Quantity Surveying Financial Management

UNIT 1 Quantity Surveyors in Construction

1.1 Introduction
The design and construction of buildings can be regarded as a complex undertaking. Ideas
and concepts must be transmitted through a convoluted network of individuals associated
with the building development, with the objective of ensuring that the client’s requirements
are satisfied.

1.2 The Construction Industry

1.2.1 The design and construction of buildings

The design and construction of any building consists of a complex intellectual, administrative
and logistical exercise that underlies the visible site activities. The latter, unfortunately,
constitutes the typical image of the industry. Turner (1990) suggests that

“Construction is undeniably an enterprise, an act of boldness even for the simplest of

building. For modern, complex buildings it involves the commissioning, management, design
and assembly of huge amounts of raw materials and the use of considerable labour
resources over a long period of time.”

Day (1997) extends this theme further by noting that it is misleading to consider that most of
the activity on a building project occurs on the construction site. Most of the effort has to do
with the processing of information in order to ensure that a design intention becomes
physical reality. Information flows back and forth between the various members of the design
team, manufacturers and finally the construction team.

There is a steady build up in the flow of information until it reaches a peak during the
construction phase where details must be finalised, materials and fittings ordered and any
ambiguities in the information resolved. The site operative assembling and fixing a
component in a specific part of the building is the final, but most obvious, part of a complex
information processing chain. Almost like a complex variation of a child’s game of “chinese
whispers”. This suggests that communication of information is a vital element in the design
and construction process.
This is confirmed by Osbourn and Greeno (1997) when they suggest that all operational and
management activities associated with the design, construction and subsequent

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performance of a building rely on quite complex information being transferred between the
various participants of the building team. This complex information consists of ideas and
technical data that must be dispersed to a wide range of people of varying ability,
professional and non-professional, skilled and unskilled. It is suggested that not only must
methods of communication be used to clarify issues, but also should attempt to bring
harmony to work processes and foster co-operation to ensure the maximum contribution
from all concerned with the development process.

1.2.2 Characteristics of the Construction Industry

The construction industry has “fuzzy” boundaries. Many activities and inputs contribute to
building a construction project, but do not obviously form part of the industry. The Standard
Industrial Classification lists the diverse nature of construction industry activities.

The construction industry is often described as unique. The bespoke nature of the product
and its location, separation of design and construction, involvement of a wide variety of
people in its production are a number of factors. Housing is an exception because of its
uniform nature. The housing sector is often likened to the manufacturing industry.

The significance of the industry can be seen by its contribution to the national economy. In
any country it makes a significant contribution to its gross domestic product (GDP). There is
a huge diversity of firms in terms of size and range of activities operating in the construction
industry. There are a very large number of small firms and a small number of very large
firms. Information and activities of the largest firms can be found on the Internet.

Such huge diversity of size can be explained by the diversity of “products” of the industry.
Large firms tend to concentrate on big projects e.g. schools, hospitals, roads, office blocks
etc. Small firms concentrate on small projects e.g. single dwellings, garages, minor repairs,
“odd jobs” etc. There are local, regional, national and international markets for construction.
Smaller firms concentrate on local and regional markets whilst bigger firms concentrate on
national and international markets, though there are some overlaps.

Clients of the industry may be classified as public or private sector. Traditionally the public
sector has been responsible for building the country’s infrastructure (railways, power
stations, roads etc.), but with more private sector involvement this role is dwindling.

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Clients of the industry are as diverse as projects, ranging from individuals to blue chip
companies and Governments. A construction project can describe anything from minor jobs
worth a few hundred pounds to multi-billion pound projects lasting many years.

Projects are classified as housing, industrial, commercial, infrastructure or repair and

maintenance for the purposes of compiling statistics. Activity in each sector fluctuates from
year to year depending on the market.

