APC – Theory Preparation1

PRIVATE SECTOR

QUANTITY SURVEYING CONSULTANT

ROLES AND FUNCTIONS

Prepared by ABIODUN AWOSINA May 2012

TABLE OF CONTENTS

SECTION 1 - COST ADVISE AND COST PLANNING

Economic factors

Financial design criteria

Efficiency of design

Cost analysis

Cost planning

Cost control

Principle of cost control

SECTION 2 - FEASIBILITY STUDY

Economic, market, physical feasibility study

Financial feasibility study

SECTION 3 - CONTRACT ADMINISTRATION

Objective and preparation

Execution

Completion

Payments

Cost management

Termination

Dispute

SECTION 4 – CONTRACTUAL PROCURMENT, PROCUDURES AND DOCUMENTATION

Establish what to be procured

Procurement strategies

Calling for tender

Evaluate tender

Acceptance / Award of tender

Administer contract and confirm compliance

SECTION 5 – CONTRACT CONDITIONS AND RELATED MATTERS

FIDIC 1999

GCC 2004

JBCC SERIES 2000

NEC3

SECTION 6 – SACQSP TARIFF OF PROFESSIONAL FEES

SECTION 1 - COST ADVISE AND COST PLANNING

The Quantity Surveyor performs and advice on the cost aspect of the project. The main technique engaged includes cost analysis, cost planning and cost control. In general, cost control mechanisms are performed at the inception, during the design, construction and close out stage of the project.

The following factors are considered to significantly affect the project cost:

  1. Economic factors
  2. Financial design criteria
  3. Efficiency of design

Economic factors

  • Inflation (escalation) – The general progressive increase in prices of commodities (labour, plant and materials) is a significant factor to be considered in cost advice and planning for development projects.

Escalationhas significant effect on the cost of project, similar to “time value of money”. This should be considered when calculating project cost. Escalation in construction is forecastin 2 stages viz:

  1. Pre-tender escalation -based on publication of BER building cost indices
  2. Contract escalation (post tender) –prior based on publication of JBCC contract price adjustment provision indices. As of 1st March 2012 document from Stats SA.
  • Economic cycles (market conditions) – These are changes in the economic situation of a Nation, also internationally. Quantity Surveyors make logical reference to thesechangeswhen providing cost advice. The different cycles have significant effect on the demand and supply of construction industry.
  1. Growth – increase in demand for construction, competition reduce, profit increase, resources reducing, prices increasing, contractor insist on fair conditions
  2. Peak – demand increase, little competition, high profit margin, resource long delay, resource exceed budget, every one become builder
  3. Recession – demand weakening, competition increase, profit margin decline, resource cost reduce
  4. Trough – high competition, profit discounted, resources not available, industry fragmented, good building conditions, and productivity high.
  • Interest rate – The interest rates have effect on the repayment of project cost (finance cost). Thisis a mechanism used by a Nation’s monetary policy to control inflation and other macro-economic issue i.e. price indices, investment, international trade and finance.

Financial design criteria

The following design criteria are to be considered for effect on project cost:

  • Composition of building material e.g. usage of brickwork compared with concrete block, choice of finishes and fittings
  • Depth of filling and surface bed compared with suspended reinforced slab
  • Comparison of different types of slabs i.e. coffer slabs, flat reinforced slab, prestressed slab, alternatives should be considered depending on the thickness, span and other design requirements
  • Increase in height of building compared to ground floor construction to be considered in relation to structural element, lifts, plumbing and electrical service owing to increase in height
  • Location and usage of space in the building i.e. halls in multistorey building is economically recommended to be located on the top floor in order to avoid design of long span of beams at the lower structure .

Efficiency of design

The following efficiency factors are to be considered for effect on project cost:

  • Façade of building in terms of straight edge or any deviation i.e. steeping, angle, curve should be considered in relation to cost
  • Material composition in relation to heat, light and ventilation control to be considered in relation to power consumption of plants, i.e. Air-conditioning, sunlight control etc
  • Increase in allocation of rentable area usually increase the efficiency ratio of revenue generating area
  • Area of toilets to be group together to reduce the plumbing connection of different point
  • Sustainability of the building “Green Building” will have effect on the maintenance and protection of the environment.

The following techniques are engaged in cost advice and cost planning:

  1. Cost analysis
  2. Cost planning
  3. Cost control

Cost analysis

The cost investigation of the various componentsof the building and their relationship in makingup the whole comparison for elemental estimating and cost planning for construction projects.

These cost information are derived from various cost data from previous project and information supplied by other Consultants including annual publicised information “Merkel” (standard reference publication of rate analysis for building in SA).

