Service

BEC Building Employers Confederation

BMI Building Maintenance Information

BRE Building Research Establishment

BRECSU Building Research Energy Conservation Support Unit

BREEAM Building Research Establishment Environmental

Assessment Method

BSI Building Standards InstitutionBSRIA Building Services Research and Information Association

BWIC Builders Work in Connection

CA Contract Administrator

CAWS Common Arrangement of Works Section for Building

Works

CDM Construction (Design and Management)

CD-R Compact disc recordable

CECA Civil Engineering Contractors Association

CIB Construction Industry Board

CIBSE Chartered Institution of Building Services Engineers

CIC Construction Industry CouncilCIRIA Construction Industry Research and Information

Association

CITES Control in Trade of Endangered Species

CCT Compulsory Competitive Tendering

CSM Chartered Surveyors Monthly

DBFO Design Build Fund and Operate

DoE Department of the Environment (now known as the

DETR)

DETR Department of the Environment, Transport and the

Regions (formerly the DoE)

DMS Document Management SystemDOM Domestic Sub-Contract

EC European Commission

EU European Union

FAST Functional Analysis Systems Technique

FCEC Federation of Civil Engineering Contractors

GNP Gross National Product

HBF House Builders Federation

HMSO Her Majestys Stationery Office (now known as

The Stationery Office)

HSE Health and Safety Executive

IChemE Institution of Chemical Engineers

ICE Institution of Civil Engineers

IDMA Information and Document Management Association


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Page 2 Abbreviations (10/02) The Surveyors Construction Handbook

IFC Intermediage Form of Contract

JCT Joint Contracts Tribunal

LCC Life Cycle Costing

LQ Limiting quality

M& E Mechanical and Electrical

MERA Multiple Estimate Risk Anaylsis

MW Minor Works

NEC New Engineering Contract

NEDO National Economics Development Office

NJCC National Joint Consultative Committee for Building

NSC Nominated Sub-Contract

OMR Optical Mark Reading

PFI Private Finance Initiative

PSA Property Services Agency

RIBA Royal Institute of British Architects

RICS Royal Institution of Chartered SurveyorsVAT Value Added Tax

WCD With Contractors Design

WORM Write-Once-Read-Many

WRC Water Research Centre


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INTRODUCTION

The Surveyors Construction Handbook Introduction (4/98) Effective from 1/6/98 Page 1

INTRODUCTION

A Aim and Scope of this Handbook

A1 The aim of this Handbook is to help both building and quantity surveyors to

provide construction-related professional services effectively and efficiently.

It seeks to achieve this by providing guidance which reflects what is often

good custom and practice, and relevant information (including references to

other useful material). It should be appreciated that this Handbook does not

attempt comprehensive coverage of necessary or good practice. The

Handbook is addressed to surveyors providing services to clients (as defined),

not surveyors undertaking the role of the clients representative who gives

instructions to surveyors on behalf of the Client.

A2 Construction in this Handbook means new construction, conversion,

refurbishment works and alterations to the form of buildings, and also civil

engineering works. The contents of this Handbook apply across the complete

range of this definition unless otherwise stated. So construction does not

embrace building surveys or building maintenance.

A3 Client in this Handbook is used to include companies and their Directors or

Officers, Trusts and their Trustees, partners, managers and employees who

may instruct a surveyor.

A4 Throughout the Handbook, it is assumed that possession and necessary access

to the site are available and, in principle, the rights to construct the

development and use the buildings when constructed. The Handbook does not

cover project management services, obtaining planning permission and

building regulation approvals, or dispute resolution.

A5 The document is drafted on the basis of UK law and practice, although much

of it is relevant to practice elsewhere.

B Arrangement of Content

B1 After sets of Definitions and Abbreviations which apply throughout, the

Handbook is arranged in five Parts. The first four Parts represent sequential

phases of the construction process. The last Part, Part 5, provides Additional

Guidance and Information. Each part is followed by Further Reading, to

which the numbered cross references in the Parts apply.

B2 The first four Parts are as follows:

Part 1: The Client seeks to help surveyors to work with clients. It discusses the

establishment of their construction objectives and constraints, leading to the


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INTRODUCTION

Page 2 Introduction (4/98) Effective from 1/6/98 The Surveyors Construction Handbook

development of construction briefs. It defines the clients roles during the

construction process, and comments on the engagement of professionals

involved in the construction process.

Part 2: Construction Design and Economics covers development of the design

concept, feasibility studies, design and economics (including life-cycle

costing, risk assessment, and cost-value relationships), and confirmation of

the final design proposal.

Part 3 relates to Construction Planning and Procurement, i.e. to the time the

construction contract is placed.

Part 4 covers Construction Administration and Management, i.e. all

post-contract matters.

Any Appendices are situated at the end of each Part.

B3 An Index follows Part 5.

C Status of Content

C1 For convenience, Guidance and Information is integrated. Each paragraph is

prefixed with a or an to indicate its status.

C2 Guidance, as the word implies advice to Members of the RICS on aspects of

their profession. Where recommended for specific professional tasks,

procedures are intended to embody best practice, i.e. procedures which in

the opinion of the RICS meet a high standard of professional competence.

Members are not required to follow the advice and recommendations

contained in such paragraphs. They should, however, note the following

points.

Should an allegation of professional negligence be made against a surveyor,

the Court is likely to take account of the contents of any relevant guidancenotes published by the RICS in deciding whether or not the surveyor had acted

with reasonable competence.

In the opinion of the RICS, a Member conforming to the practices

recommended in this Note should have at least a partial defence to an

allegation of negligence by virtue of having followed those practices.

However, Members have the responsibility of deciding when it is appropriate

to follow the guidance. If the guidance has been followed in an appropriate

case, the Member will not necessarily be exonerated merely because the

recommendations were found in RICS Guidance.

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INTRODUCTION

The Surveyors Construction Handbook Introduction (revised 10/01) Effective from 1/12/01 Page 3

On the other hand, it does not follow that a Member will be adjudged

negligent if he has not followed the practices recommended in this Handbook.

It is the responsibility of each individual surveyor to decide on the appropriate

procedure to follow in any professional task. However, where Members

depart from any practices recommended in this Handbook, they should do so

only for good reason. In the event of litigation, the Court may require them to

explain why they decided not to adopt a recommended practice.

In addition, Guidance Notes are relevant to professional competence in that

each surveyor should be up to date and should have informed himself of

Guidance Notes within a reasonable time of their promulgation.