Study Task
Refer to appendix 1.1 for a quick review about the various roles of construction industry
professionals.
Time management 10 minutes

1.3 Role of Quantity Surveying

Quantity surveyors are involved in most of the professional organisations in the construction
industry including consultancies, contractors, developers, subcontractors. They can be
involved in both public or private sector organisations and their work spans various sectors
and subsectors within the industry such as buildings, infrastructure, railways, utilities,
transport etc. Traditionally the work of a quantity surveyor was thought to be limited to
measuring and valuing construction works. This process can start during project initiation
stage to set a budget for the client. Later on other estimates would be required during design
development until the production of the bills of quantities. Finally during the contract a QS
would be carrying out regular valuations of the works on behalf of the client and/or the
contractor.

1.3.1 The Duties of a Quantity Surveyor

Previously the duties of a quantity surveyor were limited to preparing bills of quantities and
measuring the work in progress. Quantity surveyors were engaged by the client to give an
initial estimate of the cost of the works. Upon completion of the design they would again get
involved in assessing project cost and preparing the bills of quantities. As the industry
developed there was a need for cost planning during the design and quantity surveyors’ role
evolved into cost planning. When standard forms of contracts defined a claims process for
contractors quantity surveyors were the obvious candidate to put together and assess the
validity of a contractor for additional costs. Their knowledge of the cost and the contract
placed quantity surveyors at the forefront of dispute resolution. The training of a quantity
surveyor therefore evolved from measurement and evaluation to include contract
administration and legal studies.

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The RICS defines Quantity surveyors as the cost managers of construction. They define
their role to span all project phases starting with the preparation of a project’s capital
expenditure until the operational maintenance and demolition of a facility. Today the RICS
describes the role of the quantity surveyor as including the activities described below.

1.3.1.1 Project evaluation: preparing feasibility studies or development

appraisals
The quantity surveyor has the duty to advise the client on the feasibility and viability of a
proposed development or project. This requires his involvement during the appraisal stage to
assess the profitability of a scheme and give advice on financial aspects such as total cost,
project funding sources, risks and whole life cycle costs. This might have to be done over a
number of schemes to give the client options.

1.3.1.2 Pre contract cost planning

During the precontract period the quantity surveyor has responsibility for setting the project
budget and forecasting the project cost. This is one of the main tasks of the quantity
surveyor. At this stage the QS would need to prepare a first estimate of the likely costs of a
project and possibly various parts of a building. As the design develops the QS need to work
alongside the design team to advise on the cost of various design options and solutions to
help select the most cost effective. The aim is to control costs by monitoring the design
process to ensure that the initially set project budget is not unnecessarily exceeded.

1.3.1.3 Post contract cost control - Commercial management of construction

Post contract the quantity surveyor has overall responsibility for the financial management of
a project during the construction phase. This can be for the client or contractor organisation.
The main task is to continuously report on the financial performance of the project to make
sure it remains inline with the budget. This task therefore involves quantification and costing
of the works by preparing valuations to measure the work completed at defined intervals.
This would necessitate involvement in the change management process to assess the likely
cost of change. He also needs to monitor the expenditure of contingencies and prime sums
to keep adjusting the contract sum if necessary. The quantity surveyor’s other
responsibilities at this stage include dealing with cost implication of extension of time, claims
and preparing the final account.

1.3.1.4 Procurement advice

Quantity surveyors have the responsibility of advising the client on structuring and delivering
the project in terms of risk allocation and contractual relationships and use of tendering

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processes to establish a contract price. This advise would naturally include the suitability of
the various procurement routes to the proposed development citing the advantages and
disadvantages of each.

1.3.1.5 Preparing contractual documentation

One of the duties of the QS is to advise on the selection of the appropriate standard form of
contract and prepare contract documentation for the project. They need to inform the client
of their liabilities, obligations and duties under each form to enable selection of the most
appropriate.

1.3.1.6 Tendering
This most obvious involvement at this stage is preparation of the bill of quantities. The QS
may also be involved in compiling the tender list through to contract award and appointment.
This would involve preparing and issuing of the tender documentation and managing the
negotiation and tender period. Throughout the tender period the QS is responsible for
dealing with errors and answering queries of tenderers. He is also involved in the opening
and evaluation of tenders through to the preparation of the final tender report.