Cost planning

The cost planning technique is engaged during the design concept stage (concept and viability) and fully developed during the design development and documentation stage of the project into a detailed estimate. The Quantity Surveyor participates in the design decision with particular contribution to the project comparative cost and initial cost plan in form of elemental estimate, which later develops into detailed estimate (i.e. bills of quantities, etc).

  • Elemental estimate - The Quantity Surveyor prepare the elemental estimate of the building, taking into account the various sections, elements (part of building that performs same function irrespective of construction or specifications) and the components (sub-division of elements).

In addition to the initial cost plan, the elemental estimate derives measurement and cost for various elements and components of the building in various percentages with relation to the construction area. This can be transformed into detailed estimate.

  • Detailed estimate–The Quantity Surveyor prepares a detailed estimate of building in a form of bills of quantity or any other document produced in accordance with Standard System of Measuring Building Works or any other similar system of measuring building works.

Detailed estimate provide greater degree of accuracy of cost plan, budget, it also facilitate competitive tender, comparative evaluation of tender price, measurement and pricing strategy, cost control,progress valuation, payment certification and compilation of final accounts and determination of value of works for the calculation of professional fees.

The Cost plan is updated by the Quantity Surveyor at various stages of the project, when detailed and new information are made available in order to provide actual project cost and to reconcile with the project budget.

Cost control

Cost control is the financial and cost management techniqueused by Quantity Surveyorsfrom the inception of the project to the close out stage of the project in order to maintain the project budget as determined and approved by the Employer.

The primary aim of project cost control is to guide, protect, report, advice and maintain the financial interest of the Employer to avoid exposure to negative or unforseen financial situation and also to advice other Consultants on the financial implications of the design.

The process of cost control is administered by Quantity Surveyorsin a financial statement and entails the following aspect:

  • Preparation of cash flows - financial projections which highlight the monthly financial commitment of the Employer for planning and allocation of funds. This information is required to be update through different stages of the project when variation, claims and adjustment with financial implication are made.
  • Budget report / cost report–regular financial statements prepared by the Quantity Surveyor providing details of the anticipated project cost, based on information made available at the time of the report.

The following should be taken into consideration when preparing cost report:

  1. Value of all contingencies
  2. Value of contract instruction
  3. Value of variation order (anticipated, issued, to be issued)
  4. Value of provisional sums and PC amounts
  5. Value of claims by Contractor (anticipated or actual)
  6. Value of remeasured work
  7. Value of contract price adjustment provisions (CPAP)
  8. If applicable, legal fees, plan submission fees, municipal connect fees
  9. Professional fees and disbursement

Principle of cost control

Cost control is based on 3 main principles:

  1. There must be a frame of reference i.e. cost plans
  2. There must be a method of checking - check against frame of reference
  3. There must be a means of remedial action

SECTION 2 - FEASIBILITY STUDY

Feasibility study is an instrument used to evaluate the success of a development project at the early stage of the property development.

The feasibility study of development project consists of 5 main frameworks as follow:

  1. The objective of the project
  2. Economic feasibility
  3. Market feasibility
  4. Physical feasibility
  5. Financial feasibility

The objective of the project is a clear definition of the developer’s objective in order to determine the success of the potential development. This is translated in form of a strategic planning which considered the overall aspect of the project from planning to occupancy stage. It also considers the economic, market, physical and financial feasibility framework in which the development project will be implemented.

Economic, market, physical feasibility study

The economic, market, physical feasibility study comprises of the following factors for consideration:

  • General market characteristic
  • Competitions
  • Historical occupancy, rental and sales in the area
  • Historical average rate of income
  • Identification of services
  • Site evaluation
  • Property zoning, size, visibility, permits
  • Traffic counts, accessibility from street / free way / airport / train, etc
  • Proximity to guest / work / travel / inhabit
  • Master area development plan
  • Demand and supply information
  • Economy of the area
  • Major employer / government agencies
  • Business trend
  • Leisure to travel / nearby tourist attraction / convention, etc
  • Demand and supply analysis
  • Calculate recent average occupancy / tenancy / sales rate of the other competitors
  • Calculate composite growth rate of demand from various sources (sale mix, rentals, etc)
  • Calculate additional facilitates(i.e. residential, offices, shops or other commercial space) required year by year
  • Calculate future supply of facilities required

Financial feasibility study

The Quantity Surveyor is responsible for the preparation of financial feasibility study which comprises of the following factors:

