Fee Estimate of Construction Contract

5807 words (23 pages) Dissertation

16th Dec 2019 Dissertation Reference this

Tags: Construction

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SECTION 1

 

Scenario 1:

The project sizes are approximately as follows:

Residential –10 apartments @ 65m2 each

Commercial (1-, 2-and 3-storey height units) –3,500m2

Co-Working spaces/ Offices –(4-storey) -1,500m2

 

You will be working under a D&B contract (JCT DB16) on the commercial facilities; working for the client in a traditional relationship until novated;

 

You will be working on a JCT Standard Building Contract with Quantities on the offices and residential buildings, under the Engineer as Project Manager.

 

Estimate your fees.

(Use diagrams, flowcharts, etc. to make clear your calculations).

 

These average figures obtained from Costmodelling Software (Costmodelling, 2011) are calculated from real project costs recorded by the Royal Institute of Chartered Surveyors’ Building Cost Information Service (RICS BCIS) (RICS, 2018a). BCIS “a tool to help Quantity Surveyors and Cost Estimators provide early cost advice and prepare cost plans for clients” (ABI, 2018).

Note: Building Cost estimate base date: 1 January 2018 (Costmodelling, 2011).

Please see following pages for cost/fee calculations.

Fig1: UK Construction Cost Regional Variations (Costmodelling, 2011)

1.JCT Standard Building Contract with Quantities

Residential buildings–10 apartments @ 65m2 each

Under the Engineer as Project Manager

 

Residential buildings construction cost £1580 per sqm (Costmodelling, 2011)

Residential buildings 650m2 X £1580 £1,027,000
Adjustment for location (Outer London = 105) X 1.05
£1,078,350
Allowance for external works 20% £215,670
Allowance for risk 15% £161,752
Indicative total building works cost £1,455,772

Architects Fees for residential Buildings are calculated based on the table below (FeesBureau, 2017).

 

 

Architect Fees = Indicative total building works cost X Average Fees
= £1,455,772 X 5.5 (new build/ traditional)
 

Architect Fees =

 

£80,067

 

 

 

2.D&B contract (JCT DB16)

Commercial (1-, 2-and 3-storey height units) –3,500m2

Traditional relationship until novated

 

Commercial Units construction cost £820 per sqm (Costmodelling, 2011)

Commercial Units 3,500m2 X £820 £2,870,000
Adjustment for location (Outer London = 105) X 1.05
£3,013,500
Allowance for external works 20% £602,700
Allowance for risk 15% £452,025
Indicative total building works cost £4,068,225

 

 

 

 

 

 

 

 

 

Architects Fees for Commercial Units are calculated based on the table below (FeesBureau, 2017).

 

 

Architect Fees = Indicative total building works cost X Average Fees
= £4,068,225X3.1 (new build/ design&build)
 

Architect Fees =

 

£126,114

 

 

3.JCT Standard Building Contract with Quantities

Co-Working spaces/ Offices –(4-storey) -1,500m2

Under the Engineer as Project Manager

 

Co-working spaces/Offices Medium rise cost £1980 per sqm (Costmodelling, 2011)

 

 

Co-working spaces/Offices 3,500m2 X 1980 £2,970,000
Adjustment for location (Outer London = 105) X 1.05
£3,118,500
Allowance for external works 20% £623,700
Allowance for risk 15% £467,775
Indicative total building works cost £4,209,975

 

 

 

 

 

 

 

 

 

Architects Fees for Co-Working spaces/ Offices are calculated based on the table below (FeesBureau, 2017).

 

 

Architect Fees = Indicative total building works cost X Average Fees
= £4,209,975X5.2 (new build/ traditional)
 

Architect Fees =

 

£218,918

 

 

Scenario 2:

You are using the JCT Standard Contract.

 

The client is perusing the contract and wants you to explain -in your own simple words–the section on Employers and Contractors insurance and liability. Clauses 6.1–6.14inclusive.

 

Explain and clarify.

 

I will write to Mr and Mrs Davies to briefly explain Section 6: Injury, Damage, and Insurance and attach a separate document explaining the clauses associated with Section 6.