1.3.1.7 Dealing with conflicts and disputes

Conflicts in most cases are about money or can be settled by the exchange of money. The
quantity surveyor as the cost manager of the construction process makes his involvement
crucial in resolving any dispute. A quantity surveyor is also involved in the process of conflict
avoidance and dispute. He needs a good knowledge of the various techniques of conflict
management and dispute resolution to advise the client on the appropriate dispute resolution
mechanism to the selected procurement route. He should also advise the client on
procurement routes designed to avoid conflict such as partnering and provide him with
information on the legal and statutory requirements for dispute resolution.

1.3.2 The Quantity Surveyors Skills and Competences

Although the expertise of a quantity surveyor is mainly in cost management and contract
administration to carry out these functions effectively he must possess other skills. They
must understand all aspects of construction over the whole life of a building or facility. They
must have the ability to manage cost effectively, equating quality and value with individual
client needs. In order to carry out their main duties RICS defined certain skills and
competencies that quantity surveyors must possess. Some of these are described below.

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1.3.2.1 Construction technology and environmental services

A QS should have the knowledge and understanding of the principles of design and
construction. He should be able to liaise with other construction specialists to develop project
specific design and construction solutions. He should have an understanding of the relevant
legislation and regulations and how they apply to specific projects. He should also have an
understanding of how construction process and different elements of the building work. This
means he should be able to understand various elements of construction design and the
relationship between construction details and the buildings functional elements. He should
have an appreciation of the operational and maintenance phases of the project and provide
solutions to respond to their complexity and problems. He should be able to report on the
impact of various design solutions on cost and programme.

1.3.2.2 Programming and planning

A QS would need to utilise pre contract planning and project programmes to deal with the
implementation of change, forecast materials, manpower, machinery and money. In
administering the contract he needs to determine the role of and contractual standing of a
programme under different contract forms, advise the client on the financial planning of a
project. He should be able to use planning and programming to forecast expenditure and
assess the impact on the possible outcomes of change. He should also be able to asses the
effectiveness of a project plan and the impact of procurement on the project programme. A
QS should have a thorough understanding of the various principles, techniques and issues
that relate to the programming and planning of projects.

1.3.2.3 Quantification and costing of construction works

Key to the Quantity Surveyors responsibilities is the ability to measure and define
construction works with aim of valuing and controlling costs. He should be fully conversant
with the various prevailing methods of quantifying and pricing construction works in a project.
He should be able to apply the appropriate standard method of measurement and forms of
cost analysis to carry out the measurement and costing of works at all stages of
construction. For this he needs to be able to assess the suitability of an appropriate pricing
document and or method of measurement. They therefore need to be able to measure
building work items, compile unit rates and the final cost estimate report, which is presented
to the client and members of the project team. They also need to be able to collect data from
various sources and manage subcontractors and suppliers. They must have a thorough
understanding of the financial processes used to achieve profitability and how these
integrate with the overall delivery of the project

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1.3.2.4 Health and safety

Like all the participants in construction industry quantity surveyors have a responsibility
towards health and safety in any project they are involved with. They therefore need to be
aware of legal, practical and regulatory requirements of health and safety. They need to be
familiar with the health and safety processes and guidelines. A QS should have the
knowledge and understanding of the principles and responsibilities imposed by the relevant
law, codes of practice and other regulations.

1.3.2.5 Insurance
A QS should have a good knowledge and understanding of the principles and practices
governing the insurance of construction or property and understand the ways in which
insurance is used to deal with risk in development. They should have a detailed
understanding of the contractual requirements under the various standard forms of contract.
Demonstrate knowledge and understanding of the principles and practices of insurance in
relation to your area of practice. specific insurance mechanisms such as joint names,
subrogation, net contribution clauses, specialist insurances such as performance bonds,
professional indemnity and retention bonds. They are also responsible for compiling cost
data for insurance claims.