  • Total capital cost
  • Building and improvement cost
  • Building and site work
  • Contingencies
  • Escalation (pre and post tender)
  • Consultancy fee
  • Disbursement
  • Land cost
  • Land cost
  • Legal cost in connection with transfer
  • Transfer cost
  • Development cost
  • Rate and taxes (pre and post contract)
  • Rezoning, demolition, survey
  • Equity / borrowing raising fee
  • Legal / bound registration
  • Plan scrutiny / town planning fee
  • Site investigation, geotechnical, survey, traffic & environmental study
  • Agent fee
  • Market research, promotion, advertisement, brochure
  • Administrative cost
  • Development and Management fee
  • Finance cost
  • Interest on land cost
  • Interest on building and improvement cost
  • Interest on development cost
  • Interest on VAT
  • Net Income
  • Income
  • Rentals,sales, retail, hotel income
  • Ancillary income i.e. parking, advert, service charge, etc
  • Operating expense
  • Staff emoluments
  • Cleaning material and special maintenance (lift, AC, etc)
  • Disposal services and utilities
  • Insurances
  • Property rates and taxes
  • Administrative charges
  • Profitability andprojections (return on investment)
  • Return on investment
  • Initial return

Rate of return - return expressed as a percentage per annum of the anticipated capital cost

  • Cash flow analysis

Net present value - is determined by summation of all cash flow (both inflow, outflow and initial investment) and discounted to present value at the project cost of capital

Internal rate of return - rate of interest that equate the present value of future net income with the present value of cost of investment

  • Residual land value- what a developer can afford to pay for a parcel of land given a specific return on particular investment.

SECTION 3 - CONTRACT ADMINISTRATION

Contract administration roles commence at documentation and procurement stage to the close out stage.

The Quantity Surveyor administers several duties and functions for the Employer in contract administration for construction projects as follows:

  1. Objective and preparation
  2. Execution
  3. Completion
  4. Payments
  5. Cost management
  6. Termination
  7. Dispute

Objective and preparation

The Quantity Surveyor is responsible for the compilation of contract document for procurement and preparation for formal signing after the offer (tender) and acceptance.

The following documents are checked and verified for preparation of contract document:

  • Bills of quantities / lump sum documents
  • Construction guarantee / performance security
  • Insurances
  • Payment guarantees
  • Other related contractual documentation i.e. JBCC 2000 series document or other form of contract.

Execution

The execution of work commence with the process of site handover to the completion stage.

The following activities and functions are performed by the Quantity Surveyor:

  • Provision of copy of signed contract documents
  • Provision of construction information i.e. un-priced bills of quantity
  • Preparation of tender documentation (nominated or selected subcontractor)
  • Acknowledge, verify and if applicable adjust the value of contract instruction / variation orders and report in the monthly cost report
  • Attend and participate in progress and technical meeting
  • Advise on contractor’s claims and calculation for adjustment of contract value
  • Prepare financial statements to include the followings:
  • Cash flow (monthly payment due to contractor and consultant’s fees)
  • Budget reports / cost report (anticipated final cost, contingency sums, value of contract instruction, provisional sums, value of re-measured works, and value of contract price adjustment provisions).

Completion

The different stages of completion activate other conditions in relation to performance of obligation under the contract. The Quantity Surveyor performs certain roles during the completion stage of the project as follows in terms of JBCC series 2000:

  • Interim completion- applicable to nominated / selected subcontractor only. The n/s subcontractor liable to activation of penalty clause by the Contractor for later achievement of interim completion.
  • Practical completion- the following activities and functions are performed by the Quantity Surveyor:
  • Deduction of penalty applicable if practical completion achieved and extension of time is not granted
  • Prepare valuation for issue of payment certificate after issue of practical completion certificate by the Principal Agent
  • Reduction of security
  • No penalties applicable after achievement of practical completion
  • Calculate compensatory interest entitled to the Contractor
  • Prepare final account within 90 working days
  • Works completion- the following activities and functions are performed by the Quantity Surveyor:
  • Calculation of compensatory interest, if items listed under works completion list are completed within 30 days
  • Certificate valuation prepared until issue of final account
  • Reduction of security
  • Final completion- the following activities and functions are performed by the Quantity Surveyor:
  • Reduction of security to nil upon achievement of final completion
  • Finalise CPAP indices in final account
  • Prepare and agree final account
  • Issue valuation for final payment certificate after the issue of certificate of final completion by Principal Agent.

Payments

Interim payment certificates are issued by the Principal Agent based on the monthly valuation prepared by the Quantity Surveyor and other Consultant Engineers.

The interim certificate valuation are prepared regularly during the execution of the project at intervals specified in the contract data (7 days before date of issue of Interim Payment Certificate in terms of JBCC series 2000 PBA).

