Samuel Johnson famously wrote that ‘to
build is to be robbed’. Facing the same challenges, but with the
benefit of hindsight, Pope Pius II praised his architect for ‘lying
about the costs’ following budget overruns on the building of
Pienza Cathedral, which threatened at the time to bankrupt the
Vatican.
Both of these experiences suggest that
clients have been and continue to be exposed to a significant degree
of cost risk when undertaking construction projects. Invariably, they
also pick up much of the financial consequences of decisions,
omissions and mistakes made by others working on their behalf.
Decisions made at the outset of a
project: investing in land, selecting one project opportunity in
favour of others; confirming a brief; or establishing project
governance could all potentially have a substantial impact on project
outcomes, and as a result carry significant risk. Unfortunately, many
of these early decisions have to bemade without the benefit of a
considered design response and may, as a result, be sub-optimal.
Whilst it is important that advice
given to clients early in a project should give the team some ‘wiggle
room’ to develop a preferred solution, it is also important to work
within project disciplines once these are established. Effective
teamwork during the design development process between the designer
and cost consultant can help to mitigate many of these potential
risks.
Design stages
As a client’s brief and concept
designs are developed, a greater degree of fixity in terms of the
design solution and predicted costs can be provided by the project
team. This process is discussed in more detail in the section focused
on cost planning.
However, as the design develops and
cost certainty increases, so does the cost of changing the design,
and the client and project team’s resistance to change.
Risk and risk transfer
As a project progresses to the
appointment of contractors, the client’s overall financial
commitment becomes better defined. More risk can also be transferred
to third parties if the client so wishes.
Whilst under most procurement routes
the client is required to accept risks associated with design
performance, they will generally seek to transfer commercial and
construction risks to the contractor through some form of a fixed
price, lump sum contract.
Quite clearly, if the design
information upon which the client obtains a contractual commitment is
not complete, is ambiguous or is not fully coordinated then, not only
will the client retain outstanding design risk, but will also find
that the basis of his commercial risk transfer to the contractor is
weakened.
Evidence from Construction Key
Performance Indicators, published by the DTI, indicates the scale of
this potential problem, showing that fewer than 80% of projects are
completed with #10% of their original tender sum. Moreover, only
around 50% of projects are completed within #5% of the tender sum.
Whilst some of this cost variation may
reflect client changes, or problems on site, it is likely that some
of these increases will have resulted from the consequences of
continuing design development. In order to mitigate the client’s
risk, it is incumbent upon the team to ensure that the design is
completed to the appropriate level of detail and fixity required by
the procurement route. To do otherwise risks rendering some of the
effort expended in design development and cost-planning abortive.
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