1.3.2.6 Risk management

A Quantity surveyor should have a detailed understanding of the nature, sources and types
of risk in particular sectors. He should be capable of carrying out risk assessments applying
the various methods and techniques to identify, analyse and measure risk. He should be
able to advise on the relationship between procurement routes and risk allocation and the
allocation of risk to the various project parties. He should also be able to assess the impact
of risk on project programme and cost. Finally he must be able to devise the appropriate
strategies to mitigate risk. He might have responsibility for compiling and reporting the
project’s risk register. He should be able to advise the client on the appropriate level of
contingency.

1.3.2.7 Value management and value engineering

A quantity surveyor might need to be involved in value management studies to advise a VM
team on the cost implication of various decisions. His expertise might also be needed in a
value engineering study where various value adding technical options need to be
considered.

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1.3.2.8 Negotiation
The responsibility of a quantity surveyor towards managing and controlling cost puts in a
position where he often needs to negotiate with other parties. This can include negotiation
with suppliers and subcontractors to agree on the cost of items or negotiations to agree on
an overall price or price mechanism for the works during tender. He is also involved during
project administration to agree on measurements and certificates which involves negotiation
with the other party’s quantity surveyor. Finally in the event of a dispute the quantity surveyor
may have to negotiate to agree on an adequate settlement to satisfy all parties. The quantity
surveyor therefore has to have good negotiation skills.

Study Task
Students are strongly recommended to read the paper in Appendix 1.2 to understand
different views on the quantity surveying profession.
Time management 30 minutes

1.3.3 The Quantity Surveyor as a Project Manager

During the 1980s various procurement options were introduced in the construction industry.
This meant that tendering no longer had to rely on the use of bills of quantities. There was
concern among the quantity surveying profession due to the perception that the need for bills
of quantities was in decline. The profession led by the RICS then started to explore new
potential roles for their expertise. This was at a time when the industry itself was undergoing
a process of development and reform in the management of projects. The profession in
seeking to redefine itself found many parallels between the skills of a professional quantity
surveyor and the competence of a project manager. Areas such as cost control, the need to
understand the impact of the programme on cost, the use of risk management and value
management to enhance project performance were seen as areas where a QS can have
significant input. The profession therefore called to quantity surveyors to act as project
managers. Many quantity surveying firms started to add project management to their list of
services. If a QS acts in the capacity of a project manager then he needs to follow not only
his professional duties as a surveyor but also the code of practice describing the duties of a
project manager. Some of the competences identified by the Association of Project
Management UK that match those of a quantity surveyor include: legal awareness, project
sponsorship, project finance, negotiation, teamwork, communication and change control
among others.

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1.4 Ethics and professionalism

Ethics is derived from the Greek term ethos, and has its roots in the word ‘customs’. It is the
study and understanding of morality, moral principles, and the moral decision-making
process. As such ethics deals with an individual’s standards of what is right and wrong, or
good and evil. It is related to moral norms and values which can be expressed using
statements such as “Always tell the truth” or “Honesty is good” and “Injustice is bad”. The
aim is always to ensure the benefit of humanity. We achieve ethical behaviour by constantly
referring to our set of principles and applying them to particular situations thereby making
choices in our lives.

Ethical behaviour is not limited to our personal lives but also applies to our business or
professional lives. Businesses and organisations in business are made up of individuals
whose collective moral standards and ethical behaviour set the ethics of their ‘business’.
Business ethics therefore is about how moral standards apply to business policies,
institutions and behaviour (Velasquez, 1996). Business activities, like any other human
activities, cannot exist unless the people involved in the business and its surrounding
community adhere to some minimal standards of ethics. Any business decision needs to
refer to the personal ethics of the person making the decision and the ethics of the business
overall.