Dear Mr and Mrs Davies,

I am writing to you regarding your question about Employer’s and Contractor’s Insurance and liability (Clauses 6.1–6.14inclusive).

Considering the constant risk of loss and damage during the course of a building project, it is essential that all the parties involved (such as contractor, subcontractor and employer) obtain proper insurance as well as understand their liability and insurance responsibilities.

Section 6 of JCT Standard Contract comprises several important clauses about the injury, damage, and insurance, which outline the contractual responsibility and liability of each party in the contract (JCT, 2016). Understanding Section 6 is essential, as it ensures that the parties are very clear of their obligations and liabilities as well as the risks that they are accepting. Thus, it is crucial that you are aware of those clauses before you sign the contract.

I have attached a document in which I have organised those clauses under relevant titles and briefly explained what they correspond to.

Please review and let me know if you have further questions.

Yours Sincerely,

A.C.

Attachment 1:

 

Section 6: Injury, Damage, and Insurance (JCT, 2016)

Section 6 includes five sub-sections:

Personal Injury and Property Damage | Clauses 6.1-6.3

Insurance against Personal Injury and Property Damage | Clauses 6.4-6.6

Insurance of the Works and Existing Structures | Clauses 6.7-6.14

CDP Professional Indemnity Insurance | Clauses 6.15-6.16

Joint Fire Code compliance| Clauses 6.17-6.20

This document will cover the first three sub-sections listed above.

Personal Injury and Property Damage

6.1 Contractor’s liability – personal injury or death

6.2 Contractor’s liability – loss, injury, or damage to property

6.3 Loss or damage to Existing Structures or their contents

Clauses 6.1 and 6.2 state that the contractor is responsible for and indemnifies the employer for personal injury or death caused by the work carried out during the building project, unless the employer is at fault; and for property damage resulting from the negligence, breach of statutory duty, omission, or default, unless it’s employer’s existing property and building materials (JCT, 2016). Clause 6.3. states contractor’s liability and indemnity under clause 6.2. excludes loss or damage to existing structures or their contents, when different insurance options apply (RICS, 2018b).

Insurance against Personal Injury and Property Damage

6.4 Contractor’s insurance of his liability

6.5 Contractor’s insurance of liability of Employer

6.6 Excepted Risks

Clause 6.4 states that the contractor is required to obtain and maintain insurance for the duration of the building project that covers their liabilities specified under clauses 6.1 and 6.2, which include employers’ liability and public liability. Clause 6.5 specifies whether the non-negligence cover is required (RICS, 2018b). The contract may require the contractor to obtain additional insurance policy to cover other risks associated with the construction project which includes “injuries or damages caused by collapse, subsidence, heave, vibration, weakening or removal of support, or lowering of groundwater” (JCT, 2016) (Chappell and Willis, 2010). Clause 6.6 makes clear that the contractor has no liability to indemnify the employer or insure against personal injury, death or injury or damage to property including the Works and site materials caused by any of the excepted risks.

Insurance of the Works and Existing Structures

6.7 Insurance Options and period

6.8 Related definitions

6.9 Sub-contractors – Specified Perils cover under Works Insurance Policies

6.10 Terrorism Cover – policy extensions and premiums

6.11 Terrorism Cover – non-availability – Employer’s options

6.12 Evidence of insurance

6.13 Loss or damage – insurance claims and reinstatement

6.14 Loss or damage to Existing Structures – right of termination

Clause 6.7 is about insurance of the works which lays down three options: Option A, if new buildings are to be insured by the contractor; Option B, if new buildings are to be insured by the employer; Option C, when the work is in existing buildings or extensions to them. 6.7 is a very important clause, as selecting the wrong options may invalidate the insurance taken, and thus the employer may be liable to pay for the damages. Clause 6.8 specifies the extent of the CWI policy (e.g. as fire, flood, and earthquake) and its permitted exclusions. Clause 6.9 is a significant clause for sub-contractors. It requires the party who obtained the insurance (the contractor for option A or the employer for B and C) to ensure that the joint names policies have certain safeguards for any sub-contractor. 6.10 is about policy extensions to terrorism cover in relation to the Option A. 6.11 states that if the insurer notifies one of the parties in the contract that after a specified period the cover will cease, end, or be limited, the recipient is required to notify the other party. 6.12 states that the party responsible for the cover is required to provide a copy of the insurance as evidence if requested by the other party. 6.13 and 6.14 are about loss or damage and insurance claims and reinstatement procedures in relation to options A, B and C.