The Quantity Surveyor’s valuation is a recommendation to the Principal Agent who determines the amount of Interim Payment Certificate in terms of JBCC series 2000 PBA.

The valuation is prepared and issued to the Principal Agent which includes the following:

  1. Value of work executed
  2. Value of material on site
  3. Value of material off site
  4. Value of specialist work
  5. Value of provisional quantities work
  6. Value of preliminaries
  7. Value of fluctuation (CPAP)
  8. Defective work
  9. Valuation statement
  10. Recovery statement
  • Value of work executed - the following procedure are adopted by the Quantity Surveyor to determine the value of work executed:
  • Visit the site to establish the extent of work executed
  • Record and measure the work executed and take notes
  • Take note of work executed by the nominated or selected subcontractor
  • Receive measurement or valuation from Consulting Engineer on the value of work executed and determined.
  • Value of material on site - the following procedure are adopted by the Quantity Surveyor to determine the value of material on site:
  • Visit the site to establish and verify the material delivered to site and should take note of the following:
  • Not prematurely delivered
  • If prematurely delivered upon instruction of the Principal Agent
  • Stored and protected against loss and damage
  • Covered by insurance in terms of the Condition of Contract.
  • Value of material off site - the following procedure are adopted by the Quantity Surveyor to determine the value of material off site:
  • Visit the site to establish and verify the material off site
  • Confirm that advance payment guarantee against material off site is put in place in terms of JBCC series 2000 PBA (guarantee may serve against insurance similar to material on site)
  • Value of specialist work - the following procedure are adopted by the Quantity Surveyor to determine the value of specialist work under the control of Consulting Engineer:
  • Request valuation prepared by the Consulting Engineer in charge of the specialist work
  • Incorporate the value of specialist work provided by Consulting Engineer into the Quantity Surveyor’s valuation
  • Where the Quantity Surveyor is responsible for preparing the bills of quantity for the specialist work, the Quantity Surveyor is responsible to value the work similar to the main contractor as stated above (Valuation of work executed, material on site and material off site).
  • Value of provisional quantities work - the following procedure are adopted by the Quantity Surveyor to determine the value of provisional quantities work:
  • Re-measured all works measured provisional by the Quantity Surveyor as at when executed and reflected in the valuation.
  • Value of preliminaries - the following procedure are adopted by the Quantity Surveyor to determine the value of preliminaries:
  • Preliminaries in terms of JBCC series 2000 PBA is valued in accordance with 2 options stated below:
  • Options A - assessment of preliminaries amount prorated to the value of work executed excluding amount of preliminaries, contingency and amount in respect of CPAP
  • Option B – assessment of preliminaries amount items of bills of quantity/lump sum document divided into initial establishment, monthly charge and final or disestablishment.
  • Value of fluctuation (Contract Price Adjustment Provisions) - the following procedure are adopted by the Quantity Surveyor to determine the value of fluctuation:
  • Record of works must be noted and kept when actual work is carried out
  • Fluctuation to be calculated using applicable base date and cost indices
  • Every valuation must be accurate as possible and each valuation must be calculated and adjusted in terms of value of work for each period
  • Adjustment of value of material must be related to the value / cost at the time to tender
  • The cost of variation or new item should be priced in relation to tender base date to avoid error in adjustment.
  • Defective work - the following procedure are adopted by the Quantity Surveyor to determine the defective work:
  • Quantity Surveyor is required to check with the Principal Agent whether any works or material are considered defective
  • Value of defective work to be withheld and adjusted from the valuation
  • Upon rectification of defective work, the Quantity Surveyor should apply CPAP at the time of execution of defective work.
  • Valuationstatement - the following procedure are adopted by the Quantity Surveyor to determine the valuation statement:
  • Detailed statement indicating the formulation of valuation
  • Details showing amount due to main contractor
  • Details showing amount due to nominated / selected subcontractor
  • Detailed statement to the employer and contractor indicating records of all amount certified to date with any adjustments.
  • Recovery statement - the following procedure are adopted by the Quantity Surveyor to determine the recovery statement which deals with expense and losses suffered by employer and contractor which does not affect the contract value and therefore not part of valuation of works:
  • Detailed statement indicating amount due to the employer i.e. insurances, nominated subcontractor, termination, default by contractor, direct payment to n/s contractor, penalties, default interest, recoupment of advance payment.
  • Details showing indicating amount due to the contractor i.e. compensatory interest, default interest, advance payment, damages.
  • Calculate the total amount to be recovered.
  • Adjust amount previously recovered
  • Determine the amount of recovery for each period of valuation.

Other payment and certificate responsibilities and function issued by others include the following: