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GBE Finance Gap (Opinion) G#41199

By 28 November 2023January 29th, 2024Encyclopaedia, Opinion, State of the Industry
Brian Murphy aka BrianSpecMan BRM @ Build4 CAPEM Showroom

GBE Finance Gap (Opinion)

GBE > Encyclopaedia > Opinion > State of the Industry > G#41199

About:

Scope/Extract:

  • These Opinion Posts have the potential to contribute to filling part of the ‘knowledge-gap’ and I am planning to ring every bit of 50 years of experience in violet construction, 40 years of specification consultancy and 24 years of green construction into its content.
  • GBE Continuing Professional Development (CPD) seminars will also be created and published to support this paper and its promotion.

Financial-Gap:
Problems:

  • The Construction Industry is effectively financially and morally bankrupt.
  • In the context of Fiduciary Rules, a legal obligation to make profits for shareholders.
    • Profits before people before planet.
    • Economic before social before environment.
    • All companies are looking for opportunities to save money and make a profit.
    • In the context of the following pressures, building quality is at risk.
    • The temptation is to save money by reducing quality, competency by materials substitutions or omissions.
  • Quantity Surveyor (QS) trade:
    • Only apparent priority is low initial cost, always has been, always will be.
    • They do not appear to accommodate client’s green or investment ambitions.
    • Aim for +/- 10% accuracy match between cost plan and tender.
      • In reality this is wishful thinking, a recent project came in 50% adrift.
    • Scant attention is paid to Whole Life Costs (WLC)
    • WLC calculation equations are incredibly complex, tools did not exist to be able to engage.
    • WLC datasets existed, created by consultants and only offered as consultancy.
  • Elemental Cost planning:
    • Includes conventional construction E.g. Masonry Cavity Wall.
    • Insufficient granularity of details to be an accurate price for any full specification.
    • Leads to incompetent pricing in a Green-ambitious context.
  • Violet Cost planning
    • Violet Cost Planning is fundamentally inaccurate, flawed and drives the bankruptcy.
    • Cost plans should only ever be a guide to a basic minimum price for a basic legal minimum building without any of its complexities.
    • Cost plans become upper limits.
    • Green brief gets ‘value engineered’ (posh for cost cutting) back to violet cost plan.
    • Green value engineered out of projects even before going to tender.
    • Target: violet cost plan not green ambitions.
  • ‘Value Engineering’
    • And then Value Engineering begins (posh jargon for cost cutting as practiced by UK QS)
    • Even before going to Tender, and then again after.
    • Because the current scheme does not match the incompetent cost plan.
    • Cost plans are calculated, set-in stone and clients assume they can expect that price.
    • Cost planning is based upon outline specifications without any real project details.
    • Ignores all the interfaces, co-ordination, detail that will follow leading to contract specification.
    • Cost plans are not adjusted between outline and contract specification.
    • In this context all tenders are likely to go over cost plan budget.
    • Many projects are expected to adhere to green-ambitions set by client, planning decisions, societal pressure and marketing department claims, environmental assessment schemes or funder expectation.
    • From cost planning onwards green-ambition project will get eroded back towards those inadequate violet cost plans.
    • Commitments to BREEAM and other assessment methods become financially impossible.
  • Violet Cost Data:
    • Cost planning is based on:
      • Violet building price books.
      • Violet not green methods of construction and materials.
      • Violet supplier’s price books.
      • Violet installer’s price books.
    • Violet price books based on elemental prices, not detailed, no granularity, so not accurate.
    • Based on back to basic construction
    • Incompetent for green building ambitions
  • Bills of Quantities by tenderers:
    • Saving client upfront costs by QS not producing a bill of quantities (BofQ).
    • Speeding to ‘Out to tender’ date not having to create BofQ.
    • Increasing tenderer’s burden x 6, each creating their own inconsistent BofQ.
    • Increasing tender evaluation burden comparing 6 BofQ, comparing apples with pears.
  • Tenderer expectations and habits:
    • Violet tenderers when asked to use unfamiliar green materials and methods, will add safety margins in their prices, exceeding any cost plan budget.
    • Tenderers are expected to cut their prices to the bone and habitually comply.
    • Resulting in the express intention of making claims for extras to claw back more money later.
  • Violet tenderers become violet constructors or violet contractors:
    • Aim at violet cost plan.
      • Aim to make claims for extras.
    • Know violet price for violet materials.
    • Already have a violet supply-chain.
      • Subservient to Main Contractor (tenderer) pressures.
  • Violet Contractors:
    • Contracts become bread and butter with no profits, no working cashflow and higher risk.
    • Contractors are encouraged to exploit any weakness in the contract documents and plan to habitually make excessive and unfounded claims for extras, adding to contract administration burdens, often for months after practical completion.
    • Violet Main Contractors practice ‘Dutch bargaining’ between their supply-chain sub-contractors to reduce their sub-contracts to bread and butter with reduced salaries and no profits.
  • Sub-contractors take the brunt for main contractor cash flow issues:
    • Sub-contractors are not being given adequate time to care, to be able to do a competent job.
    • Supply chain sub-contractors are expected to pay a dividend in return for regular work.
    • Dividends are expected to be paid even before they have been paid for the jobs.
    • Sub-contractors are not paid for 90 days or more despite Government initiatives to stop this.
    • Retention monies are withheld indefinitely.
      • CLC Construction Leadership Council report ‘Contributing to Insolvency’
    • Suicide rates are soaring amongst sub-contractors.
      • Main Contractors pay lip service to mental health campaigns.
    • The industry is forced into modern day slavery to get jobs done for the price.
      • Despite initiatives to clean up its act, slavery goes on when prices are so tight.

