BRE345 Measurement, Documentation & Estimating —TOPIC7

BRE345 Measurement, Documentation & Estimating —TOPIC7

2

Content 1. QUESTION（a） .................................................................................................... 3 1.1Provisional Quantities .......................................................................................... 3 1.2Preambles ............................................................................................................. 3 1.3Specification.......................................................................................................... 4 2. QUESTION（b） .................................................................................................... 6 2.1 Reason for Prequalification ................................................................................. 6 2.2Prequalification Criteria ...................................................................................... 6 3. QUESTION（c） .................................................................................................. 10 3.1What is Prime Cost Sum? ................................................................................... 10 3.2 When we use the PC sum? ................................................................................. 10 3.3 Main items in Prime Cost Sum........................................................................... 11 3.3Example............................................................................................................... 11 3.4The benefits of adopting PC sums....................................................................... 11 3.5The Potential Problems....................................................................................... 12 3.6 The situation in Hong Kong ............................................................................... 12 3.7 The Evaluation ................................................................................................... 13

2

BRE345 Measurement, Documentation & Estimating —TOPIC7

3

1. QUESTION（a）
Give the definitions and state the purpose of the following terms: Ø Provisional Quantities Ø Preambles Ø Specifications Illustrate your answer with examples

1.1Provisional Quantities
1.1.1Definition ‘Provisional Quantites are the quantities included in the BQ whose nature and scope cannot be entirely foreseen or defined when the bills of quantities are prepared.’
（- Quoted from http://wiki.answers.com）

They are usually quantities included in the BQ for work which may or may not be encountered but which will be required if it is encountered. 1.1.2Purpose Its purpose is to allow the employer to include within the tenders a facility to include am as yet precisely undefined scope of work, and ensure the bidders are aware of the likely requirement that such work will be required. 1.1.3Example A problem occurs when billing rock which may be suspected but whose incidence is not known – as also in the case of a long pipeline where it is impracticable to sink enough borings in advance to discover the depth and extent of rock everywhere. So sometimes a provisional quantity is put in for rocks in excavation.

1.2Preambles
1.2.1Definition ‘Preamble is a section which contain the description relating to: Ø The Quality and performance of materials Ø The standard of workmanship Ø The testing of materials and workmanship Ø Samples of materials and workmanship’
（- Quoted from slides from Dr. Johnny Wong）

1.2.2Purpose It is n order to inform the contractor’s estimator about changes in the method of measurement. Though the building measurement is standarized, based on HKSMM4. It is a definition of principle rather than an inflexible document. The QS hast the flexibility to change the method of measurement

3

BRE345 Measurement, Documentation & Estimating —TOPIC7

4

1.2.3Example

1.3Specification
1.3.1 Definition The specification is a section, prepared by the designer, which describes: Ø Quality of materials Ø Standard of workmanship Ø Tests that are required
（- Quoted from slides from Dr. Johnny Wong）

It should be notice that there are General and Particular specification. 1.3.2Purpose Ø Describe the quality and quantity of materials required. Ø Specify the workmanship and the method. Thus serves as a guide to supervising Ø Provide the rate for a contractor to calculate in tender. Ø Specify the equipment tools and plants to be engaged and thus enables to 4

BRE345 Measurement, Documentation & Estimating —TOPIC7

5

procure them beforehand. Ø Verify the strength of materials involved in a project. 1.3.3Example

5

BRE345 Measurement, Documentation & Estimating —TOPIC7

6

2. QUESTION（b）
As a QS for a local consultant firm, you are required to prepare a list of specific prequalification criteria for contractor selection for a large scale hotel development project in Macau. Please state the criteria and explain.

2.1 Reason for Prequalification
Prequalification criteria are used for the selection of the competent contractors. The criteria favor both the contractors and purchaser side. It list out the requirement that the project need. Those who might not be sufficiently qualified would be able to avoid the expense of Bidding including both the pecuniary and non-pecuniary cost. It also make the price competition more efficient since those contractors engaging in the bidding are all qualified bidders which can provide qualified services. It also allowed the purchaser to compare the interest generated by different qualified firms and reduce the cost in evaluate bids from unqualified potential contractor. Moreover, it can reduce the problems caused by low price bidding with uncertain quality and capability. Last but not least, it encourages the company to form joint ventures. Companies with different advantages can cooperating each other and it may have better chance for the project to success.

