Extracts from Jim's Blog Archive
The Effects of Conflict on Construction Costs
A couple of months ago I looked at the rising costs in the construction industry, I wanted to follow this up to see how things are progressing. Energy costs are an important issue affecting construction material production in addition to supply chain constraints due to the conflict in Ukraine. I wanted to explore how this conflict has affected construction costs, main findings include:
- In early 2022 material price escalation was falling from the pandemic highs in 2021, however the conflict in Ukraine has come pushed prices back up.
- Materials that are energy intensive to produce are showing increases, materials such as cement, concrete, bricks, plastic pipes, insulation etc…
- Pre-pandemic cost of energy for the production of materials accounted for between 20/30% of the production cost. This percentage cost will increase especially in Europe where energy has been dependant on Russian supplies.
- There has been a reliance on Russian, Belarusian and Ukrainian steel in European supply chains.
Rising Construction Costs
It is no secret that construction costs are rising significantly in recent times. The RICS recently held a CPD event entitled Mitigating the Risk of Cost Escalation on Construction & Infrastructure Projects. They presented some interesting findings notably that there is no agreement from Quantity Surveying practices of where costs are likely to increase with escalation reported to be anywhere between 6 and 8% for 2022 falling to between 4 and 5 % in 2023 and anywhere between 3 and 5% for 2024[1]. When considering the rising costs of construction, we can look at the factors driving these costs up.
[1] RICS CPD Slides, Mitigating the Risk of Cost Escalation on Construction & Infrastructure Projects in Australia, 27 July 2022, RICS Online Academy, https://ola.rics.org/course/view.php?name=MEE-AUSRCE-270722
Fluctuations
The increase in construction costs is a hot topic, following Arcadis’s comment about appropriate risk allocation I have been looking into Fluctuation provisions this week.
Several Lawyers have been posting about fluctuation clauses/rise and fall clauses, both in Australia and the UK. Fluctuation clauses can allow for a contract sum to be adjusted for changes in taxation, cost of labour transport and materials also for increase in head office overheads. With the increases in fuel costs and transport costs it is not surprising that this topic is now being discussed.
I feel that following the comment about risk allocation it is important that we open the dialogue on all aspects to properly managing these risks, Andersen Strathearn have comments that in the current market if contractor’s can’t obtain agreement from suppliers to fix a price for materials and or labour then there may be a reluctance to sign fixed lump sum contracts. If employer’s want to ensure they maintain value for money avoiding inflated prices they may need to consider these clauses.
How we use BIM for BoQ Measurement
I have recently completed the measurement of a builder’s bill (not SMM) for a project where we were issued with both PDF drawings and an IFC model. We utilise the model to assist us in BQ production but rely on the formal drawn information. I have explored how we can use BIM for BQ/Estimate production on the link below, some features I have considered include:
- The ‘automated’ take off, how real is this?
- Model Mapping
- Non-modelled items
- BIM for QA
- BIM for Schedules.
Team Culture
In my last post I discussed rising construction costs. I referenced the recent Arcadis report where they published the results of their International Construction Costs Report 2022, within this report they have discussed the increasing costs of construction that I touched on in my last post. Here Arcadis mentioned that “Team Culture” can contribute to increased construction costs.
Arcadis state that “companies should implement an active problem solving culture and be prepared to handle uncertainties. Collaboration, aligned project objectives, and transparency are key”[1]. I felt that in and amongst a presentation containing factual analysis of cost increases that it was interesting a more subjective topic be introduced. In researching this post, I have discovered there is not much online in relation to behavioural change driving cost efficiencies in construction. I thought I would post a follow up to see if we could get some discussion going around the topic.
So, how can changing corporate culture contribute to limiting construction cost increases?
Disclaimer
Articles have been carefully selected from the Blog at Beckwith Surveying and replicated here for information. Views are those of the Author and do not represent legal or technical advice. Click on the green Download Article button to download the articles, which are in PDF format.