Quantity Surveying Financial Management UNIT 1 Quantity Surveyors in Construction 1.1 Introduction The design and construction of buildings can be regarded as a complex undertaking. Ideas and concepts must be transmitted through a convoluted network of individuals associated with the building development, with the objective of ensuring that the client’s requirements are satisfied. 1.2 The Construction Industry 1.2.1 The design and construction of buildings The design and construction of any building consists of a complex intellectual, administrative and logistical exercise that underlies the visible site activities. The latter, unfortunately, constitutes the typical image of the industry. Turner (1990) suggests that “Construction is undeniably an enterprise, an act of boldness even for the simplest of building. For modern, complex buildings it involves the commissioning, management, design and assembly of huge amounts of raw materials and the use of considerable labour resources over a long period of time.” Day (1997) extends this theme further by noting that it is misleading to consider that most of the activity on a building project occurs on the construction site. Most of the effort has to do with the processing of information in order to ensure that a design intention becomes physical reality. Information flows back and forth between the various members of the design team, manufacturers and finally the construction team. There is a steady build up in the flow of information until it reaches a peak during the construction phase where details must be finalised, materials and fittings ordered and any ambiguities in the information resolved. The site operative assembling and fixing a component in a specific part of the building is the final, but most obvious, part of a complex information processing chain. Almost like a complex variation of a child’s game of “chinese whispers”. This suggests that communication of information is a vital element in the design and construction process. This is confirmed by Osbourn and Greeno (1997) when they suggest that all operational and management activities associated with the design, construction and subsequent Quantity Surveyors in Construction Unit 1 - 1 Quantity Surveying Financial Management performance of a building rely on quite complex information being transferred between the various participants of the building team. This complex information consists of ideas and technical data that must be dispersed to a wide range of people of varying ability, professional and non-professional, skilled and unskilled. It is suggested that not only must methods of communication be used to clarify issues, but also should attempt to bring harmony to work processes and foster co-operation to ensure the maximum contribution from all concerned with the development process. 1.2.2 Characteristics of the Construction Industry The construction industry has “fuzzy” boundaries. Many activities and inputs contribute to building a construction project, but do not obviously form part of the industry. The Standard Industrial Classification lists the diverse nature of construction industry activities. The construction industry is often described as unique. The bespoke nature of the product and its location, separation of design and construction, involvement of a wide variety of people in its production are a number of factors. Housing is an exception because of its uniform nature. The housing sector is often likened to the manufacturing industry. The significance of the industry can be seen by its contribution to the national economy. In any country it makes a significant contribution to its gross domestic product (GDP). There is a huge diversity of firms in terms of size and range of activities operating in the construction industry. There are a very large number of small firms and a small number of very large firms. Information and activities of the largest firms can be found on the Internet. Such huge diversity of size can be explained by the diversity of “products” of the industry. Large firms tend to concentrate on big projects e.g. schools, hospitals, roads, office blocks etc. Small firms concentrate on small projects e.g. single dwellings, garages, minor repairs, “odd jobs” etc. There are local, regional, national and international markets for construction. Smaller firms concentrate on local and regional markets whilst bigger firms concentrate on national and international markets, though there are some overlaps. Clients of the industry may be classified as public or private sector. Traditionally the public sector has been responsible for building the country’s infrastructure (railways, power stations, roads etc.), but with more private sector involvement this role is dwindling. Quantity Surveyors in Construction Unit 1 - 2 Quantity Surveying Financial Management Clients of the industry are as diverse as projects, ranging from individuals to blue chip companies and Governments. A construction project can describe anything from minor jobs worth a few hundred pounds to multi-billion pound projects lasting many years. Projects are classified as housing, industrial, commercial, infrastructure or repair and maintenance for the purposes of compiling statistics. Activity in each sector fluctuates from year to year depending on the market. Study Task Refer to appendix 1.1 for a quick review about the various roles of construction industry professionals. Time management 10 minutes 1.3 Role of Quantity Surveying Quantity surveyors are involved in most of the professional organisations in the construction industry including consultancies, contractors, developers, subcontractors. They can be involved in both public or private sector organisations and their work spans various sectors and subsectors within the industry such as buildings, infrastructure, railways, utilities, transport etc. Traditionally the work of a quantity surveyor was thought to be limited to measuring and valuing construction works. This process can start during project initiation stage to set a budget for the client. Later on other estimates would be required during design development until the production of the bills of quantities. Finally during the contract a QS would be carrying out regular valuations of the works on behalf of the client and/or the contractor. 1.3.1 The Duties of a Quantity Surveyor Previously the duties of a quantity surveyor were limited to preparing bills of quantities and measuring the work in progress. Quantity surveyors were engaged by the client to give an initial estimate of the cost of the works. Upon completion of the design they would again get involved in assessing project cost and preparing the bills of quantities. As the industry developed there was a need for cost planning during the design and quantity surveyors’ role evolved into cost planning. When standard forms of contracts defined a claims process for contractors quantity surveyors were the obvious candidate to put together and assess the validity of a contractor for additional costs. Their knowledge of the cost and the contract placed quantity surveyors at the forefront of dispute resolution. The training of a quantity surveyor therefore evolved from measurement and evaluation to include contract administration and legal studies. Quantity Surveyors in Construction Unit 1 - 3 Quantity Surveying Financial Management The RICS defines Quantity surveyors as the cost managers of construction. They define their role to span all project phases starting with the preparation of a project’s capital expenditure until the operational maintenance and demolition of a facility. Today the RICS describes the role of the quantity surveyor as including the activities described below. 1.3.1.1 Project evaluation: preparing feasibility studies or development appraisals The quantity surveyor has the duty to advise the client on the feasibility and viability of a proposed development or project. This requires his involvement during the appraisal stage to assess the profitability of a scheme and give advice on financial aspects such as total cost, project funding sources, risks and whole life cycle costs. This might have to be done over a number of schemes to give the client options. 1.3.1.2 Pre contract cost planning During the precontract period the quantity surveyor has responsibility for setting the project budget and forecasting the project cost. This is one of the main tasks of the quantity surveyor. At this stage the QS would need to prepare a first estimate of the likely costs of a project and possibly various parts of a building. As the design develops the QS need to work alongside the design team to advise on the cost of various design options and solutions to help select the most cost effective. The aim is to control costs by monitoring the design process to ensure that the initially set project budget is not unnecessarily exceeded. 1.3.1.3 Post contract cost control - Commercial management of construction Post contract the quantity surveyor has overall responsibility for the financial management of a project during the construction phase. This can be for the client or contractor organisation. The main task is to continuously report on the financial performance of the project to make sure it remains inline with the budget. This task therefore involves quantification and costing of the works by preparing valuations to measure the work completed at defined intervals. This would necessitate involvement in the change management process to assess the likely cost of change.