2.2Prequalification Criteria
2.2.1 Past Performance (E.g. Quality standards, variations, final cost, target performance level etc.) The purchaser may focus on the quality standards and the target performance level performed by the potential contractor before. The reason behind a large scale hotel development project in Macau is probably a famous hotel brand, they may desire to have higher quality standard to improve their reputation or image for their customers. For example, the purchaser may consider whether the potential can meet the details of quality assurance registration to ISO 9001 or equivalent schemes In the case, relevant experience is preferred. The potential contractor has done a project before similar with the bidding project would certainly convince the purchaser to believe that they are capable to deal with the job. The prequalification should seek for the potential contractor which has completed the work at a magnitude similar before. It means a potential contractor that has completed a project with similar value to the proposed project over a specified period is preferred. 6

BRE345 Measurement, Documentation & Estimating —TOPIC7

7

According to the date shown by the North American Development Bank, the individual value of such previous contracts should around 80% of the estimated cost which the contingencies are included. The prequalification should also seek for the potential contractor which has completed the work at a volume and quality similar before. It means a potential contractor that has completed a project with similar tasks like tunneling, earth moving and concrete placing is preferred. According to the date shown by the North American Development Bank, the potential contractor should perform at a rate to meet 80% of the peak annual rate required for the project. 2.2.2 Technical Ability (E.g. Technical expertise, possessed plant and equipment and experience etc.) In order to develop a large scale project, it requires a lot of construction machines and equipment. The availability of those items is crucial for the development project since efficiency can greatly improve if the task on site is action by an appropriate construction machine. In this case of a large scale hotel development project in Macau, it is not uncommon that there is not many competent potential bidders will have an inventory of high value construction equipment, since it means a high capital cost overhead to a contractor. In such cases, most of the contractor tend to lease or hire those equipment from the specialist subcontractor or equipment hire firms. The verification of the availability of specialist subcontractor and the equipment hire firms should be provided by the potential contractor at the time of prequalification. Therefore, the criteria should be limited to those bulky or specialized items that are critical for the project or which those items which cannot be obtained in a short period of time. Apart from the inventories of existing equipment and plant and the availability of specialist subcontractor and the equipment hire firms, the purchaser may also take the capacity of the potential contractor into consideration. For example, the capacity to handle new projects considering ongoing assignment and the ability to mobilize sufficient resources within the timescale required. The reason behind that the purchaser may wish to make sure the potential contractor has enough resources and ability to finish the project on schedule. It should be noticed that a delay in schedule may be very costly to a hotel development project since in general the hotel would prefer to finish the project before the tourist season. 2.2.3 Personnel Capability (E.g. Project management organization, experience of technical personnel etc.) Existence of skilled technical and managerial labor of the potential contractor is 7

BRE345 Measurement, Documentation & Estimating —TOPIC7

8

another criteria included in the consideration of prequalification. For example, the purchaser of the development project in Macau may consider the number of direct staff and the number of subcontract staff proposed and also the degree of direct service proposed (Level of directly employed labor plant and technical services, indicate from where additional services staff will be recruited). It should be noticed that only those labors having critical operational or technical skill should be considered. For example, key personnel like project manager, superintendents specialized in piling, earthworks or dredging etc. A company with a group of experience managerial member (experienced management system) is especially preferred. Since those experience members are more likely to run an effective managerial system for the development project in Macau. Hence, the wastage, variation or cost is more likely to be minimized, in some case, the total length require for the project may also reduce. For example, the purchaser of the development project in Macau may consider the proposed project organization and structure to determine whether it is a quality management system which can be employed on the project. It is Important to list it in the prequalification criterion because personnel resources is not a resource that can be obtained by the potential contractor easily in a short period of time. Even a higher salary may be able to recruit a skilled labor, however, there is cost involved in familiar the procedure of the company etc. Ø Ø Criteria should based on: Minimum number of year of experience in similar position Minimum number of comparable projects carried out in a specified number of preceding years. It should be noticed that an individual have sufficient knowledge of the applicant’s management policy procedures, and practices to act with the confidence and authority in the executive site position shall also be viewed as a key staff. For example, 3 years work with the applicant. 2.2.4 Financial Consideration (E.g. Financial Stability, Financial Status, Bank Arrangement, Bonding Capacity and Cash Flow Capability Requirement) Lastly, although the purchaser of the large scale hotel development project probably have selected certain dominated contractor with strong financial power in the city to invite them to make tender. However, the financial consideration shall still be the factor in the prequalification. The reason behind is that even a big contractor may have a chance to suffer from cash shortage because of ongoing assignment may have drown lots of resources away. TThe purchaser may wish to make sure the potential contractor has enough resources and ability to finish the 8