C3 Material classified as information is intended to provide information and

explanations to Members of the RICS on specific topics of relevance to the

profession. The function is not to recommend or advise on professional

procedures to be followed by surveyors. It is again, however, relevant toprofessional competence to the extent that a surveyor should be up to date and

should have informed himself of such information within a reasonable time of

its promulgation.

Members should note that if an allegation of professional negligence is made

against a surveyor, the Court is likely to take account of the contents of any

relevant information published by the RICS in deciding whether or not the

surveyor has acted with reasonable competence.

D Currency of ReferencesThe cases cited and the editions quoted were up-to-date at the time of writing.

However, readers should check current rulings and additions.

E Invitation

RICS Books would welcome comments upon and suggestions for additions

and amendments to this Handbook. They should be provided in writing to

RICS Books Publishing, Surveyor Court, Westwood Business Park,

Coventry, CV4 8JE.

F Subscription Service

Any change of address should be notified to the address appearing below:

The Surveyors Construction Handbook Subscription Service

RICS Books

Surveyor Court

Westwood Business Park

Coventry CV4 8JE

Tel: 020 7222 7000 ext 647


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PART1, SECTION1

Page 2 Part 1, Section 1 (01/03) Effective from 1/3/03 The Surveyors Construction Handbook

(b) Marketability

maximise prompt or future disposal (freehold or otherwise).

(c) Use-related

optimise operational requirements of intended occupier(s)

provide greatest flexibility in potential uses

reflect intended occupiers requirements/preferences/ability to afford

meet social/management/occupiers special needs (e.g. disabled).

(d) Environmental

minimise health and safety risks

choose materials which reflect sustainability

aesthetically please (e.g. impression on occupiers customers)

minimise any alterations to specific features

reflect planning authoritys brief/policies minimise potential opposition

reflect corporate style or personal preferences of proposed

occupier/employees

maximise comfort of occupants

minimise inconvenience to others during construction.

(e) Timing

construct within a defined period

minimise risks of delay during construction.

1.1.1.6 The importance of each of these criteria will be relative to the objectives of theclient, the business case for the project and to the extent to which he/she is

able to cope with risk (see 3.1.2.9). It is important that the client seek

investment appraisal advice in respect of the project and that the appraisal

considers what if questions to ensure that the impact of changes of key

components in the appraisal is clearly understood. A chartered surveyor will

be able to assist the client in these matters. However, the giving of advice on

some of the requirements listed above is, of course, outside the competence of

the surveyor. Where such a particular requirement is important to the client

and outside the clients expertise, the client should be advised to seek other

professional advice.

1.1.1.7 Many construction projects suffer from poor definition due to inadequate time

and thought being given at an early stage1. This is often because there is a

sense of urgency fuelled by the desire for an immediate solution. Investing

time at the beginning of a project in developing a complete definition taking

account of all the requirements will reduce the likelihood of changes later. The

later that changes are made in a project, the more they are likely to cost in both

direct and knock-on effects (see 3.1.4.14 and 3.1.2.14(f) & (g)).

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1 Construction Industry Board,Briefing the Team, Thomas Telford Publishing, London, 1997.


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The Surveyors Construction Handbook Part 1, Section 1 (01/03) Effective from 1/3/03 Page 3

1.1.2 The Role for Independent Advice

1.1.2.1 With the potential for the involvement of many consultants and/or

constructors in a project and the range of contracts associated with theiremployment, all but the most experienced client may need advice. The advice

offered should be informed and unbiased and it should be based upon a logical

analysis of the needs of the client, the type and character of the project and the

range of appropriate strategies available.

1.1.2.2 This advice can be offered by a member of the clients design team or can be

a separate function. It may be more difficult for a design team member to

remain impartial in carrying out this process and it is recommended that any

expert retained should be solely for this purpose. This function can be

identified as the role of the principal adviser and may encompass:

Assistance in preparing the business case (the business case)

underpinning the project

Identifying the needs and requirements (briefing)

of the client

Defining the project (project definition)

Matching needs and project characteristics (procurement strategy)

with appropriate procurement strategy

Facilitating the associated selection and (implementation)

contractual processes and policies

1.1.2.3 Possible sources for the appointment of independent advisers include suitably

qualified and experienced construction professionals such as chartered

surveyors.

1.1.3 Project Brief

1.1.3.1 The importance of a clear project brief to the successful completion of the

project and in ensuring appropriate performance of the project cannot be over

emphasised. The inexperienced client will need professional help in the

preparation of the brief. The project brief is a comprehensive statement of the

clients requirements for the project based on close consultation between the

client and users and based upon the parameters established (see 3.1.1.10 and

3.1.1.12).

The project brief may include:

(a) project description;

(b) how it fits into the clients corporate plan (e.g. it may be part of a larger

planned development);

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(c) number of people that are to occupy the building, together with their space

requirements;

(d) schedule of accommodation and quality of internal environment;

(e) standards;

(f) equipment and special services/requirements;

(g) when the building needs to be available for use;

(h) quality and cost limitations;

(i) life span;

(j) site; and

(k) statutory controls.

1.1.3.2 This is the initial control document for the early planning of the project;

without it, little constructive work can be done. If all the information required

for the project brief is not readily available, it is better to issue it in an

incomplete form and to update it progressively1.

1.1.4 The Clients Role

1.1.4.1 This section briefly explains the clients responsibilities through the life of a

construction project. In carrying out their role, clients, depending on their

knowledge and expertise, will need help from their professional advisers,

project managers and other consultants, whose roles are also explained in this

handbook. This section aims to outline the clients task in setting policy and

formulating strategy, and explains how it should be carried out.

1.1.4.2 The success of any project will depend upon the motivation given by the

client. Experienced clients may take a leading role in the procurement process;

less experienced clients will need to seek advice or to appoint advisers to

assist them. Where projects are of a large or complex nature it may be

advisable to consider the appointment of a project manager.

1.1.4.3 Effective management is vital in any construction project. The clients prime

role is to establish a structure for the management of the project and to make

sure that it works. A crucial part of any effective management structure is

efficient communication. To perform effectively, all parties must have timely

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1 Construction Industry Board,Briefing the Team, Thomas Telford Publishing, London, 1997.

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PART1, SECTION1


access to all information relevant to their tasks and the projects objectives and

status (see 3.1.4.11).

