icccbe 2010

© Nottingham University Press Proceedings of the International Conference on  Computing in Civil and Building Engineering  W Tizani (Editor)

Exploration of drivers and barriers to life cycle costing (LCC) in construction projects: professional quantity surveyors assessment T Chiurugwi, C Udeaja & K Hogg

School of the Built Environment, Northumbria University, Newcastle Upon Tyne, UK

W Nel

External Facilitator - Construction Cost Consultant, UK

Abstract The construction industry in the UK is facing unprecedented and demanding uncertainty, rising inflation with poor economic trends, reduction in purchasing power, budget limitations, increased competition, etc. At the same time, there is an increasing interest in reducing cost in an organization, especially in projects. This has created an awareness and interest in the total cost of projects, from conception to decommissioning, given that cost in use can amount to more than two thirds of total project costs. A common tool used to carry out comprehensive assessment of costs in the different phases of a project is life cycle costing (LCC). LCC is becoming more important as more private organizations invest in private finance initiatives (PFI) and private public partnership (PPP), the UK refurbishes its aging building stock, and sustainable construction becomes topical. Quantity surveying (QS) professionals need to be informed of the LCC impacts of constructed assets so that they can encourage key stakeholders to make more sustainable choices and informed decision in procuring, operating, and disposing them. No research has been carried out on LCC use by professional quantity surveyors yet even though it is clear that they will play an important role in its application to the construction industry. The research described here investigated professional quantity surveyors’ views and application of LCC, explored why they do not use it frequently, and came up with suggestions of how their use of LCC can be improved. The results suggest that there is limited understanding of LCC among professional quantity surveyors. This limits their application of LCC tools and principles in the construction industry. The professional surveyors’ clients seem to be the main promoters of LCC use when it is used but this is limited by the surveyor’s lack of appreciation of LCC benefits to the industry. To promote greater use of LCC, it is suggested that quantity surveyors be trained in the practicalities of LCC and how to use standardised LCC methods. Other barriers identified, including lack of procurement or contract award incentives are concluded to be centred on Client requirements and the quantity surveyor’s LCC skills and knowledge. It is suggested that future work explores the development of external or internal short courses on LCC principles and applications for quantity surveyors and other stakeholders in the industry. Keywords: life cycle costing, construction projects, quantity surveying, drivers, barriers

1

Introduction

The construction industry operates in an increasingly uncertain business environment, characterized by increasing competitiveness; resource scarcity; sustainability requirements; and demand for value

for money by its stakeholders (Swaffield and McDonald, 2008; TRADA Technology, 2008). The built environment has wide-reaching economic and environmental implications: it is responsible for half of all CO2 emissions, half of water consumption, one third of landfill waste, and one quarter of raw materials used in the UK (Woodward, 1997; Clift, 2003; BERR, 2008). As a result, there is mounting public interest and legislative requirement for sustainable construction, linked to the need to conserve resources (Pasquire and Swaffield, 2002). There is growing pressure on those that design, produce and operate constructed assets to predict and manage the assets’ whole life performance; it is no longer enough to only consider initial capital cost (Woodward, 1997; Clift, 2003; Flanagan and Jewel, 2005). There has been, therefore, a shift from addressing buildings ‘as built’ to ‘in operation’ (Pasquire and Swaffield, 2002; Clift, 2003; Kirkham, 2007; TRADA Technology, 2008). Various life cycle approaches are employed to assess asset performance for the entire life cycle, from conception to decommissioning (Pasquire and Swaffield, 2002; Clift, 2003; Pelzeter, 2007). Life cycle costing (LCC) is the commonest economic evaluation technique which assesses the cost of an asset, or its parts, throughout its life cycle while fulfilling its performance requirements (BSI, 2008a; Swaffield and McDonald, 2008). Life cycle costs include acquisition, maintenance, operating and disposal costs of an asset (Flanagan et al., 1989; BSI, 2008b; Swaffield and McDonald, 2008). The long held notion that the cost in use of constructed assets can be several times higher than initial capital cost is ever more relevant today with increasing use of private finance initiatives (PFI) and private public partnerships (PPP) (Flanagan and Jewel, 2005). Life cycle costing would seem like a necessity to these projects (Swaffield and McDonald, 2008). LCC is used to evaluate constructed assets, their component parts, or materials based on their initial and consequential costs to achieve better value for money at pre-construction, construction, and occupancy stages (Pasquire and Swaffield, 2002; Davis Langdon, 2007; Office of Government Commerce, 2007). It is often used to justify more expensive alternative investments by demonstrating their lower consequential cost (Pelzeter, 2007) or to provide a picture of an asset’s cost-is-use for transparency, planning, general awareness, comparison, cost-benefit analyses, and contractual requirement purposes (Pasquire and Swaffield, 2002; Davis Langdon, 2007; Pelzeter, 2007). These uses and benefits are desirable to various users including public sector owner/occupiers, commercial investors/developers, private sector occupiers and Public Private Partnership (PPP) contractors. Other terms have emerged to describe the combination of initial and consequential costs throughout the life-span of an asset, e.g. whole life costs (WLC) (cost, benefits, and other financial externalities throughout the entire existence of an asset, beyond the economic life), through life costing, total ownership costs, etc. (Sterner, 2000; Pelzeter, 2007). Despite the benefits of using LCC and its application in procuring many other products, LCC is not widely used in procuring constructed assets (Christensen et al., 2005; TRADA Technology, 2008). Surveys of LCC use by contactor’s quantity surveyors on PFI projects (Swaffield and McDonald, 2008), real estate professionals in Germany (Pelzeter, (2006) cited by Pelzeter (2007)) and a wider range of stakeholders in the construction industry in Sweden (Sterner, 2000) and the UK (Clift and Bourke, 1999) have been carried out. The findings reveal that there is a general appreciation of the benefits of LCC use but its greater application is crippled by various obstacles. As a result, LCC is used in a simplified format, or not at all, in the construction industry (Swaffield and McDonald, 2008). The barriers to greater use are thought to include lack of clarity on LCC principles and applications; lack of simple, standard methodology; lack of fiscal encouragement; lack of reliable data; absence of procurement and contract award incentives; and uncertainty of cost and lifespan (Pelzeter, 2007; Swaffield and McDonald, 2008; TRADA Technology, 2008). A number of remedial actions have been proposed and some have been implemented although, as reflected by Swaffield and McDonald (2008), LCC is still under-utilised. The remedial actions include establishment of the Whole Life Cost Forum (Whole Life Cost Forum, 1999), assembling benchmarking cost and time data for use in LCC (El-Haram et al., 2002), making LCC a mandatory tender requirement in PPP/PFI procurement

