Construction Cost Management

by Thomas Grant
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My first text book Major Construction Works: Contractual and Financial Management (Longman) (1995) was based on documentation assembled during 1993 and 1994; this now seems like a prehistoric era before the Latham (1994) and Egan (1998) reports! In that book, I attempted to identify the key issues in the successful contractual and financial management on major projects. It was based on my experience as a senior quantity surveyor, at separate times employed by both contractor and client, on the Hong Kong Mass Transit Railway – at the time one of the largest construction projects in the world. In contrast to the norm at that time within the UK, the massive Hong Kong project – despite major difficulties – was completed on time and within budget. The lessons to be learned from this project were identified in the case study in the last chapter of the book. It was clear from this experience that any project could be completed on time and within budget providing the appropriate procurement systems, planning and control methods, contracts and financial procedures were in place – crucially with experienced, motivated people to implement them.

Over a decade later, the world seems very different, yet the same fundamentals apply – clients wish to obtain their project within budget and within time and to the necessary quality. The relentless growth of the World Wide Web (www) meant that all could now easily access a vast array of important information. The problem for students, however, was in identifying which information was significant and which was superfluous. In this new text, I have attempted to embrace the recommendations of the key reports and government bodies including the National Audit Office and the Office of Government Commerce. The book includes the tools and techniques required under the new partnering/alliancing philosophies as well as including chapters on valuing variations and claims based on the traditional procurement approach. Observations in the book are reinforced throughout with detailed analysis of over 60 project case studies with additional links to over 100 case studies. Many of the project case studies are taken from the Building magazine or the National Audit Office reports to whom the author is most grateful for permission to publish.

A chapter is included on the NEC ECC Contract, which has been the standard contract in the civil engineering and infrastructure sectors for some time and is increasingly chosen by public clients in the building sector. Its choice by the London 2012 Olympic Development Authority reinforces its status. A chapter on the new FIDIC contract is included for those working on major projects outside the UK. Uniquely, the new textbook embraces both the building and civil engineering sectors and should be of interest to both undergraduate and postgraduate students as well as practitioners.

A significant case study on the Heathrow Terminal 5 has been included. It is important that the lessons learned on this pioneering project in lean-construction are disseminated and understood by all. Over the past two years I have received useful information from many senior quantity surveyors and commercial managers representing both consultants, public and private clients and contractors. These together with comments and observations received from undergraduate and postgraduate students at the University of Wolverhampton have deeply enriched the study. Finally, I wish to thank fellow colleagues Rod Gameson, Chris Williams and particularly Pauline Corbett for their valued help in passing learned comments on the draft chapters. Any errors or omissions are, of course, my responsibility.

Part I Introduction

1 Introduction and overview

1.1 Setting the scene

There have been many significant changes in the construction sector within the past decade.The relentless development of computer power and the growth of the World Wide Web and knowledge management, the increasing use of Private Finance Initiative (PFI) and Public–Private Partnership (PPP), the growth of partnering and alliancing, the increasing importance of supplychain management and the increasing use of the New Engineering Contract have changed the industry for the good. Yet, the same fundamentals apply – clients wish to obtain their project within budget and within time and to the necessary quality.

Significantly, the role of the quantity surveyor (QS) has also changed and many have moved on from contractual and financial management of projects to embrace the key role as the client’s construction manager/project manager. One of the pioneer QS construction project managers was Francis Graves, who undertook the task of project controller in 1972 on