Scenario 3:

 

You are using the JCT Intermediate Contract.

 

It is three weeks since you submitted the Party Wall Notice and the client hands you a letter stating that the neighbours, Mr & Mrs Neighbour have appointed Mr Potty, a Party Wall Surveyor.

 

Mr Copper is annoyed when you tell him that he is in dispute with his neighbour (“how can I be, I’ve never seen him before”), but Mr Copper says that, he is happy to dispute Mr Potty’s fees –at £150/hr. These, he says, are exorbitant and he wants to see the other tender prices (and possible to re-tender with a more competitively-priced list of surveyors). Explain to the client the key parts of the Party Wall etc. Act 1996. Remind him also of the recent case of Histed v Prosperity Developments Ltd. Note:

 

You will be acting as the client’s Party Wall surveyor for a fixed fee of £1000. What are yourkey duties? (Attach a copy of your original Party Wal Notice.)

 

Given that there is excavation works at the boundary and also near the adjoining property advise the client Coppers whether they need to take out additional insurance and of what type and order.

Mr Copper is angry because of adjoining neighbour’s response to Party Wall Notice. However, as he claims, he has not even met his neighbour yet. Receiving a Notice from an unknown neighbour might have been intimidating for Mr and Mrs Neighbour. In this respect, the best thing to do first is to knock at neighbour’s door to meet and try to negotiate an agreement (GOV.UK, 2016). I will advise Mr Copper to discuss the project thoroughly with his neighbours by showing the drawings of the planned work to them. He may also give my contact details (as his surveyor) for further information and reassurance (GOV.UK, 2018b). As a result, they may change their minds and give consent. In this case, it is essential to get a written Party Wall Agreement from them before the works start (GOV.UK, 2018c).

On the other hand, Mr and Mrs Neighbour may request specific alterations to work or set conditions such as working hours. Or, they may refuse to give consent. In this case, they have right to appoint a Surveyor at Mr and Mrs Copper’s expense. Yet, this will be costly for my clients, as they are the ones responsible for the costs of their neighbour’s surveyor as well as their own (GOV.UK, 2016). Therefore, it will be more convenient for the client to try to convince Mr and Mrs Neighbour to agree to appoint me as the Agreed Surveyor, as it will only incur a single set of fees. If they agree to opt for this option, as the Agreed Surveyor, I will be acting on behalf of both the owners. On the other hand, if the client and the adjoining neighbours fail to reach an agreement, they will need to appoint a third independent surveyor as an Agreed Surveyor to adjudicate. In this case, the Agreed surveyor will act impartially for both and produce a Party Wall Award which will detail the works proposed and a schedule of condition, including pictures, of the neighbour’s home (RICS, 2011).

As Mr and Mrs Copper’s surveyor, I should be familiar with the circumstances in which the Act applies and should be able to advise whether service of notices will be required in particular situations. When advising in this context, I am acting in the capacity of a professional consultant and owe duties to my clients on this basis.  If they appoint me as the Agreed Surveyor, it will be my duty to act impartially for both and prepare the Party Wall Award and a schedule of condition of the adjoining owner’s property (RICS, 2011).

Dear Mr and Mrs Copper,

I am writing to remind you that If you fail to negotiate and/or secure a Party Wall Award, your neighbours can serve a Party Wall injunction to stop or prevent the work to be carried out until an Award is in place.

