4 March 2021
In part two of his Exposing Risk series, Guy McCoig-Lees explores the scenarios that occur through the refurb process and how de-risking a project saves time and costs for all.
Guy McCoig-Lees, Director
For developers and their investors, the parameters of purchasing a building based on its post-refurb ROI are so meticulous that approaching a project with a series of unknowns is incompatible to the process.
At Collins, we feel exactly the same. Our aim is also to avoid any strategy or programme that includes variables we cannot be sure of. As outlined in blog part one ‘Expose the risk of uncertainty,’ we use the tender period for rigorous due diligence so we can identify key project risks and offer solutions on how to overcome them. This way we mitigate the risks that rest with the addition of an Undefined Design Contingency (UDC).
The problem arises when there is no opportunity for due diligence; the tender calculations suddenly become a finger in the air as we cost for surprise remedial work we do not yet know about. On the surface, this situation seems less of a concern for our clients and their investors because it is the contractor that takes on the financial risk of the UDC.
But a UDC does not mean the problems for the client simply go away. The UDC is very much dictated by what is ‘reasonably possible’ at the tender stage to ensure a contractor does not completely price themselves out, combined with the economic state of the market. The number is approached ‘blind’ and based on best guess.
When a UDC is implemented, fee and scheduling risks affect both contractor and the client. I know of very few projects that have practically completed to the highest standard on time and with pride when a programme is run on this basis. There often ensues a dispute.
Therefore, Collins avoids making educated guesses on our projects, for the sake of our business and for the sakes of our clients.
How do we do this? There are several scenarios that we can manage through the refurb process:
Pre contract service agreementThis is the ideal scenario. We are appointed for a specific amount of time to carry out opening up works to ascertain the condition of the building and its ability to take the proposed refurbishment works.
This interrogation of the building is part of the expertise we sell. With 65 years of experience examining buildings, some which are hundreds of years old, our expertise is embedded in knowing what to look for that can hinder or help a project and the extent of the impact it can make.
With this information, we can develop a thorough and transparent cost and programme that will deliver what our client wants to achieve at the agreed price on the agreed date of completion.
A design contingency should only ever be used to accomplish the original project when:
the original budget did not address the project requirements appropriately.
the original budget did not recognise the potential for price changes in the market from the time the budget was finalised.
or insufficient project information when available when the budget was developed.
It is this third issue that is most likely to lead to design contingency expenditure.
In general, we determine a design contingency being used for:
Resolving unforeseen issues during the design period and allowing for interfaces that may be designed later in the design process.
Providing a balance or buffer between the scope and the budget, thus reducing the need for cost-cutting that may devalue the project.
Enhancing the project as recommended by the design team and agreed upon by the owner during the design phase, to mitigate 'scope creep'. Robust design processes and firm decision-making should also be employed to reduce scope creep.
Re-design following discovery of differing site or subsurface conditions.
A design contingency can work with and complement a risk allocation clause set out in a contract for those items that cannot be reasonably foreseen following the strip out works or during the tender process, without further significant opening up works.
Scope gaps are another drag on a project's design and build contingency. Gaps in scope usually arise from areas such as co-ordination with the existing building structure, or the co-ordination between two separate trades sometimes created by committing to a project before completion of its requirements.
These gaps can be easily 'plugged' using our skill and experience with expert advice from our specialist supply chain. Missing requirements are always discovered late in the project cycle, change happens; it is unavoidable, and should not come as a surprise.
It is how we deal with it that matters, with ingenuity and innovation, therefore it is important a robust plan is in place to identify these at the earliest opportunity.
Scope creepsWhen Employers’ Requirements are not fully prescriptive a disconnect occurs between what has been delivered and what the client thought they were getting.
A design process is only truly robust when the original intention is the one being prescribed, and all parties agree on what delivery will look like. In Mark Dockery’s article, an opportunity to collaborate, he advocated the value of the design team and contractor working together, rather than in silo.
We implement this approach – where the whole team ‘realises the design together as part of the project journey’ - on many of our projects. This shared vision creates a smoother process, with no surprises, no conflict and none of the inevitable creep that arises because the collective visions are unaligned.
The benefit of opening up
The unforeseen, the unquantifiable, the surprise behind the wall is no more than that finger in the air at the start of a project and the outcome sets the tone for the project lifecycle. There are always solutions to these problems, the difference is whether we solve them as part of a de-risked project, or with our fingers crossed and a set of unknowns from the very start. The latter makes no sense and is easily avoidable with transparency, of the building, within the team and in a relationship, client and contractor.