Profession is can be defined as ‘a job that needs training and a formal qualification’ of ‘a
vocation in which professed knowledge of some branch of learning is used in its application
to the affairs of others or in the practice of an art based upon it’. This definition clarifies that
professions do not exist in vacuum. The existing of professions and professionals is
considered vital in the provision of services to larger society. In providing a service to others
the behaviour of a professional has a direct impact on others and on society. One of the key
characteristics of a profession is that it is regulated by an ethical standard. “One
distinguishing feature of any profession is that membership in that profession entails an
ethical obligation to temper one’s selfish pursuit of economic success by adhering to
standards of conduct that could not be enforced either by legal fiat or through the discipline
of the market. Both the special privileges incident to membership in the profession and the
advantages of those privileges give in the necessary accumulation of wealth. That of public
service.” Quote from Supreme Court Judge Sandra Day O’Conner (Source: National Society
for Professional ethics).

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Most professions existing today are regulated by some form of professional institutions that
defines and regulates the profession. As such professional institutions link the professionals
to the public. Most professional institutions to ensure the well being of their profession need
to set certain rules of conduct to which their members must adhere. Generally these codes
relate to issues such as: integrity; objectivity; professional competence and due care;
confidentiality; and professional behaviour. All these issues indicate the need for a
professional to act ethically.

1.4.1.1 Conflicts of interest

A major part of the quantity surveyor’s role is giving advice to the client. This advice needs to
be based on their skill and expertise in assessing financial and commercial aspects of a
project. The client needs to trust them to give him the best advice possible. The most part of
a quantity surveyor’s role in construction is consultancy. We describe their involvement as
advisers to the client on cost, procurement, commercial managers and so on. According to
Peter Drucker (1999) a true professional “cannot be controlled supervised or directed by the
client. Decisions have to be entrusted to their knowledge and judgement”. As such quantity
surveyors in their role as consultants need to act in accordance with their professional
judgement unbiased by the overriding needs to their employer even if the employer is the
one who is paying for their service.

A situation that raises these issues for quantity surveyor is their role in contract
administration where quantity surveyors act as employer’s agent. In this role a quantity
surveyor in the project puts him in a situation where he often has to give his professional
opinion with regards to the standing of the parties. This opinion might contradict with the
client’s interests. However as professionals quantity surveyors need to bring integrity and
competence to their work giving their unbiased view on the standing of the parties.

1.5 Quantity surveyor’s contractual duties and liabilities

The processes of measurement, valuation and contract administration are present in some
form in any construction contract. Whether it is for the client, contractor, contract
administrator or engineer a quantity surveyor will be employed to carry out these functions
and would need to enter into a contract for employment. This may be a letter or a standard
form of agreement for the appointment of a quantity surveyor published by RICS for
example. His obligations are therefore governed by the terms of his employment contract.
These contract terms maybe express or implied. Additionally a quantity surveyor is bound by
the codes of practice of the profession he belongs to. If the standard of his work is below
these codes then he might be seen by the courts as negligent in his duties to his employer.

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Finally the quantity surveyor is liable to third parties even in the absence of a direct contract
with them. An example is a situation where the quantity surveyor has given advice to his
client and a third party used this advice and consequently suffered a loss. If a third party has
made a decision based on a quantity surveyors advice to another party then he might be
liable. This liability can be incurred through the law of tort particularly the law of negligence.
If a surveyor negligently provides statements that other parties rely upon then he may be
sued for economic loss as a result of making negligent misstatement.

Finally with relation to a contract and as a professional the quantity surveyor often has to
give an opinion about certain aspects of the works for example in assessing contractor’s
claims. His obligation under the contract is to give his true opinion and not that which would
put the client, his employer, in a favourable position. As contract administrator he should act
in fairness to all parties within the terms of the contract. His actions should be based on the
contract to which both parties agreed even if these terms are not fair. The quantity surveyor
of the contractor on the other hand is under no such obligation since his duties are limited to
looking after his employer.

Self Assessment Questions

1. Refer to the website of the Royal Institute of Chartered Surveyors and write down the
role of the institute towards the profession
2. Think about the duties of a project manager and discuss how the capabilities and
skills of a quantity surveyor can help him/her fulfil these duties.
3. Think about 3 situations where the quantity surveyor’s ethical standards might be
tested.

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