Please be aware that a recent case of Histed v Prosperity Developments Ltd. has shown that building owners who begin works in breach of the Party Wall etc. Act 1996 (GOV.UK, 2016) will be given very little latitude when an application for an injunction is made. However, if you comply with the Act, they cannot prevent the work from progressing. Thus, I advise you to get in touch with your neighbours and show the drawings of the planned work to negotiate an agreement. You may also give my contact details to the neighbours for further information and reassurance.

In response to your question regarding excavation works, unfortunately, Standard Public Liability cover will not insure risks identified under JCT Clauses 21.2.1 and 6.5.1, which also include excavations.  Furthermore, as stated by the Party Wall etc. Act 1996, as property owners, you are responsible for damage that your project might cause to your neighbour’s property, which does not result from contractor negligence. Thus, I advise you to check with the contractor if they arranged for their Public Liability insurance to be extended to cover these Non-negligent risks. Otherwise, you may consider opting for your own Non-negligence policy to meet your obligations. Non-negligence Insurance will protect you if neighbouring underground excavations and underpinning become weakened or damaged.

Please let me know If you have further questions regarding Party Wall Act or related insurance covers.

Yours sincerely,

A.C.

Please see attached a copy of the original Party Wall Notice:

“Party Structure Notice

To Mr & Mrs Neighbour
Of 3, Lettsbee Avenue

01 February 2018

Dear Mr and Mrs Neighbour

The Party Wall etc Act 1996
Notice of proposed works under section 2 of the Act – Party Structure Notice.

As the owner/s of 2, Lettsbee Avenue which is adjacent to your premises at 3, Lettsbee Avenue we Mr and Mrs Copper of 2, Lettsbee Avenue notify you that in accordance with our rights under section 2 of the Party Wall etc Act 1996 we intend to carry out building works.

Further information about the Act can be found in the explanatory booklet available to download from https://www.gov.uk/party-wall-etc-act-1996-guidance.

The proposed works are the refurbishment and extension of our four-storey Georgian terraced house.

The proposed works do involve special foundations, and accordingly, I attach the relevant plans, sections, and details of construction.

We intend to start works on 3 March 2018 or on the earlier date of 3 March 2018 with your written agreement.

If you are content with the works to go ahead as proposed please complete, sign and return the attached letter within 14 days of receiving this letter.

If you do not confirm in writing that you are content for the work to go ahead as proposed, we will be ‘in dispute’ under the Act.

In the event of any dispute between us under the Act, would you be willing to agree to the appointment of an ‘Agreed Surveyor’?
If the answer is yes, I suggest using A.C Architects but would be happy to receive your alternative proposal.
If the answer is no, please let me know whom you would appoint as your surveyor.

If you are willing to receive further notices and documents required under the Act from me/us by email from [email protected] could you confirm your willingness to do so and provide details of your email address.

Yours sincerely

Mr and Mrs Copper signatures” (GOV.UK, 2018a)

SECTION 2:

1. Read this academic paper (and preferably at least one other related paper, article or book) and write 750 words critical commentary on the merits/ demerits of Architectural Management (its concepts, applications, implications and the theories surrounding it, etc.). Broaden out your critique to assess other business management models as appropriate:

Alharbi, M., Emmitt, S. and Demian, P., 2015. Frontiers of Architectural Research, Vol 4, Issue 3, pp.237-247

Available here: https://www.sciencedirect.com/science/article/pii/S2095263515000217#bbib3

 

Explain, inter alia, what AM is, its relationship (or not) with Project Management, and how it could be used in practice.

NB: An attempt to define AM is included here: http://opus.bath.ac.uk/42864/1/Accepted_version.pdf

The term ‘architectural management’ has been coined as a product of constantly evolving construction industry since the 1960s, due to a shift from traditional building techniques to more advanced ones. Architect’s role as a creative individual rather than a business professional has been the main stimulus in the creation of this unique system which could not conform standard management techniques and tools (Emmitt, 1999).