1.1.4.4 The client has substantial influence on the design of the project in respect both

of functional efficiency and of overall appearance, and, therefore, has to take

particular care to:

(a) understand fully the purpose of the building; ensure that the requirements

of the users are accommodated; and communicate those requirements to the

designers (see 3.1.1.10); and

(b) appoint designers with proven ability in designing buildings which satisfy

users requirements and harmonise with and contribute to the quality of the

built environment. The selection of the right people is emphasised as a key to

success (see 3.1.4.8).

1.1.4.5 The accompanying figure indicates the activities in the procurement process

and when activities are usually performed. As can be seen, the clients role is

significant, with a wide range of activities to perform and implement before

both the design and the construction processes. In the performance of these

activities, the client can expect to be supported and advised by his/her adviser

or (if appointed) the project manager. More detail for each of these activities

can be found in the section of this handbook indicated in brackets in the

figure.

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1.1.5 The Clients Responsibilities

1.1.5.1 The client should set policy and outline strategy including:

(a) setting and prioritising the project objectives within the business plan;

(b) planing to meet the objectives (the pre-design phase);

(c) implementing the plans (the pre-construction phase);

(d) controlling their implementation (the construction phase);

FIGURE TO INDICATE THE ACTIVITIES IN THE PROCUREMENT PROCESS

Pre-Design Phase Pre-Construction Phase Construction Post-Construction

Clients Role Develop business case for

project (3.1.1.9)

Appoint adviser

(3.1.1.6)

Define clients

responsibilities (3.1.1.7)

Project Brief

(3.1.1.12)

Appointment of PM (if

appropriate) (3.1.4.7)

Appointment of design and

cost consultants (3.1.4.8)

Procurement strategy*

(3.1.1.13)

Value management

(3.1.4.16)

Procurement strategy

(3.1.1.13)

Design overview*

(3.1.4.12)

Cost Control overview*

(3.1.4.13)

Whole-life Costs

(3.1.4.15)

Value Engineering

(3.1.4.17)

Time control overview*

(3.1.4.14)

Quality control overview*

(3.1.4.18)

Appointment of constructors

(3.1.4.9)

Confirming the business

case (3.1.1.9)

Design overview

(3.1.4.12)

Cost control overview

(3.1.4.13)

Time control overview

(3.1.4.14)

Quality control overview

(3.1.4.18)

Change control

overview

(3.1.4.19)

Commissioning

(3.1.1.17)

Occupation and takeover

(3.1.1.18)

Procurement

Strategy

Procurement strategy

development (3.1.2)

Implementation Resources (Client)

(3.1.4.35)

Organisational structure

(3.1.4.6)

Contractual arrangements*

(3.1.4.10)

Systems and controls*

(3.1.4.11)

Implementation policy

(3.1.4.2)

Contractual arrangements

(3.1.4.10)

Systems and controls

(3.1.4.11)

Systems and controls

(3.1.4.11)

* Indicates the activity will continue into the next phase

( ) Indicates the section of this document referring to the activity in more detail

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PART1, SECTION1


(e) arbitrating between conflicting demands; and

(f) evaluating the complete project against the objectives (the

post-construction phase).

1.1.5.2 The client also has a dual management function:

(a) to manage the client input; to co-ordinate functional and administrative

needs; to resolve conflicts; to act as the formal point of contact for the project

(see 3.1.4.11); and

(b) to supply the technical expertise, to assess, procure, monitor and control

the external resources needed to implement the project (see 3.1.4.35).

1.1.5.3 In particular, the client should be satisfied that:

(a) the project brief is comprehensive and clear and has the full support of the

users1&2 (see 3.1.1.12);

(b) any constraints demanded by the project funder(s) are known and their

impact understood;

(c) the critical assumptions made in preparing the initial estimates and

programmes are valid, realistic and achievable (see 3.1.1.9);

(d) cost estimates are comprehensive and include all capital and resource

costs;

(e) allowances made in the feasibility and viability assessments to cover

possible risks are sufficient (contingency allowance);

(f) substantial sensitivity analysis and what if studies have been carried out

to assess the effect of possible changed criteria on the viability of the project;

and

(g) plans are in place for adequate project management including systems forcost, time, quality and change control.

1.1.5.4 The client should also co-ordinate and resolve conflicts between all interested

sections of the client organisation including (see 3.1.4.6):

(a) user groups who will work in the building;

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1 Kelly, J., MacPherson, S., and Male, S. (1992), The Briefing Process: A Review and Critique, RICS, Department ofBuilding Engineering and Surveying, Heriot Watt University. This document is out of print.2 Construction Industry Board,Briefing the Team, Thomas Telford Publishing, London, 1997.

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(b) specialist groups responsible for technical systems within the building,

e.g. communications, computers;

(c) facilities management who will manage the completed buildingincluding maintenance and security;

(d) finance and accounts who will plan and control expenditure and pay bills

as they arise; and

(e) legal advisers who will advise on and monitor the clients formal

relationships with outside parties.

1.1.5.5 The client is responsible for ensuring that all necessary decisions are made on

time. Timely decisions are necessary to avoid delays and increased costs: the

decision-making process requires as much planning and management as anyother activity. This will include (see 3.1.4.11):

(a) scheduling the key decisions to be made;

(b) identifying the decision makers and their required procedures;

(c) ascertaining the time required for making decisions;

(d) establishing a formal programme for decisions;

(e) warning decision makers regarding forthcoming submissions making

sure items are on the agenda;

(f) preparing on time fully detailed submissions and/or presentations in full

compliance with procedural requirements;

(g) following up submissions throughout the decision making process; and

(h) promptly communicating decisions made to the parties affected by

them.

1.1.6 Appointment of Project Manager (where appropriate)

(see 3.1.4.7)

1.1.6.1 Due to the complexity of modern buildings and the potentially large number

of parties involved in the process the client may wish to appoint a single

person to draw the process together and manage it to ensure that the overall

performance, time, cost and quality requirements are achieved. The project

manager may be a member of the client organisation who is given sole, or

predominant, responsibility for the project. Project management practices also

exist to enable appointment to be made on a consultancy basis. In this case,

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selection should be based upon resources, reputation, and price; and services

should be clearly identified.

1.1.6.2 It should be emphasised that the role of the project manager should be to act

as part of the client organisation.

1.1.7 Appointment of Consultants (see 3.1.4.8)

The process of selecting and appointing the design team and the cost

consultant is carried out by the client who may seek the advice of his/her

advisers. The terms and conditions of these appointments are governed by the

procurement strategy adopted for the project.