BRE345 Measurement, Documentation & Estimating —TOPIC7

9

project on schedule. The development of a large scale hotel development project involves a large amount of capital investment. It causes serious burden for the contractor in short term. Therefore, it is important to ensure the financial condition of the contractor is capable and suitable to due with the development project. According to the North American Development Bank, the financial condition over the last 5 years and the projection for the coming 2 years shall remain positive. If the contractor is found that they are suffering from consistent losses or a risk of insolvency shown in account, they probably are being rejected. Cash flow capability is also another crucial criteria. Otherwise, it will be very costly if the development is delayed by the shortage of cash flow. The potential contractor should able to finance fully the purchaser’s estimate of cash flow for both the local and foreign currency requirement for a specified “critical period”. For example in a monthly periodic payment system, the assessment of cash flow should based on a straight line month cash flow for the contract. Calculating form the beginning of the month invoiced, the “critical period” is determined by adding a contingency period of 1 or 2 months to cumulative time period required for issuing the interim certificate and the time required for the purchaser to pay the amount due. According to the North American Development Bank, 1 month for contingency is enough for cumulative time period of 3 months or less and 2 months contingency for a longer period. The Contractor should provide: Ø The audited annual financial statement for the last 5 years which is supported by tax returns or audit statements. (Including the access to liquid assets, line of credit, unencumbered assets etc.) Ø The name and address of the applicant’s banker which familiar with their financial standing.

9

BRE345 Measurement, Documentation & Estimating —TOPIC7

10

3.QUESTION（c）
‘PC Sums have been widely used in Hong Kong’s construction industry but it is not good practice to some extent’. Discuss this statement.

3.1What is Prime Cost Sum?
HKSMM4 defines the term PC sum as ‘ A sum provided for work or services to be executed by a Nominated Sub-contractor or for materials or goods to be obtained from a Nominated Supplier.’ (Section II clause 15.1b) Here we can see that two key words involved with PC sum, the Nominated Sub-contractor and the Nominated Supplier. Sub-contractors can be classified as Domestic sub-contractors, Named sub-contractors and Nominated sub-contractors. By industry definition, Nominated Sub-contractors are contractors selected by the employer who then sign the contract directly with the Main contractor to perform a specific kind of works. They are usually specialist trade contractors who may provide both the design and construction services. It is common practice for the employer to source and invite prospective Nominated Sub-contractors to participate in some form of procurement or bidding exercise. The employer will negotiate the commercial and legal terms with the successful sub-contractor, who will then enter into a sub-contract with a main contractor based upon those pre-agreed terms.

3.2 When we use the PC sum?
As we can see from the definition of PC sum, it is a must thing along the exist of the Nominated Sub-contractor (or the Nominated Supplier). Then the time we use PC sum is certainly the time when we have Nominated Sub-contractor. Nomination is often adopted in the conditions as below: 1. In construction, there may be some long delivery items where design and manufacturing times could not wait for the appointment of a main contractor. Then the employer needs to nominate sub-contractor himself before the tender in order to avoid the potential. 2. There may be some specialist design input required in the early stages of design development. As mentioned above, some specialist trade contractors provide both the design and construction services so they need to participate in the design process before the appointment of the main contractor. 3. The Employer may have developed a long-term business relationship with an Nominated Sub-contractor with a proven track record for good work. Though the employer can state his requirement to the main contractor in specific details, he still has the risk that what the sub-contractor will do has big difference with his expectation. And a safer way here is to choose a sub-contractor who has worked for the employer before and known his flavor 10

BRE345 Measurement, Documentation & Estimating —TOPIC7

11

well.

3.3 Main items in Prime Cost Sum
As we know, PC sum items are sometimes special design items for the construction. Besides the special things, there some common items that usually adopt Nominated Sub-contractor, such as Electrical Installations, MATV, CCTV and PA System, Air-Conditioning and Mechanical Ventilation System, Fire Fighting System, Hot Water System, and Lift and Escalator System.

3.3Example

3.4The benefits of adopting PC sums
There are several benefits when adopting PC sum, or to say when using the Nominated Sub-contractor. We can see them from different perspectives. 1. A key benefit for the employer is to control over the choice of, and performance required from, Nominated Sub-contractor. The employer can also, if he wishes, control the terms of the subcontractor, including the price and quality benefits. 2. As adopting the Nominated Sub-contractor can also be appointed after the main contractor has started work, one of the employer benefits is that specialist design can continue after work has commenced on site. This kind of design may can not be easily determined when the main contractor has already appointed the domestic sub-contractor. 3. Another benefit is the possibility of reduction of the procurement times. Some specialist subcontract work requires a longer lead time than the construction program. This may require this specialist work must be started before the 11

BRE345 Measurement, Documentation & Estimating —TOPIC7

12

main contractor has been appointed. Nomination now allows for continuity when a specialist sub-contractor has been selected before the main contractor is in place. 4. As we know, some employers choose to adopt Nominated Sub-contractor not for specialist work, but because the long-term business relationship they have before. And this Nominated Sub-contractor can give the employer a comparatively high ensurement of employer’s expectation. Just think about a big scale chain hotel. It may has a long business relationship with a sub-contractor who does the work of the bathroom in every their hotel. Then appointing this old partner allows the employer do not need say more about their standard and every specific requirement, meanwhile get the better satisfication.