Alharbi et al. described architectural management (AM) as “the strategic management of the architectural firm that assures the effective integration between managing the business aspects of the office with its individual projects in order to design and deliver the best value to all stakeholders” (Alharbi et al., 2012). However, as they stated in a later publication “this definition does not provide the level of detail required to understand and apply Architectural management into practice” (Alharbi et al., 2015). Evolving in the environment in which the profession sits, Architectural management in Practice must convey the knowledge and skills required to be able to manage both the design and construction stages of building projects while dealing effectively with the challenges in the industry.

Therefore, considering roles and responsibilities surrounding the profession, it can be said that architectural management comprises of two parts; office management and project management (Brunton et al., 1964, Emmitt, 1999). Although both parts have the same objectives, they are different management systems that apply to the practice: Office management involves managing the office, people, information, and business strategies as well as establishing fees for the services. On the other hand, Project management focuses on “timescales, design development, and managing the construction process” (Emmitt, 1999). In this respect, it can be summarised that Office Manager deals with administrative responsibilities whereas Project Manager is responsible for the whole project lifecycle, ensuring that work on a project is “cost-effective, to achieve a balance between profitability and design quality” (Elliott, 2006).

Considering management issues practices face in a competitive marketplace on a daily basis, applying architectural management strategies in professional practices can be considered crucial to the success. Adopting appropriate strategies involving managing projects, design, quality, and construction will enable the practices to compete effectively. In addition, employing knowledge of project management at both a technical and strategic level in addition to advanced design techniques will help produce high-quality designs that meet the industry’s requirements (RIBA, 2013).

However, every architectural practice is different, hence, “there is no standard operating model for a profitable architectural practice, whatever its size or shape” (RIBA and McBane, 2017). In this respect, developing a generic framework will be more appropriate, as it will allow architects apply AM in their professional practices to suit their specific contexts and requirements. A successful application of such framework will also help architectural professionals understand and manage their businesses systematically and efficiently, consequently improving the services they provide to their clients. In addition, it will help initiate good communication across the project team as well as protect the integrity of the design, delivering the project safely to the specified quality standards, on time and budget. Overall, utilising the knowledge of both project and office management theory and practice will help maximise financial and operational performance whereas minimising the risk to the project.

2. What is the purpose of ISO 9001:2015 and how might it be applied to a small, start-up architectural practice?

The International Standard ISO 9001:2015 lays down the requirements for an effective Quality Management System (QMS) (BSI, 2015). This helps the organisations continually improve themselves while ensuring that their customers always receive high-quality products and services. This, as a result, provides many benefits, including satisfied customers, management, and employees as well as efficiency and cost savings. Developing a full QMS that is externally accredited to ISO 9001:2015 help demonstrate to clients that a firm manages the quality of its work and processes to an internationally recognised standard and improves its success at pre-qualification stage in public sector work (BSI, 2015).

Therefore, RIBA has developed RIBA Chartered Practice Quality Management System based on ISO 9001:2015 to help architects gain the certification, providing architects with excellent, appropriate systems acceptable for the requirements of the RIBA Chartered Practice Scheme (RIBA, 2017a). The Scheme requires all RIBA Chartered Practices to have an appropriate Quality Management System (QMS). RIBA QMS (Criterion 9) states that “RIBA Chartered Practices must confirm that an appropriate formalised Quality Management System (QMS) is in place and properly utilised. All quality management systems must provide for the establishment of a clear design leadership structure for each project, ensuring that the design work is the ultimate responsibility of a RIBA Chartered Architect”(RIBA, 2017b).

Applying ISO 9001:2015 quality management system to small practices can help improve customer satisfaction and loyalty as well as profitability. However, this certification may be too expensive to gain for small practices. Thus, The best way of applying ISO 9001:2015 can be through preparing a Project Quality Plan (PQP) for each project, as required by RIBA (RIBA, 2013). (RIBA requires small practices with 10 or less staff to prepare a Project Quality Plan (PQP) for each project.) Producing such plan will guide small practices, drawing a strategy to plan and execute a project.

Bibliography

 

ABI. 2018. BCIS:Independent cost information for the built environment [Online]. Association of British Insurers (ABI). Available: https://calculator.bcis.co.uk/about_building_insurance/about.aspx [Accessed 12 February 2018].