1.1.8 Appointment of Constructors (see 3.1.4.9)

The selection of those who will actually construct the project is often key to a

successful outcome. Selection should always be on quality as well as price and

ideally the procurement strategy governing when they are appointed should

facilitate the early involvement of constructors in the design process.

The selection of procurement strategy is a complex one and is referred to in

Part 3 section 1 of this handbook.

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The Surveyors Construction Handbook Part 1, Section 1 Effective from 1/3/03 Page 1

A endix A (01/03)

Appendix A: Further Reading

Construction Industry Board,Briefing the Team, Thomas Telford Publishing, London,

1997

Construction Industry Board, Partnering in the Team, Thomas Telford Publishing,

London, 1997

Construction Industry Board, Selecting Consultants for the Team: Balancing Quality

and Price, Thomas Telford Publishing, London, 1997

Construction Industry Council,The Procurement of Professional Services: Guidelines

for the Value Assessment of Competitive Tenders, CIC, London, 1997

European Construction Institute, Partnering in the Public Sector: a Toolkit for theImplementation of Post-Award, Project Specific Partnering on Construction Projects,

ECI, Loughborough, 1997

Kelly, J., MacPherson, S., and Male, S.,The Briefing Process: A Review and Critique,

RICS, Department of Building Engineering and Surveying, Heriot Watt University,

1992. This document is out of print.


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PART 1, SECTION 2


PART ONE: THE CLIENT

SECTION 2: VALUE ENGINEERING

Introduction

Value management (and within it, value engineering) is a structured method

of eliminating waste from a clients brief and from the design on a

construction project before binding commitments are made. Used to deliver

more effective and better quality buildings, for example, through taking

unnecessary costs out of designs, value management ensures a clearer

understanding of the brief by all project participants and improves team

working. According to the Construction Task Force report, RethinkingConstruction (published by the DETR in July 1998) it is practiced by up to a

quarter of the construction industry in the UK. The report also estimates that

while the objective of value management is to increase value, it can also

reduce costs by up to 10 per cent.

Value management is the wider term used in the UK to describe the overall

structured team-based approach to a construction project. It involves clearly

defining the clients strategic objectives, considering optimum design

solutions within the context of the clients business objectives and deciding

which of these provides the optimum lifetime value to the client, as well as a

review of the whole process after occupancy. Value management includesvalue engineering as part of this process.

Value engineering is a systematic approach to delivering the required

functions to the required quality at the least cost, i.e. a method of ensuring

that the client gets the best possible value for money in terms of safety,

performance and delivery targets. It is a structured form of consensus

decision making that compares and assesses the design solutions against the

value systems declared by the client.

This section of the handbook looks at the carrying out of a value engineering

exercise during the early design phase of a project, i.e. an evaluation of design

solutions against the clients brief. Value engineering, as described here, can

be a stand-alone exercise (a value engineering workshop) or may be part of an

overall value management process.

In describing the value engineering process this section aims to assist

surveyors both in advising clients on the use of value engineering and taking

part in a value engineering exercise as part of the design team. It is not

intended for surveyors acting as value engineering facilitators and makes no

attempt to address the very particular skills required for this role.


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1.2.1 Why Value Engineering?

1.2.1.1 Value engineering has grown in popularity for the simple reason that it

actually works. Construction projects can often take on a life of their own

when members of the design team become focused on their own particular

problems and time constraints. Consequently, the true objectives of the client

get lost along the way. Value engineering relates design proposals directly

back to a clients business, thus ensuring that a management system is in place

which forces designers to justify their decisions when tested against the

clients required function.

1.2.1.2 A value engineering exercise can only relate design proposals to a clients

business requirements if early value management studies have encapsulated

these requirements within the brief. If a value engineering exercise is carried

out in isolation from any strategic review of the project requirements, it canonly act as a functional assessment of the technical design solutions and their

relative cost. However, even in this limited function it can still be very useful.

1.2.2 Applicability

1.2.2.1 The technique of value engineering can be employed on any project. However,

more complicated and higher value buildings are likely to benefit the most

(seefigure 1). This is because it is more difficult to develop the design brief

in such instances and consequently a design solution may be adopted without

being questioned, usually because of time constraints placed upon thedesigners.

1.2.2.2 Many client organisations will only undertake value engineering on schemes

over a certain value. For example, Railtrack will carry out the technique on

projects valued at 250,000 or more and Northumbrian Water will only

consider it for projects worth over 1m. Despite this, there is no reason why

the process should not be applied to smaller schemes. Furthermore, value

engineering will be invaluable where repetitive schemes are being considered


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Optional

EssentialHigh

Complexity

Low

Value

Low High

Figure 1: Projects Benefiting from Value Engineering


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as improvements and savings can be incorporated into future schemes. They

can also be tested in practice, leading to the sort of continuous improvement

recommended by the Rethinking Construction report.

1.2.2.3 Value engineering works irrespective of the procurement route taken. It is a

discipline upon the design team members and the clients who appoint them.

Where the contractor is mainly responsible for the design, for example, design

and build, develop and construct or PFI projects, the technique is just as

appropriate in ensuring that a well-defined statement of requirements is first

established and that subsequent design solutions address the function of the

building most economically.

1.2.3 At What Stage Should Value Engineering be Carried Out?

1.2.3.1 The greatest benefits can be obtained by commencing the VE process at the

earliest possible stage. Once it has been established that the clients needs will

best be met through a construction project the purpose of the first VE exercise

should be to inform the brief. When an experienced client has prepared the

brief, or a value management exercise has already examined the clients

requirements, the value engineering exercise (which will address the proposed

design solutions) is best done towards the end of the scheme design. Several

workshops may be necessary at each of the crucial decision-making stages of

a project:

(a) A first exercise (a functional analysis of requirements), to define the

project needs and inform the brief, could be carried out as early as option

appraisal, and since this could generate the greatest benefit to the client the

timing is crucial. Carry it out too early and not enough will be known about

the problems associated with the building function, whereas too late and

minds become set on the solutions formulated by the design team.

(b) A review of the project at outline design could be conducted to ensure

that the decisions taken earlier have been implemented or, if changed, that

they still meet the functional requirements.

(c) Another review (a functional analysis of the solutions) would then be

carried out at scheme design to test individual building elements involvingtraditional cost planning/life cycle costing techniques.

1.2.3.2 This section of the handbook considers the evaluation of a design at the end of

the scheme design phase, but the process will be the same whenever it is

carried out. The objectives of the project should remain the same throughout

the process and they should be validated at the beginning of each workshop.

