THE ROLE OF PROFESSIONALS IN ACHIEVING VALUE FOR MONEY IN CONSTRUCTION

1. THE ROLE OF PROFESSIONALS IN ACHIEVING VALUE FOR MONEY IN CONSTRUCTION A PAPER PRESENTED DURING THE AQRB/CRB/ERB JOINT 1CONSULTATIVE MEETING HELD ON 5TH SEPTEMBER, 2019 AT DIAMOND JUBILEE HALL PRESENTED BY: QS. Joseph Tango, FTIQS, Reg.QS(T), ATIArb, MD CQS Services LTD

2. CONTENTS • Introduction • What is Value for Money and why is it important? • Techniques for achieving Value for Money in Construction • Obstacles/Challenges in achieving Value for Money • Role of Design Professionals and contractors in achieving Value for Money • Case studies/examples

3. Value for Money • Value for money is the optimal use of resources to achieve the intended outcomes • In the context of construction projects it is normally expressed as a ratio between a function and the whole life cost for that function. • In construction projects, Value for Money (VfM), as a concept, relates to the optimum balance between the benefits expected of a project and the resources expended in its delivery • Value = Benefits Delivered / Resources Used

4. Value for money …… • Value for money can be defined as the most advantageous combination of cost, quality, and sustainability to meet customer requirements. • Value for Money not only measures the cost of goods and services but also takes account of the mix of cost with quality, resource use, and fitness for purpose and timeliness to judge whether or not, together, they constitute good value

5. 3 E’s of Value for money …… • Value for Money is about achieving the right balance between economy, efficiency and effectiveness, the 3Es – spending less, spending well and spending wisely; • Economy – Acquisition of resources in appropriate quality and quantity, at minimum cost. • Efficiency – Maximum output for any given set of inputs or the minimum inputs for any given quantity and quality of goods and services provided. • Effectiveness – Extent to which any activity achieves the intended results, which can be either quantitative or qualitative.

6. Why is Value for Money Important? • Value for money assessment provides important information to assist in decision-making in matters such as the • identification, measurement and allocation of risk, • life cycle costing of the service options, in order to develop in-house expertise in matters such as • specification of service requirements, • business case analysis, • risk-weighted financial forecasting, • project appraisal, • multi-stage bidding processes, and • bid evaluation

7. Value for Money ……….. How to achieve • Value for Money is not about cuts. It can be achieved in different ways including: • reducing costs (e.g., labour costs, better procurement and commissioning) for the same outputs , • reducing inputs (e.g., people, assets, energy, materials) for the same outputs, • getting greater outputs with improved quality (e.g., extra service or productivity) for the same inputs, • getting proportionally more outputs or improved quality in return for an increase in resources.

8. Value for Money … Procurement method? • Securing value for money is not limited to a some project delivery variants such as the traditional/conventional method of project delivery or to just design and build but to also variants such as public-private partnerships, relational contracting • The choice between using a PPP or traditional procurement should be simple; however, governments should prefer the method that creates the most value for money

9. Ways By Which Project Stakeholders Can Achieve Value for Money • Detailed risk analysis and appropriate risk allocation • Drive for faster project completion • Curtailment in project cost escalation • Encouragement of innovation in project development • Maintenance cost being adequately accounted for • Accurate assessment of the cost of the project • Detailed specifications • Effective procurement and contract management

10. Detailed risk analysis and appropriate risk allocation • Risks involved in construction projects can be categorized into • procedural risks (consent and licensing risk), • design risks, • construction risks (time and cost overrun; defective construction, • financing risks (changing economic condition), • maintenance risks • operating risks (ineffective operation of an asset), • Revenue risks (disappointing performance of the asset) • Risks are allocated to the party, or parties, which are best placed to manage and minimize these risks over the relevant period

11. Drive for faster project completion • A purposeful collaboration among project stakeholders in conjunction with the efficient utilization of some project management tools can serve in the good stead of reducing the overall project duration. • Additionally, the use of project planning tools such as Gantt chart, Network Diagram, and Team Planner etc. will also be of help in the bid to plan and monitor the progress of work on the site.

12. Curtailment in project cost escalation • The identification of likely factors or activities in a project that could result in overall cost escalation and the diligence in reducing the impact (or avoiding them) could help to ensure the final project cost doesn’t offshoot the pre-determined project budget.