ALHARBI, M., EMMITT, S. & DEMIAN, P. 2012. What is architectural management? Towards a pragmatic definition. Engineering, Construction and Architectural Management, 22, 151 – 168.

ALHARBI, M., EMMITT, S. & DEMIAN, P. 2015. Transferring architectural management into practice: A taxonomy framework. Frontiers of Architectural Research, 4, 237-247.

BRUNTON, B., HELLARD, BOOBYER & PARTNERS 1964. Management Applied to Architectural Practice, London, George Godwin for The Builder Ltd.

BSI. 2015. BS EN ISO 9001:2015 [Online]. BSI. Available: https://shop.bsigroup.com/ProductDetail/?pid=000000000030273524 [Accessed 16 February 2018].

CHAPPELL, D. & WILLIS, A. 2010. The Architect in Practice, Chichester, West Sussex, U.K. ; Ames, Iowa, Wiley-Blackwell.

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ELLIOTT, T. 2006. Contract Administrators – The Obligation Of Impartiality And Liability For Incorrect Certification. Available: http://www.mondaq.com/uk/x/44164/Contract+Administrators+The+Obligation+Of+Impartiality+And+Liability+For+Incorrect+Certification [Accessed 10 January 2018].

EMMITT, S. 1999. Architectural management in practice: a competitive approach, Harlow, Longman.

FEESBUREAU 2017. Architects Fees. 2017 ed.: Fees Bureau.

GOV.UK. 2016. Party Wall etc. Act 1996 Explanatory Booklet [Online]. GOV.UK. Available: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523010/Party_Wall_etc__Act_1996_-_Explanatory_Booklet.pdf [Accessed 09 February 2018].

GOV.UK. 2018a. Example letter 1: party structure notice [Online]. GOV.UK. Available: https://www.gov.uk/guidance/party-wall-etc-act-1996-guidance [Accessed 05 February 2018].

GOV.UK. 2018b. Guidance:Preventing and resolving disputes in relation to party walls [Online]. GOV.UK. Available: https://www.gov.uk/guidance/party-wall-etc-act-1996-guidance [Accessed 09 February 2018].

GOV.UK. 2018c. Party walls and building work [Online]. GOV.UK. Available: https://www.gov.uk/party-walls-building-works/reaching-agreement-with-neighbours [Accessed 09 February 2018].

JCT. 2016. Standard Building Contract (SBC) [Online]. JCT. Available: https://www.jctltd.co.uk/category/standard-building [Accessed 09 January 2018].

RIBA 2013. Architect’s Handbook of Practice Management, RIBA Publishing.

RIBA. 2017a. RIBA Chartered Practice [Online]. RIBA Publishing. Available: https://www.architecture.com/-/media/files/riba-membership/2018/31017_cp_brochure_2017_update.pdf [Accessed 16 February 2018].

RIBA. 2017b. RIBA Chartered Practice: Accreditation Criteria and Standards

Standards and Enforcement Procedures [Online]. RIBA Publishing. Available: https://www.architecture.com/-/media/2ca425a4361b4faea4d87221ad783817.pdf?la=en [Accessed 15 February 2018].

RIBA & MCBANE, I. 2017. Profitable practice is all about productivity: Financial management: how to run a profitable business [Online]. RIBA Publishing. Available: https://www.architecture.com/knowledge-and-resources/knowledge-landing-page/profitable-practice-is-all-about-productivity [Accessed 16 February 2018].

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RICS. 2018a. BCIS ORDB Schedule of Rates [Online]. The Royal Institution of Chartered Surveyors (RICS). Available: http://www.rics.org/uk/shop/BCIS-Online-Rates-Database—All—Premium—1-User-19440.aspx [Accessed 16 February 2018].

RICS. 2018b. Indemnity and insurance for JCT Design and Build [Online]. The Royal Institution of Chartered Surveyors (RICS). Available: https://www.isurv.com/info/386/jct_design_and_build_contract/2693/indemnity_and_insurance_for_jct_design_and_build [Accessed 05 February 2018].

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