The objectives of each workshop may be different. If the project objectives do

change the whole direction of the project will need to reassessed.

1.2.3.3 It is important that time for the value engineering process and any resultant

redesign is included in the scheme design programme at the outset.

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1.2.4 Who Should Carry Out Value Engineering?

1.2.4.1 It is strongly recommended that a value engineering exercise is organized by

an experienced value management facilitator to ensure that the valueengineering participants retain their objectivity and that an unbiased approach

is maintained.

1.2.4.2 The value engineering participants should represent the principal stakeholders

in the project namely, the client, the building users and the design team

(designer, engineers and quantity surveyor) and also the contractor, where

applicable. It is important that each of the participants have the authority to

make decisions at the workshop. It may also be appropriate to include clients

advisers, for example, letting agents or rating valuers.

The participants should be those who can make decisions and provideinformation related to the specific aims and objectives of the workshop. These

may include:

those people with responsibility for the needs of the business;

those with specific responsibility for development, design and

implementation of the operation/project;

those with responsibility for the management and/or maintenance of the

operation; and

those who will be affected by the outcome.

Different stakeholders will be required to participate at different stages of the

project.

1.2.4.3 The optimum size of a value engineering panel would depend upon the

complexity of the project as well as the skills of the facilitator. However, it is

considered that panels of more than twelve members are difficult to manage.

Panels with fewer than four members could be considered ineffective.

However, it is important that all stakeholders are represented even if this

results in a larger group.

1.2.4.4 It is common practice in North America to appoint an outside team of

consultants to question the design teams solutions. However, this practice has

been known to cause resentment between the project team and the external

advisers and might therefore compromise the final design solutions. It is

considered that an experienced facilitator independent of the design team,

with an appropriately briefed panel, will ensure that the design teams

solutions are adequately tested at the workshop.

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1.2.5 How Long Should It Last?

1.2.5.1 The length of time taken over the value engineering workshop will depend on

the complexity of the project and the level of design detail that has beencompleted.

1.2.5.2 The 40-hour workshop is the classic industrial value engineering standard.

However, two-day workshops at key points during the design process are

more common in the UK construction industry.

1.2.6 Preparing for a Value Engineering Workshop

1.2.6.1 Prior to the workshop, it is most important that an agenda is agreed by the

panel and distributed by the facilitator.

1.2.6.2 In addition to an agenda, a functional analysis of the clients requirements

should be drawn up.

The clients value criteria will have been developed in the first value

management workshop. With each successive workshop these criteria will be

developed further into a function diagram. This should be included in the

workshop handbook. If it is to be developed further this will take place as part

of the information stage of the workshop.

The functional analysis should always be generated by the clientrepresentatives with the help of the other members of the workshop. It is the

role of the facilitator to facilitate this process, not to take part in it.

All participants must be prepared to propose and challenge design solutions.

The input of all participants (not just those who are experts in a particular

discipline) is one of the strengths of the VE process and should be encouraged

by the facilitator.

1.2.7 Functional Analysis of Design Relative to the Clients

Requirements

1.2.7.1 It should be understood that it is not possible to find meaningful alternatives

to a technical solution without first identifying the function required of it.

1.2.7.2 Functional analysis is any technique designed to appraise value by careful

analysis of function. This can be simple creative session of the functions and

possible alternatives, but the most common method is using a functional

analysis systems technique (FAST) diagram.

1.2.7.3 The FAST system uses a function diagram which identifies the basic

function what is required on the left-hand side and more detailed secondary

functions working from left to right until all the means of achieving these

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functions how are they to be fulfilled are identified on the right. See figure 2

for an example of a FAST diagram. It should be understood that this is a

broad-brush technique.

The objective of functional analysis is to produce a complete description of

the end purpose of the design in terms of what it must do.

Reference is sometimes made to different types of FAST diagram: Classical

FAST, Technical FAST or Customer/Task FAST.

The original FAST diagram was a presentation of the user-related and

product-related functions of a design solution. It was a technique used to

assemble the functions of a product in a hierarchy and to assess why and

how they are delivered. This is known as a Classical FAST.

Subsequently it was recognized that all functions did not fit into the flow logicso it was decided to separate out the functions that are always active, whether

the product is operational or not. It was also decided to separate out those

functions that only occur one time regardless of repetitiveness of the process.

This diagram describes what a product, element or component must do and is

known as a Technical FAST.

It was then recognized that, ideally, it is the customer who should determine

the value of the product and that the FAST diagram should include the

customer/user in the development of value study projects. The resulting FAST

Figure 2: FAST Diagram


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diagram has become known as a Customer or Task FAST. It is this concept

from which the Value Tree has developed.

All FAST diagrams should include a scope line on the left-hand side of the

diagram. The scope line limits the area of the project on which attention is

being focused. The scope is the portion of the project that is selected for the

value study.

The FAST model displays functions in a logical sequence and tests their

dependency. It does not indicate how a function should be performed.

There is no such thing as a correct FAST model, only a valid FAST model.

1.2.7.4 Most practitioners insist that functions are defined in terms of active

verb/measurable noun (or phrase) combinations, for example, minimizeenergy consumption. This improves clarity, helps all panel members develop

a shared understanding and promotes the examination process. These should

be interrogated by asking why the client requires this in order to examine

how it should be achieved.

1.2.7.5 The process of setting up a FAST diagram is of matching the functional

elements of the building (object functions) to the clients required functions

(user functions). The functional requirements need to be broken down until

they are reflected in elements which can be priced (and built). This process is

called functional decomposition. For example, the requirement for increased

energy efficiency might be provided by increased levels of insulation whichmight be achieved by changes to all or any of roof, walls, floor, windows and

doors or finishes. The number of levels of decomposition required cannot be

predetermined.

1.2.7.6 VALUETREE

A Value Tree is a diagram that describes the business driver (mission) for a

project or need and the criteria that need to be satisfied in order to achieve it.

A Value Tree should be developed at an early stage in order to inform the

brief. However, it can be developed at any stage in order to confirm the brief.

It will generally be carried out by the client organization in order to establish

whether a project is the solution to their needs. The criteria are then developed

further into the functions required in order to achieve them. The scope line for

a project will begin to the right of the Value Tree.

1.2.7.7 Appendix A gives an example of part of a Value Tree and a FAST diagram for

a health centre.

Function elements (object functions) are defined in the BCIS publication,

Standard Form of Cost Analysis: Principles, Instructions and Definitionsand

in Section 2.3 of this handbook.