3.5The Potential Problems
1. The financial risk for the main contractor. It is entirely possible that the prime cost item performed by Nominated Sub-contractor exceeds the stated amount of item. And usually it is unlikely a variation order will be required unless there has been significant change. Often the contractor will be compensated through the payment mechanism, in particular, through the percentage uplift for overheads and profit. 2. This mixing of responsibilities between the employer and main contractor for the performance of a Nominated Sub-contractor leads to frequent disputes. In principle, the contractor should allow prime cost works in his programme. In practice, particularly where Nominated Sub-contractor are involved, the contractor may have inadequate information or control to perform the task. This applies most obviously when the identities and the timing requirements of Nominated Sub-contractors are not known until after the works start. 3. Because there is no contractual bond between the Employer and the Nominated Sub-contractor, in case there is any delay, the contractor is entitled to an extension of time. But the employer is not able to recover the damages from the Nominated Sub-contractor. 4. Further, if the sub-contractor’s work proves unsuitable or not fit for its purpose, the main contractor will deny responsibility (unless he was expressly charged in the terms of the sub-contract to take such responsibility – which is unlikely) since he had no choice in the selection of the sub-contractor or the product. The extensive disputes which have arisen over the years on these matters, more particularly in building work with its wider use of nominated subcontractors, has led many engineers to take the view that use of Nominated Sub-contractors in civil engineering should be avoided wherever possible.

3.6 The situation in Hong Kong
According to Electrical & Mechanical Contractor Magazine, 2005, most forms of 12

BRE345 Measurement, Documentation & Estimating —TOPIC7

13

contract allow the contractor to claim an adjustment of completion date for delay caused by Nominated Sub-contractor, which the contractor has taken all reasonable measures to prevent. In this situation, contractor is easy to make a claim and very difficult to refute. To overcome the difficulties, the government of HKSAR makes s a list of specialist contractors and suppliers. This new specialist sub-contractor appointment procedure has the advantage of availability, that provides expertise in the construction of specialist works, and yet now pass on the risk of appointing sub-contractors to the contractor.

3.7 The Evaluation
To judge whether the use of PC Sum, which means whether adopting the Nominated Sub-contractor was a good practice, or to foresee the prospective of PC sum, I think we have to think from 2 different situations. First, when the Nominated Sub-contractor is appointed for special works or in special stages. This need for Nominated Sub-contractor sometimes cause a lot of practical problems from the mix responsibilities between the employer, the contractor and the sub-contractor, leading to delay, non-efficiency and un-performance. And this need for Nominated Sub-contractor can now be substituted by the new specialist sub-contractor appointment procedure. So I think using for Nominated Sub-contractor to do special work in the past was a practical way but did cause some dispute, and might not be the solution in future. On the other hand, not all the Nominated Sub-contractor is chosen for specialist work need, while quite of them are from the employer’s profit perspective. As we mentioned before, it can be from the long-term business relationship between the employer and the sub-contractor or some more direct profit relate. In this condition, I think the existent of Nominated Sub-contractor, and then the PC sum can be said to be a must whenever in the past or the future. Though the employer does have some risk from this, we can understand in the way that he is already acquiescent with all the possibility of loss compared with the profit and benefit he may gain.

13

BRE345 Measurement, Documentation & Estimating —TOPIC7

14

References Ø Ø Ø David Y. K. Leung , A Practical Approach to Conditions of Contracts for Civil Engineering Works Adetola F.O., Auditing of quantity surveyors billsof quantities, The Quantity Surveyor, V. 29,Oct/Dec, 1999, pp. 14-18. Brand, D., 2009. Contract nominations. [Online] 5 January. Available at: http://cmguide.org/archives/315 [Last accessed on 23 July 2009] Ø Brand, D., 2009. Contract nominations. [Online] 5 January. Available at: http://cmguide.org/archives/315 [Last accessed on 23 July 2009] Ø Ø Ø Ø Ø Ø Ø http://www.designingbuildings.co.uk/wiki/ http://lecture.civilengineeringx.com/project-managment/accuracy-of-quantities-pro visional-quantities/ Inne Johnson Ikpo, Variability Analysis of Prime Cost Sums http://lecture.civilengineeringx.com/project-managment/use-of-nominated-sub-c ontractors/ http://www.ukessays.com/essays/project-management/nominated-sub-contractor php http://www.longworthconsulting.co.uk/construction_contracts/nominated_sub-co ntractor.htm http://www.designingbuildings.co.uk/wiki/Nominated_sub-contractor

14