13. Encouragement of innovation in project development • The introduction of innovating strategies and concept to the process of procuring a service and/or constructing a project can increase its value to the clients and end-users hence securing a greater measure of value and/or return on investment. • Innovative strategies could come in the form of: • the introduction of better and more efficient plants and equipment, • development of a innovative solution, • better motivation strategies for workers, • improved framework for communication and decision making, • improved supply chain management, • the introduction of hitech facilities, • development of cost database, • efficiency in tracking supplies

14. Maintenance cost being adequately accounted for • Accounting for the maintenance cost should be considered at the design stage (outline design) of a project, by identifying key components of the projects, objectively decide on alternative design items or components, estimate likely maintenance cost of each alternative design components, then finally choose the most cost effective design component based on the lowest cost, provided it gives the required function and conforms to the required quality standard. • Ensure the use of durable and maintainable building element and designs that will reduce the cost required to maintain such project in the long run.

15. Accurate assessment of the cost of the project • The quantity on the project should endeavour to carry out an accurate assessment of the cost of the project, ensuring that the unit rate assigned to each item of the bill of quantities (BOQ) takes into its calculation, the various activities, materials, labour, plants and other variable costs that are needed to carry out the task • The Quantity Surveyor should ensure that no item of work is erroneously excluded from the BOQ, • When calculating the costs and risks it is imperative that all costs and risks included are comprehensive and realistic; failure to do so will result in biased estimates that may lead to a less-than-optimal procurement choice and subsequent loss in value

16. Detailed specifications • Should take into consideration all the design components, materials, the standard of workmanships, day work schedules, rates etc. • The more detailed a specification is, the greater the ease by which the Quantity Surveyor or estimators carries out the assessment of the cost of the project, hence the more accurate his cost estimate, and as before discussed the greater the client derives a value for his investment. • An undetailed specification can give rise to dispute between the various consultants, most notably between the Architect, Engineer and the Quantity Surveyor; • If by chance the Quantity Surveyor does not notice that some specification of a design component are missing or he just utilize his previous experience to estimate for the project, it can result to claim by the Contractor, and the Contractor is successfully in filing the claim, it will result in cost overrun and subsequent reduction in value derivable by the client from the project.

17. Effective Procurement and Contract Management • Invest in up-front planning. • Give advance notice and undertake early engagement. • Include value for money in objectives and outcomes. • Evaluate offers for value for money. • Select the offer that demonstrates best overall value for money. • Active, not passive, contract management - internal teams to fully understand service issues and get to know their service providers, leading to more constructive and workable relationships.  • Contract champion - the right people, with the relevant commercial, interpersonal and management skills • Supplier relationship management - developing a relationship with the supplier that results in better service delivery.

18. As we move through lifecycle of the project: Cost reduction potential decrease Resistance to change increase Cost to change increase Opportunities and potential savings through VfM

19. Barriers/Challenges in Achieving Value for Money • Technicalities of the VFM management tools • Lack of Awareness of some of the VFM tools • Unclear client priorities and objectives • Insufficient Tender Documents • Unethical behavior among PEs Officials • Poor contract administration • Incomplete or non-completion of projects • Ineffective procurement and contract management

20. How Architects/Engineers can play Role in Achieving VfM • Providing cost-effective design solutions - listen to the clients and provide client-specific solutions designed to address specific issues • Researching products to maximize investment. • Specifying the materials and products taking into consideration not only the initial construction costs but also life-cycle costs • Providing alternate designs early in the process; which can help clients to explore multiple cost-effective solutions that might lower construction costs. • Providing comprehensive drawings allow accurate pricing • Providing effective contract administration

21. How a QS can play Role in Achieving VfM • Estimating and monitoring construction costs • Value management- to eliminate waste from the design or client’s brief • The Life Cycle Costing-determining the total cost of acquisition, operation, maintaining and disposal of the items acquired; the lowest ownership cost during the time the item is in use • Preliminary Cost Advice - prepare the cost studies and advice on the structural forms, the choice of materials, the alternative design solutions, the construction sequence and the maintenance cost • Facilities Management

22. How a QS can play Role in Achieving VfM …… • Procurement Methods - provide advice to the client on the best choice of contractual arrangement depending on the circumstances that the client’s required. • Coordinate and provide the most appropriate facilities management services • Tendering – tender documents, tendering procedures • provide independent, objective, accurate, and reliable capital and operating cost assessments usable for investment funding and project cost control and planning • Contractual Advice – Provide both commercial and contractual advice for all types of civil engineering, building and structural projects • Cost Control & Financial Management: • Build an overall cost target • Taking remedial action where necessary • Analyzing any deviations

23. How Contractors can Play Role In Value for Money • Professionalism and transparency • Partnering • Smart cash management • Innovation • Design and Build? • Ethics

24. Thank You Kazi Hapa Tuu