A typical example of a value engineering process is included in Appendix B.


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1.2.8 Pricing the FAST Diagram

1.2.8.1 As the FAST diagram progresses and different solutions are found, it becomes

possible to establish alternative costs for achieving a given function.However, it is important that all functions are clearly defined if costs of

alternative proposals are to be meaningful. Also, it should be remembered that

it is the design solutions to the functional requirements that are being priced

and compared to the value and importance that the client puts on that function.

For example, the client can identify the value of savings from reduced energy

consumption or may rank this as important for other reasons. The value

engineering teams task is to put a price on the various design solutions

suggested that will achieve this end. It is creativity in finding the most

economical solution that is the essence of the value engineering exercise.

1.2.8.2 Fees and value added tax (VAT) and other financial and fiscal matters mayalso need to be considered.

1.2.9 Presenting a Design Solution to a Value Engineering Workshop

1.2.9.1 Design solutions should be presented as designers normally would to any

panel of users. However, they should expect to be questioned quite

extensively. They should keep an open mind and maintain objectivity in

justifying their proposals because the objective is to find the most

cost-effective solution, not to criticize for the sake of it. On the other hand,

designers should be prepared to stand by their design solution if they think itis correct for the function being considered.

1.2.10 The Workshop

1.2.10.1 A value engineering workshop will work through phases of information,

speculation, evaluation, development and presentation:

(a) The information phase identifies the spaces, elements and components in

terms of the functions they fulfill. It asks the questions about what is the primefunction of an element?; what are its subsidiary functions?; what does it

cost?; what is its value? It is at this stage that the FAST diagram is developed

and it is against the background of this information that the value engineering

evaluation will be made.

(b) Speculation is the brainstorming stage which will generate the ideas from

which solutions will be developed. It is important that each member of the

panel thinks positively. The facilitator will ensure that no one is allowed to

become overly critical of another members contribution in order that ideas

flow. All ideas should be logged at this stage. However, in order to encourage

idea building, they should not be analysed or rejected. It is important that the

underlying functions of suggestions for improvement are listed for evaluation

later. Design solutions should not be developed at this stage to ensure that

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what is to be achieved is properly addressed. All optional solutions should

only be considered at the evaluation stage.

(c) Evaluation is the analysis of the ideas generated by the earlier

speculation. Again, a positive feeling will be encouraged by the facilitator

with advantages/disadvantages being discussed in an even-handed manner. At

this stage some ideas will be rejected and the best taken forward. It is essential

to ensure that all the ramifications of any suggested changes should be

considered. For example, if the exercise has suggested a change to a piece of

M&E equipment, the effects on the control management systems and

structural requirements must also be considered.

Life cycle costing can be an important factor in the process when considering

optional solutions but the criticality of this aspect will hinge on the clients

philosophy.

(d) Development of the ideas to be taken forward will be initiated at the

meeting and a programme established for completion of this stage. Often the

detailed development including life cycle costing, if appropriate, will be

continued beyond the initial meeting and the outcome presented to a

subsequent meeting for the panel to determine which design options to adopt.

(e) Presentation takes the form of a report prepared by the facilitator which

records in some detail all elements of the study and concludes with those

options to be incorporated in the developed design. This report is normally

presented to the client by the value engineering panel at a meeting held within

one or two weeks of the date of the workshop.

1.2.10.2 The workshop should focus on expensive items or mismatches, for example,

parts of the FAST diagram which are important to the client but which have

been allocated little money or have cost a lot of money but do not contribute

to the function.

1.2.11 Assessing the Value of the Workshop

1.2.11.1 Areas for research/change identified at the workshop could be grouped into

three categories:

(i) those that are removed/changed and result in reduced cost;

(ii) those that are added/changed and result in additional cost; and

(iii) those that are identified for investigation but not implemented

1.2.11.2 The financial benefit should then be identified against all elements within

categories (i) or (ii).

1.2.11.3 A major benefit of the workshop which will be enjoyed by the panel members

is a better understanding of the project functions and common ownership of

the team-based designs solutions which have evolved.

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1.2.12 Implementing the Results

1.2.12.1 The value engineering panels decisions are recommendations that need to be

accepted by all stakeholders. Those stakeholders that are not part of the panelare likely to have a right to comment before decisions are adopted.

1.2.12.2 Once the workshops proposals have been sanctioned by the client, decisions

should be fed back to the design team, briefing those members whose work is

affected as to why the changes were made.

1.2.12.3 If necessary, amendments to the design brief, design programme and scope of

professional teams brief should be incorporated into these documents.

1.2.13 Feedback from Post-Occupancy Evaluation

1.2.13.1 It is important for any client to carry out a project review to demonstrate how

project objectives have been achieved and particular problems overcome. As

part of the project evaluation process, it should be established whether the

project represents best value for money and whether or not key design changes

made as a result of value engineering have achieved the benefits expected.

These should always be set against the cost of carrying out the exercise.

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A endix A (revised 10/01)

Appendix A: Health Centre Value Tree


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PART 1, SECTION 2, APPENDIX B


Appendix B (12/99)

Appendix B: Typical Example of a Value Engineering Process

B1 BACKGROUND

A retail client with a regular development programme for a series of new

stores (typical size 8,000m2) entered into a partnering agreement with key

members of the construction team for four new projects.

To encourage value engineering, the partnering contractors share in any

savings that relate to any accepted proposals.

For two of these projects the client opted for a design and build contract for

the services installations (mechanical, sprinklers and electrical).

In an effort to reduce costs and ultimately add value to the schemes, the client

set a target of reducing the costs on these projects by 10 per cent, with no

material effect on quality or health and safety.

To set a benchmark for this reduction model cost plan costs for a typical store

(derived from historical records) were modified to suit the new scheme

layouts. Allowances were included for any items that were classified as site

specific (e.g. acoustic requirements stipulated by the district surveyor). Cost

plan figures were based on the clients current specification.

Due to the volume of developments undertaken by the client and the repetitive

nature of the works, the savings generated by value engineering can beincorporated in any future schemes.

B2 SPECIFIC EXAMPLE: VENTILATION TO SALES FLOOR

The original design was based on previous solutions and included traditional

ventilation.

At the information phase, the functional requirement, including the need for

ventilation, was examined against the clients desire to reduce capital costs.

This identified that a high proportion of the cost of the mechanical installation

related to the provision of ventilation to the sales floor of the store (plant,distribution ductwork, diffusers, etc.)