UK Construction Insolvency Storm Bankruptcy Crisis

    • 1st Q 2021: 1 in 5 Bankruptcies are in Construction Sector
    • 2nd Q 2023: 4280 construction companies face insolvency 16.5% increase on previous year
    • Inflationary pressures: Materials price surge due to COVID shutdowns, War in Ukraine, Brexit, whilst in contracts with budgets set.
    • House building slow downs caused by rising interest rates, cost of living crisis, fewer buyers, fewer sales, less starts, less work load
    • Infrastructure projects delays, postponement and cancellations; causing revenue stream problems
  • Loss of Quality:
    • Profits can only be achieved by using inferior products or omitting products.
      • Post-Grenfell inspections found whole blocks of apartments without any passive fire barriers between all apartments.
      • Surreptitious specification substitution happens, building performance is eroded.
      • Cheap, incompetent, violet, deleterious materials are used in place of green specifications.
  • Procurement methods muddy the waters:
    • Problems:
    • Design and Build Contractors (D&BC) working to Employers Requirements (ER) or Performance Specification (PS) have control of the prescriptive Tender specification (TS) and aspire to lowest cost always.
      • The ER or PS need to be well written to control the D&BC.
      • The author of the ER or PS needs to be involved in the evaluation of the D&BC’s TS.
    • D&BC’s QS (Buying department) looks for opportunities to reduce cost of items.
      • In doing so omits an item so the insulation falls out.
      • Or reduced the cost of a multi-functional board to the price of a single function board.
      • The pushes the problem back to the client’s designer to resolve.
    • We (a group of specification writers) rename D&B to B&D because the D&BC build what they want and the designers redraw to make ‘as built drawings’.
  • Contractors Design Portion (CDP):
    • Employer’s Requirements/Performance Specification:
      • Each tenderer may adopt a different approach to meet the brief.
      • Requires a tender specification from each tenderer to compare.
      • This often does not happen and emerges as the project evolves.
      • Requires a tender evaluation of each or lowest tenders, by the contract specifier as well as the QS.
    • Schedules of rates are based upon elemental assemblies, are less detailed than bills of quantities and offer opportunities for claims later.
  • Guaranteed Maximum Price (GMP) contracts reinforce all the above problems.
    • GMP contractors have even started submitting claims above maximum price.
    • Joint Contract Tribunal (JCT) not defending their own contract terms.
  • QSs trade is now expected to double their workload and focus on carbon too.
    • They aim to let projects cost no more than the minimum possible.
    • They will aim to minimise embodied carbon, ignoring in-use carbon.
    • They will aim to minimise carbon at the expense of competent building.
    • Another disaster waiting to happen?

Finance Gap Opinion
Solutions:

  • In the context of Fiduciary Rules, I am a heretic.
  • A useful definition for ‘Sustainable’:
  • HERACEY™ Healthy Environmental Resourceful Appropriate Competent Effective Yardstick
  • If all parties robustly address these issues, we are probably designing and building sustainably.

Costs:

  • The industry needs access to better upfront cost data for green materials and methods.
  • Green Building Price Books are essential but are a long time coming.
  • Whole life cost (WLC) data is available E.g. Building Life Plans’ (BLP Insurance) Butterfly software.
  • Not many QS offer this service, without an additional fee.

Carbon:

  • Tools for calculation of embodied carbon are emerging all the time.
  • Whole Life Carbon (WLC) ambitions are increasingly expected, few of the tools offer this.

Building:

  • Better Design & Decision Tools should address a plethora of design issues.

Manufacturers are solution providers:

  • They mostly strive to provide legally compliant technical solutions at the lowest cost.
  • They are forever inventing new ways of doing things for less costs.
  • Grenfell showed the growing need for verifiable product data.
  • Manufacturers need to sign up for the Code of Construction Product Information (CCPI).

Finance Gap Opinion
Case Study:

St Davids’ Visitor Centre Extension, Pembrokeshire Wales.

  • When asked by a QS to reduce the bulk of the drawings and specification:
  • Reason being the QS thought the amount of detail will put off the tenderers who would then put in a high price.
  • Specifier response:
    • Reduce the margins, print double sided, reduce the font (not less than 10 point)
    • Wait a week so QS thinks specifier is working hard on editing the specification.
    • Reissue the technically unchanged specification.
  • Be reassured by a mid-tender letter from a tenderer:
    • “We appreciate the quantity and level of details and level of specification.
    • We have confidence that you know what you want and have worked it all out.
    • We can have confidence that we can sharpen our pencils and hone the price accordingly.
    • We want to do this job.
    • We have confidence that we can win this job.”
    • And they did.

© GBE GBC GRC GBL NGS ASWS Brian Murphy aka BrianSpecMan ****
28th November 2023 – 29th January 2024

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Mind the gap

© GBE GBC GRC GBL NGS ASWS Brian Murphy aka BrianSpecMan ****
21st September 2018 – 28th December 2023

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© GBE GBC GRC GBL NGS ASWS Brian Murphy aka BrianSpecMan ****
28th November 2023 – 28th December 2023

GBE Finance Gap (Opinion) G#41199 End.

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