(Swaffield and McDonald, 2008), and development of standardised LCC methodology, e.g. the ISO 15686-5 and the UK LCC supplement to it (BSI, 2008a). The Latham (1994) and Egan (1997) reports recommended LCC as a way through which the construction industry could deliver improved value for money (Pasquire and Swaffield, 2002). As the main promoter of LCC in the UK, the government considers value for money as “the optimum combination of whole-life cost and quality to meet the user's requirement.” (OGC, 2007, p.4). Professional quantity surveyors will play an important role in the application of this technique and may have to evolve their practice to make LCC a routine activity. Comparable changes led to increased use of value management/engineering in the construction industry which, like LCC, is borrowed from the manufacturing sector (Ashworth and Hogg, 2000; Male, 2002; Christensen et al., 2005; Pelzeter, 2007). The research described here investigated how professional quantity surveyors view and apply LCC, explored why they do not use it frequently, and came up with suggestions of how LCC use by professional quantity surveyors can be improved.

2

Procedure of data gathering and analysis

A questionnaire was designed in Microsoft Office Excel® and distributed electronically by email to professional quantity surveyors working for consultancy practices of varying sizes in the UK. The questionnaire was divided into four sections each exploring different parts of the research question: 1. Background information- information about the respondent’s organization and LCC and quantity surveying experience; 2. Perception of LCC- the individual’s understanding of LCC and how they viewed its contribution to the construction industry; 3. Extent of LCC use in practice- the respondent’s and his/her organization’s use of LCC; and 4. Barriers and drivers to greater LCC use- the barriers and drivers influencing LCC use, and what the respondent thought could be done to improve LCC use. The questionnaire was sent out to professional quantity surveyors; the researchers’ work colleagues and students enrolled on a part-time, professional postgraduate quantity surveying course. The list from which the sample was randomly drawn allowed the inclusion of quantity surveyors of varied levels of experience, belonging to firms of varying sizes. The snowball sampling technique was employed in order to capture responses related to organizational culture accurately. The target sample size was 30, deemed optimal in balancing the demands for data gathering and the quality of the survey data: keeping the sampling and non-sampling errors at acceptable levels. Therefore, the questionnaire was sent to 30 primary respondents, anticipating a 50% response rate and at least 1 successful referral per primary respondent. The final sample size for the survey comprised of 34 respondents, responding between June and August 2009, from 11 different quantity surveying practices. That is, a response rate of 37% for the primary respondents. The questionnaire responses were assigned numerical codes and the data analysed using descriptive statistics methods in SPSS® version 15. Correlations between variables were tested using Pearson’s Correlation (2-tailed) in SPSS®.

3

Results

3.1

General background

There was a fairly even spread in the respondents’ years of quantity surveying experience, size of organisation and previous involvement in carrying out LCC (Table 1). The survey results were therefore expected to be indicative of how professional quantity surveyors view and apply LCC and what can be done to encourage its greater use. As expected, most respondents belonged to larger

companies and more than half had not been previously involved in LCC. The lack of significant correlation between previous LCC use and the respondents’ amount of quantity surveying experience or size of their organisation may be one reason behind limited LCC use; inexperienced practitioners have no one to learn from. Table 1. The research sample: number of respondents categorized according to their background.

Direct LCC involvement Yes Years of QS Experience Total No Years of QS Experience Total

3.2

10 10

Size of Organization (employees) 400 0 1 3 3 0 2 0 0 2 3 1 7 2 4 6 2 2 2 3 0 2 7 6 10

Total 4 5 2 11 12 6 5 23

Perception of LCC

Appreciation and use of LCC: About half of the respondents rated their understanding of LCC as good or satisfactory (Table 2). This did not however translate to, or derive from, greater use of LCC as just 32% had been directly involved in LCC in the past. Direct involvement in LCC however significantly correlated (p