At the speculation phase, the clients engineering department worked closely

with the mechanical partnering contractor to consider alternative methods of

ventilating the sales floor of the store.

The alternative method of ventilation proposed was of the displacement type.

With displacement ventilation, air is only conditioned at the level at which

occupiers are breathing. Air is introduced at low level and at low velocity.

Natural convection currents are utilised to remove excess heat and pollutants

out of the occupied zone. There is a saving in the amount of ductworkrequired, as only two runs of ductwork are needed on the sales floor. (The


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Appendix B (12/99)

traditional method is designed for four separate branches of ductwork.) The

new specification requires diffusers of the displacement type, with the facility

of automatically varying the air throw pattern whether in heating or cooling

mode.

Furthermore, the proposed system required ventilation to the occupied zone

only rather than the full building space. This has resulted in capital cost

savings on plant and in the likely running costs of the system.

The evaluation identified significant savings.

Summary of Value Engineering Exercise

Original installation: Traditional ventilation

Value engineering proposal: Displacement ventilation

Benefits: Saving on air handling plant size

Saving on chiller plant size

Saving on sales floor ductwork

Savings on capital cost: Air handling plant 10%

Chiller plant 5%

Ductwork and diffusers 25%

At the development phase, the proposed method was discussed with other

members of the design team to ensure that any impact on the other building

elements, the project programme and the interface with other subcontractors

were taken into account.


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A endix C (10/01)

Palmer, Angela. A Critique of Value Management, Chartered Institute of Building,

Berkshire, 1990

Royal Institution of Chartered Surveyors. Value and the Client (papers presented at a

conference held at the RICS on 29 January 1992) , RICS, London, 1992

Smith, J., Jackson, N., Wyatt, R., Smyth, H., Beck, M., Chapman, K., Shirazi, A.,

Hampson, K., Royal Institution of Chartered Surveyors. Can Any Facilitator Run a

Value Engineering Workshop?RICS, London, 1998

Zimmerman, Larry, W. and Hart, Glen, D.Value Engineering: A Practical Approach

for Owners, Designers and Contractors, Van Nostrand Reinhold & Co, New York,

1982


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PART2, SECTION1


PART TWO: CONSTRUCTION DESIGN AND ECONOMICS

SECTION 1: PRE-CONTRACT COST PLANNING AND

COST MANAGEMENT

Introduction

This Section of the Handbook sets out procedures which enable pre-contract

cost management of building projects to be carried out from the clients brief,

through the various design stages to the acceptance of a contractors tender.

Control of costs can only be achieved by the actions of the whole project team,

including the client. The quantity surveyors role is to facilitate the design

process by systematic application of cost criteria so as to maintain a sensible

and economic relationship between cost, quality, utility and appearance which

thus helps in achieving the clients requirements within the agreed budget.

The information and guidance which follow are based on a traditionally

procured new-build project, but varying client requirements and different

procurement methods may prevent implementation of some aspects of the

following procedures. In practice, the design of the elements may proceed atdifferent speeds and the stages described here may overlap. However, the

principles of budget, cost plan, cost checks and reconciliation should be

adhered to whenever possible. (See the figure showing the outline of the cost

planning procedure.)

On projects where non-traditional procurement routes are used, the

responsibility for developing the cost plan may change but the stages

suggested here remain appropriate. For example, on Design and Build (D&B)

schemes, the clients quantity surveyor will be responsible for the cost plan at

feasibility and outline proposal stage and the D&B contractors quantity

surveyor will be responsible for developing the cost plan with the contractorsdesign team to produce the tender.

The process described would apply to refurbishment or conversion schemes

and the elemental approach would be suitable even if all elements were not

required.

The procedures are not designed for use with civil engineering projects, but

should provide a framework appropriate to civil engineering needs.


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PART2, SECTION1


2.1.1 Pre-contract Cost Planning and Cost Management

2.1.1.1 DEFINITION

Pre-contract cost planning is the technique by which the budget is allocated to

the various elements of an intended building project to provide the design

team with a balanced cost framework within which to produce a successful

design. It allows for the redistribution of the budget between elements as the

design develops.

Cost management is the total process which ensures that the contract sum is

within the clients approved budget or cost limit. It is the process of helping

the design team design to a cost rather than the quantity surveyor costing adesign.

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2.1.1.2 OBJECTIVES

(a) To ensure that the client obtains an economical and efficient project in

accordance with the agreed brief and budget;

(b) to make the design process more efficient, thus reducing the time needed

to produce a successful design;

(c) to ensure that all requirements arising from the clients brief to the design

team are included in the cost planning process (e.g. the engineering services

should also be subject to the cost planning process); and

(d) to advise the client and members of the design team of cost-in-use or

life-cycle costing techniques.

2.1.1.3 GENERALLY

(a) A general principle applies throughout the cost planning process that any

agreed budget or cost limit is seen as the maximum cost, and the quantity

surveyor should, at all times, work with the other design team members to

satisfy the client at a lower cost if possible, whilst still maintaining the desired

objectives for quality and function.

(b) If, at any time, sums have been included in the approved budget, for

example, for abnormal site costs which subsequently are found to have been

wholly or partially unnecessary, the consequential saving should always be

notified to the client.

2.1.1.4 DESIGNSTAGES

References to Design Stages are to the RIBA Plan of Work (taken from the

RIBAHandbook of Architectural Practice and Management) and refer to the

main stages through which a project design typically passes. The links to the

cost planning procedures outlined in this section are summarised here:

Design Stages Quantity Surveyor

Stage B: Feasibility Prepare feasibility studies and determine

the budget

Stage C: Outline Proposals Consider with client and design team

alternative strategies and prepare cost plan

Stage D: Scheme Design Carry out cost checks and update cost plan

if necessary

Stage E: Detail Design

Stage F: Production Information Carry out cost checks

Stage H: Tender Action Prepare reconciliation statement

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2.1.1.5 VALUEENGINEERING

A value engineering exercise may be carried out on all or part of the design

during the design process. (For further details see part 1, section 2 of this

handbook.)

This might affect both the clients requirements and the chosen design

solution and changes would, therefore, affect the budget and the cost plan.

2.1.2 Preliminary cost studies and feasibility studies

2.1.2.1 It is recommended, as a matter of importance, that before and during the

formulation of the clients brief (Design Stage B: Feasibility), the quantity

surveyor, in consultation with other members of the design team and the

client, should undertake such feasibility studies as may be necessary to ensure

that the clients requirements can be reasonably accommodated within the

finance that is available for the project. The clients budget is established as a

result of these studies. (See 2.1.3.)

2.1.3 Budget

2.1.3.1 DEFINITION

Budget is the total expenditure authorised by the client which is the

responsibility of the design team at the end of the feasibility stage (DesignStage B).

2.1.3.2 OBJECTIVES

(a) To establish the limit of expenditure necessary to meet the clients brief.

The clients and projects status with regard to VAT (Value Added Tax) will

also need to be established;

(b) to provide the client with a statement of the likely area and quality of

building, which is achievable within the limit of expenditure;

(c) to provide a statement of the recommended methods of construction and of

the contractual procedures to achieve the required occupation date; and

(d) to provide the client with alternative budgets for different occupation dates

and qualities of building, if appropriate.

2.1.3.3 INFORMATIONREQUIREMENTS

(a) The ideal requirements from the client and members of the project team

to the quantity surveyor are given below. On projects where this level of

information is not available, the quantity surveyor should state clearly any

assumptions made. It is possible to produce a typical elemental estimate for

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a particular type of building from very little information, but it is important to

clarify as many information issues as possible before such an estimate is

accepted as the budget for a particular project.

(b) Information required from the client:

location of the site; availability of the site for commencement of

construction work;

in conjunction with the designer, architect or building surveyor, a

schedule of accommodation;

names of other similar buildings of broadly suitable quality if

appropriate;

the required occupation date or phased occupation dates;

any specific requirements relating to life-cycle costs;

any specific requirements as to specification and/or procedures;

requirements in respect of the treatment of inflation; instructions regarding Construction (Design and Management)

Regulations; and

the clients VAT status and any other tax matters which may affect the

overall cost of the project.

(c) Information required from the designer, architect, building surveyor, or

other source:

approximate location of the building on the site;

advice on necessary storey heights for any specialist areas shown on

schedule of accommodation;

advice on statutory regulations;

advice on routes of public sewers and the like;

designers concept of building; and

names of similar projects previously designed by the practice.

(d) Information required from the structural engineer:

advice on probable ground conditions;

advice on probable floor loadings; and

any information on structural solutions.

(e) Information required from the services engineer: advice on areas of building which will require specialist engineering

services;

any information on the types of systems; and

advice on availability of public utility services.

Note: If the quantity surveyor is not responsible for cost planning the

engineering services, this should be clearly stated in the budget and cost plan.

The information from the quantity surveyor to the design team is as follows:


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(An example of a format for the quantity surveyors report is given in

Appendix B to this Section.)

(f) Information to be provided to the client involves a report containing:

the budget, with alternative proposals if appropriate;

a statement of the basis of the budget calculation including any

important assumptions made;

a statement setting out the programme for design and construction on

which the budget is based;

an outline cash-flow forecast;

a statement of any items not included; and

assumptions in respect of inflation forecasts and current/future market

conditions.

(g) Information to be provided to the designer: a copy of the report sent to the client; and

a more detailed statement of the quantity and quality parameters

included in the calculations.

(h) Information to be provided to other consultants:

such quantity and quality parameters as relate to their area of design.

2.1.3.4 METHODS OFPREPARATION

(a) The method of preparation depends on the type of project involved.

Unusual projects, projects of great complexity and projects containing a large

element of alterations are more difficult to budget accurately at an early stage.

(b) For most types of project, it is possible to build up an elemental budget

using the parameters set out under 2.1.3.5. This can be based on cost

information from previous projects, from the RICS Building Cost Information

Service (BCIS), other published sources, or on an appropriate cost model.

(c) The main elemental quantities of hypothetical buildings can be generated

using agreed parameters, to which rates applicable to agreed quality and

performance standards can be applied. An example of a method of calculatinghypothetical quantities is described in Appendix C to this Section.

(d) Once the budget has been established, it provides the first cost plan for the

project, and the framework for the actual design to be developed.

2.1.3.5 STATEMENT OFQUANTITY ANDQUALITYPARAMETERS

The main parameters which should normally be incorporated in the

calculation are as follows (the list is not exhaustive):

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(a) Quantity

in addition to the briefed areas, a statement of the allowances (e.g.

circulation) used to calculate a gross floor area;

the number of storeys of a possible solution;

the storey height(s);

the square index or wall/floor ratio (see appendix C to this section);

the density of vertical division or partition/floor ratio (see appendix C

to this section);

proportion of window area;

floor loadings;

thermal resistance values of fabric;

air change rates;

heating and hot-water loads;

lighting levels;

total electrical load; areas of the brief with special functions of significant cost;

road area and number of car parking spaces;

paved pedestrian areas; and

length of boundary walls or fencing.

(b) Quality

A general statement of quality and specification which relates to the

rates used for the budget calculation. This should cover specifically at

least the following: foundations, roof, external walls, floors and

vertical circulation, internal vertical division, internal finishes,

lighting and other services. External works should include roads,

paths, landscape, boundary walls and fences, and service mains,

planting and the like.

2.1.3.6 INFLATION

(a) The prediction of future inflation may not be necessary for some clients,

and a statement of cost at current prices may be adequate. Where an

assessment of inflation is required for more than a few months ahead, a range

of probable inflation is best provided. This can be calculated using

predictions published, for example by BCIS or the Department of Trade andIndustry. The assumptions upon which the prediction is made should be

stated.

(b) Some clients, particularly in the public sector, have their own inflation

controls. Where the client requests that a particular level of inflation be

included in the budget, the quantity surveyor should inform the client if he or

she believes it to be unrealistic.

2.1.3.7 COSTREPORTING

If at any time during the design process it becomes apparent that the agreed

budget is likely to be exceeded without the brief being changed, the client

should be informed and instructions requested. Likewise, if it becomes

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(d) Information required from the services engineer:

outline proposals for installations, indicating any alternative systems;

and

an indication of the preferred specification, after acceptance by the

designer of its visual implications.

(e) Information required from specialist consultants:

outline proposals.

The basic information requirements from the quantity surveyor to the design

team are as follows:

(An example of a format for the quantity surveyors report is given in

Appendix B to this Section.)

(f) Information to be provided to the client involves a report containing:

a statement of cost;

a broad indication of the specification;

a statement of floor areas;

a request for decisions on any alternative proposals and/or procurement

routes, with advice thereon;

an updated cash-flow forecast;

allowances for contingencies and design reserve; and

an update of inflation projections.

(g) Information to be provided